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Shareholder sues Medient

POSTED: June 30, 2014 6:16 p.m.

A Medient shareholder has filed suit against its current board of directors and its ousted CEO and board chairman, claiming the company has breached its fiduciary duty and the defendants are guilty of “gross mismanagement.”

June O’ Hearn, who owns 3 million shares of Medient stock, filed the suit in Effingham County Superior Court on Friday. She is charging former CEO Manu Kumaran and current board members Jake Shapiro, Charles Koppelman, Joseph Giamichael and David Paterson of diluting the shares of other stockholders through “unauthorized and illicit issuance of additional stock.”

O’Hearn and her attorneys claim the studio’s leadership has failed to act with due care, loyalty and good faith, mismanaged corporate assets and either authorized the issuance of more stock, further diluting the share values of other investors, or allowed it to happen through “conscious abrogation” of their duties.

Such actions, the lawsuit contends, have exposed the studio and its shareholders to a number of dangers, including the potential expenses of internal and Securities and Exchange Commission investigations, stock devaluation, the suspension of stock trading, other litigation and potential involuntary dissolution.

The defendant’s actions, according to the lawsuit, have caused the shareholders to “suffer substantial monetary damages” and damage has been caused to the studio’s reputation, financial health and perhaps its very existence. Because of their mismanagement, Medient “has sustained and will continue to sustain significant damages in the millions of dollars.”

The suit also states that the studio lost $1.3 million in 2013, and the board chalked up the loss to expenses on studioplex construction.

O’Hearn and her attorneys also charge the board listed on its 10-K form with the SEC that there were nearly 328 million shares outstanding, but there was no information on how or why the stock was issued. The plaintiffs also note that the share prices had plummeted from a high of $2.33 to less than 10 cents by November 2013 and then below 1 cent by February 2014.

“Defendants misrepresented and caused Medient Studios to misrepresent in public SEC filings that Medient Studios was financially healthy and functioning,” the suit alleges. The plaintiffs also claim the defendants issued a series of “materially false and misleading” statements that failed to disclose the studio was facing a liquidity crisis so severe “it threatened to crater” the studios because there was not enough cash or funding to enable it to continue operations, “especially construction and operation of the Studioplex.”

The suit also alleges the defendants have filed inaccurate information concerning the number of shares outstanding. The suit, citing the studio’s SEC filing on Feb. 14, authorized an increase of common shares from 500 million to 5 billion, and the votes per share of preferred stock went from 25 to 250. As of Feb. 13, there were more than 140 million shares of common stock, with each share representing one vote, and there were 10 million shares of preferred stock. Each share of preferred stock was worth 25 votes, and Kumaran was the lone holder of the preferred shares. The lawsuit also said the board was not asking for a  proxy from shareholders, “and in fact requested that stockholders not send a proxy.”

The studio’s board of directors also advised their shareholders that the Feb. 14 form did not mean there was going to be a special stockholders’ meeting and that no stockholder meeting would be held to discuss the matters.

Shapiro, who was named CEO in the wake of Kumaran’s June 9 ouster, is also being sued for “unjust enrichment at the expense of and to the detriment of” the studio. Shapiro was issued 40 million shares of preferred stock after he and the other board members voted Kumaran out.

Kumaran filed suit against the company last week, asking for a Nevada court to dissolve the company and appoint a receiver. Two days after Kumaran entered his lawsuit, the SEC suspended trading of Medient stock until July 9.

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