Derivative Suit Filed Against Yorkville Advisors
One courageous shareholder, with the support of the investment community, took action by seeking legal council, which resulted in a letter sent to NeoMedia's Management and Board of Directors on January 27, 2010.
The letter demanded that NeoMedia bring suit against their principle investor and majority debt holder Yorkville Advisors within 60 days in order to recover short-swing profits earned in connection with unreported purchases and sales of NeoMedia's equity securities, pursuant to Section 16(b) of the Securities Exchange Act of 1934.
Yorkville was, and continues to be, a statutory insider of the company by virtue of its beneficially owning more than 10% of NeoMedia's common stock. As a statutory insider, Yorkville continues to be subject to the short-swing trading provisions of Section 16(b).
After 60 days passed with no response from NeoMedia, a Derivative Suit was filed last week by a shareholder on behalf of NeoMedia in order to recover the short-swing profits unlawfully made by Yorkville Advisors. The complaint demands Yorkville "disgorge" (pay directly to NeoMedia) all profits made by Yorkville in NeoMedia stock since 2004.
It is important to note that, since this is a derivative suit, NeoMedia is named as a defendant. The company on behalf of which the complaint is brought is always named as a "nominal defendant". But NeoMedia is not a "real" defendant, they are actually the real plaintiff.
Yorkville now has 21 days after being served with this summons to file an answer to the complaint, or a motion under rule 12 of the Federal Rules of Civil Procedure. Failure to respond will result in a default judgment, which will be entered against Yorkville for the relief demanded in the complaint.
When asked for comment, NeoMedia's CEO Iain McCready, NeoMedia's Board of Directors and Yorkville Advisors all declined to comment.
However Cynthia Artin, Managing Director at Auster Capital Partners, which shares an office suite with Yorkville in Jersey City was quick to counter, "This isn’t going to hold up in court."
Since the filing of the derivative suit last week, current and former NeoMedia employees (which have requested anonymity) have stepped forward offering their support with regards to the complaint.
As the author of this blog and a NeoMedia shareholder since 2006, I personally encourage Iain McCready to prove he is a man of honor & integrity by stepping up to the plate and publicly endorsing this derivative suit against Yorkville. Not only does he owe it to himself, but he owes it to all the shareholders who have stuck by and supported NeoMedia over the years.