Part I: Let me see if I've got this right.
<<<Prst managment are masters at spin, unfortunately for them, a lack of crediblity will diminish their spin control.>>>
We longs are supposed to be ashamed of being associated with Presstek and it's management, right? And the shorts are proud of the fact that they are role models......and that everyone reading these threads should want to emulate the shorts, right! We've seen plenty about what the SEC had to say but I don't think anyone ever bothered to lay out Presstek's complaint against the shorts...although we've heard the shorts complaints against Presstek ad nauseam! In case you've forgotten what it was all about.....let's review what's happened for those that may not be familiar with the facts!
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
PRESSTEK, INC., 9 Commercial Street, Hudson, NH 03051
v.
IVAN LUSTIG a/k/a "Twisted748", a/k/a "Kumacap", a/k/a "INL" a/k/a, "Ivan L"
and
MARK HOLLINGSWORTH a/k/a "Domcap", a/k/a "NNNot"
and
PARAG PATEL a/k/a "Ppatel1073"
VERIFIED COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES AND JURY DEMAND
I. PRELIMINARY STATEMENT
1. This is a complaint for defamation and violation of the New Hampshire Unfair Trade Practices statute. Plaintiff also seeks injunctive relief from the acts alleged in the Complaint. A jury trial is demanded.
II. PARTIES
2. Plaintiff Presstek, Inc. ("Presstek" or the "Company"), is a Delaware corporation with its principle place of business at 9 Commercial Street, Hudson, New Hampshire.
3. Defendant Ivan Lustig is an individual who resides at....
4. Defendant Mark Hollingsworth is an individual who resides at...
5. Defendant Parag Patel is an individual who resides at....
6. On information and belief, all of the defendants are short sellers and/or buyers of put options of Presstek stock (hereinafter, collectively referred to as "short sellers".
III. JURISDICTION AND VENUE
7. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 1332 because the parties are citizens of different states and the matter in controversy exceeds the sum or value of Seventy Five Thousand Dollars and No Cents ($75,000.00).
8. This Court has jurisdiction over the state law claims pursuant to 28 U.S.C. 1367, which provides that when the District Court has original jurisdiction, the District Court shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy.
9. This jurisdictional district is a proper venue pursuant to 28 U.S.C. 1391 (a)(2) because a substantial part of the events giving rise to the claim occurred within this jurisdictional district and the defendants purposefully directed their conduct towards New Hampshire investors.
10. This is an action for a judgment against the defendants pursuant to Rule 54 of the Federal Rules of Civil Procedure.
IV. FACTS
PRESSTEK IS AN INNOVATIVE, HIGH-TECH COMPANY
11. Presstek was formed as a research and development company in 1987, and entered the international graphic arts market, a more than twenty-one billion dollar global industry, as a provider of ground breaking digital imaging technology. Presstek manufactures high technology digital imaging products and devices for the graphic art industry and markets them worldwide. Presstek employs approximately 185 people at its principal facility in Hudson, New Hampshire. It is traded on the NASDAQ National Market Exchange under the ticker symbol PRST. At the time of the filing of this Complaint, there are approximately 32 million shares of Presstek common stock outstanding.
12. In the late 1980's, Presstek developed a direct imaging technology which enabled digital computer images to be inscribed upon printing plates by means of computer technology and, eventually, laser imaging devices. Now the holder of more than 50 patents worldwide, Presstek is a force in the emerging direct imaging technology market. The Company is the recipient of numerous awards and is the principle technological designer of a series of products known as "PEARL"(TM) technology. In essence, PEARL is a system by which computer files can be directly imaged on patented printing plates with speeds which were previously unthinkable. As a consequence, the Company has been economically successful.
13. Presstek has formed strategic alliances with industry leaders such as Heidelberger Druckmaschinen, A.G. the largest printing press manufacturer in the world; Scitex; Alcoa; Imation; and others. Presstek competes in markets shared by such companies as Kodak, Dupont, Agfa-Gevart, and 3M, to name a few.
14. Presstek's revenues have increased between 40% and 75% in each of the last four (4) years. Industry analysts and graphic arts professionals, have seen the tremendous economic potential of the Company. This has encouraged investment in Presstek causing the Company's common stock to trade at a premium in anticipation of long term revenues.
15. In the last ten years, Presstek's technology has earned some of the most prestigious awards in the graphic arts world including three Graphic Arts Technical Foundation awards in 1995, 1996 and 1997.
SHORT SALE TRANSACTIONS: WHEN BAD NEWS BECOMES GOOD NEWS
16. A "short sale" is a bet that the stock price will go down. In a short sale transaction, a speculator places an order with a securities broker to sell shares of stock that he does not own. Once the shares are sold, the speculator is said to hold a "short position". This short position appears as a liability item on the speculator's account statement with the broker. At some future time, the speculator must buy back the same number of shares of the stock that he sold in order to cover his short position. If this purchase is made at a lower price than the price of the short sale (after factoring in commissions and taxes), then the speculator has made a profit. For example, if a speculator sells 100 shares of a stock short at $100 per share, his account will reflect that he has a short position in the stock and the value of the position is $10,000. If the stock price goes down to $50 per share and the speculator purchases 100 shares at $50 to cover his position, he will pay $5000 and thus, reap a profit of $5000 less commissions and taxes. If the stock increases in price to $150 per share and he is forced to cover, he will have to pay $15,000 to purchase the 100 shares, and thus will suffer a loss of $5000 plus commissions and taxes. A similar strategy for speculators is buying put options, which is also a bet that the stock price will go down.
17. Short selling is a completely legal investment strategy. However, attempting to manipulate stock prices is illegal. Some unscrupulous short sellers, after establishing a short position in a company's stock, circulate false rumors about that company's financial condition, problems with its product and/or intellectual property or the health or integrity of its officers in an effort to drive down the price of that stock. On information and belief, some elements of the news media are used by short sellers to print negative stories about the companies the short sellers have targeted. Short sellers may also make exaggerated or unfounded claims of government investigations and regulatory inquiries. In other situations, short sellers may directly contact companies' major customers, analysts and institutional shareholders, often anonymously or under false pretenses, to aggressively suggest false or misleading facts about the company.
18. The consequences of such activity by short sellers not only depress the price of a company's stock, it also makes it necessary for company officials to devote inordinate amounts of time to reassuring stockholders, regulators, customers and sources of financing who are unsettled by the reports being circulated.
19. Short sellers often possess substantial financial resources and a capacity to influence or even dominate the trading activity of a stock.
20. Short sellers clearly expect a decline in the stock price of a company. They are motivated to manufacture lower prices, gladdened by bad news, and thrive when disaster strikes, because of the profits they will reap.
THE INTERNET AS A CONDUIT OF INFORMATION
21. The "Internet" is a global array of computer networks accessible all over the world.
22. Use of the Internet as a conduit of information has exploded as more and more people have signed up as Internet users. Two million new U.S. households have gone on-line in the last six months. Approximately 19 million U.S. households are now on-line. The average on-line household spends 12.8 hours per week on the Internet. The Internet has become a social and commercial force of immense importance, where information can be immediately posted and relayed throughout the commercial world. It is virtually unregulated.
23. Throughout the Internet, there are dozens of "stock talk" bulletin boards, news groups, and chat rooms. Included among those are Motley Fool and Silicon Investor.
24. Individuals have posted hundreds of thousands of messages to these bulletin boards. There are more than 5,000 posts regarding Presstek on America Online and Motley Fool and almost 6,000 posts regarding Presstek on Silicon Investor bulletin boards. These posts are read by people around the globe. America Online handles more than 300 million hits every day. Silicon Investor, whose bulletin boards include several for Presstek, receives between 2.5 and 4 million hits per day on their site. People who post on bulletin boards do not need to disclose their real identities or whether the information they are disseminating is accurate.
MANIPULATIVE SHORT SELLERS: THE PLAYERS
25. The defendants actively post on Internet bulletin boards and, on information and belief, are short sellers of Presstek stock.
26. By issuing postings the defendants have been able to broadcast false statements to millions of potential stock purchasers and investors. They also are able to identify and communicate with each other with ease (publicly on the board or privately via e-mail), despite separations of thousands of miles. Prior to the advent of the Internet, the pooling of such resources was a difficult, high risk, if not impossible task.
27. The defendants often use aliases or "screen names" which conceal their identities while issuing false statements. Frequently, multiple screen names are used by a single defendant to give the illusion that many people endorsed particular false statements thus giving the statements apparent wide acceptance and, therefore credibility.
28. Defendant Ivan Lustig is a speculator and a former principal of a broker/dealer which was the subject of disciplinary actions by securities regulatory authorities and who, on information and belief, generates income through the short selling of publicly traded securities. Ivan Lustig uses the aliases of "Twisted748", "Kumacap", "INL", and "Ivan L" when posting anonymous messages on various Internet bulletin boards.
29. Defendant Mark Hollingsworth is a principal of Dominion Capital Advisors, Inc. ("Dominion Capital"), which is a registered investment company and is registered to do business in New Hampshire. Hollingsworth holds himself out as a successful portfolio manager of stocks. He is also a principal of Investors Security Company, Inc. ("Investors Security"), a registered investment company. Hollingsworth is registered with the Virginia Division of Securities as a registered representative of Investors Security. On information and belief, Dominion Capital and Investors Security are headquartered in a residence in Suffolk, Virginia. Hollingsworth has appeared frequently on nationally broadcast television programs on cable systems which are targeted to airport waiting rooms, hotel, and other locations frequented by business people.
30. Hollingsworth has repeatedly posted messages on Internet bulletin boards devoted to Presstek. Hollingsworth has been an active short seller of Presstek stock during the time period of these postings. Hollingsworth uses the alias of "Domcap" and "NNNot" when posting anonymous messages on various Internet bulletin boards.
31. Defendant Parag Patel is a registered representative with Investors Security of Suffolk, Virginia. Parag Patel uses the screen name of "Ppatel1073" when posting messages on various Internet bulletin boards. Patel is a short seller of Presstek stock.
DISSEMINATION OF FALSE AND MISLEADING REPRESENTATIONS BY DEFENDANTS AND OTHERS ON THE INTERNET AND ELSEWHERE
32. In 1994, Presstek began to notice that individuals and organizations were disseminating false reports and rumors worldwide. On information and belief, the defendants knowingly posted false and misleading representations regarding Presstek on Internet bulletin boards and elsewhere, with the intent that they be relied upon by persons trading in the Company's stock for the purpose of driving down the stock price thereby enabling the defendants and others to cover their short positions at a profit.
33. Individuals and organizations, acting alone and in concern, made false reports to regulatory agencies, encouraged their allies in print and electronic media with false and inflammatory statements, and succeeded in almost doubling the number of shares of Presstek stock being traded in short positions from approximately 10% share in January, 1994 to approximately 20% shares in August, 1997. On information and belief, one group caused an outrageous newspaper article to appear which claimed that Presstek's Board Chairman was an imposter, a convicted swindler and a federal felon.
THE ACTIVITIES OF THE DEFENDANTS
IVAN LUSTIG a/k/a "Twisted748", a/k/a "Kumacap", a/k/a "INL", a/k/a "Ivan L'
34. Defendant Lustig was a market maker in Presstek stock during 1995 and 1996. As a market maker, defendant Lustig had an increased duty not to disseminate false and misleading information in the marketplace. Lustig did not disclose his role as a market maker until a June 20, 1997 posting under the alias "Ivan L".
35. On July 10, 1995, Lustig intentionally made a false statement regarding Presstek's relationship with its principal equipment customer, Heidelberg Druckmaschinen, A.G. Using the alias "INL", he posted that Presstek's agreement with Heidelberg was for "only three years and is cancellable (sic) at any time without prior notice." This report is false. The agreement, with a contract life of 28 years, continues to this day.
36. Two days later, using the alias, "Twisted748", Lustig posted that Presstek had issued a press release that the Company "will lose money in the second quarter". This statement was false. In truth, it was the first of ten record revenue quarters for the Company.
37. The next day, "INL" posted that Howtek, another publicly traded company, was going to become a "subsidiary of prst (sic)...a lot of smart people think money is going from prst (sic) profits to buy howtek (sic)." This statement was false. Presstek never considered making Howtek a subsidiary.
38. Lustig continued his dissemination of knowingly false and misleading statements on August 2, 1995, when "INL" posted that "I have also spoken to the three largest public shareholders in this co. in the last week. Thay (sic) live in the hope that someone will buy there (sic) stock from them. I was left with the impression that thay (sic) are losing confidence..." In fact, the three largest public shareholders were never contacted by him.
39. On August 4, 1995, "INL" falsely stated, "I confirmed from two sources today that Heid is looking (not thinking about) for a replacement for prst (sic)." In truth, Heidelberg was not contemplating any replacement for Presstek.
40. Throughout this period Lustig encouraged others to conspire with him, posting on October 12, 1995, "E-mail me if you have an interest in carrying on a dialogue about the 'short side'".
41. In December 1996, this time posing as "Kumacap", Lustig stated that Presstek was "now the subject of a grand jury investigation" and that this information was a matter of "public record". This statement was false. Neither the Company nor its management have ever been subpoenaed by a grand jury or even asked for information by a grand jury prosecutor. Furthermore, grand jury investigations are confidential and are not matters of public record.
42. On March 28, 1997, Lustig, using the alias "Kumacap", apparently referring to defendant Hollingsworth's frivolous challenges to Presstek's intellectual property, posted, "A friend of mine, who has made a career out of following this stock, tells me that there is a patent challenge underway and preliminary production of a plate that will serve as competition (sic) for PRST". In that same post, Lustig offered to "share information with anyone publically (sic) or privately (E-mail)".
43. In May of 1997, Lustig sent an e-mail stating, "You see, I despise this stock, prst, and I intend to do my very best to disclose it as a, at minimum, fraud...Also, I have forwarded your mail to Forbes via Gretchen...a known short selling collaberator (sic) and 'child-killer'...maybe even having something to do with Natzi(sic)/Swiss gold holdings in the...whatever...Know this: if you think your'e (sic) a "big" player in PRST and intend to run it to 100, don't count on it...I'm gonna' but you out!"
44. On May 21, 1997, "Kumacap" stated on Motley Fool that "...premature revenue recognition (was): a common trait of presstek (sic)". This statement was false. Presstek has never engaged in premature revenue recognition.
45. The next day, "Kumacap" posted that he was so serious about Presstek that he had a private investigator tracking the chairman of the Company into his place of worship.
46. On May 2, 1997, "Kumacap" stated that there was a New Hampshire state securities investigation of the Company and offered to share his findings with anyone who e-mailed him. This statement was false. There was no state investigation.
47. On August 9, 1997, "Kumacap" falsely posted that Lehman Bros. "sponsored a lunch/dog and pony for prst (sic) at their offices in NYC. No one showed up..."(Emphasis added.) In truth, the luncheon was attended by a substantial number of investors.
48. In addition to disseminating false information through the Internet bulletin boards, Lustig has used the bulletin boards as a vehicle to encourage others to engage in short sale transactions on Presstek. On June 10, 1997, using the alias "Kumacap" defendant Lustig posted "So... I get to an informal convention in Aspen, Colo. for about 25 hedgefund managers... Tonight I'm making a presentation to a group of guys who will consider prst (sic) as a short play."
49. Lustig also used the bulletin boards to encourage large holders of Presstek stock to sell their holdings, thus driving the price of the stock down.
50. On August 14, 1997, using the alias "Kumacap", Lustig posted a message to Carleton Lutts, a well-known investment advisor and institutional holder of a large amount of Presstek stock, "Carlton, and I know you read this board, it's time to start easing out of that half million shares. You know it and I know it." As further motivation to make this post, Lustig was certainly aware that individuals reading the post would know that a large sell-off would depress the price of Presstek stock.
51. Throughout this period Lustig made efforts to generate a pooling of the resources of others interested in combining with his, posting on November 1, 1995, that he was looking for others "who like to play" so that ideas could be swapped.
52. Lustig's motivation for engaging this campaign is clearly evidenced in his August 16, 1997 post, using the alias Kumacap, in which he states "Let me tell you who I am. I'm (sic) the guy that just made $600,000 from you long genius'."
Part II....see next post |
