PROVIDENCE, R.I. (BLOOMBERG) — Log On America, Inc. has filed an action against Credit Suisse First Boston Corporation (CSFB) seeking recovery of $100 million for what it alleges to be CSFB’s “gross negligence” and “material conflicts” of interest as the company’s exclusive financial advisor.
The suit was filed Friday in U.S. District Court in the Southern District of New York.
Log On America alleges it was sold a “death spiral” or “toxic convertible” loan, and alleges the lenders shorted the company’s shares — selling borrowed shares — to drive down the stock price. The loan called for lenders to be repaid in stock. As the price fell, more shares had to be paid.
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Log On America alleges that CSFB’s loan advice caused Log On America’s stock to drop 80 percent.
Log On America accused CSFB of “gross negligence” and “material conflicts of interest” for advising the company to borrow $15 million last February from Marshall Capital Inc., a CSFB subsidiary; and two other lenders, Promethean Asset Management Inc. and Citadel LP.
Log On America also accused CSFB of negligence and deception in connection with the structuring and negotiation of an equipment purchase agreement and secured credit facility with Nortel Networks Inc. Log On America further alleged that CSFB negotiated the transaction with Nortel on unfavorable terms while failing to disclose to Log On America that CSFB was also representing Nortel in other major financial transactions.
“The claims are completely without merit and we intend to vigorously defend ourselves,” a CSFB spokesman said.
