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Alan Brochstein, CFA has worked in the securities industry since 1986, primarily with the responsibility for managing investments in institutional environments until he founded AB Analytical Services in 2007 in order to provide independent research and consulting to registered investment... More
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  • AVT, Inc. Threatens To Sue Seeking Alpha Author 28 comments
    May 28, 2013 11:34 PM | about stocks: AVTC

    Yesterday, I spent many hours finishing up my research on AVT, Inc. (OTCPK:AVTC) and composing an article that was published this morning and titled: Investors Should Avoid AVT, Inc. Here is a link to the article. I suggested that the stock, which traded last week at $2.65, was likely worth less than $1. In addition to pointing out flagging financials, I identified a disclosed relationship between the company and the father of the Chairman of the Board that has allowed the father to lend the company money and be paid back with preferred stock issued at a steep discount to its intrinsic value. I also highlighted some highly promotional press releases.

    This evening, I received the following letter from their attorney, who is also the attorney for Medbox coincidentally. Here is a copy of the pdf file attached to an email from Phillip Koehnke:

    (click to enlarge)

    This is the first time that I have ever received a threat like this. I did once have a company who disputed something that I had written, but I worked with them to amend the article to their satisfaction.

    In this case, notice a couple of examples of bullying. First, Mr. Koehnke tells me I must comply with his demands without stating what "false and/or misleading statements" I might have made. In essence, "take it down or we sue". Second, and more concerning, is that he has threatened to involve my clients (Friedberg Investment Management and Management CV). I am not a lawyer, but I know enough that this is what is known as TORTIOUS INTERFERENCE. I make it very clear that I am an independent analyst who is self-employed. The company's potential involvement of my outside clients who have absolutely no connection to my contributions to Seeking Alpha is outrageous.

    My response to Mr. Koehnke was that I will promptly ask Seeking Alpha to remove anything that isn't factually correct, but he needs to let me know which statements are "misleading". I also gave him the contact information for the Editor-in-Chief. The last thing that I want to do is have an incorrect statement in one of my articles, but I also believe in my right to express my view if it is correct, which, in this case, I believe it is.

    I have made an honest assessment of a situation based upon my reading of AVTC's filings and press releases. I find this kind of bullying to be a real potential signal that my conclusions are indeed correct. The extreme reaction of the company leaves me even more cautious on the name.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AVTC
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Comments (28)
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  • You might have a cause of action against the lawyer as well as the company based on what that letter threatens. It reads almost like harassment. I would consult an attorney to pursue the matter arduously.
    29 May 2013, 09:20 AM Reply Like
  • Author’s reply » Thanks, RS. I felt like the letter was harassment too. For now, I hope that they will state specifically what was false or misleading in their view. Unfortunately for them, I doubt that there was a material issue, as the entire article is based on filings that they have provided. I even left off the best part, which involves the purchase of a Mexican restaurant at a wildly inflated price using the preferred stock.
    29 May 2013, 09:25 AM Reply Like
  • There are legal teams that will take this case in less than a New York minute. Don't sit on it. Have the lawyer you choose respond strongly to the law firm as well as each of the management team specifically.

     

    You want a point by point description of any errors you MIGHT have made, within 72 hours or YOU will take whatever legal action is required, and get SA involved as well....might even use their legal team.
    29 May 2013, 09:38 AM Reply Like
  • Author’s reply » Life is too short! I would rather use this opportunity to point out their tactics (to their detriment by showing their defensiveness and to my advantage by highlighting my investigative skills). They haven't harmed me yet enough to pursue what you suggest.
    29 May 2013, 09:43 AM Reply Like
  • Not sure about that, RS.

     

    Typically, cease and desist letters are not, in and of themselves, considered harassment. Frivolous lawsuits, threatening letters, and so on can be, but typically not C&Ds.

     

    But as I've mentioned before to Alan, I find these threats vaguely amusing (when they're not involving me...) as the *LAST* thing these companies ever want is to go through the disclosure process as part of an actual suit.
    31 May 2013, 09:46 AM Reply Like
  • Stephen: There are a number of cases where a threat to sue the plaintiff's customer, which then proximately causes that customer to cease during business with the plaintiff, could give rise to a claim for tortious interference with actual or potential business relationships. but the burden of proof would be high given the First Amendment issues tied up in both the speech and in the right to petition the government for redress of grievances which includes filing a lawsuit. Those types of claims involving cease and desist letters frequently arise in employment cases, where an employee leaves one company for another and then the former employer sends the letter to the new employer.

     

    Threat of Lawsuits: Prospective Business-Delaware Chancery
    http://bit.ly/18CMMPu

     

    General Overview of Texas state law:
    http://bit.ly/11tm9nf

     

    Florida Law-Cease and Desist Letter before Suit Filed:
    http://bit.ly/18CMMPw

     

    General overview:
    http://bit.ly/11tm9nj
    31 May 2013, 10:56 AM Reply Like
  • Thanks! Very interesting
    31 May 2013, 11:36 AM Reply Like
  • Nice one Alan, I'd wear that as a badge of honor.
    18 Jun 2013, 12:15 AM Reply Like
  • Keep up the good work Alan
    29 May 2013, 04:23 PM Reply Like
  • Author’s reply » Thanks, joebat!
    29 May 2013, 04:25 PM Reply Like
  • I purchased 4000 shares of AVTC and sent trade confirmations to obtain the warrants... to purchase at the same price within 6 months. It's been 3 weeks (maybe it takes longer?) and I have not received the coupon yet. The current stock price is too low now anyway so, I'll say, thanks again Alan.

     

    Jack
    29 May 2013, 08:33 PM Reply Like
  • Author’s reply » Thanks, and good luck, Jack.
    29 May 2013, 08:35 PM Reply Like
  • Alan: I thought that the threat letter from the attorney Koehnke was unusual in that it did not detail any of the alleged "numerous false and/or misleading" statements. That failure made me wonder whether or not he even knew of any when he sent the letter, or was he just giving a knee jerk response to a demand from his client.

     

    If he proceeds to file a complaint, he has a duty to comply with what is known as Rule 11. This is a federal court civil procedure rule but states have a similar rule for their courts (rule 13 in Texas state courts).

     

    Rule 11
    http://bit.ly/19nqtMA

     

    An attorney can be sanctioned for violating that rule and can be held liable in a malicious prosecution suit for filing a claim without probable cause and with what is known as legal malice, but the case must also be terminated in favor of the party brining the malicious prosecution action:

     

    http://bit.ly/1aB6xUa

     

    If you have a friend who is an attorney, you may want to contact them and discuss this situation.

     

    I recall the case filed by BankAtlantic against Dick Bove in 2008. I discussed that case in my blog, and viewed it as lacking in merit.

     

    Item # 1
    http://bit.ly/19nqrEr

     

    But the lack of merit may have ultimately been a small consolation given that Bove had to spend a great deal of money defending himself against that legal onslaught.

     

    That lawsuit is summarized in this NYT article:

     

    http://nyti.ms/1aB6xUd

     

    I came across this 2012 SEC Complaint against that bank and its CEO:

     

    http://1.usa.gov/19nqtMF

     

    I do not know what happened thereafter. But reading the allegations does give one a flavor for the sheer amount of chutzpah involved in suing Bove based on what he actually said about the company in his report.

     

    You may recall that BBX was bought by BB & T at a fraction of its value before 2008.

     

    Long Term Chart of BBX (note two 1 for 5 reverse splits):

     

    http://yhoo.it/1aB6xUh;range=my;compare=;ind...
    29 May 2013, 08:41 PM Reply Like
  • Author’s reply » Thanks so much!

     

    He contacted me twice today and basically repeated his demands, providing no detail of the "false and/or misleading" statements.
    29 May 2013, 09:11 PM Reply Like
  • sounds like he's trying to bully you with legal rhetoric, etc. Bringing their actions to light is a smart course of action...let's them know you're not intimidated and that every step they take will be made public for all to see. Good luck - keep us informed on where this goes
    29 May 2013, 09:50 PM Reply Like
  • Author’s reply » Thanks. Will do.

     

    I think that you are exactly correct about their intent. The last thing they want to do is bring attention to the issues raised in this article. The smartest thing that they can do is to "bump" me, like they did today (from Yahoo Finance):

     

    Headlines

     

    AVT and Utique Launch Sub-Brand to Target Mass and Hospitality ChannelsPR Newswire(Wed 8:50AM EDT)

     

    AVT Awards Exclusive Distributorship of Marley Coffee Automated Stores in San DiegoPR Newswire(Tue, May 28)

     

    Investors Should Avoid AVT, Inc.at Seeking Alpha(Tue, May 28)

     

    AVT, INC. FinancialsEDGAR Online Financials(Fri, May 24)

     

    AVT, INC. Files SEC form 8-K, Changes in Registrant's Certifying AccountantEDGAR Online(Fri, May 24)

     

    AVT Retains New Auditing FirmPR Newswire(Wed, May 22)

     

    AVT Targets Property Managers and DevelopersPR Newswire(Mon, May 20)

     

    AVT's Utique Shops Changing the Retailing LandscapePR Newswire(Wed, May 15)
    29 May 2013, 10:06 PM Reply Like
  • Hey Alan,
    Really pulling for you against these idiots. It reminds me a lot of when Generex pharmaceuticals attempted to sue Adam Fuerstein because he used facts to call them out on various misdeeds. Their lawsuit for slander and libel got nowhere. You should be fine, my limited understanding of US law is that in order to prove it, they must prove that 1. the facts were indeed wrong and 2. that you did it with intent to defame the company or the employees (one is easier to prove, two is why no one ever wins a lawsuit like this). If they sued you could probably get attorney fees paid for eventually by AVT for filing a frivolous claim. Regardless it is concerning that they are attempting to bully authors.

     

    You must be onto something, there is some reason why he is trying to shut you up. Also, you have to be very influential if they find it worth their time to go to a lawyer to try to get you to cease and desist. Alan, you are one of my favorite writers if you need any help, I can help you (limited as my help may be).
    5 Jun 2013, 03:39 PM Reply Like
  • Author’s reply » You are too kind and wise beyond your years!
    5 Jun 2013, 03:51 PM Reply Like
  • GO ALAN !
    5 Jun 2013, 09:03 PM Reply Like
  • Alan,

     

    I serendipitously came across this article. I've been on the buyside, sellside, and and independent analyst for over 20 years. It's my experience that when an analyst gets this type of reaction from a company, he is doing something right.

     

    Keep it up. You have a new follower.

     

    Buddy
    12 Jun 2013, 10:47 AM Reply Like
  • Author’s reply » Thanks, Buddy!
    12 Jun 2013, 10:55 AM Reply Like
  • Alan: Have you heard anything back from the lawyer? I would be curious to know if you can say or just send me a message if you have time. As you may know, I am a retired trial lawyer myself. I no longer represent anybody. I am interested in this kind of free speech issue in the context of investment research and have written about it some in my blog.

     

    I have talked with NYT reporters on occasion, the latest being Floyd Norris:

     

    http://nyti.ms/V3jWTf

     

    My work background is described in this post:

     

    http://bit.ly/SWcu7Z
    12 Jun 2013, 01:19 PM Reply Like
  • Author’s reply » I haven't heard anything since our phone conversation a few weeks ago. I thought I had posted that we held that, perhaps it was on the original article, as I see I made no mention here. I agreed to remove a Stocktalk from Seeking Alpha that used the word "scam", but told him that we needed to know the inaccuracies before SA would comply with their removal wishes. It was pretty clear to me that he didn't think that his legal ground was very solid or that litigation was really a smart option. I am not deep pockets, and neither are they!

     

    What a great background you have! I too am interested in the broader issues here (less about this company specifically). I had contacted a writer who contributes to the CFA Magazine when Medical Marijuana Inc. (MJNA) started to threaten litigation against "Seeking Alpha authors" in late April, which I thought might include me. I am open to helping you on a project like this in any way that I can. If you have something specifically in mind, feel free to call me (It's easy to find my number - if not, PM me here and I will give it to you).
    12 Jun 2013, 02:29 PM Reply Like
  • I do not have anything specific in mind but I will write about this topic in my blog.

     

    For example, I discussed the litigation filed against Dick Bove by a bank and thought that lawsuit was preposterous, giving some details supporting that opinion. But it cost Bove about $700,000 in legal fees according to a NYT article. I am curious how he ran up that kind of bill. If had been the judge hearing the case, and Bove filed a summary judgment motion, I would have granted it.

     

    If it ever happened to me for something said in my blog for example, there would be no settlement from me. I could represent myself too, but there is some cliche about lawyer's representing themselves, something about having a fool for a client. There would be at least two suits too, including the one filed against me and then the next one from me which would not be settled either. If the claim was obviously egregious and designed to silence me, then I would call up a NYT reporter.

     

    I also represented several entertainers in contract negotiations. Record contracts can exceed 50 single typed pages with potential land mines on every page. Most of my work was in trials and appeals from trials.
    12 Jun 2013, 03:07 PM Reply Like
  • Good for you, author. Fight on.
    14 Jun 2013, 10:40 PM Reply Like
  • Receiving a letter like that would have scared the **** out of me, but reading all the comments since you posted gives me great reassurance from the backing of the SA community. It's really great to see how strongly all of the other contributors support you and want to help with this 'fight'. I feel the same way, though have absolutely no legal background and wouldn't know the first thing about lawsuits and litigation! I agree with one of the other contributors though, wear this incident as a 'badge of honor'. And I think you're right, the fact that you hit a nerve, and obviously a sensitive one, probably means you nailed the truth, or damn-near truth in any case. Good job!!!
    24 Jun 2013, 11:37 AM Reply Like
  • Author’s reply » Thanks. Lots of moral support, which was nice....
    24 Jun 2013, 01:17 PM Reply Like
  • It sound like they are trying to figure out what was not factual in your article. go get em.
    Go horns, hook em...........
    LF
    16 Mar, 09:22 PM Reply Like
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