It is an older article, but it shows that Mr. Johnston has no boundaries for screwing the average, hard-working person.
BUSINESS
MONEY Managing Your Money
TOUGHER RULES SHED LIGHT ON SMALL STOCKS Series: SMALL STOCKS (2nd of 2 parts)
JULIE TRIPP - of the Oregonian Staff
03/30/1998
Portland Oregonian
SUNRISE
Page D01
(Copyright (c) The Oregonian 1998)
Summary: Regulators might force "microcaps" to disclose information in an effort to boot fraud from Nasdaq's Bulletin Board
"It's a crap shoot at best. The filing regulations are virtually nonexistent. There's no independent factual verification." -- David Tatman, - Oregon Division of Finance and Corporate Securities
SECOND OF TWO PARTS
Securities regulators propose to curb stock fraud in the small-stock markets by requiring companies to file financial reports a lot of us assumed they were supposed to be filing all along.
Investors in "microcap" stocks may be surprised to learn that there are few reporting requirements governing the 6,800 companies that trade on the over-the-counter Bulletin Board, including more than a dozen in the Portland area.
Last week's column talked about the $6 billion explosion in small-stock fraud and the "cold-calling" techniques boiler room sales representatives use to sell the stocks to investors.
This week's column looks at proposed rules to require more disclosure and better oversight of the Bulletin Board "microcap" marketplace, where much of the abuse occurs.
A microcap is a company whose total stock value is less than $300 million. These stocks generally trade for less than $8. The Bulletin Board is an electronic quotation service owned and operated by the Nasdaq Stock Market Inc. But it is separate from the Nasdaq and its electronic quote system.
Unlike the stocks that trade on the Nasdaq, the Bulletin Board companies:
* Aren't required to make periodic financial reports or to maintain certain standards for continued listing on the service
* Aren't required to notify anyone of corporate changes such as mergers, dividends, splits or even addresses
* Aren't required to provide anything beyond very minimum phone and contact information.
"It's a crap shoot at best," says David Tatman of the Oregon Division of Finance and Corporate Securities."The filing regulations are virtually nonexistent. There's no independent factual verification."
As we saw in last week's column, it's not a good idea to buy a stock over the phone from a broker you don't know. But it is flat-out crazy to buy a Bulletin Board stock that way, Tatman says.
Federal regulators are considering a proposal that could remove about half of the 6,800 companies quoted on the Bulletin Board. Only those companies that report up-to-date financial information to securities, bank or insurance regulators would be allowed; those that don't now report financial information would get a phase-in period to qualify or be dropped.
The National Association of Securities Dealers proposed the measure as one of several it hopes will help curb securities fraud. Without reporting requirements, it is difficult for the investing public to get current data on profits and losses, company directors and officers, and notices of stock splits or mergers.
The ability to hide information abets fraud, especially in issues that don't trade frequently or in volume. Thin trading makes it easier to manipulate the stock price, a favorite ploy of fraudsters. One stock trade on the New York Stock Exchange is a spit in the ocean, but a trade in a Bulletin Board issue can make a splash in a small pond.
Fraudulent brokers may get in at the bottom price, tout the stock with enthusiastic news releases, sell you the shares as they rise, then dump theirs at the market high. Your shares fall in the downdraft.
The proposed rules also would require brokers to disclose to Bulletin Board investors in writing the differences in market characteristics, the liquidity of the securities and the obligations of market makers. And the rules would require brokers to review financials on a Bulletin Board company before recommending it to a client.
The National Association of Securities Dealers hopes the changes that are now before the U.S. Securities and Exchange Commission will provide a great big caveat emptor to investors that the Bulletin Board is not subject to the same standards and oversight as the Nasdaq.
The Bulletin Board poses risks for investors, but for legitimate start-up companies with great ideas but little cash, it's a good place to grow a business. Going public gives small companies a chance to raise the capital they need to develop and produce their products. In this regard, the Bulletin Board is the essence of capitalism and entrepreneurial spirit.
But loose oversight and out-of-date data about Bulletin Board issues make investing there a challenge, to say the least. The most current "Fact Book" and Web site listings for the Over-the-Counter Bulletin Board (OTCBB) are dated Dec. 31, 1996.
The listings name the company and its stock symbol; provide the name, address and telephone of one contact person; and print figures for annual volume, high and low price, first and last closing price, and percent change in price for the year. That's it.
We decided to update the information on local companies listed on the Bulletin Board. Our check-ups on the 14 Portland-area companies in the most recent fact book shows how quickly the listings fall out of date and give a look at the risks awaiting investors who venture into the microcap arena.
The 14 range from well-known public utilities such as PacifiCorp, which uses the Bulletin Board for its small issues of preferred stock, to obscure companies that don't return repeated requests for information left on answering machines.
Some have moved away; some are out of business; others have drastically changed their business. Some are moving up, applying for a listing on bigger exchanges.
We asked them how the proposed rules might affect them. Here's what we found:
Assisted Care Corp. (ASCP) This developer of residences for the frail elderly changed its management last fall and moved from North Plains to Minneapolis.
Pat Riggs, vice president of finance, reports that "our prospects are a little bit difficult right now." ASCP has not turned a profit, but it is cutting its losses. The company built a facility in New Mexico and has property for another in Minneapolis. Bloomberg News lists a share price of 2 cents, down from $1.875 at the close of 1996.
Riggs says the proposed reporting rules would quadruple what the company now spends on auditing, legal and reporting costs, from $15,000 to $60,000 a year.
"That's a big bite out of a little company," Riggs says. "I can certainly understand why they want to clean up the `garbage' on the Bulletin Board, but a lot of companies don't have the resources to do the quarterlies." Riggs says he'd prefer filing semiannual audited balance sheets and special reports to the SEC for extraordinary events.
Athena Medical Corp. (AFEM) The Portland feminine hygiene product producer changed its name to A-FEM Medical Corp. last year and planned a nationwide roll-out of its product. The company has not yet turned a profit.
Its president, J. Peter Burke, said last week that the company is applying for listing on the American Stock Exchange. Although it is not required to, A-FEM files quarterly and annual reports with the SEC, so it would not be dropped from the Bulletin Board listings if it stayed on that exchange.
AFEM trades about $2.16 a share and is down 34 percent in the past year.
Capital Development Group Inc. (CDVG) We received no response from several messages left on a telephone answering machine for Tom Morrow, listed as the Northeast Portland contact for the company. There was no price or trading information on Bloomberg.
Charlotte Charles Inc. (CTCI) This Forest Grove division of Portland Food Products produced food gift items until it liquidated in 1991. The Fact Book lists one trade it made in 1996, representing shares of a lost stockholder who came forward at that time.
Computerized Thermal Imaging (COII) Chairman Dave Johnston says his Portland company has developed a breast cancer detection device and intends to become a "fully reporting company." The stock trades at between 50 and 60 cents a share, down 54 percent in the past year, Bloomberg reports. At the end of 1996, the stock was worth $1.41 a share. The company is 11 years old and has not yet turned a profit, Johnston says. COII has a Web site at www.cti-net.com.
Before his current business, Johnston was a principal in the company Agricultural Services Associates, involved in a rabbit -breeding investment program in the Portland area. Johnston, David Johnston Inc. and Agricultural Services were among defendants in a $25 million lawsuit by a group of investors who alleged that they had been defrauded in the limited partnership scheme to breed rabbits for meat and pelts, according to court documents. The same rabbit ranch was sold to different investors, according to the attorney who won the case in a default judgment, Jon Vaught of Oakland, Calif. But the plaintiffs never collected the judgment, Vaught says.
CryoTech Industries Inc. (CRYOA) CryoTech was a Hollywood, Fla., seller of frozen crab until it changed its line of business by buying a Portland insurance financing company, Parker Marketing, in 1992. It moved to Portland in 1993. Bloomberg reports a 100 percent decline in the stock's total return in the past 12 months and a stock price of less than a penny. The company's CEO and president was listed in the Fact Book as Daniel Meyers, but his Portland office telephone number now belongs to an architect.
Fieldcrest Corp. (FLCR/A) No news or prices in the Fact Book or on Bloomberg about the company, listed in 1996 to Heather Kane Anderson on Jolie Place in Northwest Portland. The telephone number is now a downtown attorney's firm.
Fone America (FONMW) The Tigard-based prepaid calling card company filed for bankruptcy protection on Dec. 31, 1997, for the second time in six years. This issue for warrants (entitlements to buy stock) has expired and is no longer traded on the Bulletin Board.
The company's stock trades on another loosely regulated marketplace, the National Quotation Bureau's "Pink Sheets." Pink Sheets are a static paper quotation medium printed twice daily and distributed to broker/dealers. They are not associated with the Nasdaq.
Harcourt Symes Ltd. (HSYM) The Beaverton company's news releases show it has gone from sports bar businesses in Washington state to medical evaluation companies in Honolulu. It reports its name has been changed to Nordic American (NDAM) and its business is a Greek insurance company. Bloomberg lists NDAM at 38 cents a share, down 100 percent in the past year.
The Fact Book lists Jim Barnard of Beaverton as the investor relations contact. He said Friday, "I don't know how my name got on there . . . I do not promote stock." He says that he had been a consultant for Nordic American and that his grandson Ryan had been a board member. Neither is involved now, he says.
Barnard might be familiar to Oregonians who held stock in a defunct coastal amusement park. In 1990, Barnard resurrected Pixieland Inc., the Lincoln City amusement park, into a holding company to acquire other businesses. It was renamed American Business Associates Ltd. and became a distributor of household water and air filtration systems, according to a 1990 report in The Oregonian.
Industrial Funding Corp. (IFDCA) The defunct Portland equipment leasing company sold off most of its assets in 1993.
Meda Inc. (MDAN) This company is a Wilsonville-based maker and distributor of prepared culture media and diagnostic biological products. It has changed its name and symbol to PML Inc. (PMLI). Chief Financial Officer James N. Weider says the company has filed quarterly statements, so the proposed regulations would not be an added burden.
The company's stock is trading at $1.25 a share, up 110 percent from a year ago.
Northwest Natural Gas 4.75 PFD (NWNGM) This is a small preferred stock offering from the big Portland-based natural gas utility. The company's common stock trades on the Nasdaq Stock Market under the ticker symbol NWNG and already files detailed reports with the SEC.
Pacific Northwest Development Corp. (PNOD) This is the lightly traded public holding company for Beaverton's Pete Wilson Realty and its sister mortgage and construction companies. Shares trade around $5.12.
PacifiCorp Preferred Nine Bulletin Board listings are reserved for PacifiCorp preferred stock issues, which are too small to qualify for listings on bigger exchanges. PacifiCorp commonly trades on the Big Board under the symbol PPW and files all the disclosures required.
Julie Tripp's column appears each Monday. She is pleased to answer questions but does not give financial advice. To reach her, write her at 1320 S.W. Broadway, Portland, Ore. 97201; or e-mail her at julietripp@news.oregonian.com. |
