UPDATE: Investors Claim They Were Misled But Jury Disagrees

by Mark Friedman  on Monday, Sep. 20, 2004 12:00 am  

The purchase price was $5,000 per unit for Class B stock with a minimum investment of $20,000. Farm Fresh was trying to raise at least $2.4 million. It eventually raised $2.5 million.

With the money raised from the offering, "[Farm Fresh] will significantly strengthen its financial position," the private offering memorandum said.

The company's management "believes that the additional equity provided through the offering will not only provide for the working capital needs of the company on a short term basis, but also favorably affect the company's ability to refinance its existing working capital loans."

Farm Fresh also would consider expanding its Hollandale, Miss., and Lake Village plants using low-interest loans and government grants.

"Management firmly believes that the consolidation [with the other fish farmers] will lead to excess in the supply of live fish for processing and that the delivery rights represented by the Class B Preferred Stock issued by the company will be of significant value to the holder," the memorandum said.

(Catfish Growers and Bankruptcies: Click here for a printable PDF version of the chart.)

At an Aug. 15, 2001, meeting at the Knights of Columbus Hall in Lake Village, Farm Fresh President and CEO Bill Arnold began "by a declaration ... that none of the 'farmers' would have any basis to expect any further fish purchasing or processing from Farm Fresh Catfish Co. unless they bought" shares in the company, the lawsuit said.

Arnold also said Farm Fresh was well capitalized and the owners would stand behind the company, the lawsuit said.

"When, in fact, as they [the owners of Farm Fresh] well knew, the 'farmers' were being solicited solely because no other conventional financing could be secured; because there was no other entity willing to purchase or otherwise invest in the failing venture," the lawsuit claims.

The plaintiffs' attorney, David Hargis of Little Rock, said in the lawsuit that the stock offering was not for the benefit of Farm Fresh but for the defendants to recoup their own losses and to minimize their future losses.

The Collapse

The financial health of the company didn't improve despite the infusion of the plaintiff's money.



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