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).
