NetSol Shares Tumble After Suit Alleging Stock Manipulation
New York, July 5 (Bloomberg) -- NetSol International Inc. shares fell 27 percent, extending a decline sparked by the filing of a lawsuit against the portfolio manager of the Blue Water hedge fund group, the company's largest shareholder, for allegedly manipulating the stock of money-losing Pakistani software company.
The Blue Water investors attributed the fund's 140 percent first quarter gain to its manipulation of the thinly traded shares of NetSol, which rose 249 percent in the first quarter. Blue Water owns 2.1 million shares of NetSol.
Netsol fell 8 1/4 to 23. On Monday, it dropped 4 1/2 to 31. Last week, it traded as high as 49.
A company spokeswoman declined to comment on the share price, as a matter of policy.
Jonathan Iseson, portfolio manager of Blue Water funds, the first quarter's best-performing hedge fund group, was accused of securities fraud by four of the funds' investors in a $100 million federal lawsuit alleging that the stellar performance of the funds was achieved by manipulating the shares of NetSol.
The investors allege that the ``financial viability'' of the three Blue Water funds, all of which mirror the same investing strategy, ``is in serious jeopardy'' because Iseson put much of the cash into NetSol. They want Iseson fired and replaced by a court-appointed receiver.
Iseson and several associates engaged in a ``fraudulent, deceptive and manipulative scheme to inflate the value of the funds' assets through the purchase of NetSol shares at artificially high prices,'' the suit charged. Such manipulation enabled the managers to receive a $12 million performance fee for the quarter, equal to 20 percent of Blue Water's increase during that period, the suit says.
``The defendants vigorously deny all the allegations and look forward to their day in court,'' said Corey Winograd, attorney for Iseson and his co-defendants. He said they represent a tiny minority of the hedge funds' 126 investors.
The lawsuit was filed last week in U.S. District Court in Brooklyn, New York. It seeks to represent all investors in Blue Water.
Netsol shares slumped from 64 3/4 on March 31 to a low of 15 1/8 on May 22. On Friday, they fell 11 3/16 to 35 1/2, ending the second quarter with a 45 percent loss. The Blue Water funds shed 43 percent of their value in May, according to Hedgefund.net, an Internet site for hedge fund managers. ``June was a terrific month'' for the fund,'' said Winograd. He didn't provide specifics.
The suit was filed by Tremont International Insurance Ltd., a unit of Tremont Advisors Inc.; Royalton Principal-Protected Fund Ltd.; ZCM Asset Holdings Co. (Bermuda) LTD, and Community Partners LP. They say their total investment in Blue Water was about $7.7 million.
Blue Water's first-quarter ranking was tabulated by MAR/Hedge, a unit of Metal Bulletin Plc, which tracks the performance of more than 1,300 hedge funds.
Jul/05/2000 15:15 ET
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