Re: 8/6-13/04 - [IPMT] U.S. Bankruptcy Trustee Announces Fraud Suit Against iPayment and its Founders; Insiders Accused of Misrepresenting Company's Value Prior to Public Offering (etc.)
U.S. Bankruptcy Trustee Announces Fraud Suit Against iPayment and its Founders; Insiders Accused of Misrepresenting Company's Value Prior to Public Offering
8/6/2004 4:45:00 PM
CLICK HERE for the First Amended Complaint
LOS ANGELES, Aug 6, 2004 (BUSINESS WIRE) -- Pratter & Young, Attorneys, announced the filing of a complaint in United States Bankruptcy Court brought on behalf of a U.S. Bankruptcy Court Trustee, Howard M. Ehrenberg, against iPayment Inc. (IPMT), its Chairman, Greg Daily, C.E.O. Carl Grimstad, and C.F.O. Robert Torino, along with other companies, law firms, accounting firms and individuals, for $151,000,000.
The suit alleges that in 2002 those individuals and the company perpetrated fraud, with the help of their accountants and law firms, against various individuals and corporations, when they formed the company and failed to disclose to potential investors and creditors of the predecessor companies the true nature of evaluations in compliance with the Sarbanes Oxley Act, and other statutes in effect at the time, which require full disclosure to investors before public offerings.
Commenting on the announcement, Attorney Michael S. Pratter said: "We are disappointed to report the failure of our concerted and repeated efforts to resolve a dispute between the Trustee and iPayment. It became necessary to file this significant suit for redress and damages against those officers, directors, accountants, and law firms involved in the formation of iPayment."
The suit was filed for treble damages totaling $151 million on the grounds that the company was formed by a conspiracy between the named defendants to mislead and defraud the public in the evaluation of the company in its inception in order to gain a much more significant share of the initial founders' stock. Pratter added: "In keeping with our stated objectives, we hope that in the long-term, the company will not be adversely affected by this litigation. However, should the Trustee be successful, it could not only result in a substantial decrease in the market cap of the company but the very existence of the company could be undermined."
The stock of the iPayment is trading currently at $40.40 per share and earned a dividend of $.32 per share this quarter. Estimates are that the suit will result in a charge against earnings and a reduction of the market cap of $668,000,000 by at least 20-30% in the first 1/4 of 2005.
Further, the company's original attorneys and accountants, the defunct firms of Brobeck, Harrison and Phelger, LLP, and Arthur Anderson LLP, have been joined in the suit along with their successors, Morgan Lewis and Ernst & Young. All these advisors are accused of furthering and participating in the conspiracy to assert a lower market cap to investors based upon an unrealistically low evaluation, all of which enabled Grimstad, Daily, and a group of insiders to gain a larger share of the company after going public. The suit alleges that just two (2) months prior to evaluating the company at $.37 per share, Auerbach & Co. made an offer for the company for $7.00 per share which the Defendants, these officers and directors of iPayment, turned down.
Robert J. Young of Pratter and Young, Special Counsel to the Trustee, added: "In today's business climate, with the successful prosecution of the principals of Enron, Tyco and Worldcom, this litigation is but another revelation of greed and avarice gone amok. The public must be made aware of who they are dealing with and the potential problems in companies they may choose to invest with. It was only a matter of time before these skeletons would be discovered in iPayment's closet. It is the Trustee's hope that by bringing this litigation, we will correct the serious transgressions that these businessmen believe they can get away with."
pratterandyoung.com
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iPayment, Inc. (ticker: IPMT, exchange: NASDAQ) News Release - 6-Aug-2004
iPayment, Inc. Responds to Press Release Regarding Suit Filed against the Company
NASHVILLE, Tenn.--(BUSINESS WIRE)--Aug. 6, 2004--iPayment, Inc. (Nasdaq:IPMT) today issued the following statement in response to a press release issued by attorney Michael Pratter of Pratter & Young regarding a suit against the Company and certain officers and directors in the United States Bankruptcy Court on behalf of a U.S. Bankruptcy Court Trustee. The Company believes that this complaint and the underlying allegations are without merit and intends to vigorously defend against them.
This press release contains forward-looking statements about iPayment, Inc. within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. For example, statements in the future tense, words such as "anticipates," "estimates," "expects," "intends," "plans," "believes," and words and terms of similar substance used in connection with any discussion of future results, performance or achievements identify such forward-looking statements. Those forward-looking statements involve risks and uncertainties and are not guarantees of future results, performance or achievements, and actual results, performance or achievements could differ materially from the Company's current expectations as a result of numerous factors, including but not limited to the following: acquisitions; liability for merchant chargebacks; restrictive covenants governing the Company's indebtedness; actions taken by its bank sponsors; migration of merchant portfolios to new bank sponsors; the Company's reliance on card payment processors and on independent sales organizations; changes in interchange fees; risks associated with the unauthorized disclosure of data; imposition of taxes on Internet transactions; actions by the Company's competitors; and risks related to the integration of companies and merchant portfolios the Company has acquired or may acquire. These and other risks are more fully disclosed in the Company's filings with the U.S. Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for 2003. The Company undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.
iPayment, Inc. is a provider of credit and debit card-based payment processing services to over 95,000 small merchants across the United States. iPayment's payment processing services enable merchants to process both traditional card-present, or "swipe," transactions, as well as card-not-present transactions, including transactions over the internet or by mail, fax or telephone.
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CONTACT: iPayment, Inc.
Afshin M. Yazdian, 615-665-1858, Ext. 107
SOURCE: iPayment, Inc.
corporate-ir.net
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Fraud accusation hits iPayment executives
By M.B. Owens, bowens@nashvillecitypaper.com
August 10, 2004
A lawsuit filed Friday in Los Angeles accuses Nashville-based iPayment Inc. of perpetrating a fraud with the help of their accountants and law firms prior to the company going public in May 2003.
The suit, filed by Pratter & Young on behalf of U.S. Bankruptcy Court Trustee Howard Ehrenberg, seeks trebled damages totaling $151 million. The bankruptcy court is filing on behalf of ITSV Inc. and its creditors.
The plaintiff alleges that iPayment, Chairman Greg Daily, Chief Executive Carl Grimstad and Chief Financial Officer Robert Torino, among others, failed to disclose the true nature of business intentions to potential investors and creditors of its predecessor company, ITSV Inc. (the parent company for creditcards.com Inc.). The suit claims the result was the bankruptcy of ITSV, a privately held California based company, in an action that defrauded creditors.
The local company issued a statement calling the complaint and the underlying allegations “without merit” and vowed a vigorous defense against them.
iPayment provides credit and debit card payment processing services to more than 95,000 small merchants throughout the United States. It is traded on the Nasdaq stock exchange.
“The defendants forced Richard J. Gordon [the principal owner of creditcards.com and ITSV] into an agreement and bought creditcards.com for very little [when there were] other more generous offers on the table,” said Michael S. Pratter, partner of the law firm Pratter and Young.
The suit alleges that bankruptcy fraud was committed by the accused parties, when they repaid Gordon “directly and surreptitiously” as an individual to avoid repayment to the creditors of ITSV.
According to the suit, the plaintiffs then took the former assets of ITSV public as iPayment in just a short period of time for $16 a share, Pratter said.
According to Pratter, Gordon, who is not part of this lawsuit, had already settled an earlier suit for 37 cents per share or $2 million, but has decided not to accept the amount. Because of the fraud allegations, Gordon is going to file another separate suit for greater damages.
Copyright 2000-2004 The City Paper, LLC
nashvillecitypaper.com
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August 11, 2004 12:43 PM US Pacific Timezone
U.S. Bankruptcy Trustee Announces Trial Date Set in California Bankruptcy Fraud Case Against iPayment
LOS ANGELES--(BUSINESS WIRE)--Aug. 11, 2004--Howard M. Ehrenberg, Trustee in the California Bankruptcy Court fraud case just filed against iPayment (Nasdaq:IPMT-News), announced today that a new judge has been assigned to the case. Judge Vincent P. Zurzolo has taken over from Judge Ellen Carroll, who recused herself. Trial in the case has been set for April 8, 2005, with the first Status Conference now scheduled for October 21, 2004 in Los Angeles. Mr. Ehrenberg anticipated that his attorneys would complete the deposition examinations of iPayment's key officers accused in the suit, namely Gregory S. Daily, Carl Grimstad, and Robert S. Torino, by that date.
In response to iPayment's statement that his case against them was without merit, Mr. Ehrenberg pointed out that a case of such magnitude would never have been filed without good grounds. "Our decision to file (the case) was based upon months of diligent and meticulous investigation, and the decision to appoint Pratter & Young as Special Counsel to prosecute the case coincided with their own independent investigation, which reached the same conclusion. We are confident in our Special Counsel, and I have every intention to discharge my responsibilities as the Trustee in a forthright and exemplary manner to reach a just and compensatory conclusion to this apparent wrongdoing."
Robert J. Young, partner of Pratter & Young, stated that the review before the case was filed consisted of reading thousands of pages of evidence, voluminous court files in three other cases against the same defendants as well as the public records filed by iPayment with the S.E.C. "This case was not initiated without significant forethought and substantial evidence to carry the claims on behalf of our client, the Trustee who is protecting the rights of the shareholders and creditors. iPayment's summary and cavalier dismissal of the suit being filed is typical of the uncaring attitude of the management in these kinds of cases. As Elliott Spitzer, Attorney General of the State of New York, put it more succinctly, speaking of the Merrill Lynch debacle: 'When I saw these emails, when I saw the cavalier attitude that the analysts and company had about losing the hard-earned money for real people who were relying upon (them) and yet their attitude was 'that's all right we'll give them bad advice' because we're making money. That's what got me angry.'
"iPayment's categorical denial filed on Friday, August 6 in response to this suit, is more of the same. This matter is going to trial, and those who have violated the public's trust will be seen in the cold light of day for what they are and what they did in this case. It's very interesting to see the response from former associates of Mr. Daily and Mr. Grimstad on the internet chat room message boards what kind of debris they have left in their wake. There are a lot of angry people out there."
Contacts
Pratter & Young
Michael S. Pratter, 310-391-3311
Website: www.pratterandyoung.com
E-mail: msp@pratterandyoung.com
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PRESS RELEASE
iPayment, Inc. Accountants Ernst & Young and Arthur Andersen Served in Fraud Suit
Los Angeles, California FOR IMMEDIATE RELEASE
iPayment Inc. (Nasdaq:IPMT) accounting firms Ernst & Young and Arthur Anderson have been served with the Summons and Complaint as named Defendants in the fraud suit filed last Friday, August 6, 2004, by Howard M. Ehrenberg, Trustee, in the U.S. Bankruptcy Court in Los Angeles. The lawsuit alleges that iPayment's accountants were actively involved in the evaluation of their shares prior to a public offering in March, 2003, and perpetrated an arbitrary and fraudulent evaluation to aid its client, iPayment, in the scheme to defraud.
The Attorneys for the Trustee, Pratter & Young of Los Angeles, have uncovered concrete evidence and allege on behalf of Trustee Ehrenberg that shares in the company were valued at various times within a three year period without justification. Prices ranged from $8.00 per share, $7.00 per share, $.37 per share, and, then, finally up to $16.00 per share when the company finally became publicly traded. The Trustee alleges in the complaint that at no time had the company had any profits or any significant unencumbered assets to justify such disparate evaluations.
Further inquiry led Mr. Michael Pratter to respond to such discrepancies found in the investigation by his firm and the Trustee. "The evaluations were clearly specious and apparently calculated only for the purpose of insuring and placing majority control in the hands of the then Chairman Mr. Greg Daily and the then C.E.O. Carl Grimstad. It was part of the conspiracy, as is alleged in our Complaint on behalf of Trustee Ehrenberg, which in effect defrauded the creditors and shareholders of the company. It robbed them of the benefit of the tremendous growth in the company's value and kept it in control of these two insiders."
The company's shares have declined in price since the announcement of the lawsuit and have fallen more than $8.00 or 20% in value on increase in trading volume of 75% on some days.
The lawsuit has resulted in the naming and serving of 23 Defendants alleged to be involved in the conspiracy and includes the company's accountants, attorneys Richard Schubert, former attorneys Brobeck, Phelger and Harrison and present attorneys Steven Holland and David Brown of Morgan, Lewis & Bokius, San Francisco. Various officers and subsidiaries have also been named.
In addition to disgruntled creditors and shareholders, Pratter reported that people are calling his office every day, supplying much information as well as alleging other wrongdoings on the part of Daily and Grimstad. Some of the allegations are the canceling of the health insurance for sick employees of companies taken over by iPayment, the wrongful termination of employment despite promises to the contrary, and the termination of stock options promised but never given. Former employees also allege the use of call girls, drugs and wild spending, by the companies’ officers to entertain customers and prospective customers of iPayment. Robert J. Young, Esq., of Pratter & Young, on behalf of Trustee Ehrenberg, had no comment on the veracity of these allegations but did say that his firm's "investigation was continuing at a surprising and rapid pace at this stage of the litigation." He had no further comments.
The case is now before Judge Vincent Zurzolo, U.S. Bankruptcy Judge. The first hearing, a Status Conference, will be heard on October 21, 2004 at 10:00 A.M.
Contact:
Pratter & Young
Michael S. Pratter, 310-391-3311
Website: www.pratterandyoung.com
E-mail: msp@pratterandyoung.com |
