I didnt realize that a trading halt was so bad. It seems that the chances of GRNO coming back are slim. What happened, anyway? Is there really a processor? to what extent were we duped?
Death Penalty?
When Securities and Exchange Commision suspended
trading in Shopping.com stock, it placed the company
in limbo from which few emerge
April 4, 1998
By JAY GREENE and JONATHAN LANSNER
The Orange County Register
When the Securities and Exchange Commission suspended trading
of the shares of Shopping.com a week and a half ago, Chief
Executive Robert J. McNulty put a happy face on it.
"We fully expect our stock to begin trading after the 10-day
suspension," McNulty said.
History proves otherwise. For most companies, trading suspensions
are nothing short of a death knell.
Since 1991, the SEC has suspended trading at 52 companies. Fewer
than 10 resumed trading. And only one of those had what anyone
would consider a successful outcome: It survived the suspension and
eventually sold itself.
"It's not simply a cooling-off period," said John C. Coffee Jr., a
Columbia University law school professor and a leading securities
law scholar. "It's something the SEC uses very sparingly."
Companies facing the predicament that Shopping.com finds itself in
have often expressed the sort of hopeful words used by McNulty.
They routinely suggest that trading suspensions are little more than
cooling-off periods - a chance for investors to catch their breath
after a flurry of frenzied trading.
"I think we're OK. We're in limbo here," Arthur Ferer told
Bloomberg News when trading in his Members Service Corp. was
suspended in 1992. Ferer was convicted of securities fraud four
years later and has since died.
Donald A. Baillargeon of Alliance Industries said the the company
in 1996 would amount to a "seal of approval" and provide the
company with "an added measure of credibility." The company's
shares have yet to resume trading.
And another case: "It is of course our desire to resume trading in
the common stock as soon as possible," William D. Carraway said
when trading in shares of his Green Oasis Environmental was halted
last May. He got his wish, although the stock that traded for more
than $6 before the May 1997 suspension now sells for pennies.
Shopping.com's suspension runs through Monday night. What
happens Tuesday morning is unclear.
Shopping.com's problems stem from the meteoric rise of its
stock - from $9 at its November initial public offering to more
than $32 last month. As the stock soared, traders began to suspect
market manipulation. They pointed fingers at McNulty, who settled
a previous run-in with the SEC without admitting or denying fault,
and at Shopping.com's investment bank, Irvine-based Waldron &
Co. Both McNulty and Waldron have denied wrongdoing. Instead,
they blame speculators who have bet that Shopping.com shares
would fall.
The SEC jumped in March 24, suspending the stock over concerns
that "recent market activity . . . may have been the result of
manipulative conduct."
The SEC so far has only raised questions. The agency hasn't
charged anyone - from company insiders to speculators - with
any violation of securities laws.
Many of the other companies hit with trading halts were later linked
to fraud, involving company officials in some cases and traders
acting without inside help in others.
Some of the ugliest endings to trading halts include Atratech, said to
be a Mafia money-laundering operation; Systems of Excellence Inc.,
one of Wall Street's most notorious stock frauds; and Treats
International Enterprises, whose shares were reportedly run up by
disgraced stock tout Robert Brennan.
Still, not every trading suspension pushes a company into oblivion.
Texscan Corp., for example, survived its May 1991 halt. Six years
later, the El Paso, Texas, electronics maker sold itself at a modest
premium over its price at the suspension.
And just last month, the SEC halted trading in International
Heritage Inc., accusing the Atlanta company of running a pyramid
scheme. After a federal judge ruled that the company must start
selling products instead of just recruiting new members, trading
resumed. The stock fell from $26.50 at the time of the suspension to
$16 on Friday.
Then there is Electro-Optical Systems Corp. The Acton, Mass.,
company says it's developing a fingerprint identification system.
The SEC, however, alleges the company is a "shell" with little if
any technology and halted trading March 13.
Sound familiar? Two years ago, tiny Comparator Systems Corp. of
Newport Beach claimed to be on the verge of a breakthrough
fingerprint identification system. It wasn't. The SEC suspended its
shares, too. Eventually, the company settled SEC charges, without
admitting or denying wrongdoing, and its chairman and treasurer
were barred from working again as officers or directors of publicly
traded companies. It shares, once briefly worth $1 billion, now
value the dormant company at $3 million.
Electro-Optical denied the SEC allegations. Its shares resumed
trading March 27 and quickly lost two-thirds of their value. The
stock closed Friday at $3.47.
Those are the most favorable outcomes. For the others, trading
suspensions have led to expulsion from an exchange, bankruptcy
and jail sentences for some senior officers.
"If you look at most of the trading suspensions, they were often
followed by a fraud case," said Tom Newkirk, an associate director
in the SEC's division of enforcement. "That is consistent with the
belief that there was something wrong with the issue."
Newkirk said the SEC has stepped up its use of trading suspensions
to combat evermore aggressive stock cheats taking advantage of the
unprecedented seven-year bull market run. The agency suspended
trading in two companies in 1994, six in 1995, 11 in 1996 and 14 in
1997.
Suspensions work particularly well in stopping so-called
"pump-and-dump" schemes, where companies promote their stocks
with glowing but false press releases, then quickly sell shares as
prices climb.
"We decided over the last 18 months that this is a very effective
way to stop the pump before the dump happens," Newkirk said.
Perhaps the biggest hurdle for a suspended company to overcome
when its shares resume trading is an arcane securities law called
rule 15c2-11. The rule bars brokers from quoting a price on the
stock unless they have a "reasonable basis for believing" that
financial information regarding the company is accurate.
Since there are so many other stocks to trade, brokers often stay
away from hot issues that fall under the rule.
"It's a safe bet to assume that after a trading suspension, we'll take a
hard look at who is quoting the stock," Newkirk said. "We're going
to call them up to see their 15c2-11 files."
For companies with questionable track records, that threat is
enough to destroy any chance of trading.
"The practical effect is to eliminate an active market for the stock,"
Newkirk said.
It might be unfair, though, to blame a company's demise on an SEC
trading halt.
"That's a little like saying obituary notices cause death," Columbia
University's Coffee said.
Many of the suspended companies turn out to have had little reason
for existing other than to dupe investors.
"Sometimes the company is already a corpse that is being used by
sophisticated traders and insiders who dump its shares on the
unsuspecting public," Coffee said. "It's less pushing over the edge
than a recognition that there could be fraud."
Once exposed, investors stay away.
For its part, though, Shopping.com expects to be an exception to the
rule.
"Since our company's inception, we have accurately and completely
filed all documents required and are and will remain in compliance
with the Securities and Exchange Commission regulations,"
McNulty said. |
