SpongeTech Says Ex-Hedgie, Reporter Conspired Against It

Apr 27 2010 | 2:37am ET

SpongeTech, whose commercials flogging soap-filled sponges once filled the airwaves, has been on the receiving end of some unpleasant legal actions in recent months. Now, the company has seized the mantle of “plaintiff” for a lawsuit of its own, targeting a wunderkind former hedge fund manager and a well-known Wall Street reporter.

SpongeTech last week accused Timothy Sykes, New York Post reporter Kaja Whitehouse and blogger David Patch of conspiring to drive down the company’s stock price to benefit short sellers, HedgeFund.net reports. According to the lawsuit, filed in Manhattan state court, Patch copied Whitehouse on complaints about SpongeTech he sent to the Securities and Exchange Commission—which in December told the company is was preparing an enforcement action against it.

As for Sykes, SpongeTech alleges that Whitehouse’s use of the Cilantro Fund Management founder, who now advises on pink sheet trading, as an expert in her stories is evidence of the conspiracy.

SpongeTech did not say who, exactly, profited from the alleged short-and-distort scheme, although it did specify precisely $18 million in damages. The company is also seeking $25 million in punitive damages.

The Post is also named in the lawsuit.

It may need that money: In addition to its pending SEC trouble, SpongeTech has been sued by a series of companies it advertised with, including CBS Radio, Madison Square Garden and the New York Mets.


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