RIVERSIDE, CA -- AVT Inc. has filed a $100 million lawsuit against analyst Alan Brochstein, who allegedly called the Corona, CA, vending machine manufacturer a "scam company" and made "defamatory" and "untrue" statements in articles he authored. AVT's lawsuit against Brochstein, filed Dec. 16 in the Superior Court of California in Riverside County, charges him with libel, false light, negligence and "intentional interference with prospective business advantage."
The seeds of the lawsuit were planted last May when AVT threatened Brochstein, a Houston, TX-based chartered financial analyst, with legal action after he wrote an article titled "Investors Should Avoid AVT Inc.," published on Seeking Alpha, a stock market research site.
Brochstein's article suggested that AVT's stock, which at the time traded at $2.65 on the OTC Market, was likely worth less than $1. In addition to pointing out flagging financials, Brochstein observed that a disclosed relationship between the company and the father of the chairman of the board had allowed the father to lend the company money and be paid back with preferred stock issued at a steep discount to its intrinsic value. He also highlighted some "highly promotional" press releases issued by AVT.
Brochstein received a letter from AVT's lawyer demanding he cease and desist from making "any further derogatory statements concerning AVT and its directors" and remove the article from Seeking Alpha's website, and threatened legal action if he did not. Brochstein claims that he responded to AVT, and said he would promptly ask Seeking Alpha to remove any facts that were incorrect, but he needed to know which statements were "misleading."
"I have made an honest assessment of a situation based upon my reading of AVT's filings and press releases," he wrote on Seeking Alpha in response to AVT's charges. "I find this kind of 'bullying' to be a real potential signal that my conclusions are indeed correct. The extreme reaction of the company leaves me even more cautious on the name."
Brochstein said he spoke with AVT's attorney, and, out of courtesy, asked Seeking Alpha to remove a "StockTalk" posting he had made to which the vending machine company had objected. He said he received no further communication from the company or its representatives until he was served with the lawsuit.
Brochstein wrote again about AVT on his Instablog at the Seeking Alpha last July after AVT issued a press release stating it secured $1.1 million in equity from institutional investor Ironridge Global. In the post titled "AVT Inc. Dances With The Devil," Brochstein wrote: "AVT has been trying desperately to raise money. The press release makes it sound great, the filing is the reality: Issuing shares at a 20% discount and subjecting themselves to price risk on their common stock ... Keep in mind, they are buying with a lot of protection -- they aren't investing at the market price. They make money even if other shareholders don't."
Brochstein noted that the excerpt from the filing shows that the number of shares could almost triple, depending on where the stock trades in the future. "This is a potential 'death spiral,'" he observed.
In another Instablog post, Brochstein wrote that AVT had been issued cease and desist orders by three states for being "overly aggressive in marketing" certain securities sold to small investors in small increments to fund itself.
The vending machine manufacturer charges in its suit that Brochstein's articles, including one in which he allegedly refers AVT as a "scam company," subject it to "hatred, contempt, ridicule and obloquy because it falsely accuses and depicts [AVT], among other things, as a company which acted in a heinous and unlawful manner."
AVT also alleges that Brochstein has a relationship with multiple individuals and companies that use its vending technology and has intentionally interfered with its relationships with them.
AVT is seeking $100 million for loss of reputation and general damages.
This is the second $100 million libel lawsuit filed by AVT. In 2010, financial journalist Randall Lane was sued for allegedly making false statements about AVT in his book The Zeros: My Misadventures in the Decade Wall Street Went Insane. | SEE STORY
"What strikes me is that the complaint against me is very vague," Brochstein told VT in response to the suit. "It specifies the term 'scam company,' for example, but does not refer to a specific published article. I've even done a Google search and can't find one."
Brochstein has worked in the securities industry since 1986. His company, AB Analytical Services, provides independent research and consulting to registered investment advisors. He advises several different investment managers and has been a senior analyst for the independent research firm Management CV.