UPDATE 6.27.19 – The hearing to determine if the temporary restraining order against Bruce Bernstein, Rockmore, and B3D LLC will remain is July 1st. 2019 at 3pm in the Southern District of New York federal court in front of Judge Stanton. The XpresSpa plaintiffs have also filed an appeal challenging Judge Stanton’s summary judgement decision.
Original Text
A federal judge has ruled the securities fraud case against XpresSpa directors and investors Richard Abbe and Bruce Bernstein can not go forward. U.S. District Court Judge Stanton ruled for the defendants motion of summary judgement this week. The plaintiffs in the suit, Morton and Marisol Binn, are the founders of the airport spa biz. Abbe and Bernstein were accused of working together to hide Richard Abbe’s investment in a senior secured debt note that controlled the companies financial decisions called the Rockmore Note and as result the Binn’s argued this took away Abbe’s independent status as a board director when he voted on what they called a forced merger.
Abbe’s undisclosed interest in the Rockmore Note came out during litigation when the ex-wife of his investment partner, Bruce Bernstein, sent the plaintiffs a copy of a letter and balance sheet that showed a retirement investment vehicle of Abbe’s called American Capital, had over $1 million investment in the $6.5 million note. The judge ruled because American Capital is set up with Iroquois office manager Kimberly Paige (her official title is Chief Operating Officer) as manager of American Capital that Abbe didn’t have a material fact to disclose his investment in the Rockmore note. As a result of the way American Capital is set up the judge ruled the plaintiffs don’t have a case for securities fraud in misleading investors. As far as the Binns claims go, Abbe is now free of these accusations unless the Binns appeal the decision. Abbe and Bernstein still face similar securities fraud claims though filed by a wealthy Swiss investor, Roman Kainz, this March that is also in front of Judge Stanton.
The Binn’s lawyer at CKR Law wrote a letter to the judge this week that they plan to file a motion for reconsideration of the decision but that is not likely to have much weight on changing the mind of the 93-year-old federal judge. In fact late this afternoon the judge said just that in an order to the court. The order clarified that the current temporary restraining order against Bruce Bernstein and any entity that controls the Rockmore Note is still going forward and the case is not over yet. I reported this month on the TRO in which Judge Stanton said Bernstein as chairman of XpresSpa has a fiduciary duty to act in the interest of shareholders before he acts in the interest of the debt holders of the Rockmore Note and issue a default that could seize the remaining company cash and assets.
In a rare move, Judge Stanton also never allowed any discovery in this case. Discovery is usually allowed between a motion to dismiss, which the Binn’s beat, and a summary judgement motion. The Binns never had a chance to seek emails or documents about who actually makes the investment decision at American Capital. Instead the judge relied on statements made in SEC filings with companies Iroquois invested in that Kimberly Paige is the manager of American Capital. The Binns working theory was Abbe could be controlling the investing decision of American Capital but were not afford discovery to prove that in this case.
I have previously reported on the controversial dual investments of Iroquois and American Capital in the past with a company called MGT Capital at a trade publication called Growth Capitalist. MGT Capital is run by a former hedge fund manager named Robert Ladd. Iroquois had run an activist campaign against Ladd when the company was an online gaming company. MGT Capital is now in the bitcoin mining business and had subsequent investments by accused pump and dump leader Barry C. Honig. Iroquois was named in an SEC subpoena I reported on previously involving the Securities and Exchange Commission investigation of a group of microcap investors not disclosing they trade as a group of affiliates. While covering the MGT story I saw emails from Kimberly Paige acting as what appears to be a communication assistant to Richard Abbe and Josh Silverman when the fund would send out request for warrants to be executed. At no time did Kimberly Paige play a role of investment adviser or a decision maker in the investment choices or board choices while Iroquois was an active investor in MGT Capital, according to Ladd. American Capital also showed up as owning a significant amount of shares in MGT stock during the same period of Iroquois’ investment. I reported for Growth Capitalist that Ladd had concerns the Iroquois managers were using American Capital to short his company while Iroquois was on a negative activist campaign. Ladd said he was never able to discern the true decision maker of American Capital and only knew Abbe and Silverman had an economic interest in it.
Richard Abbe now has the advantage of saying a federal court judge ruled he doesn’t control American Capital. That’s assuming the other aggrieved investor suing him, Roman Kainz, looses his suit that claims Abbe is American Capital.
Bruce Bernstein, and effectively Abbe who has an economic interest in the Rockmore note, still faces a TRO hearing in June. Judge Stanton ruled late this afternoon that his ruling on the summary judgement doesn’t mean this case is over or that the TRO is off. Meaning the investors in the Rockmore Note can not currently use their senior secured position to call in the note and bankrupt XpresSpa.
Abbe is apparently thrilled with the judge’s decision. In fact, his Latham and Watkins attorney Chris Clark, who is representing him as individual not in his role as a XpresSpa board member, started making aggressive comments on my reporting this week. Abbe has been given the chance to comment on every story I have reported and has been radio silent. Clark admitted he made this comment yesterday on the latest story I reported about a temporary restraining order being granted.
Abbe’s Latham & Watkins attorney opinion of my journalism
Abbe’s co-defendant Bernstein has accused me in a lawsuit of being paid by someone involved in the case to report on the XpresSpa litigation. That is absolutely not true and Abbe knows NY State court Judge Franc Perry ruled against those claims when he dismissed Bernstein suit against me this March. Abbe’s attorney Chris Clark also wrote me a threatening letter today demanding I report on the summary judgement decision now and has tried to direct how I report it. I reviewed that demand with a lawyer who said no journalist can be made to update a story in a specific amount of time. I have no malice against Richard Abbe or any investments in any of the companies he has invested in.
Attorney Christopher Clark of Latham & Watkins went on to express another opinion about my reporting in an email today saying,
“Your reporting has so little credibility that it is a bad joke. I am shocked anyone takes you seriously. Your next story on XpresSpa should be an apology to all the defendants for your false reporting thus far.”
I don’t believe I have knowingly reported anything in the coverage of XpresSpa that is false. I have expressed an opinion based on evidence presented in court filings that I think Bernstein-Abbe misled and lied to investors in the XpresSpa merger and now a judge has ruled that one plaintiff did not present enough evidence that Bernstein and Abbe’s SEC filings were misleading.
I emailed Abbe’s attorney Christoper Clark for a response to the fact that Judge Stanton ruled today the case is not over and the ruling that the TRO hearing will continue. I didn’t not get a response by press time. I also asked Richard Abbe to go on the record that Kimberly Paige has controlled all the investing decisions for American Capital since at least 2012. If I get a response I will print it.
Share Your Voice