(Filed Under Financial and General Interest News). A nasty fight has been simmering for the past several months between Naked Brand Group and Alrai Capital over the latter’s $12 million pre-merger investment.

Alrai, in a New York State lawsuit seeking $7 million, contended that Naked created a “scheme to steal” 314,585 shares of Naked stock to which it said it was entitled. Alrai also argued that Naked interfered with Alrai’s investors and prevented it from selling the shares in a timely fashion. Naked, through its attorneys, has denied the charges and has sought to dismiss the lawsuit.

The complicated case dates back to before the June 19, 2018 merger between Naked and New Zealand-based Bendon Limited, which created the present, publicly-traded entity: Naked Brand Group Limited. Betting that the eventual share price would jump once the merger was complete, Vinay Menda, founder of Alrai, along with a group of his own investors, created an investment entity (Alrai Naked Opportunity LLC) and acquired, in April 2017, shares in Bendon totaling more than 8% of that firm.

Alrai purchased the shares from Eric John Watson, who at the time, according to the court filing, owned about 80% of Bendon. The executive chairman of Bendon at the time was Justin Davis-Rice, who is now the CEO of Naked.

The merger between the companies took longer that expected, required the raising of additional capital, and entailed a complicated exchange of shares at the time of the closing. Much of the case revolves around exactly what number of Naked shares Alrai should have received in exchange for the Bendon shares it already controlled. Alrai argued Naked “only registered to Alrai 1,167,437 shares, skimming for itself 314,585 of Alrai’s shares and then, when caught, fabricating a contrived share calculation to justify its theft.”

Alrai originally filed a claim against Naked on August 22, 2018 in U.S. federal court, and then again in New York State court on October 29, 2018. In the latter filing Alrai argued that the delay of the merger and Naked’s “need for additional cash and shares in the Merger to finance its growth strategy coupled with growing tensions with Alrai over the dissatisfaction of Alrai’s investors inspired Davis-Rice to conceive and develop a scheme to steal the shares to be issued to Alrai in the Merger. Pursuant to Davis-Rice’s scheme, Naked Brand would give to Alrai fewer Company shares than Alrai was entitled to receive.”

The suit added that Naked’s “conversion of, and failure to register, Alrai’s shares has prevented Alrai from selling them on the market and realizing their value at the time.” The day of the merger Naked’s shares jumped almost four-fold to a closing price of $8.50. On August 22, 2018, the day that Alrai filed its first lawsuit, the shares closed at $4.10. On January 16th, 2019 they closed at $.84.

In response to the Alrai claims, Naked’s attorneys argued, on November 19, 2018, in three separate points, and citing numerous precedents and points of law, that the case should be dismissed by the court.

On December 7, Alrai’s attorney’s fired back noting that Naked’s “pattern of manipulation and deceit is strikingly similar to that engaged in another publicly-traded company sponsored by notorious New Zealand “businessman” and serial alleged fraudster, Eric Watson — Long Blockchain Corp. (OTC: LBCC), a company whose share price popped after the beverage manufacturer formerly known as Long Island Tea Corp. (formerly Nasdaq: LTEA) announced in the face of a delisting notice, that it was suddenly becoming a cryptocurrency and blockchain company (think Bitcoin), only to have it share price quickly fizzle. Within months, Long Blockchain had been delisted from NASDAQ and was under investigation by the Securities and Exchange Commission. Naked Brand, another Watson-sponsored company on whose Board sits the CEO of Long Blockchain, appears to be following a similar trajectory.”

Alrai’s attorneys added, “as the Merger’s closing approached, it became increasingly evident to Naked Brand’s CEO, Justin Davis-Rice (a Watson crony whom we now know also was involved with Long Blockchain) that the Company needed both more cash (to fund its operations) and more shares.” Alrai further contended that “Davis-Rice also became aware of, and insinuated himself into, an emerging disputed between Alrai and certain of its investors that had been instigated by Watson, whom Alrai’s investors demanded to confront about the ongoing delays in the Merger’s closing.”

In their answer on December 17, 2018, again asking for the lawsuit to be dismissed, Naked’s attorneys argued, “it is telling that, rather than argue the adequacy of its pleadings, Plaintiff chose to dedicate the first half of its Preliminary Statement to wholly unrelated and irrelevant personal attacks” on Watson and Davis-Rice. “Of course, these unfounded claims have no bearing on the instant action. Plaintiff does this because it cannot dispute” Naked’s arguments for dismissal of the lawsuit.

The case has not gone to trial yet. — NM

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Published 01-17-2019 by Nick Monjo