Federal Judge Halts Rockmore Capital Bruce Bernstein plan to seize XpresSpa Assets : $XSPA

UPDATE 6.27.19 – The hearing to determine if the temporary restraining order against Bruce Bernstein, Rockmore, and B3D LLC will remain is July 1st 2019 at 3pm in the Southern District of New York federal court in front of Judge Stanton.

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A federal judge has stopped Hedge fund manager Bruce Bernstein of Rockmore Capital from gutting the assets and cash of XpresSpa Group by issuing a temporary restraining order on Monday against Rockmore’s move to manufacture a default on a $6.5 million senior secured note against the Airport spa business. Because the asset of the public company are currently less than the amount of the note the move would have forced XpresSpa to file bankruptcy giving Bernstein a clear path to steal assets because his fund’s senior note makes it is first in line to collect. Bernstein, along with his investing partner Richard Abbe of Iroquois Capital, are currently being sued by XpresSpa founders Marisol and Morton Binn for securities fraud for their alleged role in telling lies about who owns the debt that forced a reverse merger with a public company gone bad.

U.S. District Court of New York Judge Stanton issued the order after the Binn’s attorneys, Rosanne Felicello and Michael Maloney of CKR Law, called for an emergency hearing this week. Bernstein was once again trying to argue that he is an independent director of XpresSpa, he serves as the chairman of the board, and as a result doesn’t have a conflict of interest in calling in a debt that would wipe out the XpresSpa main street investors, in which he has a fiduciary duty as chairman to protect. He even paid for another lawyer outside his current 3 corporate attorneys at Mintz Levin to represent him at the hearing in a move to try and look independent. But Judge Stanton wasn’t buying it.

Michael Maloney of CKR Law, the Binn’s lawyer, argued what Bernstein was doing is actually doing is fraudulent conveyance. That is because in the past few years Bernstein has simply extended the due date of the $6 million note so the accountants don’t declare the company has a going concern. XpresSpa actually pays the high interest Bernstein lobbed on the company at 12 percent but all of sudden in what appears to be a vengeful move he tried to call in the full debt on the note. It’s possible this is because Judge Stanton is about to decide on Summary Judgement in the securities fraud case that personally names him. His scorched earth agenda caused Judge Stanton to say Bernstein does have a fiduciary duty to XpresSpa shareholders first, over his roll as an investment professional trying to call in a debt and take the remaining $3.5 million of cash the company said it currently has on hand. This is a first for Judge Stanton who was basically saying “you don’t act or look like an independent director.”

The attorneys at Mintz Levin have till 5pm today to file an 8-K announcing the TRO as a material event for XpresSpa. SEC rules require public companies to tell shareholders about important events that affect the company’s financials within four days of the event happening. I asked Bernstein if he also paid for the new lawyer that showed up at the TRO hearing representing him as an individual. If he used XpresSpa money to pay for that lawyer it would be an unethical move by a director of the company.

This isn’t the first time Bernstein has tried to use a manufactured default of the Rockmore note to benefit himself at the disadvantage of XpresSpa shareholders. Before the forced merger with public company Form Holdings, Rockmore issued a notice of default against XpresSpa back in June 2016. Rockmore said XpresSpa hadn’t made sure Rockmore got audited financials in the time frame it required. All the interest on the loan was still getting paid but XpresSpa needed an extension on when the principal of the debt was due. As a result of the default Bernstein is accused of basically blackmailing the board to do a deal with Form Holdings. XpresSpa had interest from another business to do a merger and that business had also had been given a signed right of first refusal if other buyers came along. Bernstein blew past that and told the board of XpresSpa he’d take back the default if they did the Form Holdings deal so in July 2016 a term sheet for the merger was signed. Rockmore also got an additional $500,000 added to the $6.5 million principal due after the company agreed to merge with Form Holdings saying Rockmore deserved the additional funds because they called off the default.

XpresSpa had $51 million of revenue as of the last financials filed with the SEC and owns leases in Airports, which are considered an asset. But it’s not shown positive net income. Since Team Bernstein took over executives salaries have been up to $2 million a year in total while the company is loading up on expenses and not growing the business. The stocks trades barley above $2 on the NASDAQ under the ticker $XSPA.

Bernstein came to the temporary restraining order hearing with a plan. He told Judge Stanton that control of the Rockmore note had been moved to a North Carolina LLC called B3D. He said there is a co-owner in B3D that can make decisions also so he really is not the guy calling in the Rockmore note. Ironically in a SEC filing last year Bruce Bernstein has signed documents as the controlling director of B3D. On top of that, the other B3D guy Bernstein told the judge could control the Rockmore Note is none other than Brain Daly who is a top investment manager and has some ownership of Rockmore Capital. Daly has worked with Bruce for years.

Apparently Judge Stanton saw through that argument because the temporary restraining order is also against any successors of the Rockmore Note or persons that can control B3D. Meaning Brian Daly also got notice of the TRO.

Bernstein recently tried to secretly sue this journalist, via a sealed complaint filed in NY state court, to reveal sources in my reporting on the alleged fraud and lost the lawsuit. Bernstein thought his ex-wife was leaking information to me that they had agreed to be confidential but our hearing showed that was not the case. I didn’t get confidential information nor was she the source. Sheryl Aufrichtig, his ex, had given the Binns lawyers at CKR Law some unsolicited but critical financial information of Rockmore Capital, which Judge Stanton had agreed to be sealed from the public while they are litigating the fraud case. The hedge fund manager’s move to intimidate a professional journalist with a state court lawsuit backfired though because it unsealed documents in the federal case that could prove Bernstein and Richard Abbe lied to shareholders in SEC filings.

After I published the unsealed findings an additional high net-worth investor in XpresSpa, Roman Kainz, sued for securities fraud, which now doubles Bernstein and Abbe’s litigation cost. The new lawsuit also added a new investment professional, William ‘Bill’ Phoenix, who is believed to aid and abetted in the fraud. Richard Abbe has quit the board of XpresSpa but it’s unclear if he is still pulling Bernstein’s strings. As I previously reported the duo have a pretty cozy relationship given Abbe allegedly got Bernstein to hide his investment in Rockmore Capital and the senior secured debt that controls XpresSpa. If those action are proven as securities fraud in the federal court case it could open the door for an SEC enforcement action against the Bernstein and Abbe.

Bernstein would not return a request for comment on the temporary restraining order.