VoIP Company Says Former Execs Rolled It

LAS VEGAS (CN) - Two executives defrauded a pioneer VoIP company of millions of shares, the tech company claims in a $75 million lawsuit.

VoIP-Pal sued Locksmith Financial Corp., four other companies and its former CEO and CFO on July 2 in Federal Court.

It claims that the defendants, "through a series of deceptive debt conversions, stock issuances and non-cash accounting transactions, systematically conspired, schemed and defrauded VoIP-Pal and the shareholders of VoIP-Pal of millions of shares of VoIP-Pal stock."

VoIP-Pal, a publicly traded company, calls itself a "technical leader in the broadband voice-over-Internet protocol market."

It was founded in Nevada in 1997 by Richard G. Kipping - its former CEO and now a defendant. Based now in Bellevue, Wash., the company developed and owns a "portfolio of leading-edge VoIP patent applications," it says in the complaint.

Kipping retired as CEO in 2009 but remained an investor and controlled the company's bank accounts along with defendant former CFO Terry Kwan, and negotiated the acquisition of other businesses, including Digifonica in 2013, VoIP-Pal says.

Kipping is CEO of Locksmith Financial and Kwan is CEO of TK Investment, both of British Columbia, and both of which own VoIP-Pal common stock.

In August 2013 Locksmith loaned VoIP-Pal $1.5 million at 5.5 percent, according to the complaint. VoIP said it agreed that the loan would not be paid off in shares, and that by October 2013 it had withdrawn $1,404,275.69 of the available loan funds.

VoIP-Pal claims that from May 2012 to January 2014, Kipping and Kwan "orchestrated a series of secret, unilateral, and fraudulent stock issuances to settle the debt with Locksmith" by converting the $1.5 million in debt, transferring 7.2 million shares of VoIP-Pal common stock to TK Investment, converting $360,000 to obtain 36 million shares of VoIP-Pal common stock and transferring the shares to several offshore holding companies.

It claims that Kipping and Kwan "issued millions of shares of VoIP-Pal common stock to defendant Locksmith for a materially and substantially discounted price," which was "11 times the price per share that defendants Kipping and Kwan had issued to defendant Locksmith."

VoIP was selling at 11 cents a share at the time, according to the complaint, which accuses them of valuing it at only a penny when they allegedly transferred it to Locksmith.

Kwan's TK Investments also received 5.2 million restricted shares for 0.3 cents apiece and another 2 million shares for 0.6 cents per share without board approval, VoIP-Pal claims.

Then on March 12, 2013, Kipping and Kwan arranged to sell back 9 million shares of common stock to VoIP-Pal at 4 cents each as a $360,000 "shame loan" from Locksmith, then converted the $360,000 into 36 million shares of VoIP-Pal stock to "settle" the unauthorized loan, the complaint states. VoIP claims the 36 million shares were worth about $4.86 million at the time.

"The effect of defendants' actions in converting the $360,000 sham loan into significantly more stock created even greater dilution of VoIP-Pal's common stock, thus negatively impacting VoIP-Pal and its shareholders," the company says.

After getting millions of shares, VoIP-Pal says, Kipping and Kwan transferred them to several Belize-based companies they own, including defendants Talisman Financial, VHB International and Cactus Adventures, "to obscure and hide unlawful transfers of restricted VoIP-Pal stock."

VoIP-Pal seeks rescission of the trades, cancellation of 124.8 million shares, and $75 million in damages for securities violations, fraudulent omissions, breach of contract, breach of faith, unjust enrichment and breach of fiduciary duty.

It is represented by Kurt Bonds, with Alverson, Taylor, Mortenson & Sanders, who was not immediately available for comment Tuesday. Nor were officials at Locksmith Financial and TK Investment.

VoIP-Pal, which trades over the counter, closed at 8.8 cents per share Tuesday. Its trading range in the past year was 5.6 cents to 25.4 cents.

The VoIP industry was founded in 1996 when VocalTec Communications became the first to offer Internet consumer phone services. It became a part of MagicJack in 2010.

Skype and Apple's FaceTime have become popular forms of VoIP services, and the global market was valued at more than $60 billion in 2013, with a projected value of $88 billion by 2018, according to Infonetics Research.

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