Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages
Alisa Greenstein, Hedge Fund Law Report, 27 August 2010
On August 9, 2010, the United States District Court for the Southern District of New York (Southern District) effectively ended the decade-long litigation between Internet Law Library, Inc. (INL), its executives and several of its shareholders, and Southridge Capital Management, LLC (Southridge), its principals and affiliates, including hedge fund Cootes Drive, LLC, and its broker, Thomson Kernaghan & Co., Ltd. (TK & Co.). The litigation arose out of a “floorless” or “toxic” convertible securities purchase agreement between INL and Cootes Drive.
The agreement allowed Cootes Drive to demand conversion of its INL preferred stock into common stock based on a floating conversion ratio tied to the common stock’s market price, and obligated Cootes Drive to float a $25 million line of equity, so long as INL common stock remained priced above a certain level. This arrangement arguably provided Cootes Drive and its affiliates with an incentive to aggressively short-sell INL common stock, because the further they decreased its price, the more common stock Cootes Drive could obtain on conversion (which it could use to cover its short positions and profit from the difference), and because that decrease would eliminate its obligation to provide a line of equity. The agreement proved disastrous for INL, just as it has for many other companies with similar financing arrangements. Continue reading “Article: Manhattan District Court Writes Final Chapter in Litigation Between Internet Law Library and Hedge Fund Adviser Southridge Capital Management; Orders Tech Firm to Pay Adviser Almost $1.2 Million in Attorney’s Fees on Top of Damages”
Naked Shorting Will Cause U.S. Exchange Exodus
Financial Wire, 5 August 2010
This week, an important online news service released an article that should send shockwaves into our public markets. In very curt form, the article chronicles the many abuses of U.S. public companies by short selling manipulators, particularly through naked short selling and regular and derivative based synthetic shorting. By implication, the article recites the sheer embarrassing ineffectiveness of our regulators, who are engaged in a pattern of systematic conflicts of interest with revolving doors that are a major disgrace to our own government.
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Wall Street’s Big Win
Rolling Stone, 4 August 2010
Cue the credits: the era of financial thuggery is officially over. Three hellish years of panic, all done and gone – the mass bankruptcies, midnight bailouts, shotgun mergers of dying megabanks, high-stakes SEC investigations, all capped by a legislative orgy in which industry lobbyists hurled more than $600 million at Congress. It all supposedly came to an end one Wednesday morning a few weeks back, when President Obama, flanked by hundreds of party flacks and congressional bigwigs, stepped up to the lectern at an extravagant ceremony to sign into law his sweeping new bill to clean up Wall Street.
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Short selling – legitimate trading or market abuse?
Kevin Terhaar, CFA Institute
Financial Times, 1 August 2010
Naked shorting runs afoul of rules and regulations in most jurisdictions, and for good reason. It can undermine investor confidence because uninformed buyers are deprived of the basic benefits of ownership, such as voting and dividends, when naked short sellers fail to deliver shares or deliver unauthorised shares. In essence, naked shorting is a fraud perpetrated on buyers because sellers may have no ability (and indeed no intention) to fulfil their end of the deal.
Paywall Access to the Article.