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Akanthos v Compucredit

Akanthos v Compucredit

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Published by Seth Leventhal

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Published by: Seth Leventhal on Jan 25, 2010
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07/09/2013

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UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA
Akanthos Capital Management, LLC;Aria Opportunity Fund Ltd.; AQRAbsolute Return Master Account, L.P.;CC Arbitrage, Ltd; CNH CA MasterAccount, L.P.; Galileo Partners Fund I,L.P.; GLG Investments plc: sub-fundGLG Global Convertible UCITS Fund;GLG Investments IV plc: sub-fund GLGGlobal Convertible UCITS (Distributing)Fund; GLG Global Convertible Fund plc;GLG Market Neutral Fund; HighbridgeInternational LLC; Kamunting StreetMaster Fund, Ltd.; KBC FinancialProducts (Cayman Islands) Ltd.;Kingstown Partners, L.P.; Pandora SelectAdvisors, LLC; Parsoon OpportunityFund Ltd.; Tenor Opportunity MasterFund, Ltd.; Whitebox Advisors, LLC;Whitebox Combined Advisors, LLC;Whitebox Convertible ArbitrageAdvisors, LLC; and Whitebox HedgedHigh Yield Advisors, LLC;Plaintiffs,vs.CompuCredit Holdings Corporation,Defendant.)))))))))))))))))))))))))))))))
Civil No. 0:09-cv-03664PLAINTIFFS’MEMORANDUM INSUPPORT OF MOTION TOPROCEED WITH LIMITEDDISCOVERY
Plaintiffs seek leave to serve narrowly tailored document requests in advance of the Rule 26(f) conference and to schedule reasonable depositions shortly after thedocuments have been produced within the time allowed by the Federal Rules of CivilProcedure. Plaintiffs’request is reasonable under the circumstances, is supported by
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 1 of 8
 
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good cause, and will not create any undue burden on Defendant CompuCredit HoldingsCorporation (“CompuCredit”).
BACKGROUND
The facts in this case have been presented more fully in the briefing on Plaintiffs’Motion for Preliminary Injunction, on Defendants’Motion to Transfer Venue, and assummarized below,
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recent developments highlight the need for this case to moveforward expeditiously to prevent serious harm to the Noteholders.CompuCredit provides various credit and financial services to the sub-primeconsumer credit market. It has posted losses for six straight quarters that total $595million and its earnings have dropped by $10 per share. CompuCredit faces a severeliquidity crisis. Its reported equity has fallen to barely $254 million, and on a pro formabasis, the company is already insolvent. CompuCredit must also make a $231 millionpayment to a group of noteholders in 2012. Despite these financial straits and itsupcoming obligations, CompuCredit announced on December 3, 2009 that it would pay a$25 million dividend to shareholders—something it had never done and that went againstits stated policy—the majority of which would be paid to two corporate insiders whocontrol the Company.
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Judge Rosenbaum’s ruling on Plaintiffs’recent Motion for Preliminary Injunction andExpedited Discovery only addressed the preliminary injunction request. (Tr. at 58-66.)Stating that the motion was before the court on “an application for temporary restrainingorder and preliminary injunction,” Judge Rosenbaum concluded that “this was anapplication insufficient to support a preliminary injunction.” (Tr. at 58.) The Court’sruling was silent on the issue of expedited discovery. In any event, the present motionsimply seeks leave under Rule 26(d)(1) of the Federal Rules of Civil Procedure to
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 2 of 8
 
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CompuCredit has been unabashed about the strategy behind its actions: bystripping assets out of the company now, it plans to force the bondholders to redeem theirdebt at fire sale prices. Plaintiffs (the “Noteholders”) collectively own the majority of two groups of notes—the 3.625% convertible senior notes and 5.875% convertible seniornotes—at issue. Plaintiffs brought this action for preliminary and permanent injunctiverelief under the Uniform Fraudulent Transfer Act and Georgia Corporate Code to preventCompuCredit from defrauding them.In the short interim since Judge Rosenbaum denied Plaintiffs’motion for apreliminary injunction on December 29, 2009, CompuCredit has taken additional steps inits asset-stripping strategy that require prompt development of the merits of this case.Immediately after the Court’s denial of Plaintiffs’request to stop CompuCredit’s $25million distribution to its stockholders, it announced that it would spin off its onlyprofitable subsidiary, Purpose Financial Holdings, Inc. (“PFH”). (Ex. 1.)
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PFHaccounted for $114.68 million of CompuCredit’s $254.14 million in equity—approximately 45%—as of September 30, 2009. (Exs. 2-3.) During the most recentnine-month reporting period, PFH contributed 79% of CompuCredit’s total revenues, or$98 million of the Company’s $124 million in total revenues. (Exs. 2-3.)As with the $25 million dividend, PFH will effectively be given to shareholders,the majority of whom are insiders, but this proposed divestment will be more than fourcommence discovery now, but gives CompuCredit the full time allowed for responsesunder the Rules.
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“Ex. __” refers herein to the Exhibits to the Declaration of Jeff Ross, filed withPlaintiffs’Opposition To Defendant’s Motion to Transfer Venue.
Case 0:09-cv-03664-JMR-FLN Document 42 Filed 01/22/10 Page 3 of 8

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