McCain adviser sued in business dispute

by Andrew Zajac

Top McCain campaign adviser Charles Black has been accused of failing in his duties as a director of e-Smart Technologies Inc. by allegedly allowing its CEO to defraud the company, according to an investor's suit filed in federal court in New York Monday.

The suit, brought by Douglas Borwick, of Breckenridge, Colorado, who identified himself as the owner of two million e-Smart shares, is the latest in a series of legal and regulatory difficulties faced by e-Smart before and during Black's tenure as a consultant and director, dating back to mid-2003.

Earlier this month, the Securities and Exchange Commission suspended trading in e-Smart for ten days due to concerns about the accuracy of investor information and the possibility that it was selling unregistered securities. The conduct identified by the SEC forms the basis for much of the suit.

Read more below, and see the complaint here: lawsuit.pdf

Borwick's complaint alleges that Black and two other directors, Elliot Cole and Thomas Volpe, "directly participated in and/or facilitated (CEO Mary) Grace's, misappropriation or e-Smart's assets for her personal use...allowed Grace to commingle personal and business assets; and failed to disclose potential or actual conflicts of interest...In fact, these board members exercised no corporate governance whatsoever during their tenure, despite their knowledge of Grace's fraudulent activities for an extended period of time."

Grace also is named in the complaint, but e-Smart itself is not a defendant.

The suit comes at an awkward time for Black and for McCain, who has denounced feckless regulators and greedy corporate executives in his campaign's response to the nation's financial meltdown. A message left for Black with the McCain campaign was not immediately returned.

The filing describes a years-long pattern of phony press releases intended to inflate the value of e-Smart shares and facilitate fund raising and "present a false image to the shareholders and marketplace that the company was making progress, when in fact it did not make a single sale in eight years."

Grace misappropriated at least $12 million in that time, according to the complaint.

E-Smart is a Nevada corporation with an office in New York. Shares in the firm have traded on the Pink Sheets at between a fraction of a cent to 14 cents in recent months.

In the filing, Borwick states that he appealed to Black directly "to ensure that management is making the best and honorable business decisions" but that he and the other directors "intentionally turned a blind eye away from defendant Grace's misconduct."