Starpoint, Global claim mixed success in court
Starpoint Goldfields Inc STS
Shares issued 10,176,910 Jan 8 close $0.05
Tue 12 Jan 99 Street Wire
STARPOINT LAWYER SAYS BATTLE HAS JUST BEGUN
by Brent Mudry
Global Securities and Starpoint Goldfields scored mixed success in their
first round in the Supreme Court of British Columbia. In an oral decision
Tuesday, Justice Mary Saunders awarded the Vancouver brokerage judgment of
$300,000 plus interest, as repayment of a 1996 promissory note loan to
Starpoint. The judge, however, refused to dismiss Starpoint's counterclaim,
which alleges that Global and chairman Art Smolensky strung Starpoint along
with failed promises of a $5-million financing, while Global clients,
including Mr. Smolensky's wife, secretly targeted Starpoint in an
aggressive and dubious stock shorting campaign. Justice Saunders rejected
Mr. Smolensky's repeated assertions that the $300,000 loan and the
$5-million financing were completely unrelated. Justice Saunders stated
that the two transactions were "inextricably intertwined."
In a mixed win, the judge ordered Starpoint to repay the $300,000 bridge
loan, but issued a stay of execution, pending progress of Starpoint's
$30-million counterclaim against Global. The decision came after a "Rule
18A" hearing on Monday, in which both sides briefly argued the case with
affidavit and cross-examination transcripts, but without court testimony
from witnesses. Justice Saunders noted that while the promissory note
liability was established, "the other issues are not so clear," with
"serious issues of fact" and credibility requiring the scrutiny of a full
trial. In sworn affidavits and interviews, the paper testimony of Mr.
Smolensky contradicted that of Starpoint chief executive Harry Bristman and
president Rick Ilott on numerous key points. "There are too many factual
differences to be able to determine the facts" in a short 18A hearing, the
judge told Global lawyer Shayne Strukoff and Starpoint lawyer Christopher
Giasci.
The court battle stems from Starpoint's attempt to finance an option on
diamond concessions in Angola in 1996. 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.
Mr. Smolensky was eager to handle a $5-million private placement, as Global
had already served as Starpoint's fiscal agent and raised financing in two
previous private placements for Starpoint. With the financing in the works,
Global loaned $300,000 to Starpoint in September 1996, totally unsecured.
Global was unable to complete the $5-million private placement, while
Starpoint lost the Angolan concessions and was unable to repay the $300,000
loan.
The stories traced out by Starpoint and Global are starkly different. Mr.
Ilott notes he travelled to London in spring 1996 to investigate Angolan
diamond concessions, meeting with Rafiq Rashul, a Portuguese businessman
active in the African country, and later a high level diplomat in the
Angolan Foreign Service. In June, Mr. Ilott and Mr. Bristman headed on an
exploratory trip to Angola, where they clinched a tentative deal, pending a
property review, for the Yetwene concessions after meeting with Mr. Rashul,
a former Angolan general and a director of Endiama, the Angolan state
diamond corporation. The initial Yetwene option deal was announced on June
17 and Starpoint confirmed the property and completed the deal over the
summer.
The Starpoint and Global stories diverged soon after. On Aug. 27, Mr.
Bristman was driving his daughter to Edmonton to go to school in Edmonton,
when he got an urgent call on his car phone from Mr. Smolensky. "He said to
me over the phone that we should do a private placement now before the
stock gets too high," states Mr. Bristman in a sworn affidavit. Mr.
Smolensky allegedly claimed the $5-million proposed private placement was a
"done deal," with mutual fund firm Altamira taking down the whole
financing. A half hour later, Mr. Bristman got a second call from the
Global chairman, again urging the financing and repeating the claims. Mr.
Ilott claims Mr. Smolensky called him repeatedly as well. "He told me that
he had $5-million in financing arranged for Starpoint. He said it was fully
subscribed for by a fund. I asked which fund and he replied Altamira,"
states Mr. Ilott in a sworn affidavit. "The telephone call from Art
Smolensky came out of the blue," recalls Mr. Ilott.
The Starpoint president notes that neither he nor Mr. Bristman had
previously spoken with Mr. Smolensky regarding financing. Mr. Ilott claims
that Mr. Smolensky called him back two or three times that day or the next
day. "He was concerned that the price of Starpoint's stock was going up
like a rocket. He was quite insistent that we had to do the financing right
away," states Mr. Ilott. The promoter notes that Mr. Smolensky repeatedly
told him the financing was a "fully subscribed" private placement and a
"done deal." "He also said that we did not need to worry about raising the
money because it was already done," states Mr. Ilott. Based on these
assurances, Mr. Ilott and Mr. Bristman quickly agreed to appoint Global as
agent for the proposed $5-million financing.
Global's Mr. Smolensky has a vastly different recollection. In a sworn
affidavit, the brokerage chairman adamantly denied offering anything like a
done deal. "At no time did Global Securities represent or warrant to the
defendant that it had a guaranteed $5-million financing, or would enter
into a guaranteed agency, as alleged in the statement of defence or
counterclaim, or at all," states Mr. Smolensky. The Global head claims that
any proposed financing was subject to subscription by qualified investors,
and he makes no mention of Altamira in the affidavit. In subsequent
cross-examination, Mr. Smolensky denied much of the Starpoint officials'
story. Regarding Altamira, Mr. Smolensky it was actually Mr. Ilott who told
him of the mutual fund's interest, after Starpoint had been offered the
money through a broker at RBC Dominion, Hugh Cooper.
Mr. Smolensky could not specifically recall if he wrote anything down
regarding this $5-million financing. "I sometimes put little notations in a
computer," or on paper, the broker told Mr. Giaschi, Starpoint's lawyer.
Mr. Giaschi told the court that, despite repeated requests, Global has not
produced any of Mr. Smolensky's notes. Global has also yet to share any
tapes it has of Mr. Smolensky's calls, which would help prove his case. Mr.
Smolensky also was vague on recalling his chats with Mr. Ilott. "I don't
know if I ever had two calls in one day with Rick Ilott, let alone in any
one month," the brokerage head replied in cross-examination. Mr. Giaschi
told the court that Mr. Smolensky's "very credibility is at the core of
this case." Global lawyer Mr. Strukoff told the court the financing was
actually on a "best efforts" basis.
The deal later fell through when Global was unable to complete the
financing. Starpoint claims that during this period, Global's clients were
quietly shorting the stock, selling shares from insiders' accounts. Global
corporate finance director Graham Carrothers, who attended the court
hearing, strongly refutes the worrisome short selling allegations. "We did
nothing wrong," he told Stockwatch. Mr. Carrothers notes that Mr. Smolensky
is not yet ready to comment on a extensive forensic report, filed into
court on Monday, detailing the short selling conspiracy. Starpoint lawyer
Mr. Giaschi is adamant that the short selling counterclaim is very much
alive. "The battle has just begun," he told a reporter.
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
|
