PUMP IT

We received a truly bizarre piece of stock manipulation in the mail the other day.  It was a 20 page slick magazine sized publication called “The China Club” but was really nothing more than an expensive attempt to pump the stock of China Global Media (“CGLO”).  We are not investment professionals but the last thing in the world we would do after receiving this is actually buy some stock that we’d never heard of before.  It actually says on the cover that, “I’ve uncovered a little known stock…with potential to bring you 822% gains in 9 to 12 months.”  We’re not interested because we are looking for exactly 823% gains in 9 to 12 months and this falls short 1%.  The publication talks about everything from US debt to China, to Chinese auto purchases, and claims that sales will double as, “CGLO grows at a frantic pace to keep up with blistering demand,” and that, “CGLO is poised to make huge windfall profits,” among other bon mots.  A disclaimer at the back claims that the publisher is not receiving any compensation other than future subscription revenue and that an affiliate is getting $15,000, but says that the publication cost over $800 thousand.  This is obviously an attempt to manipulate the stock price of a tiny company trading at a buck a share, albeit a more expensive scheme than is typical.  The SEC will want to check this one out.

-- Paul Marotta

Delaware Bylaws Challenge

Delaware Bylaws may generally be amended by the Board if the Certificate of Incorporation says so.  But now shareholders have brought nine lawsuits against companies incorporated in Delaware seeking to invalidate Bylaws provisions that say that litigation has to be brought in Delaware.  The rush toward Bylaws provisions requiring exclusive venue for shareholder litigation finds its roots in a 2010 idea from Stanford Law School professor Joseph Grundfest that corporations create such restrictions to make M&A litigation across several venues more difficult.  There are many costs, risks and problems associated with such multi-jurisdictional litigation, and many plaintiffs seek to create these sorts of problems to encourage settlement.  Some of the companies sued for their Bylaws are Navistar International Corp., Chevron Corp., and Franklin Resources, Inc.  And dicta in a footnote in In Re Revlon, Inc. Shareholders Litigation, Consol. C.A. No. 4578-VCL (Del. Ch. March 16, 2010) gave such provisions some weight.  The new litigants argue that such provisions should only be adopted following a shareholder vote, like an amendment to a company’s Certificate of Incorporation.  They also argue that the challenged provisions require shareholders, but not companies, to sue in Delaware.   We think these new provisions will withstand this scrutiny, in part, because this multi-jurisdictional litigation is a problem in need of a solution and no better solution seems available at this time.