Private Would Be 'Plundered' Without Receivership, Shareholders Say

Sep 28, 2011 2:15 PM PST

BARCELONA — The group of shareholders suing Private Media Group filed papers with the Nevada Supreme Court on Monday to oppose the current management's renewal of an emergency stay of order motion that seeks to block Eric Johnson as receiver of the company.

The motion blasts Private's current management's contention that as a result of the receivership the company faces a delisting on the Nasdaq Stock Market and goes on to say that current CEO Berth Milton still owes nearly $10 million in loans from his Slingsby Enterprises Ltd. company and that "if incumbent management is allowed to reassert control over the company, it is a virtual certainty that it immediately will be plundered by Milton."

Among numerous other reasons, the shareholders also said that even if Private is delisted on the Nasdaq, that it is "preferable to turning control of the company back over to Milton" and that "even if the company is delisted from Nasdaq, it will remain a public company."

The company for the seventh time this year received a notice of delisting due to its failure to maintain a required $5 million market value required by Nasdaq, and Private's current management, lead by Milton, has attempted to leverage the near delisting to quash Johnson's receivership.

The litigating shareholders — led by Consipio Holding BV, Tisbury Services Inc., shareholder Claudio Gianascio and shareholder and former CEO Ilan Bunimovitz — said the renewed argument's points are just fantasy.

"The receivership is the symptom not the disease," Private shareholders said in the filing. "The disease is the four other independent bases for delisting laid out in the notice under the headings 'unpaid loans,' 'compensation practices,' 'financial viability,' and 'audit committee and board independence requirements.'"

The shareholders contend that Private is nowhere near a delisting because the company has filed an appeal with Nasdaq that will be heard in oral arguments on Oct. 27, just prior to Nevada justices rendering a decision on the appeal of receivership. They further said that Private could even keep its slot on Nasdaq alive as it appeals a possible delisting to the Securities and Exchange Commission.

The motion gives detailed accounts of new revelations, including a charge that Private has three bank accounts that aren't on its daily bank balances — a daily report used by the receiver to monitor company funds — and that the receiver has been fought by current officials over control of the company's offshore subsidiaries.

According to the motion, the bank accounts that aren't on Private's books are held by three divisions — Private North America, Private Media Canada and Sorreta Distribution AB, a dormant Private unit based in Stockholm.

Private shareholders also said that the receiver has been stymied in his attempts to assert control of the company's offshore businesses in Cyprus and Gibraltar, as well as Spanish subsidiary Milcap Media Group SL.

"It has been made clear to the receiver in writing on two occasions that the authority of the [Nevada] district court is not recognized by Private's officers or directors, including CEO [Milton] and CFO [Johan Gillborg]," the motion said. "The receiver's access to systems has been limited and multiple requests to grant access to [Andrew Sullivan, Private's vice president of online operations] to secure valuable data and assets have been denied by [Gillborg]."

Johnson, according to the brief, said that once he was placed as receiver by a Nevada judge and travelled to Private headquarters in Barcelona to assert control, he was informed his name was placed on a "no admission" list and refused entry.

Sullivan, who wasn't placed on the "no admission" list, entered the building but later was threatened to be forcibly removed from the premises after Milton called the police.

Shareholders' counsel told the court that the receivership indeed is the appropriate choice.

"If the order appointing Mr. Johnson is not stayed, Mr. Johnson will be able to continue his duties as receiver to preserve Private's assets and business and promptly set the date for Private's 2011 annual shareholder meeting, thereby allowing a new board of directors to be quickly elected and the receivership terminated," the motion said.

The same counsel alternatively said that if the stay is issued and Johnson is prohibited from acting as receiver for Private pending the appeal, the outcome of the appeal will leave the company "a hollow shell."

"Staying the order will simply give Milton and his cronies time to finish plundering Private's valuable intellectual property rights and other assets, thereby destroying the corporation and causing irreparable injury to respondents and Private's other shareholders," shareholders' counsel said.

Johnson, the receiver, serves as the CEO, CFO and president of Private subsidiary Entruphema Inc., which operates Sureflix Digital Distribution Inc. and Sureflix Digital Logistics Inc., companies engaged in the business of digital distribution of premium gay adult content. He has held those titles since 2003.

Entruphema and the Sureflix units were acquired by Private in October 2009, and two months later Johnson was appointed to Private's board of directors pursuant to the Sureflix acquisition deal.

Milton and Gillborg did not immediately return calls to XBIZ for comment on the renewed motion for stay of receivership.

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