Hudson Street, Kingstown Capital Level Accusations against RUSS-UPDATE « H E » MN1 Exclusive :: email posted Tuesday, 3 July 2007 Andrew Weinman MN1 Staff Writer NEW YORK (July 3, 2007) – In a move that ignited investor interest this morning, Hudson Street Capital Management LLC and Kingstown Capital Partners LCCC released a joint press release this morning denouncing the management and financial techniques of the Whitney Information Network (Pink Sheets: RUSS) and its CEO and board chairman, Russell Whitney.”We are writing to the independent directors to express our concern that the RUSS board of directors, as currently configured, lacks independence from Russell Whitney, chairman of the board, CEO, and the company’s largest shareholder,” the two companies stated in the release. “We believe that other shareholders’ interests have been surrendered to the self-interests and personal enrichment of Mr. Whitney, while shareholder value in general has precipitously eroded.”
The two companies leveled numerous accusations at Whitney throughout the 10-page letter, stating that Whitney’s “self-dealing and unchecked influence” have seriously hindered the company and its share prices; that he has refused to work with the SEC on more than one occasion, extending government investigations and causing the company even more grief; that there are numerous signs of Whitney treating the company “more like a personal piggy-bank than an enterprise;” that Whitney has engaged in serious acts of nepotism while in his position; and that the company should be removed from Whitney’s control as soon as possible.
“We strongly urge the independent directors to … remove Russell Whitney from the board of directors and CEO position for cause based on a pattern of blatant self-dealing that has enriched him at the expense of company shareholders,” the release said.
The release went on to say that, once Whitney is removed from his position, they would immediately elect two outside directors “who are representatives of significant shareholders” of Whitney Information Network stock to “create true independence on the board and adequately protect shareholder interest,” and that they wanted a representative of Prides Capital LLC on this new board.
Both Hudson Street and Kingstown Capital have a great deal of evidence supporting their accusations. First of all, the release states that Whitney has a stranglehold on the board, which currently consists of himself and three other individuals, and uses this position to levy huge personal gains for himself, such as a $600K salary and an incentive award of $562K during a year when the company’s stock declined nearly 50 percent; the purchase of a corporate aircraft for $6.9 million that later received $300K in upgrades, a purchase that represented 18 percent of the company’s capitalization at the time and is reportedly used “almost entirely” by Whitney himself for what are believed to be non-business related trips; a collective salary of more than $500K for his wife and two children, who are also employees of the company; and the company’s Costa Rican assets – in which the company has reportedly invested more than $3 million – that Hudson Street and Kingstown Capital claim the company has “no business purpose” for owning, as well as “significant expenses” incurred by Whitney’s purported travels to Central America.
