Twin Cities group sues MathStar investor

A Chicago investor is accusing a group of prominent Twin Cities investment advisers and money managers of securities fraud involving MathStar Inc., a tech company that started in Minnesota. The essentially dead company -- with nearly $14 million in cash -- had investors fighting for control this summer.

John Fife, head of Chicago-based Tiberius Capital II, threatened to file a class action lawsuit against Minneapolis investment banker Feltl and Co. Inc., Wayzata money manager Perkins Capital Management Inc., as well as MathStar and a translation company in Wisconsin called Sajan Inc.

But the group beat Fife to court Thursday, filing a complaint asking a judge to clear them. Tiberius was threatening to sue the group in U.S. District Court in Manhattan in order to harass them after its hostile takeover of MathStar failed, the group said in its complaint filed Thursday in U.S. District Court in Minneapolis. A draft of the 43-page lawsuit that Tiberius threatened to file is attached to the complaint and also names Richard C. Perkins, Merrill A. McPeak, Benno G. Sand, John C. Feltl and Joseph P. Sullivan.

"It's kind of a Who's Who of the Twin Cities," said Michele Vaillancourt, an attorney for Perkins Capital Management. The accusations have no merit, she said.

Fife did not return a phone call Thursday. His company, Tiberius Capital II, owns about 53,000 shares in MathStar, less than a 1 percent stake.

Tiberius launched several attempts to take over the company, which curtailed operations last year but still has cash of nearly $1.49 a share. Tiberius raised its bid from $1.25 a share to $1.35 to $1.45, though each offer failed.

MathStar shares trade over the counter. They traded as low as 63 cents in the last 12 months, but are now at $1.50.

According to the draft of its lawsuit, Tiberius Capital spent the summer trying to buy up MathStar shares in a hostile takeover, but failed. Tiberius accuses Feltl, Perkins and the others of concealing material information about plans to merge MathStar with Sajan Inc., a move that would have significantly diluted MathStar stock. The group announced the merger just days after MathStar's annual shareholder meeting in July. At the meeting, before merger plans were announced, one of the items on the agenda was a vote on whether to liquidate MathStar and distribute its cash and other asset to shareholders. The liquidation proposal was defeated.

Had Tiberius and other shareholders known about plans to combine the two companies, they might have voted to liquidate MathStar to better preserve their investments, Tiberius said in its draft complaint.

Pihl, MathStar's founder, resigned three days after the shareholders meeting, according to the draft complaint, saying he didn't think the merger with Sajan was a good idea and that nearly half of MathStar's cash would be distributed to Sajan shareholders. Pihl could not be reached for comment.

From July through September, John Feltl acquired more than 700,000 MathStar shares for himself or on behalf of clients or affiliates -- about 8 percent of outstanding shares, according to the draft complaint.

"Feltl and its principals' activities reveal a pattern of stock manipulation and hype for the purposes of inflating MathStar's stock price to protect Feltl's transaction fees and remuneration, to defeat Tiberius' tender offer, and to make MathStar appear to be an attractive merger candidate to Sajan," Tiberius said in its draft complaint.

The group complaint filed Thursday said in 2006 Feltl and Co. handled a $2 million private stock offering for Sajan. Many Sajan shareholders were and are customers of Feltl and Co. Last year Sajan hired Feltl and Co. to explore merger and acquisition possibilities.

John Feltl could not be reached for comment.

Chet Taylor, Feltl's general counsel, said Tiberius is "blaming their failure on us."