Re: 3/24/00 - [CMX] Caremark Rx - 'Reverse Pump and Dump' Suit Filed Against Individuals, Hedge Fund
'Reverse Pump and Dump' Suit Filed Against Individuals, Hedge Fund
Caremark Rx Inc. has sued several individuals and firms for an alleged stock manipulation scheme via the Internet. The defendants, the complaint says, shorted shares of the company's stock and then attempted to drive down the price of the stock by posting e-mail messages on the Internet under the assumed identity of Caremark's CEO, Edwin "Mac" Crawford. Caremark Rx Inc. and Crawford v. Holliday et al., No. CV-00-0-767-9, complaint filed (N.D. Ala., Mar. 24, 2000).
The complaint claims that in May 1998 defendant Mark E. Holiday posted a fraudulent e-mail message in an Internet investment chat room, professing to be from CEO Crawford. The e-mail allegedly told a Caremark shareholder that the company planned to settle pending litigation by distributing additional shares of stock, thus, leading to a "dilution" of the existing shares.
Another defendant, Neil S. Subin, is accused of sending an e-mail under the assumed identity of Crawford to a major Caremark shareholder. The e-mail "was intended to induce this shareholder to sell his Caremark shares, thereby depressing the price of Caremark common stock and enriching defendants," the complaint says.
The suit also says that the defendants, which includes a Boca Raton, Fla., hedge fund, Trendex Capital Management II Corp., attempted to interfere with its business in California through misrepresentations to certain state officials and "planted" false and misleading stories with financial reporters and other news reporters.
Birmingham, Ala.-based Caremark, formerly MedPartners Inc., one of the largest independent prescription benefit management companies in the United States, asks the court to enjoin the defendants and other "co-conspirators" from further dissemination of false information about the company. The suit also seeks unspecified damages for defamation, violation of the Securities Exchange Act of 1934, and for the invasion of Crawford's right to privacy.
As yet, unnamed co-conspirators include Jefferies & Company Inc., a California-based investment banking firm and broker-dealer, AGR Halifax Fund Ltd, a Cayman Island company, Georgica Advisors, a limited liability corporation based in New York, and Cypress Management Partnership, a California general partnership. Additional defendants will be named, the complaint says, after further investigation and discovery.
James W. Gewin and John W. Smith of Bradley Arant Rose & White in Birmingham, Ala. and Warren W. Willis Jr. of Morris, Manning & Martin in Atlanta, Ga., filed the suit on behalf of Caremark.
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