Shareholders have filed another securities-fraud suit against Fidelity Holdings Inc. and three present or former officers, accusing the company of making false and misleading statements to sell stock, with the proceeds used to acquire assets for its automobile dealership division.
The alleged misrepresentations appeared in 1999 press releases and documents filed with the Securities and Exchange Commission, according to the complaint in U.S. District Court in Brooklyn, N.Y. Fidelity is based in Kew Gardens, N.Y.
The plaintiffs also allege that Chairman Bruce Bendell, former CEO Doron Cohen and CFO Richard Feinstein illegally used nonpublic, insider information to sell millions of dollars worth of their own stock.
Fidelity's retail dealership division, Major Automotive, handles 12 franchises at eight locations and has several more acquisitions pending.
Division Vice President Mordechai Book said the company will try to consolidate the case with about a dozen previously filed securities cases. 'I don't believe this is a case we can lose,' Book said, but he said that a settlement is possible.
In a written statement, Fidelity criticized the securities fraud claims as being 'wholly without merit.'
He called them 'an outgrowth of the decline in valuations of certain technology sectors since April and various false and defamatory messages concerning the company that have appeared on Internet message boards during the past several months.'
On Nov. 13, the company announced plans to 'focus its activities exclusively on Major Automotive' and divest all nonautomotive operations. The company said it's actively seeking buyers for those operations.
In the announcement, Bendell, who also is CEO, said: 'Major Automotive has grown rapidly even as a portion of our cash resources and management time have been utilized for our technology division. Management has proven that it has the talent and expertise necessary to successfully run a diverse multiline automotive business.'
The investors' suit claims that the misconduct by the company and its officers caused the price of stock on the Nasdaq exchange to drop from as high as $20 to as low as $2 a share between June 1999 and May 2000.
It alleges that the company made efforts to 'manipulate and artificially inflate the price' of common stock so that the stock could be used to acquire other dealerships.
Many of the claims involve statements about operations, investments, finances and profit prospects for Fidelity's technology subsidiary, Computer Business Sciences Inc.
The suit seeks an undetermined amount of damages, and one of the plaintiffs' lawyers, Howard Longman of New York, said there is no estimate yet of the amount investors may have lost in that 11-month period.