BAD, BAD NEWS FOR DVNT
Check this out Auric, gotta agree these guys are a strong sell/shortsell...
fortunecity.com
On December 8th, 1999, Diversinet announced that a company called Knockagh International, Ltd., had paid $2.3mm to exercise 900,000 warrants ($2.50/share). According to the company, Knockagh currently owns 1.35mm shares of Diversinet, or 6.2% of the company.
Knockagh International is the company that sold SecureCom to DVNT, which, in DVNT?s words, is ?the technology that is used in the company?s current product line.? We believe this includes DVNT?s only US patent, which was issued to a Mordhay (Moti) Barkan of Israel.
According to a DVNT (then called The Instant Publisher) press release, dated 11/5/96, this ?SecureCom? technology was purchased for $10mm, consisting of $2.5mm in cash and $7.5mm in DVNT stock.
However, Knockagh International filed suit against Diversinet and other defendants in Superior Court of Justice in Ontario, in May, 1999 claiming that the stock portion of the payment was stolen from Knockagh by Diversinet, certain people involved with Diversinet, and their agents.
This complaint says that 2.56mm shares of DVNT, representing the $7.5mm stock portion of the SecureCom transaction, and amounting to 17% of DVNT, was put in trust to entities controlled by DVNTs promoters, then moved from those trusts without the knowledge of Knockagh.
Moti Barkan, as Knockagh?s representative, requested delivery of the DVNT shares on or about April 2, 1998, but as of May, 1999 still had not received the stock, nor had even been told which nominees hold the shares.
Knockagh claims that, at the time of the transaction, on the advice of Taurus Capital and Lachtman, the shares that were to be paid to them were placed into two separate accounts, one controlled by an entity called Mariano Ltd in the Bahamas, and one by a Ruth Apfel in Israel. The reason for this, according to Knockagh, was done to avoid having to register as a 10% stock holder, in accordance with Canadian securities law.
Though Jack Banks resigns from the board of DVNT?s predecessor in July, 1996, in November, 1996, when the SecureCom transaction occured, Jack Banks was still the controlling shareholder for DVNT. Barkan alleges that on August 15, 1996, Banks was introduced to him as the potential investor in SecureCom, and that the technology was to be purchased by a company controlled by Banks.
In fact, Banks does not make a public show of leaving DVNT until well after Barkan has requested ?his shares? in April, 1998, and was rebuffed.
Mr. Banks, a 20%+ holder, owned 3.75mm shares of DVNT, made several unusual public annoucements on August 12 and August 25, 1998. On those dates, he told the world, that he intended to (8/12), and then had (8/25), sold his entire position [in a private transaction], claiming to no longer be an insider.
Yet no one filed as a new 10% holder after that sale.
(In Nov, 1997, Biba Benquesus, Banks? wife, sold 625,000 DVNT shares for US$1 each to hold none.)
As a second insult, and also detailed in the lawsuit, Knockagh ultimately received none of the $2.5mm cash portion of the SecureCom sale. $500K went to defendant Taurus Capital as advisor on the deal, and, on the advice of Taurus and its principal, Leonard Latchman, $2mm was used to purchase stock in a company called Warp 10. Both Warp 10 and Diversinet were and/or are controlled by Jack Banks (aka Jacques Benquesus). On the advice of Latchman, this investment was shortly thereafter sold for only $900K, and in November 1997, the proceeds used to buy a placement of DVNT stock. Knockagh received 900,000 shares of stock and 900,000 warrants to purchase common stock at $2.50 a share. This placement was announced by DVNT in a press release dated 12/8/96, without mentioning the parties involved, though CEO Moustafa made the misleading statement ?We are delighted that the investment community has demonstrated its confidence in our development progress.?
Current DVNT President Nagy Moustafa, while not a defendant, is alleged to have discussed this deal with Barkan, and assured him that no further financing would be necessary for two years. Instead, DVNT engaged in a series of private placements, and markedly diluted Barkan?s interest.
Also, Barkan was promised a ten year employment contract at $150K per year, which was quickly terminated, and is the subject of a separate lawsuit.
Diversinet?s public stance is that Jack Banks currently has no role in the company. This is to take heat off of the company, due to Banks troubled past as a stock promoter. Yet we find it easy to believe that more than 2.5mm shares, still representing a 10% filing position in Diversinet, are still controlled by him through various nominees. Taurus Capital and its officer and director, Leonard Lachtman, have had long relationships with Banks and his other companies, and it was Lachtman, according to the suit, who directed Knockagh?s stock to various other accounts (further described in the lawsuit).
Diversinet?s recent press release states that Knockagh owns 1.35mm shares of stock, after exercising 900K warrants (and, by extention, selling 450K or half of the other 900K shares). They do not say that Knockagh owned 2.56mm + 1.35mm, or 3.91mm shares. As of May, Knockagh did not have title to the additional 2.56mm shares due it. Diversinet?s current records do not show Knockagh as the owner of those shares. If Knockagh owned them in between May and when DVNTs press release was issued, they never filed as a 10% owner.
Someone else currently controls that stock.
Further, we believe that Barkan was allowed to exercise his warrants as a backdoor settlement to the lawsuit. For it seems logical that if Barkan and Knockagh never received the compensation for the SecureCom techology--?the technology that is used in the DVNT?s current product line,?--then perhaps the transaction was never legally consummated, and DVNT may not be the rightful owner.
Yet it appears Banks continued to take part in decision-making at
Diversinet.
A former president of Diversinet, Banks was directly involved in a fight last September over proprietary software technology with partners in Diversinet's Israeli subsidiary.
He signed a letter - addressed to an Israeli partner with whom Diversinet was feuding - and spoke on behalf of Diversinet's board.
In an interview posted on the Internet in April of this year, Diversinet's president Nagy Moustafa said that Banks "has no role with the company other than being a regular shareholder. Mr. Banks has no say in any of the executive decisions and probably could not even tell you exactly what the technology does."
Banks said in the interview with Southam News he helped out at the board's request, "for 30 or 45 days," during a time of upheaval and transition at Diversinet.
His letter is copied to Warp 10 president Marvin Igelman and to Leonard Latchman, president of Toronto investment dealer Taurus Capital Markets Ltd., which has underwritten and promoted stock issues for Banks-related companies.
Some investors are also not happy about Latchman's history. Four years ago, he was slapped with a $ 35,000 (Canadian) fine and a 15-day suspension by the Ontario Securities Commission for failing to adequately supervise the activities of employees who were manipulating the shares of a penny stock.
Asked about the breach of securities regulations, Banks replied: "I'm not aware of that." |
