National Bank of Canada - Street Wire
Starnet ex-chairman files $6-million (U.S.) brokerage suit
National Bank of Canada NA
Shares issued 188,562,032 Oct 6 close $17.75
Wed 6 Oct 99 Street Wire
See (U:SNMM) Street Wire
by Brent Mudry
Starnet Communications International former chairman Mitchell White has
filed a potential $6-million (U.S.) share suit against the Vancouver branch
of brokerage Levesque Beaubien Geoffrion, recently renamed National Bank
Financial. In a statement of claim filed Tuesday in the Supreme Court of
British Columbia, Mr. White claims Levesque refused to allow him to sell
250,000 Starnet shares from his account this summer, on the allegedly
mistaken grounds the shares were restricted from trading. Mr. White claims
he was unable to sell his shares from his margin account until after the
stock price collapsed in the wake of the police raid of Aug. 20.
Vancouver lawyer Daniel Gleadle of Lang Michener Lawrence & Shaw notes his
client, Mr. White, opened a United States dollar margin account at Levesque
through broker Darryl Fry in September of 1997. (Registration records with
the British Columbia Securities Commission indicate Darrel Michael Ian Fry
ended his 24-month stint as a B.C. broker on July 14, when he left
Levesque's Vancouver branch. Mr. Fry is believed to have moved back to the
Kootenays, a rural region in B.C. near the Rockies.)
The suit claims that in September of 1997, Starnet deposited 300,000 shares
into Mr. White's account, as compensation for services rendered as an
employee, officer and director of Starnet's B.C. subsidiary, Starnet
Communications Canada. (In April of that year, Starnet had issued these
shares, which are separate from the 10 million vend-in shares issue to
Murray Partners BVI, an offshore account owned indirectly by some of
Starnet's officers and directors and their families, according to
regulatory filings.)
Mr. White claims that his 300,000 Starnet shares were initially subject to
certain trading restrictions, but by mid-1998, the shares were
free-trading, and he was entitled to sell them without any limitation
imposed by the Nasdaq exchange, Starnet or otherwise. (Mr. White resigned
as chairman and director of Starnet on April 8, 1998, ostensibly for
personal reasons.) The suit notes that Mr. White sold 50,000 shares from
his Levesque account in early 1999 without any difficulty resulting from
any trading restriction. The former chairman presumably sold these shares
for about $200,000 (U.S.), as the stock was trading at about $4 (U.S.)
during this period.
The suit claims that in March, the month that Starnet shares suddenly
quadrupled from $4 (U.S.) to $16 (U.S.), Mr. White began taking steps to
sell additional shares from his account, and he made inquiries with
Levesque regarding the trading status of his remaining 250,000 shares. Mr.
Gleadle claims that on various occasions between May and August, Levesque
negligently told his client that the 250,000 shares were restricted from
trading. The stock rose from $10 (U.S.) to a July 6 peak of $29 (U.S.)
during this period.
Mr. White claims that in reality, his shares were not restricted in any
way, and he should have been able to dump them at his sole and unrestricted
discretion. The suit does not mention if the former Starnet chairman
shorted the stock as a hedge to lock in his windfall profits. The suit
claims that because of Levesque's mistaken advice, he was unable to sell
his shares immediately. Mr. White claims he did not sell any of these
shares until Aug. 20 to 25, much later than he would have otherwise done,
had he been correctly advised. The suit does not note if White dumped all
his shares in this period, or if he faced a margin call after the stock
price suddenly collapsed.
The delay was unfortunate, as Starnet shares fell $6.56 (U.S.) to $14.43
(U.S.) on heavy volume of 5.2 million shares on July 27, in the wake of
Claude Levy's threat of a billion-dollar suit from Las Vegas Casino and a
critical Starnet article a few days earlier by Vancouver Sun reporter David
Baines. On Aug. 20, the day Starnet's headquarters were raided by the
police and Mr. White, along with other Starnet officials, was named in a
series of search warrants, the stock further collapsed, closing down $9.06
(U.S.) at $4.06 (U.S.) on huge volume of 10.58 million shares.
Mr. White claims he has suffered loss, damage and expense as a result of
Levesque's alleged negligence and breach of duty of care. The former
Starnet chairman claims he was unable to sell his shares when he wanted to,
and he was only able to sell his stock from his margin account at prices
considerably lower than the price at which he could have dumped the stock.
While the suit seeks unspecified damages, the value of Mr. White's 250,000
shares has fallen $12-million from the March peak of $116 (U.S.) to the
current price in the $4 (U.S.) range, and $25-million (U.S.) from the
early-July peak price of $29 (U.S.). No statement of defence has yet been
filed. |
