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Pastimes : Investment Chat Board Lawsuits -- Ignore unavailable to you. Want to Upgrade?

To: StockDung who wrote (4882)	7/11/2003 10:13:17 PM
From: Jeffrey S. Mitchell	Respond to of 12465

Re: 7/11/03 - [ITIS/Valentine] Globe and Mail: Judge dismisses suit against TK, Valentine Judge dismisses suit against TK, Valentine KAREN HOWLETT TORONTO -- Former Bay Street star Mark Valentine and his onetime employer scored a legal victory after a U.S. judge dismissed a lawsuit against them in connection with their involvement with so-called death-spiral financings. Lawyers representing a Houston Internet company suing Mr. Valentine, defunct Toronto brokerage firm Thomson Kernaghan & Co. Ltd. (TK) and several others violated a court order, U.S. District Court judge Robert Carter said this week in dismissing the suit. Judge Carter said the "harsh" sanction was warranted because lawyers showed "repeated and flagrant disregard" for the court order by using the discovery process to "shop" for new parties to their action. The order dated Oct. 3 allowed them to seek witnesses, but not to identify new clients or initiate further litigation, he said. Wes Christian, a Houston lawyer representing Internet Law Library Inc., which was seeking damages exceeding $300-million (U.S.), said he plans to appeal the decision. "We feel this sanction is inappropriate for the conduct alleged," he said. His firm has about 10 cases involving death-spiral financings outstanding, including about half a dozen that name Mr. Valentine as a defendant. Mr. Christian said the financiers have used similar tactics on dozens of companies nationwide and that he plans to file another 100 lawsuits. Joseph Groia, Mr. Valentine's lawyer, said his client believes he will successfully defend any death-spiral financing case that goes to judgment. "Mark's position has been that these were perfectly legitimate, perfectly acceptable financings with sophisticated borrowers who went into it with their eyes open," he said. In dismissing the case with prejudice -- meaning the lawyers cannot launch another case involving the same company -- "the courts are clearly expressing in the strongest possible terms their condemnation of what went on," Mr. Groia said. Death-spiral financings offer needed capital to small public firms. Investors typically receive debentures or preferred shares that are convertible into common stock. A death spiral is triggered by a reset provision -- the more a stock price falls, the more shares a debenture holder gets, resulting in crippling dilution. Mr. Valentine's troubles are far from over, however. The former chairman of TK was arrested last August on two counts of securities fraud stemming from an undercover FBI investigation nicknamed "Bermuda Short." He has pleaded not guilty; a U.S. trial has been set for early next year. The suit dismissed by Judge Carter alleged that Mr. Valentine and others preyed on Internet Law Library, now known as ITIS Holdings Inc., by lending it money and then driving down its stock price. In order to expand its business in 2000, the company reached an agreement to obtain $28-million in financing through a company called Southridge Capital Management LLC and an offshore entity called Cootes Drive LLC. The financing agreement, which included $3-million in preferred stock, gave Cootes Drive the right to convert the preferred shares to common shares. Internet Law Library alleged that Southridge, Cootes and their agents agreed not to sell the company's stock for one year after the agreement closed and not to depress its price. But the lawsuit alleges that TK -- Cootes' broker -- began aggressively short-selling the stock, driving down the price. The decline in the stock price from a high of $7 a share to a low of about 18 cents excused Cootes from its obligation to fund the $25-million credit line. © The Globe and Mail globeinvestor.com