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SEC halts Medient stock trading

POSTED: June 26, 2014 7:50 p.m.

The ousted CEO and chairman of the board has filed suit against the remaining Medient Studios board members, and the Securities and Exchange Commission has suspended trading in Medient’s stock until July 9.

Citing questions regarding the accuracy and adequacy of publicly available information about the company, including the number of shares outstanding and its operations, SEC Deputy Commissioner Kevin M. O’Neill ordered the suspension of Medient stock trading Wednesday morning.

Manu Kumaran, unseated in a vote by the other board members two weeks ago, filed suit Monday in Washoe County, Nevada. Medient’s offices are in Savannah but it was incorporated in Nevada.

Kumaran is suing current CEO Jake Shapiro, current board chairman Charles Koppelman, Joseph Giamichael and David Paterson, alleging the four have “colluded to grossly mismanage the corporation in the conduct and control of Medient affairs.” He also is asking for the court to dissolve the company.

Kumaran was fired during a vote on a June 9 conference call, and he charges that the other directors’ actions “occurred solely to dilute Kumaran’s position as the company’s majority shareholder through improper means and less than fair value.”

The former CEO also is asking the court to stop the company from exercising any powers or doing any business, unless it is through a court-appointed receiver.

Shapiro announced in a June 12 conference call with Medient shareholders that he was taking over as CEO, with Shapiro receiving 40 million shares of preferred stock. Kumaran alleges the stock issuance was done at less than fair value. He also said that Shapiro provided no consideration in exchange for the stock, and the stock was issued to Shapiro for the sole purpose of diluting Kumaran’s interest in Medient.

According to Medient’s SEC filings, Kumaran acquired controlling interest on Aug. 28, 2012, through a stock purchase. On March 19, 2013, the studio entered into a memorandum of understanding with the Effingham Industrial Development Authority to build a studioplex on 1,550 acres off Interstate 16 and Old River Road. A year later, March 21, Medient announced Shore Development and Construction as the construction manager for the studioplex.

Medient entered into a 20-year lease on Aug. 21, 2013 for the property with a total rent of $10 million. Under the terms of the agreement, the studio will not have to pay rent the first two years but is obligated to 18 equal annual installments beginning in February 2016. The rent will increase if the studio does not meet the stated goals of $90 million in investment and 1,000 jobs created before the end of the fifth year.

Once the lease is up, the studio has the option to buy the property for $100.

Also in the filings, Kumaran had preferred shares with 250 for one voting rights, with the ability to control and make corporate decisions, and investors will have limited ability to affect corporate decisions. As of Jan. 15, 2014, there were 878 shareholders of Medient stock. The stock prices had been as high as $3 per share in the first quarter of 2013 and as low as 1 cent in the fourth quarter. There were more than 109 million outstanding common shares and 10 million outstanding preferred shares as of Dec. 31, 2013.

According to a SEC filing last month, the company had more than 661 million shares of common stock outstanding.

“The days of endless dilution are over,” Shapiro said during the investors’ conference call.

During 2012-13, the company issued more than 108 million shares. Kumaran converted $660,000 of personal loans to the company into common stock at 6.4 cents per share. The Feb. 10, 2014, purchase represented an 822 percent premium to the Feb. 7 market closing price.

According to the SEC filing, Kumaran did not draw a salary as CEO during 2012 or 2013. Members of the board of directors were paid $5,000 a month for serving on the board.

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