NetSol Decline After Suit Alleging Stock Manipulation
New York, July 3 (Bloomberg) -- NetSol International Inc. shares declined as much as 12 percent after the portfolio manager of the Blue Water hedge fund group, the company's largest shareholder, was sued last week 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.
Netsol fell 3 1/2 to 32, after trading as low as 31 3/8.
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 lawsuit was filed last week in U.S. District Court in Brooklyn, New York. It seeks class-action status 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.
Iseson, reached by telephone at his home office in Manhasset, New York, decline to comment on the suit.
NetSol
NetSol, previously known as Mirage Holdings Inc., went public in 1998 as an importer of exotic clothing from Pakistan. It switched businesses when it bought a software company from the chief executive's brother and changed its name. About three- quarters of its 290 employees work in Pakistan.
The company reported a quarterly loss of $797,603, or 8 cents a share, on May 12. In the year-earlier period it lost $174,000, or 6 cents a share. NetSol's corporate headquarters is in Calabasas, California.
The suit alleges Iseson hid the NetSol investment because it violated Blue Water's pledge to neither acquire more than 10 percent of any company nor put more than 10 percent of assets into any one stock.
Blue Water owns 25 percent, or 2.1 million shares of NetsSol, for which it paid $43 million. The hedge fund group had about 55 percent of its $71 million in net assets invested in NetSol as of May 31, according to Hedgefund.net. Net assets declined from $160 million at the end of the first quarter.
The allegations are contained in a 44-page lawsuit filed June 26 against Iseson and several partners in U.S. District Court in Brooklyn, New York. These include Tuna Capital LLC, which operates Hedgefund.net, and Tuna co-owners Alexander L. Shogren, Arne R. Rovell, and James T. Gillies. None of the three was immediately available for comment.
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 L.P. 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/03/2000 11:16 ET
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