WILMINGTON, Del. (CN) - GetFugu, a Los Angles-based Internet firm, sold all of its assets - including intellectual property worth $35 million to $52 million - to a commercial lender, Remington Global Capital, for a $170,000 short-term loan, shareholders say in a derivative class action in Federal Court.
It is the second shareholders lawsuit against GetFugu, which is marketing what it calls the "next generation" Internet search tool for mobile phones. The other action is still pending in Los Angeles Superior Court.
GetFugu and Remington Global Capital are both named as defendants in the Delaware complaint.
Lead plaintiff David Warnock, who owns 500,000 GetFugu shares, claims the company fell under the spell of Carl Freer, an adviser and controlling shareholder, who "is an admitted criminal and scam artist who has repeatedly schemed and conspired with others to take over companies, many of them publicly traded, and then exploit them for his own greedy and improper purposes."
Warnock cites a November 2009 SEC filing for GetFugu in which Freer disclosed that he was sentenced to probation and fined by a German court in October 2005 for buying four luxury cars with a bad check.
Of greater concern to Warnock, however, is his claim that Freer and "his corrupt associates often benefit from classic 'pump and dump' schemes to talk up the value of penny stocks, sell their shares at the inflated prices, and then abandon the companies and its exploited shareholders, before moving on to their next business. Further, Freer and his associates have used their management and control positions to strip corporate assets and to raid the corporate piggybank for their own benefit, to commit fraud, breach their fiduciary duties and stiff creditors,. Freer's latest scam is GetFugu," the complaint states.
Warnock claims that Freer and current and former directors of the firm breached their fiduciary duties to shareholders by operating the company for their own benefit, and "routinely [making] false statements and misrepresentations of material fact to the plaintiffs, GetFugu shareholders, and the public."
He claims that Remington Global Capital colluded with Freer and his coconspirators to ensure that any real assets would be stripped from GetFugu and made available for their private use.
Although Freer dominates the alleged action in the 18-page complaint, he is not named as a defendant. Only the two companies are.
Warnock seeks compensatory and punitive damages and injunctive relief, claim that the officers and directors aided and abetted breach of fiduciary duty.
He is represented by Kenneth Dorsney with Morris James of Wilmington, and Richard Oparil with Patton Boggs of Washington, D.C.
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