A class action lawsuit was filed against Red Cat Holdings (RCAT) by Levi & Korsinsky on May 23, 2025. The plaintiffs (shareholders) alleged that they bought RCAT stock at artificially inflated prices between March 18, 2022, and January 15, 2025 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Red Cat Holdings stock during that period can click here to learn about joining the lawsuit.
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Red Cat Holdings provides products and services to the drone industry, through its subsidiaries, Teal Drones and Flightwave Aerospace. RCAT integrates robotic hardware and software for military, government, and commercial operations.
Teal Drones has a manufacturing plant in Salt Lake City, Utah. Red Cat recently won the U.S. Army’s Short Range Reconnaissance (SRR) Program of Record Tranche 2 contract. The company’s claims about the Salt Lake City facility’s production capacity and the overall value of the SRR Program are at the heart of the current complaint.
Red Cat’s Misleading Claims
According to the lawsuit, Red Cat and six of its current and/or former senior executives (the Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the Salt Lake City facility’s production capacity and the overall value of the SRR contract from SEC filings and related material.
During the Class Period, the defendants repeatedly highlighted the robust construction of the Salt Lake City facility and its proposed production capacity. Additionally, the company continued to make tall claims about the potential revenue opportunity from the SRR contract.
For instance, during a conference call held on July 27, 2022, Red Cat’s CEO stated that the Teal Drone production line was in full swing and mass production was expected to begin in the fall. Plus, the CEO claimed that the SRR Program would involve “tens of thousands of drones and hundreds of millions of dollars’ worth of revenue.”
Additionally, in a March 7, 2023, conference call, the CEO noted that the Salt Lake City facility was ready for production and had the capacity to produce thousands of drones per month.
Moreover, in its fiscal 2022 annual report, Red Cat Holdings stated that the Salt Lake City facility’s maximum production capacity could reach 1,000 drones per month over the next two to three years, subject to additional capital investment and achievement of manufacturing efficiencies.
Finally, during a March 18, 2024, conference call, the CEO stated that the SRR contract was for 12,000 drones and that the award for the first tranche of production drones two years ago was $100 million for 1,083 drones. This implied a multi-million-dollar contract for Tranche 2.
However, subsequent events (mentioned below) reveal that the defendants failed to inform investors about the actual progress of the Salt Lake City facility and the true value of the SRR contract.
Plaintiffs’ Arguments
The plaintiffs maintain that the defendants deceived investors by lying and withholding critical information about the business practices and prospects during the Class Period. Importantly, the defendants are accused of misleading investors regarding the exact progress of the Salt Lake City facility and the value of the SRR contract.
The information became clear through a series of partial disclosures made between July 27, 2023, and November 19, 2024. Finally, the full truth was revealed on January 16, 2025, when Kerrisdale Capital published a report regarding Red Cat Holdings’ false disclosures.
The report noted that Red Cat Holdings had overstated the value of the SRR contract, and the true value was only about $20 to $25 million based on U.S. Army budget documents. The report also accused Red Cat Holdings of misleading investors about the actual production capacity of the Salt Lake City facility for years. Following the report, RCAT stock fell 7.4% on the same day and an additional 15.3% the next day.
To conclude, the defendants misled investors about the true production capacity of the Salt Lake City facility and overstated the value of the SRR contract. Owing to these issues, RCAT stock has lost nearly 45% year-to-date.
