Item 1. Legal Proceedings
ITEM
1. LEGAL PROCEEDINGS
Parent
Company Litigation
On
December 27, 2021, Ms. Valentina Isakina, a board advisor of our Former Parent (as defined above), filed a lawsuit in the United States
District Court for the Southern District of Ohio (the “Court”) against the Former Parent in connection with her termination
package. After three months of service, the Former Parent discontinued her services as she was not the right fit for the Former Parent’s
needs. We contended that pursuant to the terms of her employment agreement, she was offered 12,500 shares of reAlpha Tech Corp., to vest
over a period of time, however, she never accepted the shares. Ms. Isakina, on the other hand, contends she is owed up to 5% from reAlpha
Tech Corp. in connection with an alleged agreement to serve on the board of directors. reAlpha Tech Corp. denied the existence of such
agreement.
On
November 3, 2023, an order was served by the Court in connection with this proceeding (the “Court Order”). The Court Order
granted summary judgment against Ms. Isakina and in favor of the Company, regarding Ms. Isakina’s claims of relief, including breach
of contract claims, promissory estoppel and unjust enrichment. On November 16, 2023, Ms. Isakina
filed an appeal, which was subsequently dismissed by the United States Court of Appeals for the Sixth Circuit on December 7, 2023.
India
Proceeding Involving Giri Devanur
In
2006, Mr. Devanur became the CEO of an India-based company named Gandhi City Research Park, Private Limited (“Gandhi City Research
Park”). Gandhi City Research Park was liquidated as a result of the Lehman Brothers collapse in 2009. In 2010, an investor in Gandhi
City Research Park filed a fraud complaint with the Cubbon Park Police Station in Bengaluru, India, against, among others, Mr. Devanur.
In 2014, the Cubbon Park Police dismissed all claims. Subsequently, in 2015 the investor appealed the Cubbon Park Police’s decision
before the Lower Court. In November 2018, the Lower Court issued a criminal summons against, among others, Mr. Devanur. Mr. Devanur petitioned
the High Court to quash the summons. By order dated March 27, 2023, the High Court granted Mr. Devanur’s petition and ordered the
Lower Court to reconsider the investor’s appeal. On August 3, 2023, the Lower Court decided to uphold the Cubbon Park Police’s
decision and close the criminal case against Mr. Devanur. On December 4, 2023, Mr. Devanur received a petition to challenge the Lower
Court’s order to uphold the Cubbon Park Police’s decision and close Mr. Devanur’s criminal case. We intend to vigorously
contest this petition.
Ohio
Department of Commerce’s Division of Securities Cease and Desist Order
On
May 2, 2022, we received a subpoena duces tecum and requests for depositions of three senior managers of the Company from the Ohio Department
of Commerce’s Division of Securities (the “ODS”), all related to the Company’s Regulation A securities offering
in the State of Ohio, and based on Ohio Revised Code1707.23. The depositions were taken in July 2022. The ODS did not assert any securities
violations by the Company other than a late notice filing for its offering.
On
August 31, 2023, the ODS issued a Cease & Desist Order (the “Division Order”) to us, and we entered into a Consent Agreement
with the ODS (the “Consent Agreement”), following an investigation by the ODS into whether we engaged in acts or practices
that violated the Ohio Securities Act, Chapter 1707 of the Ohio Revised Code.
Pursuant
to the Consent Agreement, we did consent, stipulate, admit, and agree to the findings, conclusions and order set forth in the Division
Order and that nothing in the Division Order or the Consent Agreement impedes, prohibits, interferes with, or infringes upon the lawful
rights, if any, including but not limited to private rights of action, if any, possessed by our individual investors.
Under
the terms of the Division Order, pursuant to Revised Code Chapter 1707.23, we will cease and desist from the acts and practices as described
in the Division Order which constitute a violation of Chapter 1707 of the Ohio Revised Code, which include selling or causing to be sold
securities that were not properly registered with the ODS and that were not exempt from registration. The Division Order and Consent
Agreement do not impact our ability to conduct future exempt offerings.
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