The MicroCap Fund filed an action today against Commonwealth Associates, Michael S. Falk, and Steven Warner

Business Wire, April 19, 1996

NEW YORK--(BUSINESS WIRE)--April 19, 1996--The MicroCap Fund Inc. (NASDAQ:MCAP) today announced that it filed an action today against Commonwealth Associates, a registered broker-dealer, Michael S. Falk, Commonwealth's chief executive, a majority owner, and a director of MicroCap, and Steven Warner, a former Commonwealth executive and former president of MicroCap.

Commonwealth Associates sponsored and underwrote MicroCap's public offering in 1993 and maintained a close affiliation with MicroCap until 1995.

The action, which was filed in federal court in the Southern District of New York, alleged fraud, breach of fiduciary duties and violations of the Investment Company Act. The complaint claims that the defendants, through a pattern of deception and fraudulent concealments, used MicroCap to siphon off millions of dollars in underwriting, placement, consulting and other fees and warrants in portfolio companies for the benefit of the defendants instead of acting in the best interests of MicroCap and its shareholders.

The complaint claims that the pattern commenced with Commonwealth's underwriting of MicroCap's initial public offering in 1993 and continued through some 15 private placement investments by MicroCap in clients of Commonwealth.

The complaint claims that defendants would typically first secure the right to raise capital for an issuer for fees often approaching 15 percent of the amount placed plus warrants or stock; propose to lead a future private placement or public offering; obligate MicroCap to make a bridge loan investment with little or no due diligence, inadequate protective covenants, in an amount inadequate to meet the portfolio company's projected near term financing requirements; and without determining the availability of other investors or the feasibility of additional financings; and ultimately abandon the effort after receiving hefty placement fees and warrants or stock.

While the defendants enjoyed substantial revenues from these transactions, MicroCap lost over $3 million from these same transactions. The complaint asks for damages of not less than $5 million.

The complaint is, in part, the result of a six month investigation performed by a committee of outside directors with the assistance of counsel to the committee.

The MicroCap Fund Inc. is a non-diversified, closed-end management investment company that elects status as a Business Development Company. Its primary function is to provide bridge financing to public and private companies that are seeking funds for expansion capital and/or anticipated public offering. Mcap's investment objective is to achieve short to intermediate-term capital appreciation of assets by investing in securities of companies with significant growth potential.

CONTACT: The Krantz Group

Melissa Krantz, 212/891-7235 (office)

914/967-3480 (home)

or

The MicroCap Fund

Christina Mariani, 800/888-6534