The long, convoluted, and increasingly dark tale of the acquisition of Instant Brands (the maker of the Instant Pot) by Cornell Capital took another turn last week with the filing of a complaint on behalf of the company’s creditors to recoup up to $400 million in losses. The filing alleges that Cornell Capital LLC and its leadership orchestrated a series of fraudulent maneuvers that ultimately led to the downfall of the once-popular Instant Pot maker.
The story begins in May 2017, when Cornell Capital, a private equity firm founded by Henry Cornell, acquired World Kitchen, later renamed Corelle Brands. Seeking further growth through acquisition, Cornell Capital used Corelle Brands to acquire Instant Brands in March 2019 for $615 million.
However, the complaint states that shortly after the acquisition, Cornell Capital discovered that Instant Brands’ financial records had been misstated, particularly the 2018 EBITDA—a crucial metric for business valuation. A “shit show” is how Ken Wilkes, then CEO of Corelle Brands, described Instant Brands’ financials. This discovery meant Cornell Capital had significantly overpaid for Instant Brands.
In the wake of this revelation, Cornell Capital threatened legal action against Instant Brands’ sellers (Robert Wang, the inventor of the Instant Pot, and his co-founders Yi Qin and Dongjun Wang) for fraud. Wang, Qin, and Wang negotiated a restructuring agreement in February 2020, which significantly reduced the purchase price in exchange for releasing them from liability.
In a move that would later become central to the lawsuit, Cornell Capital secured for itself the sole entitlement to a future $200 million dividend from Instant Brands. Additionally, Corelle Brands filed a $268 million claim with its representations and warranties insurer in May 2020, alleging that the misstated financials had inflated the acquisition price.
According to the complaint, Cornell Capital pushed forward with its plan to extract a dividend from the company despite knowing about Instant Brands’ overstated valuation and declining financial performance. In March 2021, Instant Brands approached lenders to secure financing for a dividend recapitalization, all the while concealing the truth about its financial woes. The complaint states that Cornell Capital and Instant Brands withheld information about the misstated financials, the purchase price reduction, and the ongoing insurance claim. Adding another layer of concern, they also failed to disclose an investigation by the Consumer Product Safety Commission into potential safety hazards with the Instant Pot—a revelation that could have deterred potential lenders.
Through this withholding of information, the complaint alleges that Cornell Capital successfully secured a $450 million term loan in April 2021. This loan, along with $100 million of Instant Brands’ cash reserves, was allegedly used to fund a $345 million dividend, the vast majority of which went to Cornell Capital, its co-investors, and Instant Brands’ sellers, leaving the company insolvent.
As Instant Brands’ financial situation deteriorated, Cornell Capital engaged in what the lawsuit describes as a desperate attempt to salvage its investment. In January 2023, less than two years after the dividend payout, Cornell Capital orchestrated the transfer of almost all of Instant Brands’ tangible assets—estimated to be worth $200 million—to newly formed unrestricted subsidiaries. These assets were then used as collateral for a $55 million loan from Cornell Capital Partners LP. This maneuver, termed the “UnSub Transaction,” was allegedly designed to strip Instant Brands of its remaining valuable assets and shield the earlier dividend payout from scrutiny under bankruptcy laws. However, the UnSub Transaction only served to worsen Instant Brands’ financial standing and ultimately failed to prevent its bankruptcy filing in June 2023.
Needless to say, the complaint paints a damning picture of Cornell Capital’s actions, accusing the firm and its leadership of orchestrating a scheme to enrich themselves at the expense of Instant Brands’ creditors. The complaint seeks a comprehensive accounting of the financial maneuvers undertaken by Cornell Capital, requesting that the court void the $345 million dividend and other payments made to the defendants. Additionally, the trustee is asking for the recovery of the value of those transfers and is seeking an award of no less than $400 million to compensate for the losses incurred by Instant Brands’ creditors.
Luckily for everyday consumers, most of this news will never reach them, and Instant Pots still appear to be making their way to store shelves. However, the heyday of Instant Pot as the hottest kitchen device is long gone, and Instant Brands no longer churns out new product variations every six to nine months. While we may never know why Instant Brands’ founders misstated the financials to facilitate the sale, it’s possible they were trying to strike while the iron—or Instant Pot—was hot, given the influx of Instant Pot clones flooding the market at the time.
