NY Journalist wins lawsuit to unseal court docs tied to Bruce Bernstein Securities Fraud Case: $XSPA

UPDATE 4.2.19: After I won a lawsuit to unseal documents that showed Bruce Bernstein and Richard Abbe mislead investors and the Securities Exchange Commission in public filings another original investor in XpresSpa has filed a similar lawsuit against the $XSPA board and its executives. Swiss resident Roman Kainz filed his securities fraud suit on March 20, 2019 and added a defendant who is William Phoenix of Mistral Equity Partners LLC. The case has been deemed related by the Southern District of New York federal court to the Binns case but the defendants will have extra legal cost litigating another case. Richard Abbe of Iroquois Capital was served with the new suit at his home at 7 Kinsington Rd, Scarsdale NY 10583. Additionally, the unsealed court filings shows that Alan Schwartz, the former CEO of Bear Stearns, was involved with the original investors in XpresSpa along side Kainz and the Binns. It’s unclear if Alan was invested in the deal personally or through Guggenheim Partners the asset management firm where he is a managing director.

Original Text
Two hedge fund mangers that invest in small cap stocks have been working together to hide documents discovered in a securities fraud lawsuit from public shareholders and regulators. Last week one of the key pieces of evidence was unsealed after I won a court case brought by Bruce Bernstein of Rockmore Capital in an attempt to force me to reveal a confidential source used in my previous reporting on his alleged fraud.

The document involves private communication between Bernstein and his ex-wife who had accused him of hiding assets during their divorce. The dispute lasted only a month but forced Bernstein to turn over balance sheet records of the fund he manages called Rockmore Capital. In the divorce communication Bernstein swears he doesn’t actually have any of his own money in a $6 million debt security issued by his fund to an airport spa business called XpresSpa.

Bernstein’s statement to his ex-wife is a complete turnaround to what he told the founders of XpresSpa when he convinced them to take on debt issued by his hedge fund. That’s because the spa founders say Bernstein led them to believe it was him lending the money. Allegedly, a similar lie was repeated in public filings with the SEC when another public company Bernstein invested in, Form Holdings, wanted to merge with XpresSpa. Securities laws require Bernstein to disclose any affiliated or related parties when a proxy statement is filed with the SEC asking investors to vote on a merger with a public company. Since the days of Enron fraud laws were even expanded to tie criminal liability if you lie in proxy statements used to inform investors about who controls or has ownership in companies that are merging.

In the case of XpresSpa, investors were completely left in the dark about the role Bernstein’s buddy Richard Abbe, of American Capital Management, was playing behind the scenes to control the debt of the Rockmore note and force XpresSpa into what became the loss of millions in a disastrous merger.

While I was reporting on the XpresSpa fraud case in federal court I was sent an anonymous email with a filing I thought was currently redacted in court records. A lot of the federal case has sealed documents and redacted motions making it hard to figure out who did what. The court filing I got explained Bernstein’s ex-wife roll in sending what’s been called the ‘Sloan Letter’ (because that’s the last name of the lawyer his ex-wife used) to show her husband likely lied to regulators and shareholders. So I reported another story explaining that.

After the story ran, it appears Abbe and others encouraged Bernstein to sue me to reveal who sent me that document. They thought I had also been leaked private divorce communications and they accused the law firm suing them on behalf of the XpresSpa founders, CKR Law, or the Ex-Wife and her law firm, of leaking them to me. On top that Bernstein chose to file, on November 28 2018, what’s called a motion for pre-action discovery in NY state court, instead of filing a motion in the federal case, and demanded his name and what he was asking for be sealed. He also included a copy of the Sloan letter and said his fund had already lost one client because of my reporting on his alleged fraud. Ironically it was now Bernstein who had given me the hidden document detailing his own alleged fraud by included it in his lawsuit against me! But for four months NY state court said I couldn’t report that!

In an unusual move a state court judge agreed to seal the entire record without any of the defendant being sued having a say. I was served the lawsuit in early December and told I had to wait months to argue that the case should be unsealed. Meanwhile I am still reporting on what’s going with Abbe and Bernstein in the XpresSpa federal lawsuit. Sealing of the case meant NY state court had inflicted prior restraint against me and I couldn’t tell anyone the subjects of my reporting are trying to intimated me with litigation cost and effectively issue a subpoena on me to turn over a source identity. There was no way I was going let that happen.

Luckily once I notified the Reporters Committee for Freedom of the Press about the nature of the lawsuit, Sarah Matthews, got on the case and found me a Big Law media lawyer. Then David Bralow and Kay Murray, attorneys on the board of the Press Freedom Defense Fund started by First Look Media, worked to secure funds to help offset litigation cost and make sure I had one of the best first amendment lawyers representing me. First Look Media owns The Intercept. Getting that call from attorney Mark Bailen of Baker Hostetler and his associate Peter Shaperio, to represent me was a great sense of relief. But I knew we still had a battle. Then the case got the attention of Yale Law professor, David Schultz, who has decades of experience in litigating for the rights of journalist to bring in almost every New York major publication ( NY Times, NY Daily News, Hearst, AP, Gannett, NY Post etc..) to file what’s called an AMICUS brief. Another giant in media law, attorney Robert Balin, of Davis Wright Tremaine, also came on the AMICUS brief team and they made a fling to join my case in support our argument that as a freelance journalist I should be granted reporters privilege and not forced to reveal a source. They wrote a strong argument for the public’s right to an open judicial system demanding the whole case must be unsealed. Attorneys Robert Balin, David Bralow and David Schultz even showed up at my hearing giving me a bench of five top media lawyers to face the judge. I had a powerhouse behind me who clearly cared about the first amendment.

Bernstein and Abbe’s plan use the courts to intimidate and tie me up financially didn’t work. Instead I got a war room of litigation help and won!

Abbe, who is also the co-founder of Iroquois Capital, has been working with Bernstein for over a decade as an alleged group of undisclosed affiliates in multiple stocks with the intent to control company boards, management, and assets for the benefit of their hedge funds. In an interview with a trade publication a few years ago Bernstein boasted his funds average return was 9 Percent. Once in control, the hedge funds allegedly manipulate the stock price while gutting company cash and then discard the carcass of the company turning it into a useless shell corporation with a stock price in the pennies. The XpresSpa litigation details similar fraudulent takeover schemes in a company called Neurotrope and TapImmune.

For years, Abbe’s fund has also partnered with Barry Honig who is currently accused by regulators of running pump and dump schemes in over 70 public companies. I have previously reported Abbe’s Iroquois Capital was also named in the SEC subpoena sent to MGT Capital asking for communications from the group of Honig related affiliates. In the new amended complaint field March 8th by the SEC the regulator mentions there are other unnamed parties that helped manipulate the stock of MGT Capital during the time Iroquois co-founder Josh Silverman was on the board. It’s unclear why the SEC didn’t name Iroquois as a new defendant for their likely role in the MGT Capital pump and dump.

After I won the Bernstein lawsuit and his name became public I received a new tip from a person familiar with the situation that Bernstein and Rockmore had been through their own SEC investigation surrounding accusation that they shorted the same stocks they were doing PIPE investment with. The New York bucket shop lawyer Bernstein had hired to sue me, Peter Cane, started threatening me on Thursday after I asked if the past SEC investigation was true. Eventually attorney Cane admitted on behalf of Bernstein that the SEC had investigated but no charges were brought and the investigation ended in the summer of 2008. Cane called the investigation routine.

In my decade of reporting on securities fraud I have never seen a ‘routine’ SEC investigation. This kind of bully tactic by Cane was not a surprise. Once we got to court on March 5th, my attorneys saw what I had said from day one. This is case is about trying to discredit and intimidate me and less about trying to find out who leaked divorce documents. You can see in the court transcript below that attorney Cane began by trying to argue I was not working as a journalist when I first reported on Abbe and Bernstein but instead was being paid by Short Sellers to discredit the company. This is absolute not true and is never true in any of the reporting I have ever done here or any of the major media companies I have reported for. In the case of XpresSpa that short seller argument doesn’t even make sense. As of Friday I checked on how many shares could actually be borrowed to start a short trade on XpresSpa. The answer was only 20,000 shares. The interest to borrow those shares was as low as 9 percent. Joe Spiegel of Dalek Capital who runs a short selling fund told me, “there isn’t much demand to short XpresSpa. Sometimes borrow fees can get to 100%-200% or higher, like for Tilray. 9% shows no cares about shorting XpresSpa.”

Judge Franc Perry who presided over my case put Attorney Cane in his place pretty fast when he started the argument that I am not a journalist. Judge Perry said ‘Ms Buhl is conducting news gathering”. Judge Perry also said Cane had shown no evidence to support any other conclusion. Page 19 of the court transcript says in the eyes of New York Supreme court “the Court has not seen any evidence to show that your client is not a journalist, and for the purpose of the Court, in reading this, the Court understands that your client is a journalist, is a newsperson, under the law.” This was a strong on the record statement to the testament of my reporting work because these days you never know how judges are going to view freelance journalist who report online, especially ones running their own publications.

Judge Perry also grilled down on if the Sloan letter was even a confidential document. In the federal court case, Judge Stanton has said it will be sealed because it was part of a divorce proceeding, unless anyone can prove other wise. A notion CKR Law lawyers Rosanne Felicello and Michael Maloney have sought challenge in court documents for their clients the co-founders of XpresSpa. Given Bernstein also sued his ex-wife and the law firm she hired to see if he was hiding martial asset; they hired lawyers who showed up at my hearing. Both told the judge this letter was written after the divorce was finalized and as a result neither of them considered the letter confidential nor did they agree in writing to make it confidential. So once again Bernstein’s attorney Peter Cane had now brought forward a reason for a state court court to rule the docs a federal court judge thought should be seal shouldn’t!

If attorney Cane had never brought this action against me the documents Bernstein and Richard Abbe have worked so hard to keep hidden likely wouldn’t be front and center of a news story and available to the public for free.

XpresSpa isn’t a stock with a lot of trading volume these days. It trades on the low end tier of the NASDAQ under $XSPA. But if this group wants to start another pump and dump on the stock they have the control to do it. More importantly it’s Bernstein and Abbe’s history of hiding ownership of debt notes or even stock ownership that makes their actions newsworthy. There are so few journalist covering small cap stocks these days which is why I pick stories like these to report on with the intent to inform the investing public because history shows the SEC isn’t going to move fast to protect investors in real time.

EDITORS NOTE: I want to first thank my attorneys Mark Bailen and Peter Shaperio. They wrote incredible legal arguments and provided a zealous defense. I also want to thank New York Daily News journalist Stephen Rex Brown for reporting on my case twice and showing up for the two hour hearing. The Reporters Committee for Press Freedom and the Press Freedom Defense Fund really stepped up to help a freelance journalist and as a result we now have case law in New York that recognizes reporters privilege for freelancers and rules on how important it is to have a court system with open records. Additionally, readers who donated additional funds needed to cover reporting cost were critically to getting this story out.

Editor’s Note: This story has been updated.

Unsealed Court Document in XpresSpa fraud lawsuit:

Unsealed Bruce Bernstein Di… by on Scribd

New York Supreme Court case #655887/2018 Transcript Bernstein vs. Journalist Teri Buhl:

Bruce Bernstein vs. Journal… by on Scribd