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Following please find a letter from me to the Enforcement Division of the Securities and Exchange Commission. If anyone has any experience with class action suits, Rule 144 sales, SEC enforcement activity, or knowledge of SEMX, I'd like to hear from you.
Sorry if this hasn't formatted properly, I can't seem to get it to copy & paste properly.
January 2, 1997
To Whom It May Concern:
I am writing to apprise you of a situation which I believe warrants your
attention. I will attempt to provide you with an accurate chronology of
events and information as I understand them. In the interest of full
disclosure, I must state that I am a Registered Representative with a major
brokerage firm. Further, my own money, as well as that of some of my
clients', was invested in the situation which I am about to describe.
On more than one occasion in mid-December, the "chart" or "graph" of
price-action in the stock of Semiconductor Packaging Material ("the
Company," NASDAQ:SEMX) was among those highlighted in Investor's Business Daily as being an attractive looking pattern. I studied the chart of
price-action and volume, and decided that it appeared to be an interesting
situation which called for further examination. I got complete fundamental
information on the company from a variety of sources, including Bloomberg
and several sites available on the Internet that provide financial
information, including the company's own homepage on the World Wide Web.
At this time, the stock was in the 13 « - 14 « price range and I was
beginning to buy. A few of my clients had also noticed the chart and we
had begun discussing the relative merits of an investment in SEMX.
Behind the scenes and unbeknownst to me, the Chairman and the CFO of the
Company, Mr. Gilbert D. Raker and Mr. A. Lozyniak, respectively, had
granted an interview to reporter Janet Purdy Levaux from Investor's
Business Daily. Her telephone interview with them was held on December 20,
1996.
The stock continued to climb over the next week or so on
better-than-average daily volume, and was rapidly approaching 17 - 17 «.
It appeared to be a legitimate "break-out" - higher prices (actually new
highs) on heavy volume - an ideal and extremely desirable situation. I was
continuing to buy in the low-to-mid 16 dollar range, convinced that the
"break-out" was for real, and having no reason to think otherwise.
Ms. Levaux's very bullish article appeared in the December 26 edition of
Investor's Business Daily, and confirmed for me what the price-action had
been telling me all along - here was a company whose business was booming.
The article quoted Chairman Raker several times, and his comments were
resoundingly positive. Mr. Raker indicated that while some companies had
been hurt due to falling DRAM prices, SEMX "does not service as many DRAM
clients as rivals, like those in Japan." Further, he stated that the
Company did not see demand for its services being hurt over the next year
or so, since the market is strengthening. Prices for memory chips, he
explained, which fell 80% earlier this year, are stabilizing, and demand is
on the rise thanks to strong PC sales. Lastly, the article mentioned that
the Company plans to double capacity at its cleaning plant in Providence,
R.I. The article could not have placed SEMX in a more favorable light, and
there was not one cautionary word sounded by any of the company's
officials. It is my understanding from Ms. Levaux that CFO Lozyniak also
participated in the interview, although no quotes were attributed to him in
the article.
Again behind the scenes, it appears that Chairman Raker had filed to sell
20,000 shares of SEMX stock on December 24 - four days after his interview
with Ms. Levaux and only one business day prior to said interview appearing
in Investor's Business Daily. On the day the article appeared (Dec. 26),
the stock had moved solidly into the 17 dollar range, and it closed on
Friday, December 27, at 17 «. While I cannot state this with any
certainty, I strongly suspect that Mr. Raker's 20,000 shares had been sold
by Friday's close, or at the latest sometime in the morning of Monday,
December 30, as the stock opened that day at 17 7/8. At this time I am
uncertain as to what Mr. Raker's total SEMX holdings were at the time he
filed.
At mid-day on Monday, December 30, trading was halted in SEMX stock pending a news announcement. At 1:47 PM, the first of several press releases
issued by the Company crossed the tape stating that the Company's "fourth
quarter will be below analysts' consensus expectations and that the
earnings for the fourth quarter will be below prior year levels. The
Company said that its fourth quarter had been weak at several of its
operations, including a decrease in orders for 8" silicon wafers which are
reprocessed at its American Silicon Products Inc. subsidiary in Providence,
R.I." (This is the same plant at which the Company said it plans to double
capacity, according to the IBD article).
When the stock re-opened for trading, it did so at approximately $12, down
almost $6 from the day's opening price, and drifted lower from there. The
stock has appeared to settle at approximately $11, down 38% from its high
in a matter of hours. Needless to say, any number of investors have
suffered substantial losses as a result of the stock's precipitous decline.
My questions regarding this unfortunate sequence of events are as follows:
Wasn't it unethical, at the very least, and quite possibly criminal, for
Mssrs. Raker and Lozyniak to cooperate with what they knew would be an
extremely favorable article in view of their knowledge of the Company's
current abysmal quarter?
Wouldn't the appropriate course of action on the part of Mssrs. Raker and
Lozyniak have been to decline to give the interview at all, or, if they
were intent on giving it, to sound a cautionary tone? Wasn't Mr. Raker's
bullish sentiment as reported in the article both misleading and deceptive?
Wasn't it unethical, at the very least, and quite possibly criminal, for
Chairman Raker to file to sell 20,000 shares of stock in advance of two
separate events which he had to have known would first inflate the stock's
price and subsequently pummel it?
When I called the Company on Monday afternoon (Dec. 30), none of the
Company's officials were in and I was told the Company was officially
closed for the holidays. I spoke to a gentleman who told me that his only
reason for being in the office was to issue the press releases.
On Tuesday, December 31, when Mr. Raker's 20,000 share 144 filing was made public, I called him at his home to ask him about the timing of his sale of
stock, along with the timing of the Company's press releases. He said he
felt it was important for the Company to respond quickly to the upbeat
nature of the article in light of the fact that the quarter is not going
well at all and that the Company would not be meeting analysts'
expectations. In my opinion, this begs the question as to why the Company
agreed to do the interview, since they were in possession of the knowledge
that the quarter was not going well, and could have rightly assumed that
the article would drive up the price of the Company's stock.
I believe that the actions of Mssrs. Raker and Lozyniak were deceptive,
misleading, and fraudulent, causing substantial and possibly unnecessary
losses to shareholders of Semiconductor Packaging Materials, Inc.
I think that at the very least, Mr. Raker's actions would be classified as
"insider trading," which, I believe, by your own definition, "refers
generally to buying or selling a security, in breach of a fiduciary duty or
other relationship of trust and confidence, while in possession of
material, nonpublic information about the security."
I would ask that you review events leading up to the Company's Dec. 30
announcements and make a determination as to whether or not any securities
regulations have been violated.
If applicable, I would also ask that you consider this correspondence an
"Application for Award of a Bounty," to the extent that enforcement action
is taken against the Company or any of its officers.
Thank you for your consideration. If you have any questions regarding the
facts as I have stated them above, please respond via e-mail to me at
jfrankel@ix.netcom.com, or contact me during normal business hours.
Sincerely,
Josh Frankel |
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