Ault Alliance Subsidiary Files Lawsuit Against Singing Machine CEO Gary Atkinson and Other Directors Who Approved Highly Dilutive Related Party Stock Sale
- Ault Lending owns 28.2% of Singing Machine's shares
- Sale of 2,197,802 shares to affiliates of directors at an inadequate price
- Director defendants accused of violating fiduciary duties of care and loyalty
- Allegations of poor corporate governance and bad faith in the approval process
- Rushed negotiations run by interested parties
- Failure to conduct an appropriate market check and obtain an opinion from a financial advisor
- Refusal to appoint a special committee of independent directors to review and approve a related party transaction
- Improper exclusion of certain directors from board communications
Insights
The derivative lawsuit initiated by Ault Lending against the directors of The Singing Machine Company raises significant concerns about corporate governance and fiduciary responsibility. The allegations suggest a potential conflict of interest and a breach of the duty of care and loyalty, which directors owe to their shareholders. This situation often leads to legal scrutiny and could result in the rescission of the transaction if the court finds evidence of misconduct. The legal process is likely to be drawn out, potentially affecting investor confidence and the company's stock price. Moreover, the outcome of such a case could set a precedent impacting how future transactions are handled in the corporate environment, particularly related to minority shareholder rights and the sale of significant stock portions to insiders.
The financial implications of the alleged flawed stock sale are substantial, as it involves a transfer of 34% of the company's outstanding shares. If the transaction is rescinded, there could be a considerable impact on the company's market capitalization and share price volatility. Investors should closely monitor the situation, as the lawsuit's resolution could lead to significant adjustments in the valuation of The Singing Machine Company. The dilutive nature of the transaction, if proven detrimental to shareholder value, could also prompt a reassessment of the company's financial health and future prospects by analysts and investors alike.
Allegations of rushed negotiations, lack of independent oversight and the approval of a transaction potentially unfavorable to shareholders highlight critical weaknesses in The Singing Machine Company's corporate governance structure. Such governance issues can lead to a loss of shareholder trust and a decline in the perceived integrity of the company's management. The long-term effects could include increased regulatory scrutiny and the implementation of more stringent governance policies. Investors often view strong corporate governance as a sign of a company's resilience and sustainability, thus the allegations, if proven, could have lasting repercussions on investor sentiment and the company's reputation.
Complaint Alleges Director Defendants Breached Fiduciary Duties by Approving Stock Sale to Affiliates of Directors Jay Foreman and Mathieu Peloquin at an Inadequate Price and Engaged in a Deeply Flawed Process
Asks Court to Rescind the Transaction and Award Damages
Ault Lending alleges that the director defendants violated their fiduciary duties of care and loyalty in approving the transaction at an inadequate price following a deeply flawed process led by Singing Machine CEO Gary Atkinson, resulting in two directors, Jay B. Foreman and Mathieu Peloquin, through affiliates, holding a collective
Ault Lending is seeking (i) declarations that the director defendants breached their fiduciary duties to stockholders, and that Stingray and Regalia Ventures aided and abetted those breaches, (ii) for the court to rescind the transaction; and (iii) an award of damages and payment of expenses.
Milton “Todd” Ault, III, founder and Executive Chairman of Ault Alliance and Executive Chairman of the Singing Machine, stated, “It is extremely unfortunate that Singing Machine’s CEO and the other directors supporting him decided to approve this outrageous transaction giving them de facto control over the Singing Machine. We tried to work constructively with other board members to address issues at Singing Machine, and only filed this lawsuit after it became clear that we do not have good faith partners. Make no mistake, we intend to take any and all actions necessary to protect the interests of our fellow stockholders.”
The Complaint was filed on December 21, 2023 in the
For more information on Ault Alliance and its subsidiaries, Ault Alliance recommends that stockholders, investors, and any other interested parties read Ault Alliance’s public filings and press releases available under the Investor Relations section at www.Ault.com or at www.sec.gov.
About Ault Alliance, Inc.
Ault Alliance, Inc. is a diversified holding company pursuing growth by acquiring undervalued businesses and disruptive technologies with a global impact. Through its wholly and majority-owned subsidiaries and strategic investments, Ault Alliance owns and operates a data center at which it mines Bitcoin and offers colocation and hosting services for the emerging artificial intelligence ecosystems and other industries, and provides mission-critical products that support a diverse range of industries, including a metaverse platform, oil exploration, crane services, defense/aerospace, industrial, automotive, medical/biopharma, consumer electronics, hotel operations and textiles. In addition, Ault Alliance extends credit to select entrepreneurial businesses through a licensed lending subsidiary. Ault Alliance’s headquarters are located at 11411 Southern Highlands Parkway, Suite 240,
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Ault Alliance Investor Contact:
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Source: Ault Alliance, Inc.
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