Securities and Exchange Commission
Washington, D.C. 20549
-------------------------------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
The Emerging Germany Fund Inc.
- - ------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.001 per share
- - ------------------------------------------------------------------------------
(Title of Class of Securities)
290913102
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(CUSIP Number)
Ralph W. Bradshaw
c/o Deep Discount Advisors, Inc.
One West Pack Square, Suite 777
Asheville, NC 28801
(828) 255-4833
- - ------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 22, 1998
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(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
<PAGE>
CUSIP No.: 290913102 13D Page 2
- - --------------------- --------
==========================================================================
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. ID NO. OF ABOVE PERSON
Deep Discount Advisors, Inc.
===========================================================================
2 CHECK THE APPROPRIATE BOX IF A MEMBER (a) [ ]
OF A GROUP (b) [ ]
===========================================================================
3 SEC USE ONLY
===========================================================================
4 SOURCE OF FUNDS OO
===========================================================================
5 CHECK BOX IF DISCLOSURE OF LEGAL [ ]
PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
===========================================================================
6 CITIZENSHIP OR PLACE OF ORGANIZATION
One West Pack Square, Suite 777 Asheville, NC 28801
===========================================================================
NUMBER OF | | SOLE VOTING POWER
SHARES | 7 | 1,403,950
============================================================================
BENEFICIALLY | | SHARED VOTING POWER 0
OWNED | 8 |
============================================================================
BY EACH | | SOLE DISPOSITIVE POWER 1,403,950
REPORTING | 9 |
============================================================================
PERSON | | SHARED DISPOSITIVE POWER 0
WITH | 10 |
============================================================================
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 1,403,950
=======================================================================
12 CHECK IF THE AGGREGATE AMOUNT IN ROW [ ]
(11) EXCLUDES CERTAIN SHARES
=======================================================================
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 10.0%
=======================================================================
14 TYPE OF REPORTING PERSON IA
======================================================================
<PAGE>
CUSIP No.: 290913102 13D Page 3
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===============================================================================
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. ID NO. OF ABOVE PERSON
Ron Olin Investment Management Company
===============================================================================
2 CHECK THE APPROPRIATE BOX IF A MEMBER (a) [ ]
OF A GROUP (b) [ ]
========================================================================
3 SEC USE ONLY
======================================================================
4 SOURCE OF FUNDS OO
======================================================================
5 CHECK BOX IF DISCLOSURE OF LEGAL [ ]
PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e)
======================================================================
6 CITIZENSHIP OR PLACE OF ORGANIZATION
One West Pack Square, Suite 777 Asheville, NC 28801
=====================================================================
NUMBER OF | | SOLE VOTING POWER
SHARES | 7 | 659,000
=====================================================================
BENEFICIALLY | | SHARED VOTING POWER 0
OWNED | 8 |
====================================================================
BY EACH | | SOLE DISPOSITIVE POWER 659,000
REPORTING | 9 |
=====================================================================
PERSON | | SHARED DISPOSITIVE POWER 0
WITH | 10 |
======================================================================
11 AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON 659,000
=====================================================================
12 CHECK IF THE AGGREGATE AMOUNT IN ROW [ ]
(11) EXCLUDES CERTAIN SHARES
=========================================================================
13 PERCENT OF CLASS REPRESENTED BY
AMOUNT IN ROW (11) 4.7%
=======================================================================
14 TYPE OF REPORTING PERSON IA
=========================================================================
<PAGE>
ITEM 1. SECURITY AND ISSUER
This Schedule 13D relates to the shares of Common Stock of
The Emerging Germany Fund Inc.(the "Fund"), a corporation organized
under the laws of the State of Maryland and registered as an investment
company under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The principal executive
offices of the Fund are located at 4 Embarcadero Center, San Francisco,
California 94111.
William S. Stack, President
Barbel Lenz, Vice President
Caroline M. Hirst, Treasurer
Robert J. Goldstein, Secretary
ITEM 2. IDENTITY AND BACKGROUND
(a) - (c) This Schedule 13D is being filed by Deep Discount Advisors, Inc.
and Ron Olin Investment Management Company (the "Advisors"), who are
Registered Investment Advisors, One West Pack Square, Suite 777,
Asheville, NC 28801.
(d) None
(e) None
(f) USA
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Investment funds
ITEM 4. PURPOSE OF TRANSACTION
The shares of Common Stock held by the Advisors were acquired
for the purpose of investment in the ordinary course of business. The level of
the discount of the Fund's stock trading price from the Fund's NAV has been a
significant factor in the Advisors decision to purchase shares and the Advisors
support actions which would eliminate this discount. With a view to maximizing
the return on investment in the shares, the Advisors support possible actions
that could be taken if the discount remains at current levels. Such actions
include, but are not limited to, urging the board of the Fund to initiate the
process of open-ending the Fund, urging the board of the Fund to commence an
issuer tender offer or other repurchase program, urging the board of the Fund
to partition the Fund into closed-end and open-end components, or urging the
board of the Fund to liquidate the Fund. The Advisors may also consider
buying or selling shares of the Fund if,in the sole discretion of the Advisors,
they believe it advisable. While the Advisors will not solicit proxies,
participate in a proxy contest, or be part of any group participating in a proxy
contest, they might give proxies in support of any proposal that, in the sole
discretion of the Advisors, might reduce the discount in the Fund's trading
price. As passive investors, it is the intention of the Advisors to return to
filing Schedule 13G's in the near future.
<PAGE>
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The Fund's proxy statement, dated March 16,1998,
relating to the 1998 Annual Meeting of Stockholders states that, as of the
close of business on March 6, 1998, there were 14,008,334 shares of Common
Stock outstanding. The percentage set forth in this Item 5(a) was derived using
such number.
The Advisors are the beneficial owners of 2,062,950 shares of
Common Stock, which constitute approximately 14.7% of the outstanding shares of
Common Stock.
(b) Power to vote and to dispose of the securities resides
with the Advisors.
(c) During the last sixty days, the following shares
of Common Stock were sold on the New York Stock Exchange:
Date Number of Shares Sold Price Per Share
- - ------- -------------------------- ---------------
6/16/98 -3600 14.3125
6/12/98 -3700 14.1875
6/11/98 -1900 14.9375
5/29/98 -800 14.875
5/5/98 -1000 14.1875
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
None
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
On April 8, 1998, the Fund filed a lawsuit titled The Emerging
Germany Fund, Inc., v. Phillip Goldstein, Opportunity Partners L.P.,
Kimball & Winthrop, Inc., Ronald Olin and Deep Discount Advisors, Inc.,
98 Civ.2508(S.D.N.Y.) (DC). The lawsuit alleges, among other things
that Olin and Deep Discount Advisors, Inc. were part of a "Group" with
the other defendants such that all of the defendants were required to file
a Schedule 13D at least by the third week of March. The lawsuit further
alleges that Olin, Deep Discount Advisors, Inc. and the other defendants
sought to wage an unregulated proxy contest, in violation of the federal
securities laws.
Olin and Deep Discount Advisors, Inc. deny all of the
allegations against them in the lawsuit, and have filed a motion to
dismiss all of the claims against them. In particular, Olin and Deep
Discount Advisors, Inc. deny that they have any obligation to file a
Schedule 13D, as Olin and Deep Discount Advisors, Inc. remain eligible
to file a Schedule 13G. Olin and Deep Discount Advisors, Inc. further
deny that either is part of a "group" with any of the other defendants.
A true and correct copy of the complaint filed by the Fund
is attached as Exhibit 1 hereto.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: June 24,1998 Deep Discount Advisors, Inc.
By: /s/ Ralph W. Bradshaw
----------------------------
Name: Ralph W. Bradshaw
Title: Secretary
<PAGE>
EXHIBIT A
The business address for all individuals listed
in this Exhibit A is One West Pack Square, Suite 777,
Asheville, NC 28801.
DIRECTORS AND/OR GENERAL PARTNERS
Name and Address Principal Occupation
- - ---------------- --------------------
Ronald G. Olin Investment Advisor
Sandra D. Olin Director
Gary A. Bentz Investment Advisor
Ralph W. Bradshaw Investment Advisor
William A. Clark Investment Advisor
Ralph D. McBride Attorney
<PAGE>
EXECUTIVE OFFICERS
Name and Address Principal Occupation
- - ---------------- --------------------
Ronald G. Olin Investment Advisor
Gary A. Bentz Investment Advisor
Ralph W. Bradshaw Investment Advisor
William A. Clark Investment Advisor
SHAREHOLDERS WHO MAY BE DEEMED TO CONTROL THE ADVISORS.
The following shareholders and/or partners may be deemed to
control the Advisors:
Ronald G. Olin
EXHIBIT 1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
THE EMERGING GERMANY FUND,
INC.,
Plaintiff,
v.
PHILLIP GOLDSTEIN, OPPORTUNITY
PARTNERS L.P., KIMBALL &
WINTHROP, INC., RONALD OLIN and
DEEP DISCOUNT ADVISORS, INC.,
Defendants,
)))))))))))))
98 CIV. __________
COMPLAINT
Plaintiff, The Emerging Germany Fund, Inc. (the "Fund"), by
its attorneys, Shaw Pittman Potts & Trowbridge, for its Complaint
against defendants, alleges as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over the subject
matter of this action under section 27 of the Securities Exchange
Act of 1934 (the "1934 Act") and section 1331 of Title 28 of the
United States Code.
2. Venue is proper in this District under 15 U.S.C. S
78 (a) (a) and 28 U.S.C. S 1391.
PARTIES
3. The Fund is a closed-end fund, organized under the
laws of the State of Maryland, having its principal place of
business in San Francisco, California and registered under the
Investment Company Act of 1940, as amended. The Fund engages in
the business of buying and selling securities of companies doing
business in Germany and several other European countries. Common
stock issued by the Fund is registered under section 12(b) of the
1934 Act and trades on the New York Stock Exchange under the
ticker symbol FRG. There are 14,008,334 shares of the Fund's
common stock outstanding.
4. Defendant Phillip Goldstein is the President of
defendant Kimball & Winthrop, Inc. and resides in Pleasantville,
New York.
5. Defendant Opportunity Partners L.P. is a limited
partnership with its principal place of business in
Pleasantville, New York. Opportunity Partners L.P. is a
shareholder of the Fund. Upon information and belief, as of
March 6, 1998, Opportunity Partners L.P. beneficially owned at
least 66,500 shares of the Fund's common stock, which constituted
nearly .5 percent of the total shares of the Fund's outstanding
common stock.
6. Defendant Kimball & Winthrop, Inc. is the general
partner of defendant Opportunity Partners L.P.
7. Defendant Ronald Olin is President of Deep
Discount Advisors, Inc. and resides in Asheville, North Carolina.
8. Defendant Deep Discount Advisors., Inc. is an
investment advisor registered with the Securities and Exchange
Commission ("SEC") and has its principal place of business in
Asheville, North Carolina.
INTRODUCTION
9. This action challenges a concerted scheme
perpetrated by the named defendants and certain others to wage an
unregulated proxy contest for control of a New York Stock
Exchange company. The purpose of this ongoing scheme is to
effect a fundamental change in the direction of the Fund by
forcing the Fund to convert from a closed-end fund to an open-end
fund and provide defendants the opportunity to make a quick
profit at the expense of other shareholders.
10. The Fund was established as a closed-end fund for
good and valid business reasons. The closed-end nature of the
Fund allows the portfolio to be managed free of the obligation of
having to meet redemption requests on a moment's notice. This
enhances the Fund's ability to invest in securities that the Fund
manager believes offer good long-term value or are less liquid.
11. In promoting their scheme to open-end the Fund,
defendants and certain others have intentionally evaded the proxy
rules and beneficial ownership disclosure rules in order to
conceal material facts from the Fund's shareholders and
management and further their own short-term interests in
derogation of the other shareholders' interests. Integral to
defendants' scheme has been the use of an Internet chat room.
12. The defendant's use of the chat room forum has
significantly advanced defendants, illegal scheme by allowing
them to communicate using aliases. The chat room postings have
also contained numerous false and misleading statements, not only
about the defendants, identities, but also their intentions and
the 'Wisdom of opening the Fund.
13. Defendants have sought to benefit from an unlevel
playing field resulting from the Fund's compliance with
applicable SEC proxy solicitation and disclosure rules.
ALLEGATIONS COMMON TO ALL CLAIMS FOR RELIEF
1. The Difference Between Closed-End and Open-End Funds
14. Both open-end and closed-end funds take the pooled
capital invested by shareholders and invest it in securities.
Investors it an open-end fund buy shares from the open-end fund
or tender their shares to the open-end fund for redemption. The
open-end fund stands ready to offer to sell shares or to redeem
,shares at their current net asset value on a continuing basis.
Shares of open-end funds are not traded on securities exchanges.
The total assets of an open-end fund rise or fall on a daily
basis, depending on whether investors are buying shares or
presenting shares for redemption and depending on performance of
the securities in which the fund invests.
15. With closed-end funds, by contrast, investors buy
their shares in an initial public offering, or in a subsequent
offering. A closed-end fund does not stand ready to sell
additional shares or to redeem outstanding shares.,as an open-end fund
does. Instead, shares of the closed-end fund are traded
on a securities exchange, and the assets of the fund are
unaffected by purchases or sales of shares on the market. The
share price fluctuates according to investor sentiment and the
law of supply and demand.
2. The Upcoming Shareholders Meeting of the Fund
16. The Fund filed its definitive proxy materials with
the SEC on March 16, 1998, and began mailing such materials to
shareholders on that date. The materials included the Fund's
Notice of Annual Meeting of Stockholders which notified the
shareholders of the Fund's annual meeting to be held April 27,
1998. The only items on the agenda were the election of four of
the Fund's ten directors and the appointment of Coopers & Lybrand
as the Fund's accountant.
17. In view of the activities undertaken by defendants
and others described herein, and in order to ensure that
shareholders receive truthful and complete information about any
proposals to be put forward at the next shareholders meeting, the
Board, on April 6, 1998, withdrew the notice previously given for
the Fund's 1998 annual meeting of stockholders which was
scheduled for April 27, 1998 until the meeting can be
rescheduled.
3. Phillip Goldstein -- A Closed-End Fund Raider
18. Goldstein, using Opportunity Partners L.P. as his
vehicle, has taken positions in more than 100 closed-end funds.
His modus operandi is to take positions in closed-end funds whose
share prices are trading at a discount to net asset value. He
then seeks to "open" the fund -- that is, to force management to
convert the fund into an open-end fund. When the share price
rises to equal the fund's net asset value, Goldstein sells his
shares for a quick profit.
19. Goldstein has led the charge to open a number of
closed-end funds over the last several years. In these contests,
he has often teamed up with others such as Karpus Management,
Inc. He and Karpus Management, Inc. recently combined forces to
wage an unsuccessful proxy battle to open Bull & Bear U.S.
Government Securities Fund.
20. The February 1998 edition of Worth magazine
reported that Goldstein stays in close touch with many of the
leading closed-end fund institutional investors. In that
article, Goldstein is quoted as follows: "If I'm going to take on
a fund, I want to know I've got the support of major
shareholders."
21. In a February 2, 1998 Fortune magazine article,
Goldstein is quoted as likening his and others' efforts to open
closed-end funds to the "French Revolution" while smugly
observing that "[t]hese managers don't even realize their heads
are resting on the guillotines.11
4. The Goldstein-Led Conspiracy to Solicit Fund Proxies in
Violation of Law
a. The Closed-End Funds Chat-Line
22. There exists on the Internet a discussion group
known as the Closed-End Funds Discussion Forum of the Internet
Closed-End Funds Investor Internet-Site (the "Chat-Line"). The
Internet address of the Chat-Line is:
http://www.linkindia.com/icefi/wwwboard/index.html. The Chat-Line
describes itself as "a public forum for discussing specific
closed-end funds or general issues related to investing in
closed-end funds." The Chat-Line is publicly available to any
user of the Internet. A user of the Internet may use any number
of search engines to find material relating to the Fund and is
able to find direct links to discussions relating to the Fund in
the Chat-Room.
b. Using the Chat-Line to Evade Proxy Solicitation
Laws and Rules
23. In March 1998, Goldstein knew that to convert the
Fund to an open-end fund requires either (a) the support of a
majority of the shareholders if two-thirds of the directors
recommend opening the Fund, or (b) the support of 75% of the
shareholders if two-thirds of the directors do not recommend
opening the Fund. During March 1998 and continuing to the
present, Goldstein and others set about the task of getting the
votes necessary to open the Fund. To that end, and without
complying with the proxy rules of the SEC, Goldstein used the
Chat-Line to solicit proxies. These unlawful solicitations have
denied shareholders the benefit of full and fair disclosure and
the protections of the SEC's proxy rules.
24. On March 22, 1998 at 3:54 p.m., a Chat-Line
participant using the name "Gordon Gecko's Frustrated Twin"
posted a message entitled "Turn this Frog (FRG) into a Prince".
(As noted above, FRG is the ticker symbol for the Fund.) In that
posting, Gordon Gecko's Frustrated Twin stated that he held
42,600 shares of the Fund and complained that nobody had stepped
forward to lead a proxy fight to make the Fund an open-end fund.
In particular, he wrote:
"[I]t is hard to free-ride with 42,600 shares
of [the Fund] when NOBODY IS DOING
ANYTHING!!! We can all add up the votes, yet
NOTHING IS HAPPENING!!! . . . Nobody has even
submitted a shareholder proposal for the
annual meeting. What is going on here. When
I left for the Caribbean a few weeks ago, I
thought I would return to find a nice
friendly blue proxy to vote against the
creeps at (the Fund]. Yet I have found
NOTHING! Come on guys. Get Creative! This
one is a slam dunk, but someone has to pick
up the ball!"
25. An hour later, at 4:45 p.m. on March 22, Goldstein
responded to Gordon Gecko's Frustrated Twin with a posting,
entitled "FRG, I'm Thinking, I'm Thinking":
"You are right but everyone has to play his
part to the best of his ability. Free
riding's one thing but I don't want to be
Gary Cooper facing the bad guys alone while
everyone else runs for cover. Either you are
with me or you're against me, big guys. (I
know you're there, Gordo, but you're not
enough)[.] I need to know that enough large
holders will vote their shares IN THE,
INTEREST OF THEIR CLIENTS! . . . . "
26. At 6:11 p.m. on March 22, 1998, a Chat-Line
participant using the name "Lennyb" posted a message in response
to Gordon Gecko's Frustrated Twin's posting of the same day. In
his message, Lennyb explained that to open the Fund would require
75% of the votes and that it is hard to get that many votes even
with board support. Lennyb then opined that the shareholders
favoring an open-end fund might be able to get representation on
the board if someone wanted to spend $50,000 to $100,000.
27. A little over an hour later, at 7:26 p.m.,
Goldstein responded to Lennyb, disagreeing with his view that, it
would be difficult and costly to obtain board representation and
open the Fund. Goldstein explained how shareholders favoring an
open-end fund could wage a proxy battle cheaply by evading the
federal securities laws. Those laws require a person
communicating to security holders under circumstances reasonably
calculated to result in the procurement, withholding or
revocation of a proxy to file a proxy statement with the SEC and
to provide a copy of the statement to any shareholder from whom
he solicits a proxy.
Goldstein wrote:
"My boy, you have to start thinking outside
the box. There is more than one way to skin
a fat cat management. Ponder this: 1. I
don't believe a self-tender offer requires a
stockholder vote. 2. Rule 14a-1(1)(2)(i)
states that if a proxy is furnished to a
stockholder at his unsolicited request, no
solicitation has occurred -- which means that
there is no filing requirement. 3. Rule 14a-2(b)(2)
exempts solicitations made to ten or
fewer persons from the filing requirements.
Now, care to rethink your analysis? . . . . "
28. At 9:04 p.m. on March 22, Lennyb replied to
Goldstein. Lennyb stated that he had checked Goldstein's
securities law analysis and that Goldstein was correct. Lennyb
then pointed out that four large institutional shareholders of
the Fund (Deep Discount, Bank Berlin, FMR and Lazard Freres)
together hold 48% of the Fund. Lennyb then suggested that with
the support of the next highest institutional shareholder, the
open-end supporters could get close to the 75% needed. Lennyb
"guessed" that for purposes of determining whether the ten
persons or fewer exemption applies, "a person making the
solicitation would not count among the 10 listed."
29. At 4:20 a.m. on March 23, 1998, PTFTrader entered
the Chat-Line discussion of how to evade the SEC proxy rules with
a posting entitled "Unsolicited requests for votes." PTFTrader
stated that "a public notice of what resolution was being voted
on by the chosen voters and directions on how an unsolicited copy
of the proposed resolution could be obtained might clear
technicalities."
30. A few minutes later, at 4:49 on the morning of
March 23, 1998, "Gordon Gecko" (not to be confused with Gordon
Gecko's Twin Brother) joined the Chat-Line discussion of the
Fund. In a posting headed "Do it Now!" in response to
Goldstein's "FRG, I'm Thinking, I'm Thinking", Gordon Gecko urged
Goldstein to lead the charge to open the Fund. He stated:
"The circles I travel in suggest there are a
whole lot of positions (and votes) around my
size that have been accumulated over the last
6 to 8 months. Also, most of the really big
players have signaled their support one way
or the other. There are reasons I can't do
it myself, or identify myself, but if I
could, I would. It sounds like you know how
to do it cheaply. Do it Now."
31. At 6:30 a.m. on March 23, 1998, Goldstein
responded to PTFTrader's "Unsolicited request for votes" posting
by giving further counsel on how to evade the SEC proxy
solicitation rules. Goldstein wrote:
"The purpose of the proxy filing and
disclosure requirements is to insure that
shareholders who are solictated (sic] are
able to cast an informed vote on matters to
be presented at the meeting. If a
shareholder who is not solicited nevertheless
learns that another stockholder will be
presenting a matter for a vote, and wishes to
give the latter his proxy, he may ask the
latter to deliver a form of proxy which he
may elect to sign and give the latter to be
voted at the meeting. This makes sense
because otherwise the requesting stockholder
would be effectively disenfranchised."
32. At 7:39 a.m. that same morning, Lennyb made a
posting entitled "Trying to Facillitate (sic)". Responding to
Gordon Gecko's "Do It Now" posting, Lennyb suggested that the
supporters of the open-end proposal "just send Phil (Goldstein] a
blank proxy or whatever." He then queried, "What is the worst
that can happen?"
33. At 10:46 a.m. on March 23, 1998, Gordon Gecko
replied to Lennyb's "Trying to Facillitate (sic]" posting. In
this posting, entitled "Figuring out how to win", Gordon Gecko
concurred with Lennyb that supporters should send their proxie's
to Goldstein and opined that "if Phil is able to receive proxies,
he will receive a lot." He cautioned, however, that Goldstein
11might get in trouble if he appears to be soliciting proxies by
explaining how easy it is for him to receive them from some of us
. . . . . "
34. Four minutes later, at 10:50 a.m., "Arby 311
entered the discussion, asking "who do we ask for a form of
proxy?"
35. Nine minutes later, at 10:59 a.m., Gordon Gecko
posted another message. In this message, entitled "Clarifying my
posting", he sought to "clarify" his "Figuring out how to win"
message of a few minutes earlier. He wrote:
"As I reread my post, I realize it may have
been confusing[.] What I am saying is that
someone needs to clearly spell out how to get
unsolicited proxies delivered to Phil,
particularly if they are held in street name
at brokers. I don't understand how to do
that to support someone like Phil who may not
be soliciting my proxy but who can accept it,
if offered."
36. At 2:46 p.m. on March 23, 1998, Goldstein posted a
message entitled "Half-assed Legal Advice" in response to Gordon
Gecko's "Clarifying my posting" message. Clearly demonst rating
his consciousness of his wrongdoing in soliciting proxies from
more than ten shareholders without filing a proxy statement in
violation of Section 14(a) of the 1934 Act, Goldstein
disingenuously denied such wrongdoing. He declared: "I am not
soliciting and will not solicit proxies from more than 10 persons
without filing a proxy statement with the SEC." Goldstein
thereupon proceeded to solicit votes from all shareholders of the
Fund who might see his posting (which could be accessed by all
shareholders of the Fund). Writing "hypothetically," Goldstein
instructed those wishing to have their proxies voted in favor of
opening the Fund as to how to get their proxies to Goldstein:
"[I]f someone else was putting forth a
proposal I favored and not distributing
proxies to all shdreholders,. I would either
(1) contact that person and tell him that I
wanted him to send one to my broker (who is
the owner of record) to be forwarded to me or
(2) tell my broker to get me one from that
person. In either case, I would follow up
with the broker to make sure I got it in time
to sign it and return it to the person via my
broker who, as the owner of record, is the
only one entitled to give a proxy to
someone."
37. On March 23, 1998 at 5:45 p.m., a Chat-Line
participant calling himself "Confused and Needing Help" stated
that he had received his proxy card from the Fund and "would
probably support someone else against management," but that he
did not know what to do.
38. The next day, March 24, 1998, at 7:30 a.m.,
Goldstein told "Confused and Needing Help" what to do by
explaining that he (Goldstein) had voted Opportunity Partners
L.P.'s shares against management via the 800 phone number on the
instruction form. He continued with his advice:
"If one opposes management, voting against
them is the next best thing to voting for an
insurgent. The worst thing would be to do
nothing. If I had tossed out the form and
never done anything further, my broker would
almost certainly vote our shares for
management."
39. At 12:56 a.m. on March 25, 1998, a participant
named "Gwailoll joined the discussion of the Fund. He noted that
as of December 31, 1997, Deep Discount Advisors, Inc.,
Bankgesellschaft Berlin AG, FMR Corp. and Lazard Freres & Co. LLC
were the beneficial owners of 14%, 13.97%, 10% and 9.71%
respectively, of the Fund's outstanding shares. He then mused
that it "[k]ind of reminds" him "of 4 sheep circling around a
terrified wolf." Gwailo then "wondered" what the Fund bylaws say
concerning shareholder meetings and nominations of board members
from the floor.
40. At 7:29 a.m. on March 25, 1998, Goldstein
responded to Gwailo's inquiry about the Fund bylaws. He
explained that "the discretionary authority that [the Fund] and
most companies include in their proxy is that management may vote
the proxies delivered to it on matters that are introduced at the
meeting that management is not aware of beforehand." He then
suggested a means by which the open-end supporters could deny the
Fund management the power to vote proxies it held on an open-end
proposal:
"If, and this is a BIG IF, management is
aware a reasonable time before the meeting
that a matter, (e.g., a recommendation to
open-end) will be introduced by a shareholder
at the meeting, it must either notify
stockholders before the meeting through a
supplementary notice and allow them to vote
on the proposal or FORFEIT any discretionary
authority, i.e., not vote on the matter.
Interesting, no.?"
41. On March 26, 1998 at 6:26 p.m., Goldstein posted a
message entitled "How to Give Someone a Proxy". In this message,
Goldstein explained what a proxy is and how a shareholder can
give his proxy to another. With respect to "owners of record"
(as contrasted to those whose shares are held in street name), he
instructed:
"If you are the owner of record, deliver a
simple statement to whoever you wish
authorizing that person to vote at the
meeting as your proxy. Just make sure your
name, signature and date is on the statement
as well as the name of the company and the
number of share you own (on the record date)
so that the inspector can verify that you are
indeed a stockholder of the company[.]"
Goldstein closed the posting, "Any questions."
42. On March 27, 1998 at 5:38 a.m., Goldstein posted a
follow-up post script to his March 26 "How to Give Someone a
Proxy" message. In this posting he posed a question to himself
about whether a proxy delivered by a broker to a third party
identifies the beneficial owner. He then answered his own
question, stating that he believed it was anonymous.
43. On March 27, 1998 at 12:22 p.m., a participant
named Kafka joined the Chat-Line. In a posting entitled "THE
SILVER BULLET", he wrote a page explaining how to send a proxy to
Phil Goldstein. He also gave the participants Goldstein's
address. He further instructed the participants on what the
proxy should say. Clearly aware of the law and SEC rules
governing proxy solicitations and of Goldstein's attempts to
evade them, Kafka then made a disingenuous attempt to deny that
he was acting in concert with Goldstein. Kafka wrote:
"I am not Phil. This is 'my' idea. Until I
hear otherwise, I am going to assume that
Phil can handle what I am suggesting. I
realize that Phil can not directly solicit
more than 10 proxies without spending a whole
lot of money and dealing with a whole lot of
regulations. Perhaps it is better for Phil
if he not comment on this at all . . . . "
Kafka ended his message by urging everyone to 11(j]oin the
revolution."
c. Goldstein's March 27 Notice Letter to Management
44. On March 27, 1998, Goldstein, as-president of
defendant Kimball & Winthrop, Inc., the general partner of
defendant Opportunity Partners L.P., wrote a letter to the Fund
Management. In that letter (the "March 27 Letter to
Management"), he advised management that Opportunity Partners
L.P. beneficially owns 66,500 shares of the Fund. He stated that
at the upcoming shareholders meeting, then scheduled for April
27, 1998, Opportunity Partners L.P. intends to nominate the
following persons for election as Class I directors: Phillip
Goldstein, Gerald Hellerman, Donald R. Chambers and George W.
Karpus. He also informed Management that Opportunity Partners
L.P. intends to submit the following proposals:
"Proposal A: The Fund's Investment Advisory
Agreement with Dresdner RCM Global Investors
LLC shall be terminated.
"Proposal B: It is recommended that the
remaining directors resign.
"Proposal C: It is recommended that the
Fund's stock holders be afforded an
opportunity to realize net asset value for
their investment in the Fund.
"Proposal D: I t is recommended that the
reasonable expenses incurred by opportunity
Partners L.P related to the meeting be
reimbursed by the Fund."
d. Olin's March 27 Solicitation Letter to
Shareholders
45. On or about March 27, 1998, the same day Goldstein
sent his March 27 Letter to management, Ronald Olin of Deep
Discount Advisors, Inc. wrote and signed a two-page letter to
Shareholders of the Fund in which he solicited proxies on behalf
of Goldstein. (the "March 27 Solicitation Letter to Shareholders"
or the "March 27 Solicitation Letter"). Olin began the letter by
stating that Deep Discount Advisors, Inc. and its clients are the
largest shareholder of the Fund with 2,095,350 shares or 15.0% of
the Fund.
46. He proceeded to attack Management and the Fund's
performance. He stated that as "passive, institutional
investors," the Deep Discount Advisors, Inc. and its clients are
"precluded from running directors in opposition, soliciting
proxies from other shareholders, or attempting to replace the
manager with some better . . . . He continued:
"Nevertheless, we have decided to take
action. We are permitted by the securities
laws to express our opinions and to inform
other shareholders how we intend to vote on
important matters affecting the fund."
47. Olin then proceeded to solicit proxies for
Goldstein. In this regard, he wrote:
"If you have been following the press on
closed-end funds over the last year, you know
that he is a gentleman named Phillip
Goldstein who is an outspoken shareholder
value advocate. In our opinion, he has
impeccable credentials. He believes that
closed-end shareholders deserve to receive
full value for their investment, and he is
prepared to challenge the entrenched
managements and Boards who are standing in
the way. we intend to call our brokers and
direct them to send "open proxies" for all
our shares in time for the April 27th annual
meeting of Emerging Germany Fund to:
"Mr. Phillip Goldstein
60 Heritage Drive
Pleasantville, NY 105070"
48. Olin then explained the proxy process:
"This is a simple process. The last proxy
given or signed takes precedence. If enough
shareholders do this, important resolutions
can be passed and shareholder friendly
Directors can be elected at the meeting.
Even if normal shareholder apathy prevails,
an important message will still have been
sent by many of the shareholders."
49. Olin then denied the obvious -- that he was
working with Goldstein and soliciting proxies on Goldstein's
behalf. He wrote:
"We have no arrangement with Mr. Goldstein,
and he does not even know we are sending this
letter to shareholders. We are not
soliciting proxies for him, and each
shareholder should do his or her own due
diligence before giving anyone, including
management, their proxy."
50. Olin's March 27 Solicitation Letter to
Shareholders contained numerous misleading statements and
material omissions. For example, the letter falsely stated that
Olin and Deep Discount Advisors, Inc. have no arrangement with
Goldstein and are not soliciting proxies for Goldstein.
51. Olin wrote and signed the March 27 Solicitation
Letter to Shareholders with every intention of sending it. on
information and belief, on April 3, 1998, he delivered copies of
the letter to ADP with instructions that ADP mail the letter on
April 7, 1998 to all Fund shareholders who hold more than 1,000
shares.
52. On information and belief, on April 7, 1998,
before the mailing, Olin spoke with ADP about his March 27
Shareholder Solicitation Letter. They informed him that they
were concerned that the letter might violate several SEC proxy
solicitation rules.
53. Later that same day, at 6:44 p.m., Olin posted a
message on the Chat-Line in which he reported on these
conversations with Fund representatives. He insisted that his
March 27 Shareholder Solicitation Letter would be mailed to all
Fund shareholders holding 1000 shares or more.
54. On the morning of April 8, 1998, however, the Fund
issued a press release. The press release stated, among other
things, that the Fund would file this action on April 8. Through
a posting on the Chat-Line by Lennyb, Olin learned of the Fund's
press release just before the March 27 Solicitation Letter was to
be mailed by ADP. Realizing that his illegal conduct would be
exposed for what it was, and demonstrating his consciousness of
wrongdoing, Olin immediately instructed ADP not to mail the March
27 Solicitation Letter.
55. On information and belief, the March 27
Shareholder Solicitation Letter was not mailed.
e. Continuing Use of the Chat-Line to Evade the Proxy
Solicitation Rules
56. The Chat-Line discussion of how to evade the proxy
solicitation rules continued on March 28, 1998. At 8:45 a.m.,
and without mentioning his March 27 Solicitation Letter, Olin
posted a message entitled "Actually, it's a pretty good ideal'.
In the message, he gave his support to Kafka's proposal that all
in favor of opening the fund send their proxies to Goldstein and
suggested that he would do so himself. He wrote:
"Perhaps Kafka Is idea has some merit . . . .
Perhaps it is not such a bad idea for
shareholders to have an alternative to just
sitting and taking it. Perhaps my clients
and I will send open proxies for 1,126,159
shares to Mr. Goldstein."
57. Olin's posting of March 28 is false and misleading
insofar as it suggests that Goldstein was only then, and at
Kafka's suggestion, beginning to consider the idea of sending his
own proxy to Goldstein and urging others to do the same. It is
clear from his March 27 Solicitation Letter that Olin had not
only considered the idea before Kafka's posting, but that he had
already formed the intent to promote the idea and had taken steps
to that end.
58. At 4:57 p.m. on March.28, 1998, Goldstein posted a
message on the Chat-Line, informing participants that Opportunity
Partners L.P. had notified the Fund's Management of its intention
to nominate four directors at the upcoming Shareholders Meeting
and of its proposals to cause the fund to open. This
communication was false and misleading in that it failed to
disclose facts material to a shareholder's assessment of the
qualifications of the four directors. For instance, it failed to
disclose that two of Goldstein's director nominees -- Donald R.
Chambers and George W. Karpus -- are affiliated with Karpus
Management, another shareholder of the Fund. It also failed to
disclose that Karpus Management and Deep Discount Partners were
participants with Goldstein on the solicitations. The posting
also omitted the most basic information needed for shareholders
to assess the wisdom of the proposals.
59. In Goldstein's 4:57 p.m. posting, he also made an
unpersuasive attempt to deny that he had already violated the SEC
proxy solicitation and other disclosure rules. Goldstein stated:
"We are not filing aproxy with the SEC and we
intend to solicit proxies from only 10
persons as described in my prior postings.
Unless a stockholder votes at the meeting
himself or gives (or has his broker give)
someone else a proxy to be voted at the
meeting, his shares will not be voted for our
nominees or on these proposals."
Goldstein closed his posting with a pessimistic assessment of the
prospects for success, while taking heart in the low downside
risk:
"I don't know how successful this effort will
be but it will be educational to find out(.]
(I am not very optimistic.) The cost is
minimal, and the possibility of getting
entangled in bureaucratic red tape or
litigation is small so I see little downside
. . ."
60. On March 30, 1998 at 2:51 p.m., a participant
calling itself WSB posted a message in which WSB confirmed giving
his proxy to Goldstein. He wrote: 111Mly broker has already
contacted Phil to provide him with a proxy covering my FRG
shares. All it took was a two minute phone conversation and
follow-up fax."
61. On April 7, 1998, at 6:34 p.m., 11FRG Shareholder"
posted a message entitled 11FRG Proxy in Hand, What-do I do now?"
He stated: "I own 2,000 shares in street name. I want NAV (Net
Asset Value] ASAP. I just got my proxy and Notice of Annual
Meeting of Stockholders in the mail. Exactly what do I do now?"
62. On April 7, 1998, at 6:51 p.m., Olin posted a
response to the "FRG Proxy In Hand, What do I do now?" posting.
He advised FRG Shareholder that when FRG Shareholder gets Olin's
March 27 Proxy Solicitation Letter FRG Shareholder "will see what
we plan to do. After you do your own due diligence, you might be
surprised at the options available to you."
FIRST CLAIM FOR RELIEF
(VIOLATION OF SECTION 14(a)
OF THE 1934 ACT AND SEC RULES
14a-3 through 14a-6 THEREUNDER)
(AGAINST ALL DEFENDANTS)
63. The Fund repeats and realleges the allegations set
forth in paragraphs 1 through 62 above as if fully set forth
herein.
64. By the conduct alleged above, as well as other
conduct, defendants solicited and permitted the use of their
names to solicit proxies, consents and authorizations in respect
of the Fund shares, in particular, proxies, consents and
,authorizations for Opportunity Partners L.P. to vote on behalf
of other shareholders in favor of Opportunity Partners L.P.'s
slate of directors and proposals set forth in the March 27 Letter
to Management.
65. By the conduct alleged above, as well as other
conduct, defendants furnished communications to shareholders of
the Fund under circumstances reasonably calculated to result in
the procurement, withholding or revocation of a proxy.
66. Defendants did so by means of the Internet and the
mails, both of which are instrumentalities of interstate
commerce.
67. As a result thereof, and without the benefit of
any exemptions from compliance with the proxy provisions,
defendants have acted and continue to act in violation of section
14(a) of the 1934 Act and SEC Rule 14a-l(f) and (1) by, among
other things: (1) failing to file a preliminary or definitive
proxy statement with the SEC in violation of Rule 14a-6, and (2)
failing to furnish to all solicited persons a copy of the proxy
statement in violation of Rules 14a-3.
68. As a result thereof, there has been and continues
to be irreparable injury in that the shareholders of the Fund
have not received full and accurate information about the
defendants, their proposed slate of directors and their proposals
set forth in the March 27 Letter to Management.
SECOND CLAIM FOR RELIEF
(VIOLATION OF SECTION 13(d) OF THE
1934 ACT AND SEC RULES THEREUNDER)
(AGAINST ALL DEFENDANTS)
69. The Fund repeats and realleges the allegations set
forth in paragraphs 1 through 68 above as if fully set forth
herein.
70. Since at least March 6, 1998, Opportunity Partners
L.P. has been the beneficial owner of 66,500 shares of the Fund
common stock.
71. At all relevant times Deep Discount Advisors, Inc.
and its clients owned over 2 million shares or over 15% of the
Fund's common stock.
72. Opportunity Partners L.P., Deep Discount Advisors,
its clients, and certain other persons whose representatives
participated in the Chat-Line, agreed to act together and acted
together for the purpose of acquiring, holding, voting and
disposing of securities of the Fund, and thus, pursuant to
section 13(d)(1) of the 1934 Act and SEC Rule 13d-5(b)(1)
thereunder, are a "group" (the "Section 13(d)(1) Group") deemed
to have acquired beneficial ownership of all securities of the
Fund beneficially owned by any such persons.
73. The Section 13(d)(1) Group is the beneficial owner
of more than five per cent of the common shares of the Fund.
74. The Section 13(d)(1) Group has not, as required,
filed a Schedule 13(d) with the SEC, sent such a Schedule to the
Fund or sent such a Schedule to the New York Stock Exchange
concerning its position in the Fund securities and other matters,
in violation of Section 13(d)(1) of-the 1934 Act and SEC rules
thereunder.
75. As a result thereof, there has been and continues
to be irreparable injury in that the shareholders of the Fund
have not received full and accurate information about the Section
13(d)(1) Group, such as the background, identity, residence and
citizenship of the Section 13(d)(1) Group and its members, the
source of the funds used in making the purchases, and any
contracts, arrangements, or understandings with any person with
respect to any securities of the Fund.
THIRD CLAIM FOR RELIEF
(VIOLATION OF SECTION 14(a) OF THE
1934 ACT AND SEC RULE 14a-9 THEREUNDER)
(AGAINST DEFENDANTS GOLDSTEIN,
OPPORTUNITY PARTNERS L.P. AND
KIMBALL & WINTHROP, INC.)
76. The Fund repeats and realleges the allegations set
forth in paragraphs 1 through 75 above as if fully set forth
herein.
77. Through their postings on the Chat-Line set forth
above, and in particular Goldstein's two March 28, 1998 postings,
as well as other conduct, defendants Goldstein, Opportunity
Partners L.P. and Kimball & Winthrop, Inc. made solicitations of
proxies by mean's of communications containing statements which
are false and misleading with respect to material facts and which
omit to state material facts necessary in order to make the
statements therein not false and misleading.
78. Defendants did so by means of the Internet and the
mails, both of which are instrumentalities of interstate
commerce.
79. Defendants made the communications referred to
above with the intent to deceive and defraud the Fund's
shareholders and management.
80. As a result thereof, and without the benefit of
any exemptions from compliance with the proxy provisions,
defendants have acted and continue to act in violation of section
14(a) of the 1934 Act and SEC Rule 14a-9 by, among other things,
sending false and misleading solicitations to shareholders.
81. As a result thereof, there has been and continues
to be irreparable injury in that the shareholders of the Fund
have received false, misleading and incomplete information about
defendants, their nominees for the four directorships and their
proposals.
FOURTH CLAIM FOR RELIEF
(VIOLATION OF SECTION 20 OF THE 1934 ACT)
(AGAINST DEFENDANTS GOLDSTEIN AND OLIN)
82. The Fund repeats and realleges the allegations set
forth in paragraphs 1 through 81 above as if fully set forth
herein.
83. At all times relevant to the claims asserted
herein, Goldstein was a controlling person of Opportunity
Partners L.P. and Kimball & Winthrop, Inc. within the meaning of
the 1934 Act.
84. At all times relevant to the claims asserted
herein, Olin was a controlling person of Deep Discount Advisors,
Inc. within the meaning of Section 20 of the 1934 Act.
85. Goldstein is liable for the violations of
Opportunity Partners, Inc. and Kimball & Winthrop, Inc. as
alleged herein pursuant to Section 20 of the 1934 Act and
principles of respondeat superior.
86. Olin is liable for the violations of Deep Discount
Advisors, Inc. as alleged herein pursuant to Section 20 of the
1934 Act and principles of respondeat superior.
87. Plaintiff is entitled to the same relief from
Goldstein and Olin as it seeks from the defendants which they
control.
PRAYER FOR RELIEF
WHEREFORE, the Fund respectfully prays that the Court enter
a judgment:
(1) enjoining defendants and any one acting in concert with
them (including, but not limited to, any other members of the
Section 13(d)(1) Group) from:
(a) putting forth at any shareholder meeting the
proposals set forth in the March 27, 1998 Letter to Management
until they have complied with Sections 13(d) and 14(a) of the
1934 Act and all rules and regulations thereunder;
(b) voting their shares and any proxies they hold at
any shareholder meeting until they have complied with Sections
13(d) and 14(a) of the 1934 Act and all rules and regulations
thereunder; and
(c) soliciting proxies until they have complied with
Sections 13(d) and 14(a) of the 1934 Act and all rules and
regulations thereunder;
(2) compelling defendants and any one acting in concert
with them (including, but not limited to, any other members of
the Section 13(d)(1) Group) to make corrective disclosure of
their public statements concerning the Fund; and
(3) awarding the Fund the costs and disbursements of this
action and reasonable attorneys, fees.
Dated: New York, New York
April 8, 1998
SHAW PITTMAN POTTS & TROWBRIDGE
By:
Kenneth A. Caruso (KC-7769)
A Member of the Firm
1675 Broadway
New York, New York 10019
(212) 603-6800
Attorneys for Plaintiff
Emerging Germany Fund, Inc.
Of Counsel: Kenneth A. Caruso
Charles J. Landy
Robert Y. Lewis
Seth Waxman
