9/8/04 US Judge Dismisses Jag Media's Fraud Case Vs Brokerages DJ Newswires
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US Judge Dismisses Jag Media's Fraud Case Vs Brokerages
By CAROL S. REMOND
September 8, 2004 12:06 a.m.
Of DOW JONES NEWSWIRES
NEW YORK -- U.S. District Judge Vanessa Gilmore last week dismissed Jag Media Holdings Inc.'s (JAGH) allegations of securities fraud and illegal short selling against dozens of brokerage firms and financial institutions.
Jag Media and Gary Valinoti, the company's former chief executive, sued over 100 brokerage firms, investment firms and financial institutions in July 2002, alleging that they entered into a civil conspiracy and concert of action to short sell Jag Media's stock. In the suit, originally filed in the Judicial District Court, Harris county in Texas and later removed to the U.S. District Court for the Southern District of Texas, Houston Division, Jag Media alleged that the financial institutions committed market manipulation and fraud and violated securities laws.
Judge Gilmore said in her order that she granted a motion to dismiss the case filed by 75 of the defendants because she found multiple deficiencies in Jag Media's third amended complaint. Gilmore found that Jag Media doesn't have a viable claim against those defendants.
More than 70 defendants had filed a motion to dismiss Jag Media's claim against them in November 2002, claiming that the company failed to state a claim, failed to allege any wrongdoing by any specific defendants and failed to properly claim fraud.
In September 2003, Judge Gilmore had found that Jag Media failed to establish that all or any of the defendants violated the securities exchange act. Gilmore said that Jag Media's second amended complaint lacked specifics and asked Jag Media to file an amended complaint.
Jag Media filed its third amended complaint in October 2003. The company alleged in that complaint that its case involves an initial scheme by three of the defendants - Mark Valentine, Thompson, Kernaghan & Co. and CALP II Limited Partnership - to defraud Jag Media into selling convertible preferred stock at less than fair market value. According to Jag Media, this initial scheme was followed by a second scheme in which brokers and market makers manipulated the company's shares for their own profit. Jag Media claimed that the financial firms used various trading tactics such as matched trades, washed trades, "painting the tape" and selling counterfeit, or non-existent shares.
(Jag Media alleged that brokerage firms illegally sold short its stock without first locating required shares to borrow. That process is known as naked short selling).
Jag Media, a provider of Internet-based equities research and financial information, alleged that this manipulative scheme forced the price of Jag Media stock lower, almost destroying the company in the process.
Judge Gilmore's ruling is a blow to Jag Media, a company that has been at the forefront of the claim by some small publicly traded companies that their stocks have been illegally sold short by brokerage firms and market makers. Jag Media recently completed a recapitalization of its stock, exchanging outstanding shares for new "certificate only" shares of common stock in an effort to make it harder for investors and brokerage firms to sell short its shares.
Jag Media wasn't immediately available to comment and it's unclear whether the company will appeal the judge's decision.
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074; carol.remond@dowjones.com
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