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Court Asked to Toss FriendFinder Acquisition Suit

Court Asked to Toss FriendFinder Acquisition Suit
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Mar 11, 2009 12:45 PM PDT    Text size: 
LOS ANGELES — Penthouse attorneys are once again seeking dismissal of a case brought on by Broadstream Capital Partners, which alleged it breached a joint venture deal over the purchase of adult and social-networking giant FriendFinder when it was known as Various.

It is the second time Penthouse has asked for a dismissal in the case, which has been amended four times by Broadstream.

Broadstream alleged that Penthouse execs committed breach of contract and fraud when Penthouse purchased FriendFinder properties in a cash-and-stock deal for $500 million in December 2007.

In the suit, Broadstream claims that during the bidding process for the FriendFinder properties, Penthouse contacted Various company officials to put in a separate bid from a bid it was working on with Broadstream, which said it was working on a joint venture with Penthouse.

Three months ago, Penthouse changed its name to FriendFinder Networks, which now includes Penthouse magazine, AdultFriendFinder.com, 25 other social-networking sites and additional adult-business properties.

Penthouse attorneys now are asking a federal judge to toss the suit, charging that Broadstream induced 20 third parties to sign a three-page document that it described as a nondisclosure agreement, but which also contained a noncompete provision.

Once a party signed the nondisclosure agreement, Penthouse attorneys argue, Broadstream intended to extort exorbitant fees and compensation if it ultimately decided to participate in the acquisition of Various.

They also claim that Broadstream falsely claimed that it was a merchant bank “with significant experience investing in the adult entertainment industry.”

“Ignoring its obligations under the Various nondisclosure agreement, Broadstream wrongfully used Various’ information to market itself as a ‘fundless sponsor’ and engaged in a widespread campaign to ‘lock up’ potential bidders for Various, eliminating competion,” the filing said.

The motion for summary judgment, which will be heard at U.S. District Court in Los Angeles in early April, includes a number of declarations, including one from Daniel Stanton, the former Penthouse chairman who now chairs FriendFinder.

It also includes testimony from “Legendary” Lars Mapstead, who was a Various co-owner and now acts as an executive consultant for FriendFinder.

Mapstead said he was concerned with a Broadstream acquisition because the company “had no true investment, and thus no risk should the deal not prove successful.”

“Ultimately, Various decided not to participate in an acquisition involving Broadstream for a number of reasons,” he said. “We learned that Broadstream misrepresented the nature of its business. Broadstream lacked sufficient experience with managing adult entertainment companies or understanding of the regulations that govern such businesses.

“Broadstream did not have sufficient experience relating to initial public offerings. Neither Broadstream’s nor its sharholders’ assets were going to be used to finance any acquisition of Various by Broadstream.”

In the end, Mapstead said, Various considered Penthouse to be a much more viable purchase candidate than Broadstream.

Attorneys for Broadstream Capital could not be reached by post time.

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