|Maryland Court Issues Injunction Against Activist Hedge Fund Officers Who Used Board Seats Improperly|
Judge Rules Directors Hamot and Siegel Put Own Interests Ahead of Fiduciary Responsibilities
Last update: 7:27 p.m. EDT July 8, 2008
ASHBURN, Va., Jul 08, 2008 (BUSINESS WIRE) -- Judge Albert J. Matricciani, Jr., of The Circuit Court for Baltimore City, has issued a preliminary injunction ordering two officers of activist hedge fund Costa Brava Partnership III LP of Boston to cease, desist and refrain from all contact with former, current and future auditors of Telos(R) Corporation.
Telos sought injunctive relief from the Court to preclude the two Costa Brava officers, Andrew R. Siegel and Seth W. Hamot, who sit on Telos' board of directors, from making repeated threats of baseless litigation against the company's last two independent auditors. Both auditors resigned their engagements with Telos as a result of the conduct of Hamot and Siegel even though neither auditor had found fault with Telos on any accounting issues.
In his June 27 ruling, Judge Matricciani stated, "(T)he conduct by Hamot and Siegel indicates that they put their interests ahead of the corporation they were supposed to be serving, and sought to disrupt the company's essential relationships to serve their own ends."
These repeated actions by Hamot and Siegel are the latest of a number of tactics the pair has employed in their failed attempts to seek dissolution of the company in an effort to secure redemption of their public preferred stock at the expense of other Telos stakeholders. In addition to its direct assault on Telos, Costa Brava sued Telos' former auditor Goodman & Company in the Circuit Court of Fairfax County, Va. Despite the fact that the jury awarded no damages and found against Costa Brava on three of four counts, Hamot and Siegel unsuccessfully attempted to use the Virginia ruling to sway the opinion of the Maryland court. In his June 27 order, Judge Matricciani called the single count decided in Costa Brava's favor "wholly ambiguous," pointing out that the Virginia verdict included "no specific finding of fact."
Goodman was succeeded as Telos' independent auditor by the Reznick Group, which withdrew from the engagement on April 16, 2008, after receiving threatening communications from Costa Brava.
In his order, Judge Matricciani also wrote that "Telos is likely to demonstrate that their (Hamot and Siegel) conduct was not just wrongful, but unlawful." The judge stated that the communications of Hamot and Siegel with Reznick may have violated Sarbanes-Oxley section 303 and SEC Rule 13b2-2, "providing another basis for liability for tortious interference with business or economic relations."
"We welcome this order by Judge Matricciani, and hope that this injunction will bring an end to the improper and self-interested acts of Seth Hamot and Andrew Siegel that violate their fiduciary duty as Class D directors of Telos Corporation," said Telos spokesperson Warren Jones. "We hope that we can finally move beyond this costly and protracted battle to focus our efforts on building our business and supporting the critical needs of our customers."
Attorneys for Hamot and Siegel have said they will file an appeal of the preliminary injunction with the Court of Special Appeals of Maryland.
About Telos Corporation
Telos Corporation has provided innovative IT solutions and services to the federal government for more than 30 years, focusing since 1989 on secure enterprise solutions. Telos Secure Networks and Xacta(R) security solutions ensure that the government's most security-conscious organizations comply with demanding federal and DoD information security mandates. Offerings include enterprise IT security management solutions, enterprise security consulting services, secure networks, secure enterprise messaging, and secure identity management solutions. Telos and Xacta solutions are represented to the federal government on Telos' GSA schedule. For more information, visit www.telos.com.