SFX Sued By Investors

Investors filed a class action suit against SFX Entertainment, Robert Sillerman and three other directors Sept. 11 in U.S. District Court, alleging Sillerman and members of the company’s “special committee” misled them by making false claims about Sillerman’s April “go private” offer.

The law firm of Abbey Spanier LLP, which specializes in class actions, announced the filing by plaintiff Edward Gutman against SFX, Sillerman, D. Geoffrey Armstrong, John Miller and Michael John Mayer, on behalf of investors who acquired SFX common stock between Feb. 25 and Aug. 17. Sillerman announced Feb. 25 his proposal to acquire outstanding SFX stock he didn’t already own for $4.75 per share. His initial offer fell apart Aug. 13 when he failed to produce the necessary financing to complete the deal.

The complaint alleges Sillerman knew and failed to disclose that he didn’t have the financing and likely wouldn’t get it.

“Sillerman’s true intent was not to take the company private, but to sell it along with 34.9 shares,” the complaint says. “Indeed, he had no financing in place and no real hope to obtain the over $275 million needed to consummate his initial offer.” The complaint further alleges that “given the company’s growing debt and decreasing margins it was not feasible that Sillerman was ever going to buy the company and, with the aid of the other defendants, Sillerman initiated and maintained a sham process designed to lure third party offers in an attempt to shed his failing investment before the truth about the deterioration of the company could no longer be concealed.”

The effect of the “go-private” offer, the complaint continues, was to “fraudulently inflate and maintain the market price of SFX shares at levels that would not otherwise have prevailed based on the true financial performance and future prospects of the company.

“This effort failed to attract a buyer, but not before thousands of investors paid fraudulently inflated market prices for SFX shares that are currently trading at about 50 cents per share.”