Internal Bickering at Synthetic Diamond Manufacturer Scio Reaches New Heights

04/07/2016 10:37

JCK's Rob Bates reports on the latest round of infighting among the directors at synthetic diamond manufacturer Scio Diamond, as former director James Korn charges in his resignation letter that current chair Bernard McPheely has “led to Scio to insolvency” and the company “operates on life support.” Addressing his letter to Chairman of the Board Bernard M. McPheely, Korn writes, "By every measure, your leadership of Scio as Chairman has jeopardized the future of this company and our shareholders' investment. As the financial statements make clear, you have lead Scio to insolvency. Foremost, in that regard, I cannot understand how you can presently accept equity investments from potential equity investors. Even if such investments are 'technically' legal - a tenuous assertion at best - what is your plan to provide a return to these individuals on the monies they are investing?" He then goes on to list, "examples that illustrate your stunning lack of managerial ability and your clear and manifest violations of your fiduciary duties to our shareholders."

Bates reports that, "Korn additionally complained that the two-year-old proxy fight led by McPheely forced the resignation of Theo Strous - 'the only board member with any diamond industry experience' - and Robert Linares, 'one of the world’s leading authorities on lab grown diamonds.' He further charged that McPheely failed to report several material events to shareholders, including a recent equipment failure." He also mentions the Scio's plummeting stock price, which has, "severely depleted the company's financial resources and made it almost impossible for the company to recapitalize itself." In response, Scio’s five directors (not including McPheely) said, "we are at a loss in understanding his motivation," and, "“While we believe these claims to be baseless and have consistently seen Mr. McPheely work tirelessly on behalf of Scio’s shareholders, we have taken steps to obtain an independent investigation into the allegations.” Bates further points out the irony of the situation, as current Chairman McPheely himself resigned from the company’s former board in 2013, also with a critical public resignation letter.