Avalon Sues ‘Connoisseur of Scams’ for ‘Excess of $5M’
WARREN, Ohio – Avalon Holdings Corp. is seeking recovery of more than $5 million from an investor the company says is a “connoisseur of scams” who conspired with others to manipulate Avalon’s stock and then dump it for a nice profit, according to court documents.
A complaint filed Aug. 13 by Avalon’s attorney, David Lopez, in U.S. District Court for the Southern District of New York alleges that Guy Gentile, his Bahamas-based investment company MintBroker International Ltd. and 10 other unnamed parties violated U.S. securities law when they colluded to purchase large chunks of Avalon stock without properly documenting their actions.
“This is an interesting situation,” said Ron Klingle, CEO and chairman of Avalon Holdings. “The whole world knows about us now.”
The lawsuit seeks a court order to force the parties to file the appropriate documentation in compliance with securities law, and for Avalon “to recover from each and all defendants any and all short-swing profits they may have realized through their purchases and sales of the Class A common stock of Avalon during the six-month period ending on or about Aug. 1, 2018,” documents say.
These profits are estimated to exceed $5 million, according to court papers.
Avalon Holdings is a waste management company that also owns three country clubs – Avalon Lakes, Squaw Creek and Avalon at Buhl Park – in the Mahoning and Shenango valleys.
On July 27, MintBroker, “like Athena bursting forth from the head of Zeus fully formed,” reported it had acquired 1,922,095 shares of Class A common stock out of a total of 3,191,100 outstanding shares, or more than a 60% beneficial stake, documents say.
Klingle noted that according to SEC law, MintBroker is prohibited to sell its stock for six months once it acquired a 10% stake in Avalon. Should this practice be violated, then securities law mandates that all profits from the sale of that stock be returned to the company.
Avalon in its complaint alleges that MintBroker conspired with others to quietly purchase stock over a period of time and then made public the cumulative acquisition on July 27.
“It is inconceivable that MintBroker and the other defendants could have acquired a more than 60% beneficial ownership stake in the thinly traded stock of Avalon in a single purchase on a single day without numerous prior surreptitious and collusive acquisitions, pre-positionings and accumulations,” the complaint says.
Typical trading volume for Avalon stock during the six months before July 24 ranged from between zero to 32,000 shares per day, with the exception of “four episodes of one or two-day spiking into the hundreds of thousands,” court papers say.
On May 9, for example, trading volume jumped to 138,000 shares from just 1,500 the previous day, increasing even more on May 10, when 630,400 shares traded, court papers show.
Just over a month later, on June 14, trading volume rose to 145,000 shares compared to 1,500 the previous day, while volume soared to 836,000 shares on June 15, documents show.
On July 5, trading volume spiked to 103,000 from just 1,200 the previous day, exhibits show, and on July 16, volume stood at 188,800 and soared to 990,000 shares the following day.
Throughout this six-month period, Avalon’s stock closed no higher than $2.49 per share, documents show.
As such, “plaintiffs believe those four episodes to have been accumulation efforts by the defendants,” according to the complaint.
“Trading of Avalon stock went through the roof during the days leading up to MintBroker’s selloff, as did its stock price, court documents show. On July 24, volume reached 2.486 million shares and more than quadrupled to 10.66 million shares traded the following day, according to documents. On July 27, the day of MintBroker’s disclosure, trading of Avalon stock hit a volume of 12.799 million shares and its stock price closed at $10.25, according to court papers.
MintBroker’s filings with the Securities and Exchange Commission show that the firm started unloading the stock the very day it disclosed its purchase.
MintBroker dumped 192,340 shares at $15.50 per unit on July 27 – worth nearly $3 million – and Avalon stock soared to $36 per share in premarket trading on July 30. Subsequent selloffs by MintBroker that week included dumping 719,885 shares at $8.15 on July 30, 799,720 shares sold at $4.15 on July 31, and another 202,642 shares sold at $3.91 per unit on Aug. 1, documents show.
In all, the selloff amounts to $12.973 million. No documents were available to determine the exact price MintBroker paid for it shares.
Avalon shares traded at $3.92 at the close of business on Wednesday.
Avalon in its complaint alleges that Mintbroker failed to comply with SEC regulations that stipulate it state the purposes for accumulating shares if it constitutes more than a 10% beneficiary stake in the company.
The complaint also alleges Mintbroker failed to disclose a “detailed enumeration of each and every purchase or sale made as part of the scheme of accumulation,” along with the number of shares involved in each transaction, and the date and cost of purchase or price received on sale, as required by securities law.
MintBroker, an investment firm based Nassau, Bahamas, is owned by Guy Gentile, an “experienced securities market operator and connoisseur of scams,” according to Avalon’s filing. In July 2012, the FBI detained Gentile at Westchester County Airport in connection with his participation in two “pump and dump” schemes that involved shares of a Mexican gold mining company and a Kentucky oil exploration company, according to court papers.
In order to avoid prosecution, Gentile turned informant and wore a wire as he participated in various financial schemes including conspiracies to manipulate stocks, pump-and-dump capers and other financial frauds, Avalon’s complaint says.
Civil and criminal charges were filed against Gentile in 2016, but the charges were dismissed on the grounds that their statute of limitations had expired, according to documents.
In an interview with Bloomberg July 31, Gentile denied the Avalon purchase was a “pump-and-dump” scheme, but rather an attempt at a hostile takeover of the company.
However, such an attempt is futile since Klingle, Avalon’s CEO, controls 67% of the company’s voting power.
“It’s completely in our attorney’s hands now,” Klingle said.
Copyright 2020 The Business Journal, Youngstown, Ohio.