Payment processing and technology company FreeStar Technology Corporation has claimed a victory in its court case against Swedish venture capital firm Svensk Kredit och Finans and related parties.
A Nevada court has ruled in favour of Dublin-based firm FreeStar Technology Corporation in its court action against Swedish investors who it claims defrauded the company of 25 million shares.
FreeStar runs the major credit card processing platform in Finland via its subsidiary Rahaxi Processing and also provides POS terminals, security solutions and transaction services across Europe and the Caribbean. Its shares trade over the counter (OTC) and prices are listed on the NASD OTC Bulletin Board.
In January 2006, it signed subscription agreements with a group of offshore investors led by Swedish investor Soren Moberg for the sale of an aggregate of $9.2 million in company common stock, plus warrants. Due to the investment group failing to fund the first payment in time, FreeStar terminated the Moberg financing.
It then reached terms with new investors, led by Olympia Holding AS, for $9.2 million in financing on the same terms as the terminated financing, and says this investment has worked out well.
But then, in April it was approached by a venture capital company called Svensk Kredit och Finans, which said it was originally going to back the Moberg offer, but after he pulled out of the initial deal it now wanted to invest itself.
FreeStar Technologies entered into an agreement providing for a $10 million investment in return for 25 million newly issued shares of restricted common stock in the company, and further two-year warrants. But while the shares were transferred to the investment firm, FreeStar CEO Paul Egan says FreeStar received no payment.
After realising no money was forthcoming, he says the company engaged private detectives in Sweden to find out what had happened. In February Egan says they discovered that Svensk Kredit och Finans has passed the shares on to Soren Moberg, who had failed in his first bid to buy shares in the company but has a controlling stake in Svensk Kredit och Finans. Moberg then on-sold the shares to investors across Europe, representing the restricted shares as investments that would be free-trading from May 2007.
"Fraud is very difficult to prove and prosecute in Sweden," says Egan. "You basically have to have an airtight case before the police will even look at it. But we notified them, and then issued a investor alerts via channels such as Thomson, and contacted the brokers who trade in our OTC stock."
In March this year FreeStar initiated a court case in Nevada, USA, against Svensk Kredit och Finans, Soren Moberg and related parties, for fraud, conversion, unjust enrichment and negligent misrepresentation.
This week, the court ordered that 25 million shares issued have no voting rights and shall not be counted as issued and outstanding. It also ordered that any person coming into possession of these shares must return them to the court.
Egan says neither Svensk Kredit Finans nor Soren Moberg represented themselves in the court action. FreeStar is still pursuing them for unspecified damages and $5 million in punitive damages.
Svensk Kredit Finans could not be contacted for comment.
"We’re just glad to have closure on this," says Egan. "Now we can focus expanding our European business for our transaction processing platform and EMV and security solutions. We’re also hoping to list the company on London's Alternative Investments Market (AIM)."