Barnes & Noble Stakeholder Aletheia Embroiled in Litigation, SEC Investigation

Barnes & Noble (BKS) is currently enmeshed in something of a sideshow as the financial and publishing worlds speculate over the extremely unlikely and potentially disastrous prospect of a merger with rival book retailer Borders (BGP). With talk subsiding, now comes news of another headache: the litigation drama affecting B&N's third-largest shareholder, Aletheia Research and Management, which owns a 17% stake in the book seller.

As DealBook reported earlier this week, the 13-year-old California money management firm worth $7 billion dollars has been rocked by a bitter split between two of its founding members: CEO Peter J. Eichler Jr. and former CFO Roger B. Peikin, who was largely responsible for the company's business operations until his employment was terminated earlier this year.

In a complaint
filed late last month in California State Superior Court, Peikin calls Eichler's ongoing activities "a tale of unchecked greed and hubris" and accuses "the not-so-benevolent dictator" Eichler, allegedly a "domineering and controlling" despot who "rules Aletheia with an iron fist," of staging a coup to oust Peikin "and seize unfettered control" over Aletheia. Peikin still holds a 28% stake in the firm.

"A Tale of Unchecked Greed and Hubris"

At issue, according to Peikin, are Eichler's trading practices, general disregard for regulatory controls, wanton expenditure of corporate assets for Eichler's personal benefit, and overall neglect of the business side of Aletheia's operations." Peikin further charges that Eichler engaged in "the manipulation of client accounts through the late allocation of trades, the 'busting' of unfavorable trades and the re-allocation of under-performing securities to Aletheia's broker-dealer's account," and that Eichler used his own personal account to trade millions of dollars in securities, even though doing so violated company protocol.

An ongoing investigation by the SEC over improprieties relating to record- and book-keeping practices also exacerbated tensions between the two men, though a settlement is evidently in the works.

A New Malibu Home and Lavish Hotel Suites


Furthermore, according to Peikin, Eichler has a regular habit of transferring Aletheia funds into his own personal account, which he then uses for his own personal gain, to the tune of millions of dollars for a new home in Malibu, renovating company offices, and expenditures of between $16,000 and $18,000 a night on lavish hotel suites. Eichler also appeared to be grooming his successor in the form of his son, Peter Eichler III, who was brought into the firm in mid-2009.

As a result, per the complaint, Eichler allegedly began a systematic campaign to strip Peikin of any power starting around the arrival of Eichler's son, seizing control of bank accounts and blocking Peikin from having check-signing authority and online account access -- even though Aletheia's bylaws "required two signatures on checks over $1,000." Peikin, who was fired by Aletheia's Board of Directors in June, further accuses Eichler of instructing Aletheia employees to intercept emails, phone calls, and secretly search Peikin's offices and image computer hard drives.

Peikin seeks monetary damages from Eichler and Aletheia for breach of contract, wrongful termination and breach of fiducary duty. He is represented by the Los Angeles lawyer Ellyn S. Garofalo. Lawyers for Aletheia told Dealbook that Peikin's claims do not have merit: "He was terminated for his many failures to fulfill his duties. The firm is now responding to and working through the remaining issues caused by Mr. Peikin's nonperformance."

A B&N spokeswoman declined to comment to DailyFinance. But clearly the spotlight now being shined on Aletheia's less-than-satisfactory business practices and legal troubles is the last thing B&N needs as it prepares to entertain serious sales offers. The company's proxy fight with its second largest-shareholder (and alleged Aletheia ally) Ron Burkle may be over for now, but a 17% stake is hardly small. And if that stake is fraught with questions of improper trading practices, and the money involved includes B&N shares, the company may need to figure out any means necessary to divest itself of a troublesome investor and move that much more definitively towards its future -- public or private.


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