lasvegassun.com
Today: October 18, 1999 at 11:57:14 PDT
Feds halt LVEN stock trading
By Gary Thompson
<gary@lasvegassun.com>
LAS VEGAS SUN
Federal authorities halted trading in the stock of Las Vegas Entertainment Network Inc. today as an investigation into the company's finances and its purported bid to buy Jackpot Enterprises Inc. gained momentum.
The Securities & Exchange Commission suspended trading of LVEN shares until at least Oct. 29 following tumultuous trading of the company's stock in the past two weeks.
Citing questions "about the adequacy and accuracy" of LVEN's recent news releases, the SEC said it "is of the opinion that the public interest and the protection of investors require a suspension" of LVEN stock trading.
The SEC also warned that if the trading suspension is lifted, market makers will be required to conduct due diligence, or their own investigations into LVEN's financial health, before offering quotes on its stock.
If any broker or dealer enters any quotation for the stock of Las Vegas Entertainment without such due diligence, the SEC said, "the commission will consider the need for prompt enforcement action."
The trading suspension follows Los Angeles-based LVEN's late Friday announcement that it has withdrawn its bid to buy Las Vegas-based Jackpot "to reevaluate the per-share price."
A week earlier, LVEN had said it was offering to pay $11 a share, or about $95 million, to acquire Jackpot, a Las Vegas-based slot-route and casino operator.
LVEN disclosed it had retracted its unsolicited offer Friday just 35 minutes after the financial news service Reuters reported NASDAQ was halting trading in LVEN stock.
LVEN claimed it was withdrawing its offer "in light of statements made to the company by shareholders that are seeking a higher price." Jackpot investors believe their company is worth far more than LVEN's offer, which has generated skepticism among many analysts.
A source told the Sun that some shareholders who bought LVEN stock after it announced the offer have contacted investigators from the National Association of Securities Dealers and the SEC to complain about trading patterns and lack of disclosure involving the Los Angeles-based company.
Regulatory investigations wouldn't be the first involving LVEN. Last month, the Manhattan District Attorney's office indicted several people involved in an alleged stock-manipulation scam that included trading in securities of four companies, including LVEN.
Manhattan District Attorney Robert Morgenthau said a New York brokerage firm had bought unregistered securities in LVEN and other companies at a discount, artificially pumped up the prices and sold them to unwitting investors before the prices dropped.
Morgenthau didn't disclose whether LVEN insiders had sold some of their holdings during that alleged scam. And LVEN executives haven't said whether they sold during the recent price runup fueled by the company's offer for Jackpot.
The cash tender offer implied LVEN had the money to pay for Jackpot should the target company's board accept the offer. LVEN's stock price soared more than 2.5 times above its opening value Oct. 8, before falling back almost equally abruptly. Collectively, investors who bought during the price runup may have lost millions of dollars.
The price pullback stemmed in part from questions about how LVEN would pay for the purchase. Since its formation in 1990, LVEN has lost almost $50 million, is saddled with nearly $800,000 of current liabilities, has less than $200,000 cash and has no revenue-producing operations. Its accounting firm has warned of "substantial doubts about the company's ability to continue as a going concern."
In addition, the Sun has since learned that LVEN is more than $164,000 in arrears on franchise tax payments to the state of Delaware, which raises questions about its viability as a publicly traded company.
In a series of highly unusual press releases, LVEN said it would finance the Jackpot deal with a $495 million "infusion" of capital from Dr. Fred Cruz, who described himself as a retired physician now living in Las Vegas.
Cruz and LVEN said the doctor would pledge assets to U.S. Guarantee Corp., a Scottsdale, Ariz., company that would secure bank guarantees from Indonesian banks. The assets purportedly backing the guarantees weren't described.
Topics omitted
Furthermore, none of the press releases disclosed -- and LVEN officials have refused to comment about -- bankruptcies, massive civil judgments and fraud charges involving some of those associated with the purported transactions.
For example, court records show U.S. Guarantee's chief executive officer, Alvin Tang, was convicted on fraud, deception and forgery charges in Arizona and hit with a $3 million judgment in an Arizona civil case.
Investigators looking into LVEN say LVEN Chairman Joseph Corazzi was vice chairman of a telecommunications company that filed for bankruptcy in California in 1988. He's also listed as a principal of four New Mexico corporations that are either inactive or in dissolution.
The investigators say LVEN President Carl Sambus was an officer of another California company that filed for bankruptcy in 1989.
And convicted stock swindler Robert Brennan owned controlling interest in International Thoroughbred Breeders Inc., which bought the closed El Rancho hotel-casino property from LVEN in 1996.
During Oct. 8 interviews with the Sun, both Cruz and Tang said U.S. Guarantee had assets of $1.8 billion which could be used to "fulfill the (financing) transaction."
But a few hours later, Tang lopped more than $800 million of assets off U.S. Guarantee's balance sheet when a reporter pressed him for verification of gold concentrates allegedly stored in a Las Vegas warehouse, saying the company had decided to "re-evaluate" those holdings. There hasn't been any independed verification of U.S. Guarantee's other assets, which include stakes in various trusts.
The Cruz financing was also unusual because it involved his purchase of LVEN stock at prices far higher than its trading price. On July 6 and 15, for example, an LVEN spokesman said the company had issued 3 million shares of stock "at $101.60 a share for total equity of $305 million."
Price difference
LVEN stock was just $1.31 a share that day, meaning the six trusts buying the shares were paying $301 million more than they would have if the stock could be bought on the open market. Cruz told the Sun the trusts are controlled by himself, his wife and other family members, but that there was no $305 million investment.
"That deal was for $5 million in gold, of which they have received $3 million already, and a $300 million bank guarantee which the company can use to purchase 100,000 bingo machines for distribution in Brazil," he said.
The $3 million wasn't cash, but a gold certificate representing 10,601 ounces of gold, LVEN said in an SEC filing.
On Oct. 1, LVEN said it was selling 12 million shares of stock to two unnamed investors for $15.80 per share. They turned out to be Cruz and his wife Kari, who two days earlier had signed an agreement to buy 12.2 million shares for $190 million, or $15.58 cents a share. The stock traded as low as $2 a share the day they signed the deal.
While SEC spokespersons in Washington, D.C., and Los Angeles declined to elaborate, today's SEC announcement indicated authorities are looking into "publicly disseminated information concerning, among other things, an agreement to receive $190 million in cash from two investors."
LVEN executives were unavailable for comment today, according to a person answering calls to the company's Los Angeles office.
LVEN stock closed at $2.96875 in over-the-counter trading Friday. It had traded as high as $9.125 just one week earlier when the company announced its bid for Jackpot.
KJC |
