For the few hundred investors who bought about $28 million in preferred stock in SteadyServ Technologies, the recent bankruptcy filing by the company is terrible news. Stoltmann Law Offices has spoken to SteadyServ investors about their legal options. According to the Chapter 11 filings, SteadyServ has liabilities of $6,457,359, most of which are secured, on assets of less than $50,000. SteadyServ further discloses gross revenue of $664,666 in 2017 and only $379,010 in 2018. To make matters more challenging for SteadyServ, the primary secured creditor is an individual who assumed bank debt for the company and was a former executive of SteadyServ who wanted to take the company in a much different strategic direction than where it ended up going. A lawsuit filed by this individual in Indiana state court is what forced the company to file for Chapter 11 relief. Unless this secured creditor is willing to negotiate and make some major concessions, SteadyServ could be in real trouble as a going concern.
The reality for shareholders is, SteadyServ Technologies will cease to exist as an entity, wiping out shareholders completely. In other words, if you invested in SteadServ, your investment is gone. If the Chapter 11 plan works, a new SteadyServ entity will emerge from Bankruptcy, but how that effects current shareholders is unknown. You might get a slight discount, maybe 10%, on shares in the new company and the first shot to invest. This is probably the best case scenario for investors. So, in order to get any return on your current SteadyServ investment, you will need to invest more money in the new entity.
For investors who are already in the hole, this is a pretty large ask and other options should be explored to recover this money. The financial disclosures by SteadyServ are really glaring when compared to advertising materials and “estimates” contained in offering memoranda for the company’s preferred stock. These ad slicks, which we have reviewed, were presented by financial advisors and brokerage firms who sold SteadyServ preferred stock to their clients. The financial “projections” contained on these advertising materials appear to be totally baseless. They reflect a company projected to experience explosive growth including revenue increases of some 600% year over year 2016-2017-2018. Although these materials were presented and drafted in 2016, they include revenue projections for that year of over $4 million, when any brokerage firm promoting and selling shares in this start-up company would have to know such a projection was completely ridiculous. In reality, SteadyServ had revenue of only $664,600 in 2016, as disclosed in their bankruptcy filings. These advertising materials were used by brokerage firms to promote this company and entice investors to put their money into SteadyServ. Unfortunately, these materials were false, misleading, and at a minimum, the brokerage firm responsible for disseminating these materials could be liable to investors who relied on them to their detriment.
For those investors who were solicited to invest in SteadyServ by a financial advisor, you may have a viable claim to pursue through FINRA Arbitration. Brokerage firms and their agents are bound by regulatory rules and regulations, along with state and federal securities laws. These rules and regulations prohibit the use of misleading or fraudulent information when offering investments. Those duties are heightened when private placement offerings, like SteadyServ, are sold to retail investors and include a requirement that brokerage firms perform adequate due diligence into a company or investment prior to offering it for sale to their clients. FINRA Regulatory Notice 10-22 goes into great detail to advise brokerage firms about best practices when selling securities that are exempt from registration pursuant to Regulation D. This due diligence requirement is codified into the FINRA Suitability Rule, FINRA Rule 2111. As such, when brokerage firms solicit their clients to invest in private offerings like SteadyServ, they are bound by a legal duty to investigate and understand the company and offering before they sell it.
The FINRA Arbitration process is a complex one to navigate and a seasoned securities arbitration lawyer should be consulted prior to pursuing a claim. The attorneys at Stoltmann Law Offices have a combined 35 years of experience bringing and winning cases for investors in FINRA Arbitration. If you invested in SteadyServ stock based on the solicitation of a financial advisor, you should call Stoltmann Law Offices at 312-332-4200 for a free consultation with an experienced attorney. We are a contingency fee law firm, which means we do not get paid unless you do.