Securities Firms News
Mon, 10 Dec 2001, 2:56pm EST
Log On America's Lawsuit Against Promethean Dismissed (Update1)
Log On America's Lawsuit Against Promethean Dismissed (Update1)
(Updates with telephone call to Promethean founder, in
seventh paragraph.)
New York, Dec. 10 (Bloomberg) -- Log On America Inc.'s suit
accusing three investment firms, including a unit of Credit Suisse
First Boston Inc., of manipulating the company's stock price, was
dismissed by a federal judge.
Log On America, a provider of high-speed Internet access,
claimed the firms and their affiliates drove down its stock price
so they could convert preferred shares they held into more common
shares. According to the suit, the firms planned to acquire enough
shares to take control of the company and then profit by selling
its assets.
In a ruling today in federal court in New York, U.S. District
Judge Richard Berman dismissed the case, saying the contract
between Log On America and the investment firms ``authorizes the
very activity plaintiff says is impermissible.''
Berman said Log On America's claim ``failed adequately to
allege actionable misrepresentations or a fraudulent scheme,''
among other reasons.
The defendants in the case include Promethean Asset
Management LLC of New York; Citadel Limited Partnership of
Chicago; and Marshall Capital Management Inc., a unit of CSFB, the
securities arm of Credit Suisse Group.
Also sued were the investors' affiliates: HFTP Investments
LLC; Wingate Capital Ltd; and Fisher Capital Ltd.
Berman said he would allow Providence, Rhode Island-based Log
On America to file another suit against the defendants within two
weeks. A company spokesman didn't immediately return a telephone
call. Promethean founder Jamie O'Brien didn't immediately return a
call seeking comment.
Short Sales
According to the complaint, the investment firms purchased
$15 million of convertible preferred stock from Log On America
last year. The securities were structured so that they were
convertible into more shares of common stock if the price of the
common shares fell.
Log On America claimed the firms schemed to use short sales
in an attempt to seize control of the company. Log On America said
the defendants drove down the stock's share price through
``massive and unlawful short sales,'' while they possessed
nonpublic information about Log On America's business.
Because of the decline in Log On America's stock price, the
investment firms' preferred holdings were convertible into enough
common shares to give them control of about 50 percent of the
company's equity, according to the suit. Log On America sought a
declaration that the firms' conversion rights had been terminated
because of their alleged market manipulation.
In a short sale, an investor sells stock borrowed from a
broker, gambling that its price will fall. If all goes according
to plan, the investor buys back the stock when the price is down,
returns the borrowed shares to the broker, and pockets the
difference.
At the time Log On America filed suit in August 2000, its
shares had fallen 83 percent over about 7 1/2 months. The
company's shares were unchanged today at 14 cents, down 55.2
percent this year.
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