Delcath Systems (DCTH) has been involved in a long battle with hedge fund Laddcap Value Fund for over a year. The fund is seeking to replace the company's board and possibly put the company up for sale. While this would result in a nice short-term spike for investors, the company argued that its long-term prospects would pay off. The company continued its battle against Laddcap Value Fund today by announcing a lawsuit alleging that the fund failed to disclose critical details about its proposed replacement board. Their PRE-14C filing with the SEC today shed some interesting details on the funds owners and motivations.

The company begins by pointing out that the current board has witnessed a 916% increase in the share price over the past three years - this kind of performance does not justify shareholder action to replace the board. The company then shed light on the funds management and proposed slate of directors:

"Ladd Defendants have failed to disclose is that one of their director nominees, Paul William Frederick Nicholls, filed Chapter 7 personal bankruptcy in 2002. Among other items, Mr. Nicholls amassed credit card debt of $105,349.75 on nine credit cards, including cards issues by such luxury retailers as Bloomingdale's, Bergdorf Goodman and Macy's. They failed to disclose that another nominee, Fred. S. Zeidman, served on the Audit Committee for Seitel Corporation, a company that restated its financials for seven quarters and subsequently filed for bankruptcy. The Ladd Defendants failed to disclose that Mr. Zeidman was named in seven lawsuits arising out of the restatements. They failed to disclose that Michael Karpf, M.D. sat as Vice Provost of the UCLA hospital system through its period of financial woes, necessitating the hiring of an outside firm to ascertain what went wrong. And certainly, the Ladd Defendants have failed to disclose the abysmal performance of the Laddcap hedge fund run by Mr. Ladd."

Now, Delcath shareholders are faced with a choice. If the proposed consent solicitation garners enough interest for a proxy battle and Ladcapp is able to take over the company, they are likely to attempt to put the company up for quick sale. This hunch is based on the fact that they demanded that the company contact an investment bank several months ago to explore strategic alternatives - an attempt which ended up failing after lawsuits were filed. If current managements remains in place after a proxy battle, the stock price is likely to appreciate also due to the added security that current management will remain for long-term growth. If, however, the lawsuit and solicitations are dropped (which has been what has happened in the past), the uncertainty and the threat of takeover remains which may be a drag on the stock price in the near term. Overall, this situation warrants a close watch, as a proxy vote of any kind could mean a catalyst to a quick increase in the stock price.