Sedona says it was forced to lay off 62 of its 77 employees, as clients, partners and investors pulled back, questioning the company's ability to survive. To save money, it moved from an office park in King of Prussia to an industrial park nearby.
Sedona's board began an investigation that plumbed the dark side of Wall Street. Mastering an arcane language of PIPEs, death-spiral convertibles, and naked shorts, directors came to believe their financial backers were betting on Sedona's demise.
Sedona is now making its name in securities litigation, if not software, as Exhibit A for critics who say that manipulators are attacking small companies' stocks in ways that kill entrepreneurship.
"We never dreamed we would become the victim of an elaborate stock fraud," said former Sedona director Michael Mulshine, of Brielle, N.J. "You should say alleged," he added.
Sedona's case has been strengthened by Securities and Exchange Commission lawsuits against the backers' agents and brokers, and a federal arrest warrant issued for one, who fled to his native Austria.
In a civil lawsuit filed this month, the SEC alleged that three brokers at Refco Inc., the New York brokerage, had aided the fugitive, Thomas Badian of Rhino Advisors, in manipulating Sedona shares.
Refco filed for bankruptcy in November amid allegations that former chief executive Phillip Bennett hid $430 million in losses.
The investigation that began in King of Prussia is spreading now in a shadowy web of offshore funds acting for anonymous investors.
Sedona's principal backer, Amro International S.A., is an investment fund registered in Panama and managed in Switzerland. Of 82 companies financed by Amro, 55, or two-thirds, had lost half of their stock-market value a year later, according to Wes Christian, a Houston lawyer who represents Sedona and 19 other companies in civil lawsuits alleging stock fraud.
"They make money off of killing companies," he said.
