STS - Fights back against the brokers
Starpoint Goldfields Inc -
Short selling allegations raised
Starpoint Goldfields Inc
STS
Shares issued 10,176,910
1998-08-12 close $0.1
Tuesday Aug 18 1998
GLOBAL'S SMOLENSKY NAMED AS DEFENDANT TO
COUNTERCLAIM
by Brent Mudry
Starpoint Goldfields has upped the ante in its simmering legal fight with Global
Securities, a fight that began last fall with Global suing Starpoint over a $300,000
loan that now has Starpoint making short selling allegations against Global and its
chairman Art Smolensky. In a decision released Monday, Master Doug Baker of
the Supreme Court of British Columbia allowed Starpoint to amend its defence,
add Mr Smolensky as a defendant to its counterclaim and seek internal records
supporting its short-selling allegations. Mr Smolensky says he has "absolutely no
idea" why he has been personally targeted and named in the action. "It defies me,"
the brokerage head told Stockwatch. Starpoint president Rick Ilott and CEO
Harry Bristman were less talkative. "They are not interested in discussing it with
the press," said a Starpoint employee.
The legal dispute traces back to Sept. 1997, when Global filed a $336,000 suit
against Starpoint. The Vancouver brokerage claims the company has refused to
repay a one-year promissory note. Three Global clients: Cayman Island
Securities, owned by Mr Smolensky's wife, Global Asset Management and
Werner Gomoll each loaned $100,000 to Starpoint in Sept. 1996, through
promissory notes convertible into shares. Global claims Starpoint defaulted on the
combined loan when it was due a year later.
In its original defence, Starpoint argued that the $300,000 promissory note was a
bridge loan for a $5-million financing which Global claimed it had lined up. In July
1996, Starpoint got an option for a 52 per-cent interest in the Yetwene and
Riverstone diamond concessions in Angola, and it needed financing to complete its
acquisition. Starpoint claims that a month later, on Aug. 27, Mr Smolensky
asserted that Global had $5-million in financing, fully subscribed and the raising of
the funds was a done deal. Starpoint claims these representations were false and
misleading, made to induce it to enter an exclusive agency agreement with Global.
Under the agreement, Global was set to receive a $50,000 agency fee, a 7.5
per-cent commission, warrants for 300,000 shares at $1.74 and first rights on all
financings in the next year. Starpoint claims the promissory note is effectivly null
and void as it was procured on misrepresentations.
Starpoint also filed a counterclaim last fall, claiming it relied on Global's financing
promise and abandoned other plans to finance the Yetwene and Riverstone
concessions. The counterclaim notes Global cancelled the $5-million financing in
Nov. 1996, leaving Starpoint high and dry. Lawyer Christopher Giaschi claims
Global breached the agency agreement by failing to adequately promote, offer and
sell the financing and failing to follow up on leads and inquiries from potential
investors. Starpoint places a $50-million value on the Yetwene and Riverstone
diamond concessions.
This spring, Starpoint decided to pursue a short selling case and hired Shizake
Ralston, a Vancouver firm of chartered accountants. "We have been asked to
provide assistance in relation to the allegations of improper trading of securities
and short selling by Global Securities," stated Shizake partner John Galbraith in a
retainer letter to Mr Giaschi. The accountant provided the lawyer with a detailed
shopping list of documents to look for, covering extensive internal Global records
and any records of Global transactions with "non-Canadian brokerage firms and
financial institutions."
After some legal wrangling, the two sides faced Master Baker last Thursday, as
Starpoint argued to broaden its case. "In breach of the duties owed to the
defendant (Starpoint) by the plaintiff (Global) and Smolensky the plaintiff and
Smolensky traded in securities of the defendant and engaged in short selling. . .
through their own accounts and through accounts of their clients and accounts
controlled directly or indirectly by them, all to the detriment of the defendant and
its subsequent efforts to raise capital," states Starpoint in its revised counterclaim.
Starpoint also claims Global and Mr Smolensky put their own financial and
personal interests in conflict with those of Starpoint, their client.
Mr Smolensky calmly dismisses the short selling claims as unfounded. "They have
dreamt up all this other stuff," he told a reporter. "If they are legal short sales, then
who cares. . . for me a short sale is stored-up buying," he explains. The Global
head adds there were very few buy-ins at the time. "It is kind of crazy to short
under $3 unless you are dealing with legended stock. . . it is all a red herring. . . it
is absolutely ridiculous," states Mr Smolensky. Mr Smolensky was reluctant to
reveal his clients in the $300,000 loan, besides noting his wife, although their
identities are disclosed in regulatory filings. "They are people that are good clients
of mine," states Mr Smolensky. The brokerage head notes "I can only think the
reason they can bring it up is an allegation of an illegal short sale," which would
decided by a third party before presented to a judge.
Global lawyer Shayne Strukoff is also confident his client will win, with an 18A
summary trial expected in October. "Starpoint will have an uphill battle," he states.
The lawyer notes he has seen no evidence of any improper short-selling and he
suggests it was an "unfounded" attempt to pressure his client into dropping the suit.
Global is now in the process of assembling its internal trading records, covering
Starpoint trading from Aug. to Nov. 1996, the period of the aborted $5-million
financing. Mr Strukoff notes the records may have clients' names obscured, and all
documents are subject to confidentiality. |
