Strategic Diversity, Inc. v. Alchemix Corp.

MEMORANDUM

In June 2001, Kenneth Weiss loaned Alchemix Corporation (“Alchemix”) $500,000 through his investment company, Strategic Diversity, Inc. (“Strategic”). In return, Alchemix granted Strategic a security interest in its patents and gave Weiss a seat on the Alchemix board of directors.

One year later, Robert Horton, CEO of Alchemix, entered into an investment deal with Western Oil Sands (‘Western”) in which Western committed to an initial $8 million investment in Alchemix with the option to invest an additional $33 million. Horton spoke with Weiss and assured him that Western’s investment of the additional $33 million would be a “certainty” if Strategic accepted early repayment of the Al-chemix loan, relinquished its security interest in the patents, and gave up Weiss’ board seat. Horton also offered Weiss shares of Alchemix stock at $1.00/share. Weiss agreed. On July 2, 2002, Strategic accepted early repayment of the Alchemix loan and made the requested concessions. On July 8, 2002, Weiss purchased 250,000 shares of Alchemix stock at $1.00 per share. Weiss purchased his shares from Medici Associates, LLC (“Medici”), Horton’s holding company. Richard Armstrong, Alchemix’s…