Social Media Co. Floats Counsel DQ Bid In Securities Row

By  Y. Peter Kang Law360, Los Angeles (June 7, 2016, 7:52 PM EDT) -- Counsel for investors of social media company Yuuzoo Corp. Ltd. should be disqualified for suing the company and its chairman despite knowing they were not involved in an underlying securities matter, Yuuzoo said in documents filed in New York federal court Tuesday. 
In a letter sent to U.S. District Judge Victor Marrero asking for a conference to be held on the matter, Yuuzoo said  McCue Sussmane & Zapfel  should be disqualified as plaintiffs&rsquo counsel in a securities fraud matter in which Hecklerco LLC and other investors claim they were duped into giving a $245,000 loan to the founder and former president of Yuuzoo, Ron Creevey, and others with 300,000 Yuuzoo shares put up as collateral.

Yuuzoo claims that an attorney for the investors, Kenneth Sussmane, met with Yuuzoo chairman Thomas Zilliacus in October 2014 and said his clients would file a suit against the company unless a settlement could be reached. Yuuzoo said that since it intends to have Sussmane testify about that meeting, the attorney and his firm should be disqualified.

&ldquo The Yuuzoo defendants intend to call Mr. Sussmane as a witness to testify regarding his October 21, 2014 meeting with Mr. Zilliacus, during which Mr. Sussmane acknowledged, among other things, that the Yuuzoo defendants had no involvement in the transactions underlying this action,&rdquo the letter states. &ldquo There can be no question that Mr. Sussmane' s statements to Mr. Zilliacus bear on a significant issue of fact and would be prejudicial to plaintiffs.&rdquo

Sussmane told Law360 on Tuesday that Yuuzoo&rsquo s disqualification bid was &ldquo a lightweight litigation maneuver&rdquo and a procedural tangent.

&ldquo After failing to receive permission to make a motion to dismiss, Yuuzoo defendants are making this motion to gain a perceived tactical advantage and to delay the discovery,&rdquo said Kenneth Sussmane of McCue Sussmane & Zapfel PC.

Representatives for the other parties did not immediately respond to requests for comment Tuesday.

In the underlying case alleging violations of securities laws, common law fraud and breach of contract, Hecklerco claims that Creevy, Yuuzoo and others knowingly made false statements that induced the investors to make the loan and also buy tens of thousands of shares of Yuuzoo stock.

Among the numerous allegations laid out in the complaint, the investors claim that Yuuzoo grossly overstated its value at more than $380 million, &ldquo inflated&rdquo its sales figures and  never informed the investors that accounting irregularities had prompted the  U.S. Securities and Exchange Commission  to reject the company&rsquo s bid to trade publicly in the U.S.

Wells Fargo Advisors LLC, which arranged and negotiated the loan, is accused of breach of fiduciary duty by the investors.

Hecklerco is represented by Kenneth Sussmane of McCue Sussmane & Zapfel PC.

Yuuzoo is represented by Marc Alan Pergament of Weinberg Kaley Gross & Pergament LLP.

Wells Fargo Advisors is represented by Toby S. Soli of  Greenberg Traurig LLP.

The case is Hecklerco LLC et al. v. Wells Fargo Advisors LLC et al., case number  1:15-cv-05779, in the U.S. District Court for the Southern District of New York.

--Editing by Emily Kokoll.