Minneapolis-based Foxo Technologies made its stock market debut last September with a mission to reinvent the life insurance industry. Now, it's teetering on insolvency and shrouded in questions.
In a six-month stretch, Foxo ousted its founder and CEO Jon Sabes, and federal securities regulators began investigating the company. A significant investor also sued Foxo and Sabes, claiming breach of contract and fraud.
Last month, Foxo raised the prospect of bankruptcy if it could not find funding by mid-August. On Wednesday, Foxo disclosed that it has raised $264,150 in a private stock placement that should keep the company going until mid to late September.
Last week, Foxo disclosed that its chief financial officer is resigning effective Sept. 13 "to pursue other opportunities."
Foxo's public stock offering was problematic to begin with, and its shares are now trading at only 14 cents. But for all the wreckage, the company's line of business has seemed promising.
Foxo aims to commercialize "epigenetic" and longevity science for underwriting life insurance policies. Epigenetics examines how behaviors — smoking, for instance — and the environment can affect biology.
Using saliva tests, epigenetics can help predict how long people might live. Foxo produces epigenetics and longevity reports for insurer underwriting.
Jon Sabes and his brother Steven Sabes, Foxo's erstwhile chief operating officer, founded the company. Foxo's board abruptly terminated them both last fall, just a few months after the company went public.
In a filing with the U.S. Securities and Exchange Commission (SEC), the company explained that by mid-November, its board had "lost confidence in [Jon Sabes'] ability to act in an executive officer capacity."
Foxo's chief product officer resigned on Nov. 9, "citing strong disagreement with the direction the company was taking," the filing said. "Other senior executives of the company had advised members of the board that they were prepared to resign unless Jon Sabes was replaced."
As of June 30, Foxo was still determining whether the Sabes brothers were terminated with or without cause, which would affect any compensation they are owed. Jon Sabes' salary was $480,000 annually in 2021 and 2022, securities filings say.
In March, Foxo disclosed that the SEC was seeking documents on the Sabes brothers' departure from the company.
Jon Sabes declined to comment. A longtime Wayzata resident, Sabes moved to Austin, Texas, about three years ago.
The Sabes brothers are the sons of Robert Sabes, a Twin Cities businessman now living in Nevada who has owned restaurants, strip clubs and casinos over the years. The Sabes family also operates a nonprofit charity in the Twin Cities, the Sabes Foundation.
Prior to his insurance ventures, Jon Sabes was CEO of Opportunity Finance, the Sabes' family firm that invested heavily in Minneapolis businessman's Tom Petters' ventures.
Petters, now serving a 50-year prison sentence for fraud, ran what proved to be a $2 billion Ponzi scheme. The Sabes largely exited Petters' scheme before it collapsed in 2008.
In 2006, Opportunity Finance invested $1 million in GWG, a new life insurance outfit founded by Jon and Steven Sabes. GWG later went public, and was based in Minneapolis until 2019, when it moved to Dallas.
In April 2019, the Sabes brothers exited GWG, selling their holdings for $25 million, SEC filings said.
They then focused on Foxo, which GWG had originally bankrolled.
In 2020, the SEC started investigating GWG Holdings, although Jon Sabes has said in a court filing that he is not involved in the inquiry. GWG filed for Chapter 11 bankruptcy protection in April 2022. At the time, it owned 80% of Foxo.
GWG still held 9.4% of Foxo's stock as of July 21. As expected, GWG's holdings were diluted after Foxo went public in September through a merger with Delwinds, a Texas-based special acquisition purchase company (SPAC).
SPACs are shell companies with stock listings that merge with private companies, providing a quicker path to market than a traditional IPO. Foxo's stock debuted at $9.15 in September, but it closed at $4.05 on its first trading day and quickly fell further.
Foxo's SPAC transaction was troubled, SEC filings show, and two prominent investment banks abandoned the deal in June 2022.
First, RBC Capital Markets resigned as Delwinds' financial market adviser, waiving stock underwriting fees it would otherwise have been due, according to an SEC filing. Twelve days later, Deutsche Bank Securities resigned as Foxo's financial adviser, waiving its rights to fees.
The resignation of both investment banks — and their fee waivers — was "unusual," Delwinds said in an August 2022 SEC filing. RBC and Deutsche Bank didn't provide details about their decisions to Delwinds and Foxo.
"Stockholders should be aware that such resignations indicate that neither [investment bank] wants to be associated" with the stock offering prospectus and "the underlying business analysis" related to the deal, the SEC filing said.
Foxo didn't get the money it expected from the SPAC transaction, SEC filings indicate. The deal was initially intended to provide up to $300 million in capital to Foxo, filings say.
"Ultimately, the series of transactions associated with the Business Combination did not result in any net proceeds for the company," Foxo said in an SEC filing.
Foxo's merger with Delwinds was originally forged in February 2022, but with the SPAC market cooling off, it was delayed. The SPAC deal with Delwinds was amended three times before it became final and Foxo started trading.
The delays were one reason Foxo cited for its 2022 revenue tally of only $511,000 — substantially less than anticipated, SEC filings show. The company lost $95 million last year, and its grim sales and profit trends have continued in 2023.
Foxo had only $215,000 in cash on June 30, down from $18.5 million a year earlier.
A Foxo representative didn't respond to an interview request for the company's interim CEO, Tyler Danielson.
To complicate matters, Foxo and Jon Sabes were sued in December by Smithline Family Trust II of New York, which had invested in debentures in Foxo before it went public.
Smithline is asking for at least $6.2 million in damages in U.S. District Court for southern New York. Smithline alleges Foxo and Sabes personally withheld material facts that would have affected its investment decisions.
Sabes made "intentional, willful and material omissions and misrepresentations," Smithline said in a court filing.
Foxo and Sabes deny the allegations, with Sabes calling them "meritless" in a court filing asking to dismiss the suit. "Smithline wholly fails to allege any facts that might sustain any of its claims against Sabes."
Star Tribune staff writer Burl Gilyard contributed to this story.