A Nevada judge has invalidated the latest shareholders’ vote for the board of directors of an international adult media company.
Private Media Group Inc. is now required to hold a new shareholders’ vote in which a debt holder will try to install new directors.
While Private Media Group is based in Barcelona, Spain, its stock is traded on the Nasdaq Stock Market and it’s incorporated in Nevada – meaning it’s subject to Nevada and U.S. corporate laws.
Private Media, which posted revenue of $31 million in 2010, is known for the hard-core sex magazine Private as well as adult DVDs, cable TV channels and websites.
Headed by Chairman and CEO Berth Milton, Private has been engaged in litigation with Ilan Bunimovitz and other parties since Bunimovitz was fired as CEO in July 2010.
Bunimovitz claims he was fired in retaliation for demanding an investigation of Milton’s alleged "self-dealing" transactions.
The company says Bunimovitz was fired for cause included breach of fiduciary duty, conflict of interest, acts of dishonesty and violations of the company’s ethics code.
Of several complaints and lawsuits filed by Bunimovitz, one was in Clark County District Court in Las Vegas in August 2010.
His Nevada lawsuit, which included Private creditor and co-plaintiff Consipio Holding BV, alleged mismanagement of the company’s business by Private’s three independent directors and Milton.
Private on Sept. 3 filed counterclaims against Bunimovitz and Consipio, alleging that Bunimovitz breached his fiduciary duty as a director and CEO of Private by improperly conspiring with Consipio to take control of the company.
Private noted that Consipio, in addition to being a creditor of Private, is also an affiliate of a competitor of Private, Beate Uhse AG, an adult entertainment company listed on the Frankfurt Stock Exchange. Private also noted there are disputes about the amount Consipio is owed.
As the Nevada lawsuit progressed, Clark County District Court Judge Elizabeth Gonzalez in Las Vegas on Monday invalidated the Nov. 18 shareholder vote in which Consipio narrowly lost in a bid to install its own slate of directors.
Gonzalez found in her ruling that Consipio claims to be owed $5.5 million by Private and that this debt is secured by 5.6 million shares of Private stock – or 27 percent of the shares of Private’s issued and outstanding shares.
But Consipio was only allowed to vote 1.65 million of those shares, and its directors’ slate lost by less than 600,000 shares, Gonzalez wrote in her ruling.
Gonzalez found the other 3.95 million shares were "concealed" by Milton, who had been required to provide them to Consipio after Private defaulted on its debt to Consipio.
Not only did he not turn the shares over to Consipio, but "circumstantial evidence supports the plaintiffs’ contention that the 3.95 million shares were voted by Milton," her ruling said.
"The election is declared invalid," Gonzalez wrote in her order, adding shares held by Milton "in street name" may not be counted in the new election.
The problem with shares held in "street name" is it’s difficult to ascertain who their ultimate beneficial owner is, and the shares due Consipio may have been concealed that way, the ruling suggests.
A request for comment was placed with Private Media. It’s not yet known if the company will appeal the ruling or proceed with a new election.