NeoMedia Technologies, Inc (NEOM)

[krays]

Very interesting excerpts from the recently filed ammended complaint. Substitute NEOM for Cobalis and the story is almost identical. I uploaded the entire complaint at the following link

http://www.mediafire.com/?jzznziy552g

UNITED STATES BANKRUPTCY COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
SANTA ANA DIVISION
In re
COBALIS CORP., a Nevada corporation,
Debtor.
_______________________________
COBALIS CORP., a Nevada corporation,
Plaintiff,
vs.
CORNELL CAPITAL PARTNERS, LP,
YORKVILLE ADVISORS, LLC, and,
YA GLOBAL INVESTMENTS, LP,
_______________________________
Defendants.
Case No. 8:07: 12347-TA
Adversary No. 08:09-ap-01705-TA
Chapter 11 Proceeding
FIRST AMENDED COMPLAINT
Case 8:09-ap-01705-TA Doc 10 Filed 05/17/10 Entered 05/17/10 16:56:32 Desc
Main Document Page 1 of 21

Case 8:09-ap-01705-TA Doc 10 Filed 05/17/10 Entered 05/17/10 16:56:32 Desc

Plaintiff, COBALIS CORP. (“Cobalis” or “Debtor”), respectfully represents and alleges:

19. Inherent in every contract entered into under New Jersey law is the obligation of the parties
thereto to act in good faith as to the performance of their contracts.
20. The convertible Debentures provided YAGI with the right to convert them into common
stock after a registration with the SEC became effective.
21. The price at which the conversion would take place was to be calculated according to a
formula insuring that the purchase price was at less than the then-current market price.
22. The transaction set forth above is considered a PIPE transaction.
23. YAGI is one of the largest (if not the largest) participants in PIPE transactions and has
entered into over 350 transactions with publicly traded companies since 2001.
24. The PIPE transactions entered into by YAGI can be fairly described as “designed to fail,”
as 75% or more of the 350-plus PIPE transactions entered into by YAGI between 2001 and
2008 are with public companies that are no longer in business. Nonetheless, during that
same time period, YAGI claims that the fund “never had a down month.”
25. These transactions, unknown at their inception to the publicly traded companies, were
designed to fail. It was never intended that the loans made by YAGI would ever be paid
back in cash.
26. YAGI’s purposeful omission to disclose to Cobalis that the entire transaction was designed
to fail was a material failure to disclose a fact essential to Cobalis’ understanding of the
proposed transaction.
27. YAGI’s economic incentive was to misuse the convertibility feature of the debentures,
which YAGI stated in the transaction documents would enable YAGI to participate as a
long-term investor in the prosperity of the borrowing public company.
28. Instead, YAGI decided it could make more money by shorting the stock of its borrower and
then covering the short sales with shares converted from the Debentures.
29. Continued shorting resulted in ever-decreasing market prices.
30. If the borrower could be driven out of business, and delisted, then the shorts would never
need to be covered as it would be impossible to deliver the stock.
31. The general rule for short sales is that a trader does not report gain or loss until he closes his
position by delivering stock to either the counter-party or the lender of the share
certificates.
32. In other words, all of the profits earned by YAGI through short selling shares of Cobalis
would be tax free if Cobalis would cease to exist.
33. It was therefore a transparent exercise in bad faith for YAGI to put Cobalis into Ch. 7 and
seek its liquidation in order to avoid the payment of taxes.
34. Only a handful of the companies that entered into PIPE transactions with YAGI are still in
business.
35. YAGI misrepresented to Cobalis that it hoped that its early purchase of Cobalis shares,
which could begin in April 2007, would mature into sizable capital gains in the future.
36. It was never disclosed to Cobalis that the true purpose of the conversion feature was to
enable YAGI to “cover” short sales of Cobalis, which began in or about April 2007.
37. The Securities Purchase Agreement expressly provides that YAGI would not short the stock
of Cobalis.