SAN FRANCISCO – Israeli venture firm BRM Technologies Ltd., is suing New Jersey investment bank Broadview International L.L.C., along with Paul Deninger, the firm’s chief executive officer and managing director, and Bernard Goldstein, a former managing director, for alleged securities fraud.
BRM hired Broadview in 1995 to evaluate the worth of the firm’s stock in Check Point Software Technologies Ltd., then a privately held Internet securities company headquartered in Israel. BRM alleges that Broadview had concealed a conflict of interest: Deninger’s ownership of Check Point stock.
According to the complaint, filed in a California Superior Court in November, Deninger admitted in a deposition for an unrelated case to concealing from BRM his purchase of 25,000 shares of stock from Goldstein.
BRM, originally intended to sell 62.5% of its total one-fifth ownership of the software company, which included the shares to which a departing BRM principal was entitled. BRM claims that Broadview persuaded the venture firm to sell its entire stake in Check Point, bringing the total shares sold to 36,000.
A majority of BRM’s shares, still privately held stock, were divided among venture capitalists and individuals, including Goldstein, who purchased $250,000 of shares. Hence, the more BRM sold, the more stock available for Goldstein to acquire.
Broadview contested the allegations in a written statement: “This is a frivolous suit, and Broadview intends to defend itself vigorously.” The statement goes on to note that “the lead partner of BRM is Charles Federman, a former employee of Broadview who left the firm more than two years ago.”
Broadview persuaded BRM to sell 36,000 shares of Check Point for $277.78 apiece, totaling $10 million. Now a publicly traded stock, Check Point was selling at about $163 per share at press time, after splitting 165 to 1 in May 1996. BRM is seeking retribution in excess of $101 million, in addition to attorney fees.
“Personally I have not encountered [other lawsuits] where investment bankers have done this in the past,” said the plaintiff’s attorney, Robert Schaberg.
The court is awaiting a response from the defendant, which is due in January, Schaberg said. After that, the two parties are scheduled to meet at a case management conference scheduled for April.