Hanover Direct, Inc. (fka HNVD)

[futurecyborg]

Letter to the SEC by: willieskinardo

I would like to bring to your attention a situation where retail shareholders are being taken advantage of by a hedge fund, Chelsey Direct. As you will see, this behavior is in direct violation of the code of ethics and fair play for all shareholders that your office works so hard to enforce.

Hanover Direct (HNVD) is majority owned by Chelsey Direct. There are approximately 22.5 million shares outstanding, about 15 million owned by Chelsey Direct. In December or 2004, the company announced an internal audit that needed to be completed before they could file their 10K with the SEC. As a result, HNVD shares were delisted from the AMEX. Without any word from the company, the shares then started trading on the Pink Sheets, where they remain until this day.

This audit was finally completed in February of 2006. The company released full year 2005 results as well as 2004 filings with the SEC. Generally, the results were positive, with the company maintaining constant year-over year sales, as well as acheiving a profit, despite the costs associated with the year-long audit. However, the statement from the company accentuated the negatives while not mentioning a single positive.

HNVD shares were trading in the $2.50-3.00 price range prior to and after the release of the 2005 results. This values the company at approximately $61 million. A review of comparable companies (either current market valuation or valuation obtained from recent M&A activity) values a company like Hanover anywhere from .5 to 2 time sales. At approximately $400 million in sales, this would value the company at somewhere between $200-400 million.

Despite the negative tone of the Hanover press release on 2005 results, the stock closed at $2.55 on Friday, February 24th. Today, Monday, February 27th, the company announced an offer from Chelsey Direct to take Hanover private. This offer was for $1.25 per share, less than one half of closing price on Friday. This offer values the company at approximately $28 million, or roughly 7% of sales.

In summary, I contend that Chelsey Direct has influenced the tone of the company press release on earnings, in a deliberate attempt to drive down the share price. This proceeded their offer to take the company private at an unfairly low valuation, based on both the market price at the time of the offer and peer valuations. With this offer, they have successfully managed to influence share price down another $1, in an attempt to force individual shareholders to tender their shares at a fraction of the true market value.

As I hope you will see, this is a classic example of the "rich and powerful" abusing their power and taking advantage of the "little guy" retail investor. I realize that you are overworked and understaffed and that this is a relatively small company in comparison to all that you govern. However, I urge you to insert your influence in this situation as there will seldom be such a blatant and shameless example of the retail investor being wronged by a hedge fund and company management that believe they can act with impunity when manipulating the market for their gain. I realize that individual shareholders like myself can pursue a class action shareholder lawsuit, but I believe that Chelsey / Hanover expects this and knows they will prevail because of their deep pockets and influence. At the very least, they have calculated that even with a small settlement, they will come out well ahead versus doing the just and honest thing.

It is comforting to the retail investor like myself that an organization such as yours exists to protect all investors in the market, regardless of size, wealth, and political influence. I thank you in advance

http://finance.messages.yahoo.com/bbs?.mm=FN&action=m&board=7082317&tid=hnv&sid=7082...