The Securities and Exchange Commission has filed settled fraud charges against Alexander HG Mascioli and his alter-ego, purported hedge fund, North Street Capital (NSC).
The charges allege that Mascioli and NSC made a fraudulent May 2012 offer to acquire all outstanding shares of Winnebago Industries' (WGO) common stock.
The Commission alleges that on 9 May 2012, Mascioli authored on NSC letterhead, signed, and sent to WGO an offer to acquire all outstanding common stock of WGO for approximately USD321m in cash.
The 9 May letter represented that NSC's offer was not conditioned on any financing, that NSC was prepared to move forward immediately, and that it could complete the process in approximately two weeks. In truth, Mascioli and NSC had virtually no assets, significant liabilities, and no reasonable prospects of securing any financing to fund the acquisition.
Furthermore, at the time they made their offer, Mascioli and NSC had not retained any financial or legal advisers to represent them in the transaction. On 17 May, having not received a response to the 9 May offer, Mascioli sent a copy of the 9 May letter that he had modified to look like an NSC press release to Bloomberg, which subsequently posted the offer on its website.
After NSC's fraudulent offer was made public on 17 May, WGO's stock price and trading volume increased significantly. In pre-market trading on 18 May, almost 700,000 WGO shares were traded. By contrast, in the four trading days prior to May 18, WGO had little to no volume in pre-market trading. Moreover, on 17 May, WGO's stock closed at USD8.51 per share; when trading opened on 18 May, however, WGO stock opened at USD9.81 per share, an almost 15 per cent increase.
In pre-market trading on May, after learning of NSC's offer for WGO and viewing a public website Mascioli created for NSC that contained various misrepresentations about NSC's business, a New York hedge fund made the decision to cover the majority of a large short position it held in WGO and incurred losses in doing so.
Without admitting or denying the allegations in the complaint, Mascioli and NSC have consented to entry of a final judgment permanently enjoining each of them from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and ordering them to pay, jointly and severally, a USD100,000 civil penalty. Mascioli has also consented to a final judgment that permanently bars him from serving as an officer and/or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act. The proposed settlement is subject to court approval.