Ault Lending files suit against Singing Machine CEO Gary Atkinson

Ault Alliance (AULT) announced that its subsidiary Ault Lending, which owns approximately 28.2% of the shares of The Singing Machine Company, Inc. (MICS) has initiated a derivative lawsuit by filing a verified complaint alleging breach of fiduciary duties relating to Singing Machine’s recent sale of an aggregate of 2,197,802 shares, amounting to 34% of the shares outstanding, to Regalia Ventures, LLC and Stingray Group, Inc. (STGYF). Ault Lending alleges that the director defendants violated their fiduciary duties of care and loyalty in approving the transaction at an inadequate price following a deeply flawed process led by Singing Machine CEO Gary Atkinson, resulting in two directors, Jay B. Foreman and Mathieu Peloquin, through affiliates, holding a collective 43.2% ownership stake in MICS. The Complaint details the actions of Mr. Atkinson and the other defendant directors in the lead-up to the transaction, which Ault Lending believes demonstrate poor corporate governance and bad faith at every step: rushed negotiations run by interested parties; failure to conduct an appropriate market check and obtain an opinion from a financial advisor; refusal to appoint a special committee of independent directors to review and approve a related party transaction; improper exclusion of certain directors from board communications; inadequate notice of board meetings; refusal to engage on potential superior proposals; deciding votes cast by interested directors over the objection of other board members, and ultimately approval of a massively-dilutive transaction on financial terms detrimental to Singing Machine and its stockholders, but favorable to the directors who obtained the shares. Ault Lending is seeking declarations that the director defendants breached their fiduciary duties to stockholders, and that Stingray and Regalia Ventures aided and abetted those breaches, for the court to rescind the transaction; and an award of damages and payment of expenses. The Complaint was filed on December 21, 2023 in the Delaware Chancery Court against Singing Machine, Chief Executive Officer and director Gary Atkinson, Vice President of Global Sales and Marketing and director Bernardo Melo, and directors Jay B. Foreman, Harvey Judkowitz, Joseph Kling, and Mathieu Peloquin, Stingray Group, Inc., an affiliate of Mr. Peloquin, and Regalia Ventures, LLC, an entity owned and controlled by Mr. Foreman.