Econnect Stock Benefited From Unknown's `Buy' Recommendation
Los Angeles, March 28 (Bloomberg) -- Econnect Inc., which has been charged with issuing bogus press releases by the Securities and Exchange, on Feb. 29 used the Internet to publicize a research report from an unknown source that predicted a huge rise in eConnect's stock price.
Manny Vavolizza, eConnect's chief information officer, said that when he received the report published under the name of Independent Financial Reports, ``I said, `My God, this is wonderful.'
The company promptly posted the recommendation on Ragingbull.com, a popular Internet investment information site, though Vavolizza said, ``I knew absolutely nothing about' Independent Financial Reports.
Econnect shares rose from $1.39 on Feb. 28 to $21.88 on March 9. That put a stock market value of more than $3 billion on eConnect, a company that says it is developing Internet banking products but which in its latest filing with SEC said it had no significant revenue.
The SEC halted trading in eConnect shares on March 13 and later charged the company and its chief executive, Thomas Hughes, with securities fraud. The accusations didn't refer to the recommendation from Independent Financial Reports. Yesterday, when trading resumed, eConnect fell to $1.75 from $8.25 after trading as low as 25 cents. At midday, the stock remained at $1.75.
The report eConnect publicized came from Stephen Sayre, who describes himself as an occasional actor and film producer who is trying to break into the investment advisory business.
Earlier, on Feb. 9, Sayre had issued a release that appeared to be from Lithium Technology Corp., claiming its lithium batteries may be used by wireless phone makers Ericsson AB, Motorola Inc. and Nokia Corp. Lithium's shares almost tripled that day, rising from $1.02 to a high of $2.75 on trading of 10.5 million shares.
Lithium issued a press release the next day disassociating itself from Sayre's release. ``He made it sound like we had customers lined up,' said David Cade, Lithium Technology's chief executive. Actually, the company hasn't sold any batteries since it was founded in 1989, and isn't even developing batteries for the wireless phone market, said Cade.
Sayre, 43, who runs a tree surgery business from his rented two-bedroom home in the Hollywood Hills of Los Angeles, said he has no financial training and has never invested in the stock market. Sayre said he has a Ph.D in psychology from Kensington University, a correspondence school shut by the state in 1996, and filed for personal bankruptcy protection in 1997. Sayre said he was interviewed last week by an SEC attorney investigating eConnect.
His reports on Lithium Technology and eConnect were first carried by Business Wire, a press release distribution service that transmitted it to 1,100 databases, including those maintained by Bloomberg LP and Yahoo! Inc. Independent Financial Reports paid Business Wire $395 to distribute each recommendation.
Sayre said he received no compensation for writing the eConnect report and that he owns no eConnect stock. He said he published the recommendation because he was trying to build a record as a successful stock-picker to attract investors to a Web site he's developing.
Asked about Business Wire's role in disseminating Sayre's reports, spokesman Dan Savio said. ``We are a distributor of information, we're not the SEC or the police. He said Business Wire is in the process of developing rules to better scrutinize such content.'
Mar/28/2000 14:16
For more stories from Bloomberg News, click here.
(C) Copyright 2000 Bloomberg L.P. |
