=DJ Ex-Xybernaut Execs, Lawyer Indicted In PIPEs Case In NY
Friday, October 19, 2007 1:33 PM
By Chad Bray and Amir Efrati
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Former executives at Xybernaut Corp. and Ramp Corp. and a New York lawyer were charged with securities fraud and other offenses Friday in an alleged kickback scheme involving PIPEs transactions, according to court documents.
According to an indictment unsealed Friday, Edward Newman, Xybernaut's ex-chief executive; his brother Steven Newman, another former Xybernaut executive; Andrew Brown, Ramp's one-time president and chief operating officer; New York lawyer Martin Weisberg, a one-time Xybernaut director; and two Israelis - Zev Saltsman and Menchaem Eitan - have been charged in the matter.
They face a variety of charges, including conspiracy, securities fraud and money laundering.
Prosecutors have alleged the men, between 2001 and 2005, engaged in a scheme to defraud the shareholders of Xybernaut and Ramp by issuing discounted shares in transactions known as PIPEs, or private investment in public equity, to entities controlled by Saltsman and Eitan, according to the indictment.
Saltsman and Eitan allegedly established large short positions in Xybernaut and Ramp stock prior to the receipt of the PIPE shares, the government said.
Following the announcement of the PIPE transactions and a drop in the companies' stock prices, Saltsman and Eitan would then use the discounted shares to cover the short positions and profit from the drop in share price, prosecutors said.
As a result, Saltsman and Eitan generated about $16 million in profits from trading in Ramp shares from 2002 to 2004 and about $39 million in profits from trades in Xybernaut shares from 2001 to 2004, the government said.
Saltsman and Eitan allegedly paid kickbacks to the Newmans, Brown and Weisberg in exchange for the discounted shares, prosecutors said.
Companies typically turn to PIPEs transactions when they are too weak to raise money through traditional stock sales. Since share prices tend to decline upon the announcement of a private placement, investors with advance knowledge can reap big profits by selling borrowed shares and then buying them back at a lower price once the private offering is announced.
-By Chad Bray; Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com
(Amir Efrati contributed to this story.)
(END) Dow Jones Newswires
10-19-07 1333ET |
