Standby Equity Distribution Agreement

A Standby Equity Distribution Agreement (SEDA) is a way in which a publicly traded company can raise additional equity capital by selling new stock without making a seasoned equity offering. It is a type of private placement. SEDA was pioneered in 2001 by Yorkville Advisors, LLC, a.k.a YA Global Investments, a hedge fund based in Jersey City, New Jersey, and was promoted as a flexible and cost-effective way of raising capital, allowing companies to customize their approach to capital and risk management.
A financial entity agrees to privately purchase a defined maximum number of shares in specified lots (tranches) over a specified period. The purchaser gets the stock at a discount to the current market price (often 5 percent) and the SEDA usually specifies a maximum stock price which the company agrees to pay. If the company finds that it never needs more funds, it can elect not to sell any shares at all, or to sell only a part of the maximum. The timing of sales is under the control of the company, so it can sell when it believes its share price is high.
Fraud case
On October 17th 2012, Yorkville Advisors, LLC a.k.a YA Global Investments and its directors Mark A. Angelo and Edward Schinik, who developed the idea of the Standby Equity Distribution Agreement, were charged with fraud in the US Federal Court's of New York, case number - 1:2012-cv-07728 by the U.S. Securities and Exchange Commission. The complaint, filed in the New York district courts, charged the former $1 billion hedge fund advisory firm and its directors Mark A. Angelo and Edward Schinik with scheming to overvalue assets. The complaint states that the firm would purchase, using its bankruptcy attorneys, assets from companies in bankruptcy that were then overvalued to represent that the assets were valued at the original value. Baker Botts attorney , partner lists himself on his personal Baker Botts website, as primary bankruptcy attorney for Yorkville Advisors caliming that he "represents Yorkville in collection matters across the United States".
The SEC’s complaint alleged that Yorkville violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. Yorkville also is charged with violating Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. Mark A. Angelo is charged with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1), (2) and (4) of the Advisers Act and Rule 206(4)-8. He also is charged with aiding and abetting Yorkville’s violations of the Exchange Act and Advisers Act. Edward Schinik is charged with violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5, and with aiding and abetting Yorkville’s violations of the Exchange Act and Advisers Act.
The complaint alleges that the Yorkville Advisors and its 2 directors Mark A. Angelo and Edward Schinik, working in conjunction with its bankruptcy attorneys would purchase assets of companies that Yorkville Advisors had forced into Bankruptcy. During the bankruptcy proceedings, the SEC complaint alleges, attorneys for Yorkville Advisors would purchase the remaining assets of a company forced into Bankruptcy by Yorkville Advisors, from the U.S. Bankruptcy trustee and then the company would insert those assets at the original pre Bankruptcy face value to enhance the fees that it collected for the task of managing its funds.
Yorkville made more than $10 million in fees from the overstatements, and misled investors about its risky and illiquid investments from April 2008 to January 2010, the SEC alleged. The SEC is focusing resources on investigating insider trading by hedge funds, though a statement by SEC Enforcement Director Robert Khuzami put some of its impact in question and Senator Chuck Grassley has asked for an explanation of Khuzami's remarks.
On December 17, 2012 the law firm, DLA Piper filed a motion to dismiss the SEC complaint upon defendants Yorkville Advisors, LLC and its directors Mark A. Angelo and Edward Schinik. The memorandum asserts the defendants did not violate any laws and the SEC has failed to make its case for FRAUD. The webpage for attorney Schechtman states that she is a expert at defending false representations in the purchase or sale of securities and insider trading. She also offers examples of her prior cases defending: Death Spiral/PIPEs & Naked Shorting Litigation.
December 27th 2012 both parties filed a joint report to the court. In the report the SEC asserts that the defendant's Yorkville Advisors, Mark A. Angelo and Edward Schinik had refused to provide many documents that the commission had requested claiming judicial privilege, and that Yorkville had not been forthcoming with the Commissions requests, among many other issues that were submitted in the document.
January 17th of 2013 the SEC filed a detailed 30 page memorandum in support of its objection to YA's motion to dismiss the case. The documents goes into detail, outlining the actions of defendents Mark A. Angelo and Edward Schinik's fraud's and it outlines a continued series of fraudlent actions that the two undertook, asserting both engaged in "Culpable and reckless conduct & Conscious Misbehavior" to create fraudulent valuations, and that each had acted with scienter. Also detailed are representations made by the defendents regarding the Cash on hand, offering details of how Mark A. Angelo would often tell investors that the company had as much as 100 million dollars in cash, when in fact the company bank and brokerage statements, obtained by the SEC demonstrated that Yorkville Advisors had a total cash value of only 9 million dollars on hand at that time in all of the combined accounts. The court filed document goes into detail regarding a large number of fraudlent representations and outright lies, made by Mark A. Angelo and Edward Schinik.
The SEC's "Memo in support of objection to dismiss" goes on to detail a continuing series of fraudlent statements the SEC claims were knowingly made over a number of years, by the defendents in the effort to support its claims and representations to clients.
Also filed in support of the objection is a DECLARATION OF TODD D.BRODY, Senior Trial Counsel Attorney for Plaintiff the U.S. Securities and Exchange Commission: IN OPPOSITION TO THE MOTION TO DISMISS that provides as a exhibit, in addition to sealed financial documents is a copy from a publication named Pensions Week, dated December 1, 2008 that contains a statement from defendant Mark A. Angelo regarding its accounting policy and seems to be designed to demonstrate to the court the depth of the fraudlent actions by the named defendants in targeting pensions funds.

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