3Com Chief Had Ties to Yellowave, Target of Fraud Probe, Filings Say
New documents filed in federal court say that 3Com Corp. Chairman and Chief Executive Eric Benhamou had more than a casual relationship with the groups battling for control of Yellowave Corp., a former franchiser of hair salons turned tech incubator that is the target of fraud allegations.
Benhamou apparently met with top executives of the company in July to discuss prospects for its technology and briefly accepted an offer to join its board, court filings say. According to one document, Benhamou, who is also chairman of Palm Inc., owns about 7.5% of Yellowave through his holdings in a related company.
3Com officials have characterized Benhamou’s involvement as tangential to the controversy swirling around Yellowave, which saw its stock price rise more than 2,000% to a high of $24 on July 24 before falling to $6.75 on Aug. 23 because of the fraud allegations.
Benhamou has not been accused of wrongdoing. He declined to comment Friday, saying through a spokesman that his attorneys have yet to review the court filings.
The American Stock Exchange suspended trading in Yellowave on Aug. 23, while it attempted to sort out who was in control of the company.
Earlier in August, U.S. District Judge Ronald Lew granted a preliminary injunction that barred Benhamou associate and Yellowave Chairman Prosper Abitbol and three other board members from touching the company’s bank accounts or from taking an action on behalf of Yellowave.
The ruling gave temporary control of Yellowave to Chief Operating Officer Laura Ballegeer, one of the architects of the plan to turn the former haircutting chain into an incubator of Israeli technology companies by merging it with Abitbol’s Newtech Bandwidth Ltd. (Earlier court documents referred to the company as Newtech Broadwidth Ltd.)
Ballegeer has also filed a lawsuit to reverse the merger.
Patrick Manshardt, an attorney for Abitbol, said Ballegeer’s lawsuit is “without merit” and represents an “extortion attempt” against his client and, by proxy, Benhamou.
Lew will hold a hearing on his order Monday in Los Angeles Federal Court.
In issuing the injunction, Lew said there was reasonable evidence that Abitbol, his wife, Myriam, and two other Israel-based associates had attempted to drain assets from Yellowave by seeking to transfer $2.7 million to overseas bank accounts.
Abitbol took control of the company last month through a stock swap in which Yellowave acquired four Israeli companies that he owned. But according to court records, the Abitbol companies are not registered in Israel as businesses. Rather, they are names of technology for satellite television and Internet applications controlled by Abitbol, the records say.
The relationship of the Abitbols to Benhamou and Benhamou’s involvement in Yellowave and its predecessors have become key arguments in the dispute.
In written testimony, Ballegeer and Ron Oren, Yellowave’s previous chairman, said they supported the merger with Abitbol’s Newtech because of Benhamou’s alleged involvement in the company. They believed the presence of Benhamou, who runs two prominent U.S. technology companies, would lend credibility to their efforts to build the company.
But after the July 5 merger, they said in court filings that they were unable to determine whether Benhamou was involved.
In an Aug. 11 letter to Ballegeer, Benhamou said he had “no formal association” with Newtech or any “formal business relationship” with Abitbol. That revelation triggered Ballegeer to seek the injunction and file the lawsuit to unwind the acquisition.
But according to court filings, Benhamou does own 10% of Israel Development Broadcast Corp., which owned Newtech. Newtech’s owners acquired 75% of Yellowave’s shares in the merger, Manshardt said.
Moreover, in an Aug. 18 letter to Ballegeer, Benhamou said he had provided “business advice” to Abitbol about IDBC. And he said that Abitbol had asked him to create an advisory board for Yellowave to consult “on matters of business and technology.”
And on July 21, Benhamou met with Abitbol and Oren in Santa Clara to discuss Yellowave’s technology.
According to Oren’s written testimony, “Mr. Benhamou informed me that he believed that we would make money.” Benhamou also said he would take a board position, which he later rejected, and that “3Com might do business with Yellowave in the future,” according to Oren’s testimony.
Manshardt characterized the lawsuit as revenge for Oren for Yellowave refusing to forgive a $1.385 million loan to a holding company owned by Oren.
