Cytodyn Inc (CYDY)

[Scooter McCabe]

What The Proxy Contest Lawsuit Tells Us.

The only reason to resort to a lawsuit is that the SEC was fine with the filing and allowed the contest to continue. There are a few reasons for this. First most of what Nader claims aren't really material issues. For example he complained that some guy didn't disclose he was the CEO of a race car company. The SEC probably looked at it and said "so?"

So the last resort is to get a court order preventing the contest from happening. And here lies the problem with that. The court will be loathe to go against the SEC as a matter of precedence. So unless there was some egregious mistake on the part of the SEC, the court won't side with CYDY.

Meanwhile Nader may be committing securities fraud in the meantime by denying the proxy vote before he has a lawful order allowing him to do that. Because there are two big things CYDY has to show first before they can really do anything.

1. The bylaws don't violate SEC rules and that they actually apply to this situation. If the bylaws are successfully challenged, well CYDY lost.

2. Is the questionnaire absolutely clear. If the language of the bylaws is vague or left up to too much interpretation, the court will not side with CYDY. There is a public interest in having clear, plain language in matters such as this.

Nader has also committed a serious strategic error. By suing this group, he now exposes himself to open testimony in court. The 13D group will have the right to question the officers of the company. That means Nader gets to sit there in court getting bombarded with some real tough questions. Questions that may very well add fuel to the fire of the SEC and DOJ investigations.

The other half of this incredible error is that if the court says Nader was wrong in blocking the proxy vote, it means he committed fraud. At which point Nader will be incredibly deep shit. It's one thing to have an injunction allowing vote to be put off until the legal matter is resolved, because the court has given it's permission to hold off on the vote. It is another to act knowing that the legality of your actions is in question. No court is going to high five Nader for doing something so stupid.

So this lawsuit is a last ditch desperation play. I can only wonder what will happen if the 13D group wins, and what they will find when they audit the company.