Activist hedge fund Strategic Turnaround Equity Partners (STEP) is taking legal action against Detroit-based United American Healthcare Corporation (UAHC). UAHC apparently amended its bylaws so it did not need approval from regulators and shareowners to issue in excess of 20% of its shares to Pulse Systems. STEP portfolio manager Gary Herman branded UAHC as “the company with the worst board in America” and said:
They have entered into a series of transactions that have significantly impaired the value of the company and caused cash to go out the door to a related party. This whole series of events is rotten through and through. The board of directors have not acted in the interests of shareholders. On top of all that, UAHC has not held an annual meeting in over 600 days… The transactions with Fife are wrought with self-dealing and at the expense of shareholders. The company violated every principle of its fiduciary duty and loyalty to the shareholders and the company. We will pursue all the parties involved with these transactions to the fullest extent of the law.
STEP filed a lawsuit in Detroit to compel UAHC to hold an annual meeting so shareowners can vote on its proposed slate of directors. A similar case filed in a federal court was dismissed on what Herman calls “a technicality,” with the judge indicating the case should be heard in a state court. RiskMetrics Group has advised shareholders to vote in favour of STEP’s proposed nominees. (Hedge fund takes legal action as proxy battle intensifies, Hedge Funds Review, 7/12/10 – hat tip to Andrew Shapiro)