For background on the latest on Mount Kellett and the Romneyization of Los Angeles:
Yesterday, after remaining static for awhile, Evoq’s (formerly Meruelo Maddux Properties, Inc.) stock price fell from $4.50 to $4.15. As I’ve been following this company, and the de facto (as opposed to de jure) people in authority of Evoq which comes from Mount Kellett Capital Management, this little piece of the puzzle I’ve been working out just put things into perspective. That the stock price dropped was reminiscent of leveraged buyout (LBO) strategies that I’ve seen play out before with my labor union clients when their members became innocent victims of corporate chess-masters.
A typical scenario of how this works in the real world is that a group of insiders who wants to enrich themselves at the expense of a company’s workers, shareholders, and other stakeholders (like vendors and contractors) deliberately drives the stock price down. Of course that’s illegal, but unless you’re savvy about these matters it’ll never come to the attention of regulatory authorities. Even if it did, whether or not it’ll be taken seriously or not is questionable, given the efficacy of how the SEC did in dealing with allegations brought to its attention about Bernie Madoff.
Here’s another piece of the puzzle. In its recent attempt to force its way onto the board of Baja Mining, the existing management of BM said of Mount Kellett:
Mr. Lehner will have access to inside information, and obtain insights that other shareholders do not have regarding the Boleo project. Mr. Lehner will have access to the strategic planning of the Board. If he later resigns from the Board, Mount Kellett may use this knowledge to advantage itself, to the detriment of other shareholders. For example, these insights may help Mount Kellett to attempt to take Baja private or to bid on its own or with allies for Baja before Baja’s shareholders realize full value from the completion of the Boleo project. Mount Kellett has made no commitment to a long-term standstill agreement that would protect other shareholders against the use of inside information. [Emphasis added]
Here’s how I’ve seen this work in the past. The insiders drive the stock price down to significantly below the value of the physical assets of the company. They get financing to buy the company’s stock at the artificially low price. They take the company private and then sell off the assets piece-meal, enriching the insiders while they screw the rest of the shareholders.
The Mount Kellett behavior that suggests this scenario is that instead of trying a strategy to keep money flowing into Evoq from its tenants and license holders, Mount Kellett’s lawyers and real estate managers have been instructed to throw out those tenants and licensees so that its cash flow goes down to nothing. Evoq has not bothered to file a 10K report with the SEC since 2009, so the shareholders can’t even get an inkling of what the company is actually worth. With their share prices going down in the market (as happened yesterday), the non-insiders panic and sell off their stock at bargain basement prices.
In order to pull a scheme like this off, its an anything goes that you can get away with program. For instance, Evoq’s folks got caught with their pants down having provided a lawyer with a forged signature on a court mandated document! When they realized that we were onto their shenanigans they dismissed the case faster than Gordon Gekko could say “greed is good.”
Mount Kellett is doing the bidding for their passive and silent partners: Raj Maheshwari of Charlestown Capital Advisors LLC and Heartland Asset Management Corporation. They were called out in a series of July 2011 letters from a creditor’s attorney, pointing out that the way that stock dilutions and other tactics had been carried out left their creditor out in the cold:
“….based on my understanding of the Plan, monies to be received on account of the Transfer are not sufficient to satisfy the obligations of the Note, the Holder does not consent to a release of the security interest in the Collateral, and any Collateral so transferred will remain subject to the security interest in favor of the holder.”
A warning to shareholders
As ominous signs of doom presaged Bernie Madoff’s eventual collapse, shareholders of Evoq should heed these warning signs that are no longer even on the horizon. If you are a shareholder in Evoq and/or a stakeholder like the tenants and licensees that are already under attack, please contact me immediately to join the others who are uniting to fight against this economic attack. Look at your stock ownership portfolio to see if what you think you own actually is still in your account. Why? One shareholder I spoke to just recently discovered that in spite of a federal bankruptcy court ruling that enabled Mount Kellett’s henchmen to take back 50% of his stock at substantially discounted compensation, they wound up taking 90% of his holdings without his consent or permission.
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