Stockholders v Officers and Directors of divine, Inc.
Stockholders Want Their Money Back From Internet Holding Company divine, Inc., in Wake of Looting Debacle
A class action has been filed against the officers and directors of Internet holding company divine, Inc. (Pink Sheets: DVINQ) by stockholders who acquired the company's common stock in connection of divine's acquisition of Delano Corporation and eshare Communications in October 2001. The actions claim that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market pursuant to the acquisitions, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages equal to the amount that they invested.
divine was founded in 1999 as an Internet holding company engaged in business-to-business e-commerce through a web of companies, and completed its initial public offering in July 2000. During a 15-month period beginning in July 2001, divine acquired 18 struggling technology companies, promising to create a software giant that would be a single provider of integrated solutions, combining software, professional services, and managed services. divine accumulated significant debt undertaking these transactions, issuing a $57 million note in connection with one acquisition and acquiring approximately $16 million in notes payable in another.
The action alleges that divine's officers and directors issued misleading statements when they stated that their acquisitions were based on a strategy of integration and cross-selling opportunities, when in fact divine was really only gobbling up weak companies based more on their potential to add to divine's future revenue projections. It also alleges that divine was using the artificially inflated price of its own stock –inflated by the misunderstanding of divine's business model which the officers and directors themselves had allegedly propagated— to pay for the acquisitions, creating a financial house of cards that would necessarily fall once the pool of willing investors dried up.
On January 27, 2003, the party came to an end. RoweCom, a divine subsidiary, filed for bankruptcy. The same day, RoweCom filed an adversary proceeding against divine seeking to recover $73.7 million in allegedly fraudulent transfers to divine in the 12 months preceding RoweCom's bankruptcy. On February 25, 2003, divine announced that it and several of its subsidiaries would reorganize under Chapter 11 of the U.S. Bankruptcy Code. On March 4, 2003, it was disclosed that divine faced a federal grand jury investigation concerning its diversion of the $73.7 million from RoweCom's operations.
