GunBroker founder Steven Urvan has filed a lawsuit against Ammo Inc. and former and current officers/directors of the company. Ammo Inc. is an Arizona-based publicly traded ammunition manufacturing company that purchased GunBroker, an online firearms and accessories company known as the “eBay of guns,” in April 2021. GunBroker claims that it had more than 6 million registered users when it was sold to Ammo Inc., and has since grown to approximately 7.6 million registered users and $1 billion in annual sales. Urvan alleges that the defendants fraudulently induced the sale, in which Ammo Inc. paid Urvan $50 million in cash and shares of Ammo Inc. stock worth at least $140 million, which made him the company’s largest shareholder.
In the complaint, Urvan claims that Ammo Inc. “intentionally misrepresented and omitted material facts concerning fundamental aspects of Ammo’s business, including its management, operations, and compliance with the rules and regulations of the U.S. Securities and Exchange Commission.” According to Urvan, Ammo Inc. and the individual defendants engaged in improper stock transactions, failed to disclose related party transactions, and violated several SEC regulations.
The complaint also alleges that, despite representations in the Merger Agreement to the contrary, Ammo Inc. executive and co-founder Christopher Larson had been barred from holding an officer or director position in a public company or participating in a public company’s financial reporting by the SEC in 2020. This stemmed from allegations that Larson had engaged in market manipulation, also known as a “pump and dump” scheme involving his prior employer. According to the Urvan complaint, at the time of the merger, Larson was listed on Ammo Inc.’s organizational chart as a “Partner” and “Vice-President of Finance” — roles that were depicted as more senior than that of the company’s chief financial officer.
Additionally, Urvan claims that the company failed to disclose a 2019 whistleblower complaint filed by Ammo Inc. executive and board member Kathleen Hanrahan “alleging numerous financial, accounting, and reporting violations at Ammo, including violations of SEC rules and regulations.” Shortly before the GunBroker sale closed in April 2021, OSHA found that reasonable cause existed to believe that the claimed violations had occurred and that Ammo Inc. had retaliated against her for reporting them. Thereafter, in March 2022, OSHA ordered Ammo Inc. to pay Hanrahan $597,000. Additionally, in February 2022, Hanrahan filed a lawsuit against Ammo Inc. for whistleblower retaliation in violation of the Sarbanes-Oxley Act and the Dodd-Frank Act. That lawsuit was settled by the parties in June 2022, but the terms of the settlement have not been publicly disclosed.
On July 25, 2023, the defendants filed a motion to dismiss Urvan’s complaint. In the brief in support of their motion, the defendants assert that Urvan’s claims fail on their merits, and request that the court dismiss the claims with prejudice.
Urvan’s complaint follows public clashes between Urvan and Ammo Inc. management, which culminated in a proxy contest initiated by Urvan last year. In an August 2022 letter to the company’s shareholders, Urvan announced his intention to nominate his own slate of directors in an effort to replace Ammo Inc.’s leadership. Approximately a week later, Ammo Inc. placed Urvan and GunBroker CFO Susan Lokey on administrative leave, alleging that they misappropriated data and digital assets.
Ultimately, these previous disputes were resolved prior to the shareholder’s meeting. Ammo Inc. dropped its complaints against Urvan and Lokey, expanded the board to include two of Urvan’s directors, and announced a CEO succession committee.
Urvan’s new lawsuit was filed in the Court of Chancery in Delaware (Case No. 2023-0470).