| Roald |
08-30-2011 10:31 AM |
From Xbiz
LAS VEGAS ? Private Media Group has formally filed with the Nevada Supreme Court an emergency writ to stay the motion for receivership, claiming the judge in the case abused her discretion in appointing a receiver.
The appointment of a receiver for the multinational adult entertainment company is potentially damning, Private counsel say, and already the receiver ? Sureflix unit CEO Eric Johnson ? hasn't wasted any time in exercising his authority, including with its finances.
"Within hours of the order being signed and before the order was even formally entered, he emailed relevant financial officers and directed that, 'Effective immediately cease all payments including but not limited to, each and every account of the company's bank accounts, credit accounts, credit cards and any and all other accounts,' " Johnson said in an email to company officials, according to Private counsel. " 'Also halt the release of any payments in whatever form, be it check or bank transfer or any other method for which prior approved (sic) for payment or release has been given. Such hereby approval is hereby rescinded."
Private said in its emergency writ to the Nevada Supreme Court that Johnson's "first act as receiver may be all that is required to destroy this company and its subsidiaries."
Private said it wants the motion for receivership vacated because the appointment of a receiver is not authorized under Nevada corporate statutes and that Clark County Judge Elizabeth Gonzalez abused her discretion in setting forth "a remedy that is unduly harsh."
"The unduly harsh remedy of appointing a receiver would create further disruption, likely resulting in an additional reduction of the stock price and the appointment could jeopardize and disrupt relations with vendors and customer, and lead to delisting from Nasdaq and the calling of loans," Private said in its motion.
Private counsel noted that the appointment of a receiver under an involuntary dissolution statute doesn't appear to have ever been applied to publicly traded companies, either in Nevada or other states.
Private, which has criticized the judge for "personal bias," also said that Gonzalez already knew and openly discussed the action she was going to take before the day of the hearing.
"Following a three-day trial in an unrelated matter known as CMKM Diamonds Inc. vs. Urban Casavant, et al., Judge Elizabeth Gonzalez stated the day before the Aug. 23 hearing on the appointment of a receiver: 'Hopefully my delisting of the publicly traded corporation will happen tomorrow morning, too, won't have to have a long hearing,'" Private said. "Not only does this demonstrate that the judge knew of and accepted such an adverse effect on the company."
When Gonzalez gave Johnson, a Private shareholder and Sureflix division CEO, the reins of Private, she gave the newly appointed receiver the immediate, free-wielding authority to exercise dominant control over the company, including the removal of directors and officers.
Gonzalez's ruling was frank and could lead to organizational changes and ousters within the company, which has nearly 20 divisions.
"To achieve control over any such subsidiary, Mr. Johnson or his designee or assignee shall be and is empowered by this court to remove, suspend and/or appoint directors, officers, administrators, managing members and employees of all of Private's direct and indirect subsidiaries," Gonzalez ordered.
The following day after the receivership was ordered, Private said in a filing with the Securities and Exchange Commission that the board would remain intact until the next shareholders vote at a later date.
The appointment of Johnson as receiver and surrounding legal claims taking place at Clark County District Court are the result of litigation between former CEO Ilan Bunimovitz and Private since his firing in July 2010.
In the suit, Bunimovitz claims he was terminated for demanding a probe of CEO Berth Milton?s alleged "self-dealing" transactions that total $10 million.
Bunimovitz's lawsuit, which included Private creditor and co-plaintiff Consipio Holding BV, alleges mismanagement of the company?s business by three Private directors and Milton.
Bunimovitz continues to have a vested interest in the stock. According to a June filing with the Securities and Exchange Commission, he owns about 1.9 million shares invested in Private stock.
According to Gonzalez's findings, "Milton caused Private to make numerous substantial unsecured loans to himself and entities he controls, serving no Private corporate purpose. These loans were not approved by the board of directors when made and Milton has made no attempt to repay them for at least the past five years."
Gonzalez further noted that the $10 million in loans to Milton's separately controlled business ? Slingsby Enterprises Ltd. ? have no maturity date and that Slingsby has yet to pay a penny back to Private.
The jurist cited scores of other examples to sway her decision over receivership, including that that the current board of directors has never demanded repayment of the loans ? now in its second year ? and that Milton himself acted as the compensation committee who paid himself $625,000, without approval by the board.
But the failure to take any "concrete steps" to affect an Aug. 15 shareholder meeting to choose a board, which likely would topple Milton's control over the company, was probably the lightening rod for the judge. (An earlier ruling invalidated the number of shares owned by Milton, who later voted against the Aug. 15 meeting.)
"Private knowingly disobeyed or, at the very least, knowingly and actively resisted in complying with the July 1 written order [that would have set a shareholder vote]," she wrote.
Scolding Private and Milton, Gonzalez said that Private's financial condition has deteriorated significantly since the case was filed and that outside auditors "continue to express doubt about Private's ability to continue as a going concern."
"Private's directors, most notably Milton, have been guilty of gross mismanagement in the conduct or control of Private affairs," she wrote. "Private has been unable to conduct its business in accordance with established principles of good corporate governance because of Milton's refusal to allow it to do so and his exercise of undue influence over Private's so-called 'independent' directors."
Private counsel is hoping the Nevada Supreme Court hears oral arguments on the emergency write on Sept. 8, when another Private appeals another matter in the case.
Bunimovitz, Private general counsel Samuel Guzik and Milton declined comment to XBIZ. Johnson did not immediately respond to XBIZ calls for comment.
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