WEST PALM BEACH (CN) – A biofuels company claims its attorney mistakenly issued $30 million in common stock, virtually wiping out its shares’ market value. International Coastal Biofuels wants the lawyer to compensate it for her alleged mistake.
International Coastal says it hired Kimberly Graus in February 2008 to provide legal counsel for potential mergers. The company sought to capitalize on government incentives to produce biofuels, and wanted to manufacture 10 million gallons a year by the end of 2009.
International Coastal says its prospects were gutted, however, when Graus issued more than 70 million shares and wrote a letter to the transfer agent, Olde Monmouth Co., stating that “under (SEC) rule 504,” the new stock did not need a restrictive legend that would prevent or limit public trading.
The SEC Web site, however, indicates that the 504 filing rule does not apply to any issuance exceeding $1 million, and since the allegedly unauthorized dilution far surpassed that limit, the shares became tradable on the over-the-counter market.
After the stock was issued, International Coastal says, its share price plummeted from 45 cents to a negligible fraction of a cent.
According to the complaint in Palm Beach County Court, there were 417,000 shares outstanding when Graus issued the additional 70 million, essentially erasing the shareholders’ ownership interest.
The company claims Graus intended to allot the shares to various firms for “consulting services,” but the sheer volume involved suggests that she was unaware of a 200-to-1 reverse stock split executed a few months earlier.
Graus declined to comment on the case.
“It’s absurd,” said Jim Sallah, attorney for International Coastal. “We are not suing her for anything intentional, but she unwittingly issued nearly $30 million worth of stock.”
Sallah said that attempts to raise capital have been severely hindered by the dilution. The company said it submitted a complaint letter to the SEC requesting that the shares be restricted, but it has not received a response.
In its complaint of legal malpractice, International Coastal demands that Graus provide compensation for the alleged mistake.
On Wednesday, its stock was trading at 1/140th of a cent.