Legal
Emmis Communications

Zombie Shares, “Race to Bottom” at Issue in Emmis Take-Private Plan

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As Emmis Communications Corp.’s (EMMS) take-private plans await a crucial proxy vote on August 14, holders of preferred shares once worth $40 million are accusing Emmis and its founder, CEO, president and board chairman Jeffrey Smulyan of rigging a fraudulent deal that will render their stock worthless while giving Smulyan a 429% return on his own equity stake in the company. Smulyan and Emmis, who bought back many of the preferred shares, said in court documents the securities’ terms need to be changed to allow the take-private deal and thus create value for the company. Some $10 million in unpaid preferred dividends would be written off in the process. “I have no interest in paying [the dividends],” Smulyan said in a deposition. “I've never met anybody in our management team or our board of directors who has any interest in paying these people any money.”

Certain of those “people” have serious concerns about the fate of their preferred shares, according to a lawsuit filed by investors including Corre Opportunities Fund, DJD Group, and Zazove Associates.

Markets
Banks Deregister

Banks Queue Up to Deregister

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The Securities and Exchange Commission’s recent admission that full implementation of the Jumpstart Our Business Startups (JOBS) Act would be delayed has done nothing to deter one group of businesses from aggressively using the law to its benefit. Seventy-one small banks have filed to deregister their securities and stop reporting to the SEC since the Jobs Act was signed into law in early April, according to researcher SNL Financial and filings with the commission. What’s more, 61 of those banks filed to deregister between April 2 and May 25, which was more than the aggregate number of banks that filed to deregister over the entire prior four years, SNL noted. Under the Jobs Act, financial institutions can now terminate registrations if they have fewer than 1,200 shareholders, an increase from the prior 300-shareholder ceiling. Additionally, private banks don’t have to register with the SEC until they have 2,000 shareholders, up from 500 shareholders prior to the act.

Deals
Rosetta Genomics

Registered Direct Deals Power Rosetta Genomics Roller Coaster

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The price of stock in Rosetta Genomics Ltd. (ROSG) shares moved up dramatically after it issued a $2.2 registered direct private placement in mid-May, but the market reacted less enthusiastically after a $6.57 million issuance at the end of the same month. (Aegis Capital Corp. placed both registered directs with undisclosed investors.)

Still, a dramatic overall increase of 90.3% from early April through the end of the second quarter testifies to optimism over new genetic diagnostic testing work - and contrasts with the plunge the stock took after it announced a $1.38 million registered direct offering on the morning of April 12. That announcement was followed by a decline of 55% from the previous day’s close.

Legal
SithLord

Brothers Bound in $15M Naked Shorting Settlement Involving Fairfax Financial

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The SEC has settled a case against two brothers who used complex options trades and naked short sales to reap more than $9 million in illicit profits that may have ties to one of the most controversial activities of small-cap trading hedge funds over the past decade. Brothers Jeffrey and Robert Wolfson did not dispute naked short selling allegations when they separately settled Securities and Exchange proceedings for a total of $15 million in disgorgement, interest and civil penalties. Sanctions against Robert Wolfson also encompassed Golden Anchor Trading II, which provided Robert Wolfson with capital in exchange for 50% of his trading profits. The companies traded illegally included Fairfax Financial (FFH), whose huge short sale trading fail-to-deliver numbers in the mid-2000s seemed to have no rational cause.Toronto-based Fairfax sued eight hedge funds including SAC Capital in 2006 for $8 billion in damages, claiming the funds were engaged in a conspiracy of distortion and false rumor-mongering aimed at destroying the company's market value and reaping profits from the funds' heavy short selling of Fairfax's stock. SAC and six other funds won an early dismissal of the suit.