Movie firm alleges scheme to undermine its stock; Ventura Entertainment federal suit seeks $26.4 million.

Movie firm alleges scheme to undermine its stock

Declaring legal war on his alleged tormentors, Harvey Bibicoff, 51, chairman and chief financial officer of Ventura Entertainment Group Ltd., last week filed a $26.4 million federal lawsuit against short-sellers who he claims have unfairly driven down the price of Ventura stock.

Ventura Entertainment, a North Hollywood-based television, film and music production company that went public in 1988, has been in a Wall Street tug of war between bears, who say the stock is vastly overpriced, and bulls, who say the entertainment outfit has a great future.

(Short-sellers are investors who bet that the price of a company's stock will go down. They borrow and then sell shares, hoping to buy back the shares at a later date, at a lower price, to replace the shares they borrowed.)

Trading in the $8.50-a-share range last week, with 7.82 million shares outstanding, the company has a market capitalization of $66.5 million.

In its latest reported quarter, Ventura Entertainment reported a loss of $909,000 on revenues of $7.1 million. The company said much of the red ink was attributable to start-up costs of its music division, headed by Artie Mogull.

In a recent breakfast interview at Art's Deli in Studio City, an angry Bibicoff said that the short-sellers' ultimate plan is to ruin Ventura Entertainment's reputation, thus cutting the company off from new sources of capital, the lifeblood of any young entertainment venture.

"The short-sellers want to make their predictions a self-fulfilling prophecy," said Bibicoff. "I can understand being bearish on a company. But what is the purpose of trying to destroy a company?" he asked.

In his suit, announced Nov. 26, Bibicoff alleged that short-sellers and bears have "implemented a scheme to manipulate downward the trading price of Ventura Entertainment's Group common stock by use of fraudulent and deceptive devices, including disseminating false and misleading information . . . while short-selling Ventura Entertainment common stock."

In the suit, the national financial magazine Forbes and the Los Angeles Business Journal are mentioned as publications short-sellers had contacted to plant negative stories. The national financial weekly Barron's was also said to be readying an article.

Named as defendants in the Bibicoff suit are Mark Matheson, analyst with the Crutenden & Co. brokerage house in Newport Beach; Michael Murphy, of the San Francisco-based Overpriced Stock Service; and John Herzog, of Herzog, Heine, Gedulo Inc., a New York-based securities firm.

The California defendants late last week said they have not yet been served with the suit, and they denied the allegations when apprised of them.

"The allegations are false," said Murphy, of the Overpriced newsletter. "I don't even know anybody who is short on the stock, because you can't find any place to borrow it. My clients are not short on the stock."

(More than 85 percent of Ventura's stock is controlled by two East Coast brokerage houses, First Philadelphia Corp. and Stratton Oakmont, which are Ventura Entertainment underwriters and friendly to the company, according to court documents.)

Murphy confirmed that for one day in November a telephone call-in service he operates recommended investors short the stock. But he said his actions were taken unilaterally, he has never published anything on Ventura Entertainment and "I have never seen a legitimate company file a suit like this."

Cruttenden's Matheson also said the allegations are false. He issued a public report Oct. 29 in which he recommended selling or short-selling Ventura Entertainment stock.

Short-seller's actions, alleges Bibicoff in his suit, forced Ventura Entertainment to lower its exercise price on certain stock warrants to $2 a share from $16. As there were 460,000 warrants outstanding, this damaged the entertainment company to the tune of $6.4 million, the suit alleges.

(A warrant allows a bearer to buy stock from the company at the warrant price, regardless of market price.)

In addition to the $6.4 million, Ventura is seeking $20 million more in exemplary and punitive damages.

Separately, Ventura Entertainment last week announced the resignations of two members of its nine-man board of directors, Jimmy Osmond and Robert Lieberman. Both resigned to spend more time on creative activities at Ventura Entertainment, said a company spokeswoman. Osmond, of the singing family, is active in producing live entertainment for Ventura; Lieberman is a producer of television commercials.

Mogull, Ventura's music producer, will take a seat on the board, the company said.