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Case 1:17-cv-08594-LLS Document 170 Filed 07/01/19 Page 1 of 4

Michael J. Maloney
Partner
mmaloney@ckrlaw.com
T +1.212.259.7300

July 1, 2019

VIA ECF and Hand

The Honorable Louis L. Stanton


United States Courthouse
500 Pearl Street
New York, NY 10007-1312

Re: Binn v. Bernstein, et al., Case No. 1:17-cv-08594-LLS


Motion for Preliminary Injunction
Hearing Date: July 1, 2019, at 3:00 p.m.

Dear Judge Stanton,

We represent plaintiffs Moreton Binn and Marisol F, LLC (“Plaintiffs”) in the above-
referenced action. Plaintiffs filed their reply papers in further support of their application for a
preliminary injunction on June 14, 2017. The hearing on the application is currently scheduled
for July 1, 2019 at 3:00 p.m. Plaintiffs write to advise the Court of events relevant to the hearing
on Plaintiffs’ application for a preliminary injunction but which occurred after the submission of
papers on that application. Unless otherwise stated, all capitalized terms have the meanings
assigned to them in Plaintiffs’ prior submissions.

Stock Manipulation During the Week of June 17, 2019;


Efforts to Convert the Rockmore Note into Stock at
Artificially Depressed Prices.

In this action, Plaintiffs filed their reply in further support of their application for a
preliminary injunction on June 14, 2017. The next week, the Defendants engaged in a scheme to
avoid any further rulings of this Court and expropriate the value of the Lease Portfolio for
themselves, a scheme that first came to light by way of extraordinary trading activity in the
Company’s stock.

The Company’s stock has consistently traded below $3.00 since March 2019. On June
25, 2019, the price of the Company’s stock closed at $1.82. Between June 25, 2019 and open of
the market on the morning June 26, 2019, however, the volume of short interest in the
Company’s stock spiked from 1,180 to 2,877,376.

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Case 1:17-cv-08594-LLS Document 170 Filed 07/01/19 Page 2 of 4
The Hon. Louis L. Stanton
July 1, 2019
Page 2 of 4

The magnitude of short interest created a short squeeze causing the price of the stock to
skyrocket on June 26, 2019 to as high as 158% from the prior close. That day, the stock closed at
$4.71, representing a gain of 129% from the last close. No news concerning the Company had
been reported on June 26, 2019 and the Company made no filings with the SEC on that day.

At 9:00 a.m. on the next day, June 27, 2019, the Company filed a Form 8-K disclosing
that effective that morning it had entered into agreements with holders of the Convertible Notes,
previously issued by the Company on or about May 15, 2018 and maturing November 2019,
whereby the holders agreed to convert all of the remaining balances of those notes into common
stock by no later than 4:00 p.m. June 28, 2019. As an incentive to convert the remaining balances
before June 28, 2019, the Company provided for a reduced conversion price of $2.48 per share.
Thus, this conversion would be profitable for the holders of the Convertible Notes only if the
price of the stock rose above $2.48 per share.

Before the Company’s filing of the Form 8-K on June 27, 2019, the existence of
negotiations between the Company and the holders of the Convertible Notes concerning a
reduced conversion price constituted material non-public information. After the filing of the
Form 8-K, the activities of the Board of Directors became known to the market and the stock
price fell.

The strong inference here is that one or more of the members of the Board of Directors,
or others acting in concert with them, disclosed and/or traded on material non-public information
before the open of the market on June 26, 2019. Activity from trading forums support the
inference of insider trading. As reported by user “TitoMojito” on the XpresSpa forum on the
trading website stocktwits.com:

$XSPA we fuckin did it boys. Huge shout out to @gstockz who let me
know about this short play real-time yesterday [June 26, 2019]. It was a
nice play to begin with leading into pre-market, but that early morning 8-
K was the icing on the cake. . . .

(Ex. A, hereto).

The timing and sequence of fraudulent trading activity during the period June 17, 2019
through June 28, 2019 is readily apparent by the following chart:

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Case 1:17-cv-08594-LLS Document 170 Filed 07/01/19 Page 3 of 4
The Hon. Louis L. Stanton
July 1, 2019
Page 3 of 4

XpresSpa (XSPA) ‐ June 17, 2019 thru June 28, 2019
 $5.00 3,500,000
8‐K filed
 $4.50
3,000,000
 $4.00

 $3.50 2,500,000

 $3.00
2,000,000
 $2.50
1,500,000
 $2.00

 $1.50 1,000,000
 $1.00
500,000
 $0.50

 $‐ 0

Closing Price Short Volume

Defendants Bruce T. Bernstein and Richard K. Abbe, and their business associate Brian
Daly, had a strong motive to disclose the insider information that ultimately led to these stock
price movements. Bernstein, Abbe, and Daly control the Rockmore Note that is secured by the
Company’s Lease Portfolio and Bernstein controls the Company. The TRO entered by this Court
on April 29, 2019 enjoins them from declaring a default under that note and foreclosing on the
Lease Portfolio. But foreclosure of the security interest is not the only means of expropriating the
value of the Company’s asset. By incentivizing the holders the Convertible Notes to convert the
remainder of their debt into common stock, Bernstein, Abbe, and Daly have cleared the decks to
position Rockmore and B3D to expropriate the value of that asset by converting the Rockmore
debt into common stock at artificially depressed prices. On Friday, June 28, 2019, the stock
closed at $1.98.

That is exactly what Bernstein, Abbe, and Daly now seek to do. In the same Form 8-K
filed on June 27, 2019, the Company disclosed for the first time that the it was negotiating with
Daly and B3D to convert up to $3,000,000 of principal and interest of the Rockmore Note into
common stock and warrants. Both the negotiation of an early conversion of the Convertible
Notes and disclosure of material non-public information that would incentives the holders of
those notes to agree to convert presented a motive and opportunity for the Interested Directors to
release material non-public information before issuance of the Form 8-K on the morning of June
27, 2019.

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Case 1:17-cv-08594-LLS Document 170 Filed 07/01/19 Page 4 of 4
The Hon. Louis L. Stanton
July 1, 2019
Page 4 of 4

If Bernstein, Abbe, and Daly are permitted to convert $3,000,000 of debt in to common
stock at these prices, i.e., $1.98 per share, they could receive up to 44% or more of common
stock of the Company issued and outstanding after conversion. The Company’s current market
capitalization of only $3.8 million is deceptive because the Lease Portfolio itself has an
estimated market value of between $19 million to $39 million, but the value of this asset has not
been disclosed accurately on the Company’s filings with the SEC.

Shareholder Derivative Action.

Enclosed here in is a copy of a Verified Shareholder Derivative Complaint filed by


Plaintiffs on June 30, 2019 (the “Related Action”) on behalf of nominal defendant XpresSpa
Group, Inc. (the “Company”). (See Ex. B.) In the Related Action, Plaintiffs allege that the
Interested Directors breached their fiduciary duties by, inter alia, intentionally driving down the
share price and market capitalization of the Company in order to engineer a default under the
Rockmore Note or otherwise convert the debt into stock at artificially depressed prices. Plaintiffs
further allege that the Interested Directors violated the securities laws by falsely and deceptively
omitting from the Company’s financial reports the true value of its portfolio of leases to airport
retail concession venues, which has ranged between approximately $19 million to $39 million
during the relevant period (the “Lease Portfolio”).

By way of the Interested Directors’ self-interested actions to drive down the stock price,
the market capitalization of the Company is now $3.8 million and the Interested Directors are
actively seeking to expropriate for themselves the Lease Portfolio’s value of between $19 million
to $39 million.

For the reason set forth above and in Plaintiffs’ previously filed papers, the Court should
grant Plaintiff’s application for a preliminary injunction.

Respectfully,

/s/ Michael James Maloney

Michael James Maloney

cc: All Counsel of Record via ECF

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