High Wire Networks Inc (HWNI)

[Ecomike]

Interesting read, this part got my attention.

"Majority Shareholder Fraud by Deception
Allen v. Devon Energy Holdings, L.L.C. concerned the redemption of Allen’s minority interest in an LLC involved in natural gas exploration and development. The LLC redeemed Allen’s interest in 2004 based on a 2003 $138.5 million appraisal of the LLC. In 2004, however, the LLC sold for $2.6 billion—almost twenty times the value used to calculate the redemption price. Allen sued, claiming that the majority shareholder and the LLC made misrepresentations, failed to disclose facts regarding the LLC’s future prospects, and that Allen would not have sold his interest in 2004 if he had known these material facts. For instance, the majority shareholder withheld information concerning the LLC’s technological advances in horizontal drilling and significant lease acquisitions in an existing natural gas field, both of which occurred after the redemption offer but before the redemption.

Although the transaction was a redemption in which the company was the purchaser, the court of appeals treated the transaction as though it were a purchase by the majority shareholder. “We note that the duty we recognize is owed by Rees-Jones, a majority owner and manager with virtually unmitigated control over an LLC, not [the LLC] itself—whether [the company] owed Allen any fiduciary duties is not before this Court.” The appellate court determined that a majority shareholder owed a fiduciary duty to a minority shareholder in the context of a redemption agreement. The court based its decision on majority shareholder’s operating control over the affairs of the company and intimate knowledge of the company’s daily affairs and future plans. Further, the purchase of a minority owner’s interest benefitted the majority owner.

Ritchie v. Rupe’s treatment of this line of authority is significant. The majority opinion cited Allen as authority for the ability of individual shareholders to sue directors and majority shareholders for “fraudulently manipulating the shares’ value” under existing causes of action. In re Fawcett, Miller, and Allen all clearly recognize that corporations—and by extension officers, directors, and controlling shareholders—owe fiduciary duties to minority shareholders at least in the context of a transaction to purchase the minority’s shares when there is knowledge of material facts within the corporation not disclosed to the shareholder. These duties are completely consistent with the legal relationship and duties described in Yeaman v. Galveston City Co.; they are completely inconsistent with notion that no common-law duties are owed directly to minority shareholders. However, Ritchie’s citation of Allen as “addressing fraud claims relating to closely held company’s purchase of minority shareholder interests” —a fraud by deception claim that existed only because of the fiduciary duty to make full disclosure—is at least an implicit acknowledgment of the existence of some duties owed to minority shareholders. "

1 billion to one dilution is even more heinous that what I read above.