Rekor Systems has filed a verified complaint in the Delaware Court of Chancery against former director Viraj Mehta, alleging he breached his fiduciary duty of loyalty by withholding material facts about his personal financial interests while steering the company into an emergency financing. The lawsuit claims Mehta, who served as a Rekor director from May 16, 2024, until January 14, 2026, concealed that his fund, Arctis Global LLC, was preparing to distribute its entire stake in the company to investors while retaining a secured note against Rekor.
According to the complaint, Rekor required capital in December 2025. Mehta, who is also the owner and Chief Investment Officer of Arctis, took charge of the financing process and recommended terms that included seven-year warrants and restrictions on future capital raises. The board expressed concern about potential selling pressure on Rekor stock. In response, Mehta stated he was familiar with the prospective buyer and that the buyer was not expected to sell. However, the complaint alleges that by his own later account, Mehta had never heard of the buyer before the underwriter introduced him the evening before the vote and had no basis for opining on the buyer's intent.
The plaintiff asserts that Mehta deliberately kept from the board the fact that Arctis was winding down and would distribute its Rekor position, which represented roughly 9% of the company at the time. The fund informed its own investors of this plan in December 2025, yet Mehta disclosed nothing to his fellow directors. The December 2025 financing closed based on Mehta's recommendations and representations.
Rekor alleges that the buyer sold its entire allocation within the quarter, a outcome that contradicted Mehta's assurances to the board. Shortly after his lock-up period ended, which coincided with the record date for Rekor’s annual meeting, Arctis allocated its shares to investors while keeping its $5 million secured note against Rekor. The annual meeting subsequently failed for want of a quorum in May and again in September 2026. Mehta's fund entered voluntary liquidation on the day of the first meeting failure and, according to Mehta's words cited in the complaint, is now "basically down to just the revenue notes issued to Rekor."
The lawsuit details the financial consequences for Rekor resulting from the transaction. The company issued 8,571,428 seven-year warrants and signed a side letter that forecloses an entire category of financing, limits at-the-market sales to prices of at least $1.75, and grants the buyer 30% of every qualifying financing through December 2027. The 12,312,491 shares Mehta reported as beneficial ownership through Arctis were not bound by a lock-up, ordinary-sale arrangement, or voting undertaking in favor of Rekor.
Rekor reports that since mid-August 2026, these shares have been leaving the largest recipient's custodial position, consistent with sales, during a period when Rekor stock fell from about $0.62 to about $0.36. The company faces a $15 million maturity on December 15, 2026, which it states it cannot meet without refinancing, restructuring, or new capital.
Rekor seeks damages, disgorgement of profits, restitution of Mehta's director compensation, and related equitable relief for breach of fiduciary duty. The company reserves all claims against other persons arising from the alleged facts. Mehta resigned from the board in January 2026. The complaint notes that Mehta reported holding 12,312,491 Rekor shares through Arctis in a Form 4 filed July 8, 2024.