Plastic2Oil Inc (PTOI)

[scion]

Plaintiff Erwin Grampp (“Plaintiff”), by the undersigned attorneys, submits this Verified Shareholder Derivative Complaint against the defendants named herein.

NATURE OF ACTION

1. This is a shareholder derivative complaint brought on behalf of the Nominal Defendant, JBI, Inc. (“JBI” or the “Company”), against certain of the Company’s officers and members of its Board of Directors (the “Board”). The Individual Defendants (as defined herein) breached their fiduciary duties by causing, failing to prevent, and failing to take corrective measures in connection with the actions listed herein.

2. The Individual Defendants breached their fiduciary duties by the improper booking of media credits in violation of generally accepted accounting principles (“GAAP”). Specifically, the Company erroneously booked the media credits at a value of $9.997 million, thereby becoming the single largest asset on the Company’s balance sheet, when they should have been initially booked at a value of $1,000,000 when acquired in August 2009, and subsequently written down to zero as of the end of the company’s third fiscal quarter on September 30, 2009.

3. The officers and directors’ actions have lead to the filing of a complaint against JBI by the Securities and Exchange Commission (“SEC”).

4. The SEC also charged JBI’s current Chief Executive Officer (“CEO”), John Bordynuik, and its former Chief Financial Officer (“CFO”), Ronald Baldwin, Jr. The SEC alleges that they engaged in a scheme to commit securities and accounting fraud by reporting materially false and inaccurate financial information on JBI’s financial statements for two reporting periods during 2009.

5. According to the SEC, during the third quarter of 2009 and year-end 2009, JBI materially overstated certain assets in an effort to bolster its balance sheet and achieve success in two private capital raising efforts (Private Investment in Public Equity or PIPES) geared toward raising the capital necessary to begin commercial operation and production of its process for converting plastic waste into oil, known as “Plastic2Oil,” or “P2O.”

6. The SEC complaint alleges that JBI raised over $8.4 million for the company in these PIPES just before the company issued a public statement indicating its financial statements could no longer be relied upon, in part, due to the erroneous valuation of certain assets, known as media credits, on the balance sheet.

7. Management’s purposeful deception of the investing public has persisted as JBI has continued to artificially inflate its worth through the use of misleading and untruthful statements.

JURISDICTION AND VENUE

8. This Court has diversity jurisdiction because there is complete diversity between the parties and the amount in controversy exceeds $75,000.

9. JBI is a Nevada corporation, with its current principal place of business in Ontario, Canada. Up through July of 2010, and for a majority of the period relevant to this action, JBI’s principal place of business was in Cambridge Massachusetts. Now, as then, JBI also has operations in New York, Florida, Ohio and Pennsylvania. Each Individual Defendant has had substantial and continuous contacts with the Commonwealth of Massachusetts such that make the exercise of personal jurisdiction over them proper.

10. Venue is proper in this Court because at all relevant times, the Individual Defendants transacted business in the District of Massachusetts, which was also the principal place of business of JBI during a majority of the relevant period set out in this Complaint, and because a substantial portion of the acts constituting the alleged breaches of fiduciary duty and other claims occurred in the District of Massachusetts, including the Individual Defendants’ primary participation in the wrongful acts detailed herein, and aiding and abetting and conspiracy in violation of fiduciary duties owed to JBI occurred in this District. Furthermore, the Individual Defendants have received substantial compensation in this District by doing business here and engaging in numerous activities that had an effect in this District.

THE INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES

PARTIES
11. Plaintiff Erwin Grampp, a citizen of the Commonwealth of Pennsylvania, is a shareholder of JBI, was a shareholder of JBI at the time of the wrongdoing alleged herein, and has been a shareholder of JBI continuously since that time.

12. Nominal Defendant JBI is a Nevada corporation with its principal executive offices located at 1783 Allanport Road Thorold, Ontario L0S 1K0 Canada. JBI is a North American fuel company that allegedly transforms unsorted, unwashed waste plastic into ultraclean, ultra-low sulphur fuel without the need for refinement.

13. Defendant John Bordynuik (“Bordynuik”) is the founding CEO, President, and a director of JBI. He was also the CFO of JBI from March 2011 to December 29, 2011 and previously from February 2009 to January 2010. Bordynuik has been is a director of JBI since April 24, 2009. Bordynuik allegedly invented the Plastic2Oil process in 2009. Bordynuik is a citizen of the State of New York.

14. Defendant Dr. Jacob Smith (“Smith”) is a director and Chief Operating Officer (“COO”) of the Company. He has been is a director of JBI since February 12, 2009. He was appointed COO on January 11, 2010. Smith received a Masters Degree from the University of Chicago and a Doctor-Medical from Michigan State University in 2002. He received an MBA from Ashford University, a for-profit university which is the largest educational holding of Bridgepoint Education, in 2009. Smith is a citizen of the State of New York.

15. Defendant Ronald C. Baldwin, Jr. (“Baldwin”) was CFO of JBI from January 1, 2010 to April 6, 2011, when he resigned his position with JBI. Baldwin is a CPA with 15 years experience in public accounting. He is licensed to practice accounting in Florida and North Carolina and law in Florida. Mr. Baldwin holds a B.S. in Accounting magna cum laude from the University of South Florida and a J.D. and L.L.M in Taxation cum laude from the University of Florida. Baldwin was admitted to the Florida Bar in 2000, although his license was suspended on October 31, 2009. Baldwin is a citizen of the State of Florida.

16. Defendant Amy Bradshaw (“Bradshaw”) was appointed to the JBI Board on February 12, 2010. She resigned her Board position on June 1, 2010 to become JBI’s Vice President of Marketing and Communications. Her previous employers included PricewaterhouseCoopers, Arthur Andersen, and Cerner Corporation. Prior to becoming a director of JBI, she was a JBI shareholder who along with fellow shareholder Josh Harbert created the content and “green look” for a JBI website/blog. Bradshaw is a citizen of the State of Kansas.

17. John M. Wesson (“Wesson”) is a director of JBI and has been a director since February 12, 2010. He is a 1980 graduate of Drew University, Madison, N.J. with a B.A., Psychology and Minor – Ethics. Wesson was a BSA Associate (Bank Secrecy Act) at Bank Leumi USA in New York City and retired in September 2010. Additionally, Wesson served in the Army Security Agency from 1972 to 1976, on loan to the National Security Agency and then served 2 years in inactive reserves. Wesson continued his military service by serving in the
Regular Army, Military Intelligence from 1986 to 1991. He was deployed to serve 6 months in Kuwait & Iraq during Desert Storm, as Squad Leader. Wesson is a citizen of the State of Maine.

18. Robin Bagai (“Bagai”) is a director of JBI and has been a director since April 30, 2010. He is a clinical psychologist in private practice in Portland, Oregon. Since 1992 Dr. Bagai has specialized in diagnostic testing and evaluation of adults and adolescents throughout Oregon. He has been an adjunct professor at Portland State University, supervising graduate students in the department of Counselor Education. Bagai has previously served on the boards of the Portland Psychological Association (PPA) and the Portland Alliance for the Advancement of Psychodynamic Psychotherapy (PAAPP). Bagai received his Master’s degree in Counseling Psychology from Antioch University, Seattle in 1986, and his Doctorate in Clinical Psychology from Pacific University School of Professional Psychology, Forest Grove, in 1990. Dr. Bagai was licensed in Oregon in 1992. Bagai is a citizen of the State of Oregon.

19. James Fairbairn (“Fairbairn”) was a director of JBI from January 3, 2011 until his resignation on August 8, 2011. He graduated from the University of Western Ontario in 1981 and then received his Chartered Accountant designation in 1987. In 2009 he became an Institute Certified Director (ICD-D). Fairbairn has worked almost exclusively in the resource industry and has 20 years experience with publicly traded companies, including Canada Lithium Corp., Crown Minerals Inc. and Trelawney Mining & Exploration Inc., where he has served as a senior officer and/or director. Fairbairn currently acts as the Chief Financial Officer of CGX Energy Inc., a Canadian-based oil and gas company, where he has served in this capacity since 1997. Fairbairn is a citizen of Ontario, Canada.

20. Defendant Gregory Goldberg (“Goldberg”) was appointed to the JBI Board on March 24, 2010. He resigned from the Board on August 12, 2010. Goldberg is a citizen of the State of New York.

21. Defendant Theodore J. Henry (“Henry”) was appointed to the JBI Board on February 12, 2010. He resigned from the Board shortly thereafter on March 24, 2010. Henry is a citizen of the State of Maryland.

22. Collectively, the defendants named in ¶¶ 13 - 21are referred to as the “Individual Defendants.”

23. By reason of their positions as officers and/or directors and fiduciaries of JBI and because of their ability to control the business and corporate affairs of the Company, the Individual Defendants owed to JBI and its shareholders fiduciary obligations of trust, loyalty, good faith and due care, and were and are required to use their utmost ability to control and manage JBI in a fair, just, honest and equitable manner. The Individual Defendants were and are required to act in furtherance of the best interests of JBI and its shareholders so as to benefit all shareholders equally and not in furtherance of their personal interest or benefit. The conduct of the Individual Defendants complained of herein involves a knowing and culpable violation of their obligations as directors and officers of JBI, the absence of good faith on their part, and a reckless disregard for their duties to the Company and its shareholders that the Individual Defendants were aware or should have been aware posed a risk of serious injury to the Company.

24. To discharge their fiduciary duties, the officers and directors of JBI were required to exercise reasonable and prudent supervision over the management, policies, practices and controls of the Company. By virtue of such duties, the officers and directors of JBI were required to, among other things:

a) Manage, conduct, supervise and direct the business affairs of JBI in accordance with all applicable laws, including federal and state laws and regulations, and the policies of the Company;

b) Neither violate, nor permit any officer, director or employee of JBI to violate applicable laws, rules, and regulations;

c) Remain informed as to the status of JBI’s operations, including its internal audit capabilities and the laws which bear on the Company’s business endeavors, and upon receipt of notice or information of imprudent or unsound practices, to make a reasonable inquiry in connection therewith, and to take steps to correct such conditions or practices; and

d) Conduct the affairs of the Company in an efficient, businesslike manner so as to make it possible to provide the highest quality performance of its business, to avoid wasting the Company’s assets, and to maximize the value of the Company’s stock.

25. This is especially true for the Company’s Audit Committee members, which includes defendants Fairbairn, Bagai, and Wesson. As noted in the Company’s last Proxy Statement filed on May 9, 2011 (the “2011 Proxy”) with the SEC:

The function of the Audit Committee, as detailed in the Audit Committee Charter, is to provide assistance to the Board in fulfilling its responsibility to the shareholders, potential shareholders, and investment community relating to corporate accounting, management practices, reporting practices, and the quality and integrity of the financial reports of the Company. In so doing, it is the responsibility of the Audit Committee to maintain free and open means of communication between the directors, the independent auditors and Company management.

26. Unfortunately, that is all the information investors have in connection with the duties of the Board’s Audit Committee because even though the Audit Committee Charter is listed on the Company’s website, it is not actually available, a fact that is not altogether surprising given that as per the 2011 Proxy the Company’s Audit Committee held only 2 meetings during the entire fiscal year ended December 31, 2010.

27. Similarly, the Board itself also held only 2 meetings during the fiscal year ended December 31, 2010. The Board instead chose to act almost exclusively by unanimous written consent in lieu of actual meetings during 2010.

28. JBI does have a Code of Business Conduct and Ethics which was adopted many years ago when the Company was known as 310 Holdings, Inc. (“310 Holdings”). According to
the Company’s Code of Ethics:

310 Holdings, Inc. (the “Company”) is committed to the highest standards of legal and ethical conduct. This Code of Business Conduct and Ethics (the “Code”) sets forth the Company’s policies with respect to the way we conduct ourselves individually and operate our business. The provisions of this Code are designed to deter wrongdoing and to promote honest and ethical conduct among our employees, officers and directors.
* * *
In achieving the high ground of ethical behavior, compliance with governmental laws is not enough. Our employees should never be content with simply obeying the letter of the law, but must also strive to comport themselves in an honest and ethical manner. This Code provides clear rules to assist our employees, directors and officers in taking the proper actions when faced with an ethical dilemma.
* * *
The reputation of the Company is our greatest asset and its value relies on the character of its employees. In order to protect this asset, the Company will not tolerate unethical behavior by employees, officers or directors. Those who violate the standards in this Code will be subject to disciplinary action.
* * *
This Code applies equally to all employees, officers and directors of the Company. All references to employees contained in this Code should be understood as referring to officers and directors as well.

29. The Company’s Code of Ethics then goes on to state:

1. Compliance with Laws, Rules and Regulations.
Company policy requires that the Company, as well as all employees, officers and directors of the Company, comply fully with both the spirit and the letter of all laws, rules and regulations. Whenever an applicable law, rule or regulation is unclear or seems to conflict with either another law or any provision of this Code, all employees, officers and directors are urged to seek clarification from their supervisor, the appropriate compliance official or the Chief Executive Officer. Beyond mere compliance with the law, we should always conduct our business with the highest standards of honesty and integrity - wherever we operate.

8. Disclosures.
It is Company policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws, rules and regulations in all reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in all other public communications made by the Company. Employees shall endeavor in good faith to assist the Company in such efforts.

11. Reporting Procedures.
All employees have a duty to report any violations of this Code, as well as violations of any laws, rules, or regulations. The Company does not permit retaliation of any kind against employees for good faith reports of ethical violations. If you believe that the Code has been violated by an employee you must promptly report the violation to your direct supervisor or the Chief Executive Officer. If a report is made to a supervisor, the supervisor must in turn report the violation to the Chief Executive Officer. All violations by an officer or director of the Company must be reported directly to the entire Board of Directors.

15. Financial Code of Ethics
As a public company, it is of critical importance that 310 Holdings filings with the Securities and Exchange Commission be accurate and timely. Depending on their position with 310 Holdings, employees may be called upon to provide information to assure that 310 Holdings’ public reports are complete, fair, and understandable. 310 Holdings expects all of its employees to take this responsibility seriously and to provide prompt and accurate answers to inquiries related to 310 Holdings’ public disclosure requirements. 310 Holdings’ Finance Department, when established, will bear a special responsibility for promoting integrity throughout 310 Holdings, with responsibilities to stakeholders both inside and outside of 310 Holdings. The Chief Executive Officer, Chief Financial Officer, and Finance Department personnel have a special role both to adhere to the principles of integrity and also to ensure that a culture exists throughout 310 Holdings as a whole that ensures the fair and timely reporting of 310 Holdings’ financial results and conditions. Because of this special role, the
CEO, CFO, and all members of 310 Holdings’ Finance Department are bound by 310 Holdings’ Financial Code of Ethics, and by accepting the Financial Code of Ethics, each agrees that they will:

- Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships.
- Provide information that is accurate, complete, objective, relevant, timely and understandable to ensure full, fair, accurate, timely, and understandable disclosure in the reports and documents that 310 Holdings files with, or submits to, government agencies and in other public communications.
- Comply with the rules and regulations of federal, state and local governments, and other appropriate private and public regulatory agencies.
- Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing one’s independent judgment to be subordinated.
- Respect the confidentiality of information acquired in the course of one’s work, except when authorized or otherwise legally obligated to disclose. Confidential information acquired
in the course of one’s work will not be used for personal advantage.
- Share job knowledge and maintain skills important and relevant to stakeholders needs.
- Proactively promote and be an example of ethical behavior as a responsible partner among peers, in the work environment and in the community.
- Achieve responsible use of, and control over, all 310 Holdings assets and resources employed by, or entrusted to yourself, and your department.
- Receive the full and active support and cooperation of 310 Holding’s Officers, Sr. Staff, and all employees in the adherence to this Financial Code of Ethics.
- Promptly report to the CEO or CFO any conduct believed to be in violation of law or business ethics or in violation of any provision of this Code of Ethics, including any transaction or relationship that reasonably could be expected to give rise to such a conflict. Further, to promptly report to the Chair of 310 Holdings’ Audit Committee such conduct if by the CEO or CFO or if they fail to correct such conduct by others in a reasonable period of time.

30. The Individual Defendants, because of their positions of control and authority as directors and/or officers of JBI, were able to and did, directly and/or indirectly, exercise control over the wrongful acts complained of herein. Because of their advisory, executive, managerial and directorial positions with JBI, each of the Individual Defendants had access to material nonpublic information about the financial condition, operations, and practices of JBI.

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