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  • Bernstein Liebhard LLP

Securities class-action lawsuit filed against Vertex Energy

Bernstein Liebhard LLP announced March 7 that a securities class-action lawsuit has been filed on behalf of investors who purchased or acquired the securities of Vertex Energy Inc. between April 1 and Aug. 8, 2022.

The lawsuit was filed in the United States District Court for the Southern District of Alabama and alleges violations of the Securities Exchange Act of 1934.

Prior to the start of the class period, Vertex’s primary business involved the collection and processing of used motor oil. In early 2021, Vertex announced that it had reached an agreement to acquire an oil refinery located in Mobile, Alabama, from Shell Oil. The refinery was viewed as a “transformative” acquisition for Vertex, expected to significantly increase the company’s projected annual revenues from $115 million in fiscal year 2021 to a projected $4 billion in fiscal year 2023.

A key component of the acquisition was Vertex’s plan to convert a portion of the refinery’s 91,000-barrel-per-day output to renewable diesel fuel*, which was expected to generate higher profits than the refinery’s conventional gasoline and diesel fuel outputs. Vertex announced the close of the acquisition April 1, 2022.

To successfully operate the Mobile refinery, Vertex, like other oil refiners, would be required to procure raw crude oil from suppliers, process it into finished products such as gasoline, diesel and jet fuel, and sell the finished products to distributors who would then sell the products to end users.

The difference between the prices at which Vertex acquired crude-oil inventory and the prices at which it sold the finished-products inventory is known in the refining industry as the “crack spread.”

Crack spreads, which fluctuate over time based on domestic and global oil prices, are widely viewed by analysts and investors as the key component of potential profits for oil refiners like Vertex.

The plaintiff alleges that, throughout the class period, the defendants failed to disclose, among other things, that prior to the acquisition of the Mobile refinery, the defendants had entered into inventory and crack-spread hedging derivatives that significantly capped the profit margins on 50 percent of the Mobile refinery’s expected output over the period April 1 to Sept. 30, 2022, affecting more than 6.5 million barrels of refined-fuel output.

On Aug. 9, 2022, before the market opened, Vertex filed with the SEC an 8-K form that included its second-quarter 2022 earnings release and held an earnings conference call for analysts and investors.

In the earnings release, and on the call, Vertex disclosed massive losses incurred at the Mobile refinery during the second quarter of 2022. Vertex announced a net loss for the company of $63.8 million.

Vertex also announced that adjusted EBITDA for the Mobile refinery, even after adjusting for certain incurred losses, was only $63.6 million, compared to the guidance given just three months prior for EBITDA of $120 million to $130 million in the second quarter, a total shortfall of 50 percent.

Vertex also withdrew its financial guidance for the remainder of fiscal-year 2022 and fiscal-year 2023.

On this news, Vertex’s stock price fell $6.18 per share, or 44 percent, to close at $7.80 per share on Aug. 9, 2022.

To learn more, or to join the class-action lawsuit, click here.

*Editor’s Note: Vertex Energy announced Jan. 17 that it plans to reach mechanical completion of its refinery conversion to produce renewable diesel by end of March.



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