Legal

Investors Closer to Seizing Assets in Spongetech Fraud

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Investors in one of the largest small cap stock frauds, Spongetech, are starting to see the SEC make progress in asset recovery. Court documents filed in August in the SEC’s case against Spongetech and its founder, Michael Metter, show some of the assets of BusinesstalkRadio.net have sold. The sales price is not listed in court documents but people involved in the litigation told Growth Capital Investor the sale was for around $100,000. But recent claim filing by a mysterious creditor threatens to come between any proceeds from the asset liquidations and defrauded investors. BusinesstalkRadio.net (BTR ) and its parent Blue Star Media Group were named as relief defendants in the SEC’s securities fraud suit against Spongetech, Metter, and five other men who worked with him.

Markets
Broken PIPEs

Whither the PIPE Funds of Yesteryear?

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A variety of factors has created new PIPE investing dynamics, and most of the high-volume investors from before the global financial crisis have left the space or curtailed their operations. As long-only mutual fund, pension, private equity and other broad spectrum investors like Fidelity Management & Research,Teachers Insurance and Annuity Association, T. Rowe Price Associates, and AQR Capital Management have become prominent purchasers of PIPEs and registered equity private placements (EPP) in both deal flow and dollars invested, many trading-oriented hedge fund investors have cut back their EPP investing drastically or moved on completely. While the trend doesn’t come as news to most professionals active in the emerging growth capital market, the magnitude of the shift may. Analysis comparing PlacementTracker transaction volume data for the first three quarters of 2012 and the comparable period in 2007 found that only five investors from the top 25 investors in 2007 made the same list this year: Heights Capital Management, Hudson Bay Capital Management, Downsview Capital, Iroquois Capital, and UBS O’Connor.

Legal
crowdfunding

Regulators Sifting Through Crowd of Comments

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Considering the number of issues competing for time at the Securities and Exchange Commission – from poring over comments on its recent general solicitation proposal to implementing a raft of Dodd-Frank provisions – it is widely believed that the regulator will push back the end-of-the-year deadline to propose rules for equity crowdfunding. Nevertheless, crowdfunding proponents and skeptics alike accelerated their posting comments at the commission’s website ahead of an October 5 deadline, hoping to convince staffers to see things their way. Similarly, market participants interested in the funding portal end of the business raced to file comments to the Financial Industry Regulatory Authority before an August 31 deadline. While the SEC is simply asking for ideas concerning the general rules and implementation of equity crowdfunding and portals – or Title III under the act – FINRA is in the position to oversee the registration and regulation of the funding intermediaries. In July it issued a release seeking opinions on portal supervision, advertising, fraud and other issues.

Legal
Corey Ribotsky

Ribotsky Fires Back in SEC Suit

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NIR Group founder Corey Ribotsky filed court documents contesting the Securities and Exchange Commission's claims that Ribotsky mislead PIPE fund investors and diverted over $1 million in clients' assets. Funds managed by NIR, which include four AJW entities and New Millennium Capital Partners II, committed $225 million to
144 PIPEs from 1999 through 2010, according to PlacementTracker data. In August, the commission filed an amended complaint (reported here) containing previously made allegations that Ribotsky engaged in fraudulent accounting, lied to investors and stole over $1 million from one of his funds. New allegations included further details about the regulator’s claims that Ribotsky derived management fees from phantom gains and engaged in improper accounting. Ribotsky's answer to the revised complaint denied over 100 allegations, mostly without comment, and responded to others by stating that allegations required a legal conclusion or were addressed in documents already in the hands of regulators.