The principals of two financial firms that sued Twitter Inc. for $124 million in damages have a history of dealings with questionable companies and questionable partners.
Continental Advisors SA and Precedo Capital Group Inc. say Twitter thwarted their efforts last year to line up investors for a fund that would have acquired illiquid, restricted stock from the social-media company’s employees, contractors and other early shareholders.
Twitter is poised for an initial public offering that could value the company at more than $11 billion. Continental Advisors and Precedo Capital alleged in their suit that Twitter never intended to allow the private share deals to go forward. Instead, they claim, Twitter wanted to use the process to help determine a price for the IPO.
Continental Advisors, which is domiciled in Luxembourg, is headed by Andreea Porcelli and Mark Porcelli, a husband-and-wife team who previously worked as stock brokers in the United States.
Sharesleuth is very familiar with the couple’s prior activities. Andreea Porcelli once was a director of AccuPoll Holding Corp., a publicly traded company that marketed touch-screen voting machines. SEC filings show that its financial backers included the children and business associates of financial felon Sherman Mazur.
Continental Advisors also was the placement agent for AccuPoll for a series of convertible preferred stock sold in 2005.
Before that, she was a director of Junum Inc., another public company that had ties to Mazur and a second convicted felon, Regis M. Possino. In addition, Continental Advisors was a placement agent for Material Technologies Inc. (later known as Matech Corp.), which had links to one or both of those men.
Shares of AccuPoll, Junum and Material Technologies were marketed to foreign investors in the late 1990s and early 2000s by unlicensed boiler-room style brokerages operating from Europe, Asia and other offshore locations. People who bought shares in the companies through those operations lost nearly all of their money.
Mazur and Possino both served prison time for fraud in the 1990s. They were indicted again last year in connection with an alleged securities “pump-and-dump’’ network that took more than $31 million from investors around the world.
The indictment identified Mazur and Possino as the ringleaders of two intertwined fraud rings.
The court documents did not mention Accupoll, which morphed into Rudy Nutrition Inc. in 2008 and was used as the vehicle for another pump-and-dump scheme that the SEC said netted more than $11 million in illicit profits.
Sharesleuth’s research also found that Andreea Porcelli was sued in 2009 by a stock promoter named Timothy T. Page, who has been the subject of at least two SEC regulatory proceedings.
Page alleged in the complaint that Porcelli sold 2.7 million shares of another company’s stock to foreign investors as part of placement agreement, but failed to forward the proceeds. Page alleged that Continental Advisors was to be the escrow agent for the share transactions.
According to the suit, the shares were originally owned by Canturio Funds LLC, an entity linked to Martin T. Cantu. The SEC brought charges against Page and Cantu in 2009 in connection with a fraud scheme involving shares of a company called ConnectAJet.com Inc., which purported to have developed a real-time, online booking system for private jets.
The SEC said that no such system existed, and that ConnectAJet was part of a pump-and-dump scheme. Page and Cantu were found liable for securities violations and were ordered to pay nearly $3.8 million in disgorgement, penalties and interest.
Cantu also was indicted on criminal charges in connection with the ConnectAJet scheme.
The SEC also brought separate charges against Page in 2009 in connection with the unregistered sale of shares in two other companies. He settled without admitting or denying guilt, and agreed to a bar on virtually all activities involving penny stocks.
The judge hearing Page’s suit against Porcelli dismissed it without prejudice, on jurisdictional grounds. Porcelli had argued that since she and her husband lived in Italy rather than the United States, the U.S. District Court in California was the wrong venue.
Precedo Capital was incorporated in Delaware and operates from Arizona. Its managing partner, Timothy D. Moran, also is a former stock broker.
According to a Financial Industry Regulatory Authority document, Moran was terminated by FSC Securities Corp. in 2011 for referring clients to an unapproved investment fund without prior approval.
FINRA suspended Moran’s registration earlier this month for failing to comply with an arbitration award or failing to respond to the agency’s questions regarding that award.
FINRA also is investigating Moran’s activities in raising money for the investment fund, which turned out to be a fraud. According to the allegations in the FINRA document, Moran’s customers invested nearly $1.7 million in the investment fund. It says he failed to disclose that he had personally provided $150,000 to the fund or that he had received more than $200,000 in compensation for obtaining additional capital.
FINRA also alleged that Moran provided false information to its representatives. Although the regulatory authority did not identify the investment fund, other documents show that it was Hampton Capital Markets LLC.
The operator of the fund, Thomas L. Hampton, was hit with criminal charges last year in connection with the fund’s collapse. He pleaded guilty in April to a single count of fraud, admitting that he concealed millions in losses He was sentenced to 30 months in prison.
The Arizona Corporation Commission also brought proceedings against Moran, Hampton and Hampton Capital, alleging that they were offering or selling unregistered securities and were engaged in fraud in connection with the placement of those securities.
THE TWITTER SUIT
Continental Advisors and Precedo Capital filed their suit against Twitter in federal court in New York. They said in their complaint that they had teamed up with GSV Capital Corp. (Nasdaq: GSVC) to market a fund that would be called @GSV Fund LLP and would hold only Twitter stock.
GSV Capital is a California company that acquired a portfolio of pre-IPO shares in sought after Internet companies, including Twitter, Facebook Inc. (Nasdaq: FB) and Groupon Inc. (Nasdaq: GRPN). According to the suit, Twitter had authorized GSV Capital to facilitate a secondary market for its nontrading shares.
Continental Advisors and Precedo Capital said that they had found people willing to buy the equivalent of $278 million in Twitter stock through the @GSV Fund. They alleged that the failure of Twitter and GSV to go forward with the transactions cost them millions in expenses, commissions and other potential gains.
Twitter was quoted in news reports as saying that it had no dealings with Continental Advisors or Precedo Capital.