Legal

Tonga Ruling Sheds Light on the Bad Old Ways of the Structured PIPE Market

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Whatever the relative merits and ultimate disposition of the legal arguments Cannell Capital intends to use to appeal yet again a federal judge’s ruling that the San Francisco-based hedge fund manager violated the Section 16(b) short-swing insider trading rule and is liable to disgorge nearly $5 million in profits from a 2004 variable-priced convertible financing of a small Texas-based digital mapping company called Analytical Surveys, the public appeals by J. Carlo Cannell that his fund’s investments were long-term value-based investments that “saved the company” don’t pass the sniff test. Indeed, the most cursory inspection of the events that transpired at Analytical Surveys in the aftermath of Cannell’s involvement illustrates much of what is wrong with the structured PIPE market, then and now, from the perspective of shareholders seeking sustained growth of common equity. In an early June decision by the U.S. Second Circuit Court of Appeals in the case of Analytical Surveys vs. Tonga Partners LP, Cannell Partners LLC and J. Carlo Cannell (No. 09-2622-cv), a three-judge panel re-affirmed a 2009 district court ruling from the Southern District of New York that Cannell Capital, its sole managing member Mr. Cannell, and its fund Tonga Partners were liable for Section 16(b) trading violations in Analytical Surveys totaling $4.96 million in profit disgorgement to the company, now known as Axion International Holdings (AXIH).

Legal

OrbiMed Says Special Deal Structure Hijacked

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Healthcare investor OrbiMed is accusing competitor BB Biotech AG of improperly replicating the structure of a hybrid financing first proposed by OrbiMed to medication maker Intercell AG (INRLY). BB Biotech allegedly induced Intercell to end negotiations with OrbiMed and “enter into an identical transaction with BB Biotech, OrbiMed’s direct competitor, on the basis of unique terms that defendants misappropriated directly from OrbiMed,” according to a civil suit. The suit, naming Switzerland-based BB Biotech and its chairman of the board Thomas Szucs, was filed on May 24 in the New York State Supreme Court. A spokesperson for BB Biotech declined to comment as did a spokesperson for Intercell, which is not named in the action. Szucs is also the supervisory board chairman of Intercell, the suit says.

Legal

SEC Puts Kibosh on Midas Appeal

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Midas Securities and principal Jay Lee are subject to a two-year regulatory ban after the SEC upheld FINRA’s findings that the firm helped sell millions of shares of unregistered iStorage shares. The company was formed through a reverse merger with shell Camryn in 2004, after which FINRA began investigating a storm of spam email touting iStorage. The regulator learned that insiders deposited 4.5 million shares of unregistered stock into accounts at Midas and WTF Corp. (WTF is currently appealing sanctions.) Over 3 million shares were sold, at which point FINRA learned the brokers had no rules for keeping track of unregistered shares or lawfully selling them. “Lee testified that he did not want his representatives to make any decisions as to whether a stock was restricted because it was ‘not their duty,’” FINRA disciplinary records say.

Legal

SEC, Hedge Funds Say Absolute Fund Cash Disappeared

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The SEC, OM Investment and North East Capital filed separate suits last month against Absolute Fund Management and principal Jason Konior, all alleging that Absolute stole investment funds. North East filed suit against Absolute on May 2 in the New York State Supreme Court, whereOMfiled against the same parties on May 16. The SEC filed on May 24 in the U.S. District Court for the Southern District of New York. FINRA’s employment history for Konior as a broker show him changing jobs 16 times from 1996 to 2006, when he was last registered. The records reveal a variety of customer complaints against Konior, some of which were resolved in his favor.