Tuesday, 29 October 2013

Hartley Bernstein : How you can involve a commercial litigation lawyer


There are many businesses that benefit from incorporation. Every newly incorporated business can enjoy several advantages including tax breaks. However, to ensure that all procedures are followed to the letter, it is advisable that you hire a qualified commercial litigation lawyer to handle the job.

The real estate industry is another very common area when it comes to commercial litigation. Also, business mergers and property acquisitions are important topics under this discussion. With the help of a knowledgeable and skilled litigation lawyer, such issues can be resolved quite easily and effortlessly.

Well, alongside the aforementioned applications, a commercial litigation attorney like Hartley Bernstein and Debra Cherney has experience in representing their clients in legal matters such as employment disputes, product liability, insurance coverage litigations and general civil litigations among other legal issues.

Monday, 14 October 2013

Mea Culpa for Daniel Rubin

Daniel Rubin, the “playboy” investment banker who once ran for mayor of Lake Helen, Florida, has joined the ranks of convicted stock manipulators.  Rubin has pleaded guilty to securities fraud and market manipulation.  As part of his plea bargain, Rubin has agreed to forfeit $2 million to federal authorities.  He faces a prison term of up to 25 years. 

Prosecutors had charged Rubin and the Rubin Investment Group with fraudulently acquiring and selling shares of public companies between August 2002 and October 2003.  One of his ventures, 1-800-ATTORNEY, operated an attorney-referral service in Lake Helen, Florida.  As CEO of 1-800-Attorney, Rubin purportedly assembled a group of cold callers who induced tiny public companies to sell large blocks of shares to Rubin Investment Group at discounted prices.  Rubin then dumped his shares, realizing substantial profits while driving down market prices.

At his guilty plea proceeding, Rubin acknowledged that he directed his cold callers to tell small cap companies that he would recommend their shares to investors in the Rubin Investment Group, and would not sell his own shares in the open market.  He now admits that he had no intention of honoring that promise.

On October 2, 2003, Rubin was arrested, and charged with orchestrating a “pump and dump” scheme involving shares of two small, struggling companies - Marx Toys & Entertainment Group and The Classica Group.  Authorities said that Rubin received 1.2 million shares of Classica stock, and 6.8 million shares of Marx Toys’ stock, in consideration for consulting services that he never actually rendered.

That, evidently, was part of a pattern.  At the plea proceeding, Rubin also admitted to wrongdoing with respect to his acquisition of shares of AuGRID Corporation (Pink Sheets: AGHD).  On September 30, 2003, AuGRID announced that Rubin and Rubin Investment Group had paid AuGRID $1.5 million to exercise common stock exercise options for AuGRID shares.  Those options had been awarded in exchange for Rubin’s commitment to provide consulting services.  A Form 13D filed on October 1st revealed that Rubin had acquired 200 million shares of the Company – or 36% of the outstanding shares.  In fact, Rubin had exercised options to acquire 280 million AuGRID shares. 

Rubin now admits that he refused to pay for the options but accepted the shares and subsequently sold them.

Rubin’s involvement with AuGRID was detailed in a series of articles published by StockPatrol.com, beginning in October 2003.  See, Augrid Corporation — Part I, Another Rubin-Esque Venture?

Several other members of the senior management team at Rubin Management Group previously entered guilty pleas on related charges.  Daniel Nourani (the former managing director of the Rubin Investment Group in Los Angeles); Glen Santha (former director of investment banking); and Andrew Sakska (former director of mergers and acquisitions) each face a maximum sentence of 25 years’ imprisonment and a fine of up to $250,000, or twice the gain or loss from the offenses.

IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com


Hartley Bernstein and StockPatrol.com have been featured in The New York Times, The Wall Street Journal, Forbes, Barrons, Crain’s New York Business, Details Magazine, Chief Security Officer Magazine, and Investment Dealers Digest.

Tuesday, 8 October 2013

Tweet, Tweet - We're on Twitter Now

We're making the big move - to Twitter.  We will continue to publish full-length stories from time to time, but more often - frequently in fact - we will be tweeting our latest thoughts on Wall Street's scams and shenanigans.  So follow us.  Con artists are in for a bumpy ride.

So start following us on Twitter at http://twitter.com/StockPatrol.  Send us your questions, shares your thoughts, and follow along.

IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com

Hartley Bernstein and StockPatrol.com have been featured in The New York Times, The Wall Street Journal, Forbes, Barrons, Crain̢۪s New York Business, Details Magazine, Chief Security Officer Magazine, and Investment Dealers Digest.
 

Monday, 7 October 2013

THESE PIPE ARE SMOKING

For the past several years, since the tech bubble burst, companies have struggled to find sources of financing. Initial public offerings virtually disappeared from the scene, frustrating private companies that hoped to solve their financial needs by becoming public. But being public is no panacea, and public companies have found funding equally elusive. 


That could be changing. Private investors, who have spent recent years sitting on the sidelines waiting for a sign that the economic tide has turned, have decided to open the spigot on their pipeline of funds. Make that PIPEline, since much of the latest funding is being packaged as PIPES, private investments in public companies.


PIPES provide almost instant access to funds, for those companies willing to pay the price, which can be considerable. Still, companies must be prepared to hand over a significant block of stock in exchange for the financing, and what flows through these PIPES can prove murky indeed. The structure of the PIPE may well spell problems down the road for a company struggling to obtain credibility and pave the way for future, more substantial funding.
According to a recent report from PlacementTracker, a division of Sagient Research (itself an OTC Bulletin Board company trading under the symbol PCSR) 209 PIPE transactions, involving $2.7 billion in proceeds to public companies, concluded during the first two months of 2004. This represented a 200% increase in transactions, and a 150% increase in proceeds from the same period a year earlier. The numbers may be even more striking - the PlacementTracker report excluded equity based financings under $1 million and transactions placed by non-U.S. issuers.


Perhaps it is a sign of the revived economy, or of restless private investors who have been waiting on the sidelines for the right opportunity and environment. In any event, PIPES share a common rationale with other forms of financing; the individuals providing the funding see an opportunity to profit. While that does not mean that the public company cannot also benefit from the PIPE, that benefit must be carefully weighed against the price to be paid, in stock, cash or reputation.


PIPES often provide a short term solution for the company, while resulting in a handsome profit for the financiers. In a sense that seems fair. After all, the people funding the PIPES are theoretically putting their money at risk. In reality, however, those risks are carefully calculated, and in many cases, merely theoretical.


Consider how PIPES generally work. One or more investors - often including offshore companies - agree to buy unregistered shares of a public company, at a substantial discount from their market price. The investors may also receive warrants entitling them to purchase additional shares at a fixed below-market price. 


The shares are issued at a discount because, in theory at least, the PIPE financiers will have their funds at risk until their stock has been registered. Those risks appear to be particularly acute when the PIPE is made available to a smaller public company, as is often the case. In fact, so-called emerging growth companies traded on the OTC Bulletin Board, and that would include many up and coming biotech firms, have proven to be particularly receptive to the calling of the PIPES. They need cash, whether for working capital or research and development, and are willing to part with shares - lots of them - to become more liquid. And, unlike more established companies with institutional shareholders, they are less uneasy with the concept of dilution, and therefore far more likely to continue printing shares to feed those PIPES.
PIPE investors recognize that these undercapitalized companies are hungry for capital, and consequently prepared to issue even more shares, at a greater discount. Even then, the investors find ways to reduce their potential risk. In some cases, they insist that the public company file a Registration Statement for their shares before any of the funding is delivered. In that scenario of equity-based financing, the company notifies the investor that it wishes to draw down funds from a financing, and files a registration statement for the corresponding shares that it is obligated to deliver. Once the Registration Statement is declared effective, the investor exchanges the funds for the registered shares. 


The investor's risk is limited because he can immediately sell the stock- at a profit since it was issued at a discount to the market. Particularly shrewd investors can hedge their bets even further by shorting the company's shares before the funds are delivered, then using the money received from selling short to fulfill the financing commitment, delivering the newly registered stock to cover the short position, and pocketing any difference.
Even more dangerous are PIPES that involve "death spiral" financing. In this scenario the number of shares issued to the investor is keyed to the market price of shares, and increases as the market price descends. Unfortunately, that means the PIPE investor stands to profit from lower stock prices. Consequently, the investor has an incentive to short shares, thereby depressing prices, and guaranteeing the receipt of more shares.
Consider a PIPE investor who provides $1 million in financing in exchange for a debenture that is convertible into $1 million worth of stock. The number of shares to be issued is based upon the price of the stock on the date of conversion. Say the investor begins to sell the company's shares short when the stock is trading at $5, eventually sells 1 million shares, receiving $5 million and successfully depressing the share price to $1. He then converts the debenture into common stock at a rate of $1 a share and receives 1 million shares which he delivers to cover the short position. He has earned a $ million profit in exchange for $1 million in short term financing.


Death spirals are, however, the worst case scenario, and one to be avoided even if it means foregoing a PIPE. That does not mean that PIPE investors are willing to allow their shares to remain unregistered. Most insist upon speedy registration following the delivery of funds. In some instances, the investors will not receive common stock, but in =stead are issued a debenture or interest bearing preferred shares, ach of which can be converted into common stock once the underlying common shares have been registered. That way the PIPE investors receive interest while awaiting the day when they can convert and sell their shares- again at a discount to the market.
PIPES have one other attractive feature; they provide speedy access to cash without regulatory scrutiny. In a public financing the company would be required to file registration documents with the Securities and Exchange Commission, disclosing material details about the identity and nature of the investors. PIPES remain private - and so do the people who fund them. On the positive side that allows the public company to move quickly. On the flip side, it means investors and regulators are deprived of meaningful information about those investors, many of which may simply be offshore companies with nominee directors and officers. 


PIPES provide an appealing mechanism, provided they are utilized judiciously. On the other hand, when companies issue PIPES repeatedly they leave shareholders diluted and disgruntled, and create a public float that may cause them to drown in their own shares. 


Money is flowing again, but the individuals who are providing it are sophisticated, shrewd, and dedicated to profit. In order to be treated fairly in these transactions, public companies should be equally focused on their goals and set reasonable limits on the price they are willing to pay for an infusion of capital.
Put that one in your PIPE and smoke it.

Hartley Bernstein and StockPatrol.com have been featured in The New York Times, The Wall Street Journal, Forbes, Barrons, Crain’s New York Business, Details Magazine, Chief Security Officer Magazine, and Investment Dealers Digest.
 

Friday, 4 October 2013

This One Is In the Genes

Those Wolfson boys are at it again.  This time they have been accused of bilking investors out of $6.6 million.  According to reports in the Salt Lake Tribune, Allen Z. Wolfson, his son David M. Wolfson and Michael S. Newman have been indicted by a federal grand jury on nine counts of wire fraud. 
The three men purportedly established a bogus company called Stem Genetics, which claimed to be conducting stem cell research.  The indictment claims that Stem Genetics did not conduct any stem cell research – and did not employ anyone qualified to do so.  The defendants reportedly dumped unregistered shares of Stem Genetic stock overseas, at inflated prices – targeting investors in Great Britain, Australia and New Zealand. 

 Potential investors were told that the Company's shares would soon trade on NASDAQ, at a price of $7 a share, around 20% more than the price they were paying.  Those customers were charged high commission, which were not disclosed.

The charges are reminiscent of those leveled in an earlier case against David Wolfson – also involving the sale of unregistered stock overseas.  In 2004, the Securities and Exchange Commission charged David Wolfson with orchestrating a scheme that involved the sale of shares under Regulation S, which permits oversea sale of unregistered shares to non-U.S. residents.  It seems that Wolfson and his colleagues found struggling U.S. companies that were hungry for cash (and occasionally formed the companies themselves) and then arranged for them to sell stock to a British Virgin Island corporation called Sukomo at a deep discount - 30% of the bid price.  

Since Sukomo was purportedly a non-U.S, citizen, the stock was sold without registration under Regulation S.  There were a few problems with this setup, as the SEC discovered.  First, Sukomo actually was a boiler room operating from Laos and Thailand, and looking for stock to dump on overseas investors. Second and more important as far as Regulation S is concerned, Sukomo may have been a non-U.S. resident but it never was a bona fide purchaser. In reality, Sukomo was simply acting as a broker and the proceeds from its boiler room operation were going back to Wolfson, his colleagues, and to a lesser extent, the issuing companies.  See, Beware The Evil Twins.
The Salt Lake Tribune reports that Allen Wolfson is awaiting sentencing in New York for securities fraud and Newman is serving a prison sentence in Laos for a financial crime.  A spokesperson for the U.S. Attorney's Office in Salt Lake City says that the SEC has recovered about $1.5 million of the funds lost by investors to the Stem Genetics scheme.

 



IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com

Thursday, 3 October 2013

Litigation Services

Our attorneys have extensive experience and expertise representing clients before federal and state courts and administrative agencies.  We also represent clients in arbitration, in mediation, and in other alternative dispute resolution settings.

Since 1980, Hartley Bernstein has earned a distinguished reputation as an advocate for individuals and companies in securities arbitration before FINRA and the New York Stock Exchange.  His expertise includes investor claims, employment disputes, and intro-industry matters.

As litigators, we represent individuals, corporations and other entities on a broad range of matters, including complex commercial, corporate and securities litigation, commercial disputes,  real estate and construction issues, mass-tort actions, matters involving serious personal injuries and property loss, professional malpractice, product liability, and employment disputes.
We represent our clients vigorously and diligently while remaining alert to our clients’ concerns. Where possible, we seek speedy disposition of matters, to best serve our clients’ interests in a thoughtful, cost-effective manner.



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