Larry,
I think we now know that there are lawsuits between the major principles in the company. We know Rhodes is suing Babish. I would be surprised if Babish is not countersuing. Lawyers are expensive. I wonder how much of PRLN's cash is being eaten in court?
Do I really believe that Babish is the bad guy in all this as the statement claims? No, I think he is being used as a fall guy.
Let's look at this statement a bit more carefully:
"On April 25, 1997 the Company filed a complaint in the U.S. District
Court for the Northern District of New York against John G. Babish, a
former officer and director of the Company. The complaint alleges that
Mr. Babish engaged in a pattern of wrongful conduct by which he sought
to unjustly enrich himself and to seize control of the Company at the
expense of the Company and its shareholders. That conduct included in
part the manipulation of the Company's stock price, trading in the
Company's stock on inside information, breach of fiduciary and
contractual duties, theft of Company property, and usurpation of
corporate opportunities."
Let's look at the first charge. . . manipulation of company stock price to seize control of the company. He was selling his stock, not buying it. How does that help him gain control of the company? I suppose one could argue that he was selling it so the price would go down. Then he could buy back more shares at a cheaper price. But there is a logical problem with this scheme. Rhodes presumably knew that Babish was going to sell his stock because Babish filed the necessary forms with the SEC. Given that he probably knew in advance that Babish would sell his stock and given that he had suspected that Babish would use the proceeds to buy controlling interest in the company, Rhodes could easily have thwarted John's plans. How? By playing the same game. Rhodes had more stock to begin with than Babish so he could have raised at least as much money as John by selling his stock. He was also continuing in his high paying job, so he was in a better economic position to play this game than Babish. So even *IF* Babish were truly interested in playing this game, as Rhodes alleges, it would be logical to assume that he would be deterred from doing so because he would realize that Rhodes had a stronger hand than he and would beat him at the game. I would assume Dr. Babish is smart enough not to enter a game he doesn't have a chance of winning.
Now, let's look at it from another angle. The statement said Dr. Babish was trading on inside info. But his trade was a sell, not a buy. Let's look at two scenarios:
A) It is logical to assume that if there was good news he would be buying. Since he was selling then the odds are that the news was bad. If the news was bad enough for him to lose confidence in the company, why would he want to buy back his stock at a lower price? He certainly could have made enough money off his stock to live comfortably in retirement. There would be no point to gamble on buying back into a damaged company. Thus, if this scenario is correct then this is a contradiction to the claim that he was trying to gain control of the company by buying back in at a lower price.
B) Let's assume that the news was good and that this was why Babish wanted to gain control of the company. Would it be logical for him to do so in this manner? I don't think so. Suppose Rhodes cought onto Babish's plan after he sold his stock but before he bought it back. Then all he would have to do is 1) Announce the good news and 2) Announce that he would be buying some more PRLN stock to add to his already large holdings because their was good news. This would immediately cause the stock to skyrocket, leaving Dr. Babish out in the cold. I think Dr. Babish would realize that his plan to gain control by selling stock despite good news would be risky and thus be deterred, even if that was his intent.
The statement goes on to say:
"The Company has obtained a temporary restraining order prohibiting the defendant alone or in cooperation with others from . . .issuing a press release, or contacting stock brokers or major shareholders with the intent to affect the price of plaintiff's stock or from disseminating any trade secrets or other confidential information of the plaintiffs."
Translation: Babish is under a gag rule not to tell the stockholders his side of the story. So the company can make allegations against him in public but he can't answer back. How courageous.
Now one of my assumptions is that Rhodes would get wind of Babish's sale and be able to use that knowledge against him. This assumption has caused me to question the veracity behind that statement. But even if that assumption is wrong, there are two questions you should ask yourself. How many lies and half truths have come in the name of the company under Rhodes' leadership. Babish wants to hold a stockholders meeting. Rhodes does not. Rhodes makes statements about Babish while getting him gagged so he can't fight back. Who do you think wants to lay the truth out before the stockholders. Who do you think has something to hide? Could it be the same person who refused to tell us that Colin Campbell resigned from PRLN's board?
Robin |
