Investor sues, alleging manipulation of MathStar stock

An angry investor has sued the brokers, advisers and executives behind MathStar Inc., a tech firm that started in Minnesota, for securities fraud in allegedly manipulating the company's stock.

The lawsuit was filed Monday in federal court in Minneapolis by Tiberius Capital II, a private equity fund run by a Chicago investor -- John Fife -- who is seeking to buy up MathStar shares in a hostile takeover. Among the defendants Tiberius names are Minneapolis investment bank Feltl and Co., John C. Feltl, Wayzata money manager Perkins Capital Management, and MathStar directors Richard C. Perkins and Benno G. Sand, also of the Twin Cities.

Tiberius had threatened to file its lawsuit earlier, prompting the defendants to take legal action first last month. The dispute offers a window on the world of small, thinly traded stocks with market capitalizations below about $300 million that make up a large portion of U.S. stocks.

MathStar, which developed a special type of high-speed logic chips, started in Minnesota in the 1990s and went public in 2005. It then moved to Oregon and suspended operations last year. It's now a shell company, but has $14 million in cash and its stock continues to trade over-the-counter on the "pink sheets," a privately run service. It's estimated to have about 300 investors, mostly in Minnesota.

If any of Tiberius' accusations are true, a lot can still happen with a defunct company on the pink sheets. The complaint details 11 counts of alleged securities fraud and other illegal maneuvers including:

•Pumping MathStar stock by calling shareholders when Tiberius was trying to acquire shares.

•Secretly arranging a merger of MathStar with a language translation startup in Wisconsin called Sajan Inc. without disclosing it at MathStar's annual shareholders meeting in Minneapolis in July.

•Launching a creeping tender offer -- illegally buying up shares to fend off Tiberius without proper disclosure.

•Failing to disclose conflicts of interest, such as that Feltl and Co. worked for both MathStar and Sajan at times, and that Richard Perkins, a principal of Perkins Capital Management and a MathStar director, didn't disclose that he had clients invested in both MathStar and Sajan.

Both Perkins and Chet Taylor, general counsel for Feltl, called the Tiberius lawsuit "ridiculous." The claims are "untrue and asserted for frivolous purposes," Taylor said.

For example, Taylor said, on one of the days in October that Tiberius accuses Feltl of manipulating the stock, MathStar shares didn't even trade. "That's just one glaring example of how ridiculous their entire claim is," Taylor said.

Fife, head of Tiberius, himself was accused of fraud by the Securities and Exchange Commission in an unrelated market-timing case a few years ago. Fife settled with the SEC in 2007, agreeing to pay $530,000 without admitting or denying the allegations.