Hopefully here is the full recent article from The Deal
Updated 09:24 PM EDT, Nov-1-2001
PIPEs suit dropped as stock manipulation probe continues
by Stacy Mosher
Posted 07:10 PM EDT, Oct-31-2001
A closely watched federal lawsuit involving an alleged "toxic" PIPE financing died Oct. 31 after a breach-of-contract complaint by a PIPE financier against customer relationship management company Sedona Corp. was voluntarily withdrawn by the plaintiff.
Yet the defense lawyer for Nasdaq-listed Sedona, Thomas Sjoblom — formerly a top enforcement lawyer for the Securities and Exchange Commission — promised to press ahead with Sedona's own probe into possible manipulation of Sedona's stock with the aid of the National Association of Securities Dealers Inc. and other undisclosed public bodies.
"Stock manipulation was my specialty for 15 years at the SEC, so I have a sense of what might be fruitful grounds for investigation," he said. Sjoblom heads the Securities Practice Group at the Philadelphia law firm of Dilworth Paxson llp, which he joined two years ago after 20-years at the SEC, including 12 as an assistant chief litigation counsel in the enforcement division.
The breach-of-contract complaint against Sedona was brought before the court last week by Amro International S.A., a Monaco- and Panama-based investment fund managed by Rhino Advisors of New York. Sedona in October notified Amro that it would not honor a notice of partial conversion of a PIPE (private investment in public equities) convertible debenture held by Amro. The reason: information obtained by the company alleging that the stock of Sedona and a number of other companies might have been artificially manipulated.
In response, Amro filed a breach-of-contract complaint against the company Oct. 24 in the Federal Court for the Southern District of New York. In court the next day, Amro's lawyer requested a preliminary injunction obliging King of Prussia, Pa.-based Sedona to surrender the shares due under the conversion, claiming that the company was near bankruptcy and might be insolvent before the case could be completed.
Sedona's lawyer, Sjoblom, opposed the injunction and noted the company's inclusion in a report on possible stock manipulation and money laundering. Sedona was one of 60 companies named in a report submitted to U.S. government agencies in late September requesting an investigation into allegations that money laundering and share manipulation might be taking place through certain PIPE financings.
The 60 companies named had all received PIPE fundings through trustee companies of a Liechtenstein law firm, Dr. Dr. Batliner & Partner, or Amro International, or both sets of parties. Downward trading patterns in Sedona's stock had raised suspicion among the company's executives since the end of 2000; the report spurred the company to request its own investigations by the SEC and the NASD.
According to Sjoblom, Federal Judge Naomi Reice Buchwald said that if this was the case, she felt uncomfortable enforcing a contract that might be against public policy. She denied Amro's request for an injunction and allowed Sedona an accelerated discovery order authorizing the company to issue subpoenas, take depositions and gather evidence in its defense in two weeks.
By Monday evening Sedona's lawyers issued more than 20 subpoenas. Sjoblom said subpoenaed parties included the investment bank that had arranged Sedona's convertible debenture and equity line financings, broker dealers whose customers held Sedona stock, market makers of Sedona stock and electronic communication networks that display bid and ask prices as well as taking orders on Sedona stock.
On Tuesday the legal team received response from some of the subpoenaed parties indicating that they were prepared to cooperate. Amro's lawyers informed Sjoblom that Amro was voluntarily dismissing its lawsuit without prejudice.
Termination of the lawsuit is a mixed blessing, Sjoblum explained. While removing Sedona at least temporarily from the threat of legal action, the dismissal has also effectively rendered Sedona's subpoenas null and void. "It would have been helpful if the federal court's jurisdiction was still invoked," Sjoblum said. "It gives us the ability to get documents through some sources that we couldn't get otherwise."
But Sjoblom said the company was still pressing ahead with its own probe. "We're pursuing whether or not people are offering to sell when there's not really stock to be sold, and laddering up on the sell side," Sjoblom said. "This effectively creates a lid on the price through the perception of a market overhang."
Rhino Advisors, manager of the Amro International fund, had not responded to requests for comment by press time. |
