3-Sigma Value Financial Opportunities LP, et. al. v. Jones
|Court:||Delaware Court of Chancery|
|Judge:||Vice Chancellor Sam Glasscock|
|Case Contacts:||Mark Lebovitch, Christopher J. Orrico, John Vielandi|
On October 29, 2015, BLB&G filed a complaint on behalf of BRH Opportunities Feeder, LLC, BRH Opportunities III, LLC, BlueMountain Financial Holdings, LLC, TDSS Equity Investments A LLC, and SCOPESII Equity Investments A LLC (collectively, “Plaintiffs”) brought derivatively on the behalf of Nominal Defendant CertusHoldings, Inc. (“Certus” or the “Company”), and as a class action on behalf of Plaintiffs and other stockholders of Certus against certain former executives (the “Former Executives”) and former directors of the Company, and Integrated Capital Strategies Holdings LLC, and Integrated Capital Strategies, LLC (collectively with Integrated Capital Strategies Holdings, LLC, “ICS”). This action arises from disloyal conduct by the Former Executives of the Company who misappropriated tens of millions of dollars after assuring investors that their investment in Certus would be prudently managed and used for the benefit of the Company. As a result of the disloyal conduct, the Former Executives and Defendants left Certus in dire straits and caused Plaintiffs and the Class to lose the majority of their investments in the Company.
In 2009, as the financial crisis led to numerous bank failures, the Former Executives pitched a plan to Plaintiffs and other investors that included a capital investment by investors, which the Former Executives would use to form a bank holding company to buy and turn around failed community banks. The Former Executives presented the business plan as an immediately profitable and limited risk investment supported by financial assistance to be provided by the federal government. Plaintiffs and members of the Class responded to the pitch and committed $500 million in capital.
However, instead of using the capital commitment to pursue the presented business plan, the Former Executives engaged in self-dealing with their own consulting firm, ICS. The Former Executives caused Certus to engage ICS and pay it nearly $10 million (including $2.5 million to themselves) without proper board approval and in violation of the Stock Purchase Agreement the Company had signed with Plaintiffs and members of the Class. Further, the Former Executives looted Certus for their personal benefits to: (i) purchase automobiles from the Company for a small fraction of their market value in violation of federal law; (ii) lease personal office space eight times larger at eight times the cost than authorized by the board; (iii) purchase unnecessary private jet travel; and (iv) purchase condominiums and luxury furnishings for more than $2.5 million.
Further, aware that investors and Certus’s board would not tolerate poor results, the Former Executives instructed (via threat of firing) the Company’s CFO to disregard his team’s internal analysis and projections – which forecast losses of tens of millions of dollars in 2013 – and instead to project only a $3.5 million loss, with profitable operations through the end of 2013 and 2014. Despite the baseless forced revision to the 2013 budget, the Company lost $78 million that year.
Additionally, the former members of the board turned a blind eye to the Former Executives’ misconduct and did not enact or enforce controls to guard against massive harm from the disloyal officers. Indeed, regulators are now investigating the Former Executives’ wrongdoing and the Securities Division of South Carolina Attorney General’s office has issued subpoenas to investigate executive abuses at Certus – the very same misconduct Plaintiffs allege in the Complaint.
After reviewing documents responsive to Plaintiffs’ 220 Demands, BLB&G on behalf of Plaintiffs sent the current Certus board a litigation demand on September 22, 2015, detailing the aforementioned misconduct and asking the Board to establish a litigation trust to pursue the claims. The current board informed Plaintiffs that it takes no positions on the litigation demand. Upon receiving the current board’s response BLB&G filed the derivative and class action complaint on behalf of Plaintiffs.
From February 10, 2016 to November 21, 2016, the parties engaged in extensive discovery, including party and third-party document productions, totaling millions of pages of documents, the deposition of two defendants, and expedited motion practice concerning the entity defendants’ representation and deposition.
On July 13, 2016, the parties participated in a full-day mediation session in San Francisco, CA.
On November 21, 2016, after multiple arm’s-length negotiations and discussions and based on a mediator’s proposal, the parties reached an agreement in principle to settle all claims asserted in the Action for $19.2 million in cash (the “Settlement”).
On February 8, 2017, the parties filed a Stipulation of Settlement with the Court setting forth the final terms and conditions of the Settlement. A copy of the Stipulation of Settlement can be found on the Case Documents page.
The Court approved the Settlement on April 10, 2017. A copy of the Settlement Notice can be found on the Case Documents page.
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