Spongetech Delivery Systems, Inc. (fka SPNGQ)

[loanranger]

Judge Bernstein has something to say (apologies if this is a repeat):


UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------X
In re:
:
:
SPONGETECH DELIVERY
:
Chapter 11
SYSTEMS, INC.,
:
Case No.: 10-13647 (SMB)
:
Debtor.
:
------------------------------------------------------X
MEMORANDUM AND ORDER REGARDING SHAREHOLDERS’
REQUESTS FOR VARIOUS FORMS OF RELIEF

Numerous shareholders of the debtor (“Spongetech”) have written to the Court
asking for a variety of relief relating to proceedings in this case and in the chapter 11 case
of Spongetech’s affiliate, Dicon Technologies, LLC (“Dicon”), Case No. 10-41275,
which is presently pending before Bankruptcy Judge Lamar W. Drake in the United
States Bankruptcy Court for the Southern District of Georgia (the “Georgia Court”).
None of the relief is sought by formal motion. The Court cannot grant any of the
requested relief for the reasons stated below, but some preliminary background is helpful.

Spongetech, a Delaware publicly-held corporation, manufactures, markets, and
distributes cleaning products, including car sponges, pet sponges, bowl cleaners, and
child bath sponges with licensed characters such as SpongeBob, Pink Panther, and Dora
the Explorer. Spongetech is also the sole member of Dicon. On or about June 18, 2010,
an involuntary petition was filed against Dicon in the Georgia Court. Relief was ordered
under chapter 11 on or about June 29, 2010, and Lloyd T. Whitaker has been appointed
the chapter 11 trustee. Spongetech filed its own chapter 11 petition on July 9, 2010. The
Court directed the appointment of a chapter 11 trustee, and Kenneth Silverman now
occupies that office.

It appears that the Dicon trustee has noticed a sale of assets in the Dicon case, and
the shareholders object. They have asked me to deny or prevent the sale. In addition,
they have asked me and Judge Drake to combine the two cases, apparently in New York.
I, however, have no jurisdiction over the Dicon case; only Judge Drake does. To the
extent the shareholders oppose the sale or seek relief in the Dicon case, they must present
their requests to Judge Drake. Similarly, as the Dicon bankruptcy case was filed first, the
shareholders must move in the Georgia Court to transfer the venue of Dicon to this Court.
See FED. R. BANKR. P. 1014(b).

Finally, the shareholders have also asked me to look into the “illegal” naked short
selling of Spongetech stock. They allege that the naked short selling resulted in a
proliferation of purported shareholders, an inability to identify them and ultimately, the
destruction of Spongetech’s business. The allegations made by the shareholders are
serious, and obviously relevant to the administration of the case and Spongetech’s
financial affairs. Unfortunately, the estate lacks the money to conduct the investigation
they request. Furthermore, Spongetech appears, at this point, to be insolvent. Under the
circumstances, it would be inappropriate to force the creditors – who are also victims – to
shoulder the cost of the investigation that is sought. The shareholders may, of course,
conduct an investigation at their own expense consistent with the Bankruptcy Code and
Rules.
So ordered.
Dated: New York, New York
September 23, 2010
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Court


Editor note: Replace Drake, where it appears, with Davis.