"John Liviakis, president of Liviakis Financial Communications, a San Francisco financial public-relations firms that represents small companies in
exchange for restricted stock, says he has personally lost about $105 million since the spring as the value of companies he owns shares in has plummeted. "It's very frustrating," he says. "Liquidity in the microcap sector
is very poor right now."
interactive.wsj.com
August 21, 2000
Westergaard's Closure Shows
Times Are Hard for Promoters
By AARON ELSTEIN
WSJ.COM
Westergaard.com, a company that was paid to recommend little-known
stocks, abruptly closed its doors last week, surprising many clients and
underscoring the difficulties these companies now face.
Westergaard offered no explanation for its
closure. In a brief statement last week, it
said it was "suspending business operations"
immediately and its board was considering
whether to "reorganize" the money-losing company.
Officials at the company, which disclosed two months ago that the
Securities and Exchange Commission was investigating its stock-promotion
practices, didn't immediately return telephone calls for comment. The
company's lawyer, George Abrams, declined to comment.
Westergaard's business was to recommend other companies' stock in
exchange for pay -- $48,000 a year. Westergaard would publish reports
on its Web site about its clients, many of them small companies ignored by
Wall Street brokerages.
Westergaard aimed for a higher profile than
most stock promoters. The company was
founded in 1996 by John Westergaard,
formerly an executive at credit-rating agency
Standard & Poor's and an investment banker
at Ladenburg Thalmann & Co. He hosted a
weekly radio show, called Johnny's Dotcom Journal, that featured the
firm's clients and was transmitted over the Internet.
Like a traditional investment bank, Westergaard hosted conferences three
or four times a year at New York's Waldorf-Astoria Hotel, where people
could meet with top executives of client companies. The company also
tried to distinguish itself by demanding its payments in cash rather than
stock. Some promoters have been involved in scams in which they
manipulated the companies they were paid promote.
Westergaard's latest chapter comes as regulators turn up the heat on stock
promoters and on many of the speculative stocks they recommend.
Westergaard disclosed in a regulatory filing in June that the SEC was
"reviewing its Web site and certain press releases for possible violations of
SEC disclosure rules." The SEC hasn't filed any charges, and agency
officials declined to comment.
Westergaard said in the June filing that the agency closed another
investigation in February without filing charges. The company said the SEC
had been looking into whether Westergaard.com "may have failed to make
appropriate disclosures" on its Web site. SEC rules require promoters to
disclose the source and amount of their compensation for promoting a
stock.
Besides being investigated by the SEC, Westergaard also was facing
financial pressure. The company posted a loss of $536,000 for the six
ended April 30. In the same period a year earlier, the company lost
$480,000. In June, the company disclosed that it had $536,000 in cash on
hand. Its accountant warned then that Westergaard risked going out of
business unless it raised additional financing.
The company's stock, quoted on the OTC Bulletin Board, has slumped
from 19 cents a share last week to 4 cents Monday.
Westergaard.com's sudden closing came without warning, clients said.
"This has caught us off guard. We were shocked as anyone else that the
firm just shut down," said Joe Brooks, chairman of Advanced
Environmental Recycling Technologies, Springdale, Ark. "It's very
disappointing because they haven't returned our calls."
East Coast Beverage, a Coral Springs, Fla., maker of bottled coffee drinks
and Westergaard client, also said it was not formally notified of the closing.
"That's news to me," said company President Alex Garabedian.
These are difficult times for most dot-com concerns, and the promoters
who recommend stocks of little-known and speculative technology
companies, many of them listed on the OTC Bulletin Board, have seen
interest in their presentations drop drastically since technology stocks in
general tumbled in April.
Trading volume on the OTC Bulletin Board fell from a high of more than
25 billion shares in March to under 4 billion in July, according to the
National Association of Securities Dealers. "The bottom fell out of the
bottom of the market," says John Robbins, publisher of the Investment
Reporter, a Newport Beach, Calif., publication dedicated to small stocks.
John Liviakis, president of Liviakis Financial Communications, a San
Francisco financial public-relations firms that represents small companies in
exchange for restricted stock, says he has personally lost about $105
million since the spring as the value of companies he owns shares in has
plummeted. "It's very frustrating," he says. "Liquidity in the microcap sector
is very poor right now."
Meanwhile, the National Association of Securities Dealers, which operates
the bulletin board, has been forcing small companies to start disclosing
more detailed financial information about themselves than ever before or
face getting booted. The NASD's requirements have cut the number of
stocks quoted on the bulletin board nearly in half, to 3,578 this past July
from 6,640 the previous July.
Some stock promoters have responded to the unfavorable market
conditions by scrambling to reinvent themselves.
For example, Internet Stock Market Resources, a Temecula, Calif.,
company that promoted tiny stocks for pay, in June changed its name to
VentureNet. It said its new focus would be "providing financing and
management expertise to prepublic and public emerging growth
companies."
In the past two years, as hundreds of stock promoters set up shop on the
Internet, regulators have clamped down by forcing them to disclose on
their Web sites and in press releases exactly how much they are being
compensated for their recommendations. John Reed Stark, head of the
SEC's Office of Internet Enforcement, says the commission has sued
approximately 60 companies or individuals for failing to comply with these
disclosure requirements.
The list grew by one Friday, when the SEC announced that it had sued
Merger Communications, a Houston stock-promotion firm, and its
president, Jukka U. Tolonen, and Executive Vice President David A.
Drake. The company and executives agreed simultaneously to settle, the
SEC said, without admitting or denying the charges that they and the firm
had failed to properly disclose in press releases and mass e-mails that they
were paid by companies for promoting their stocks.
As for Westergaard's clients, they are trying to come up with ways to stay
on investors' radar screens. Advanced Environmental says it will retain a
Westergaard analyst to act as its investor-relations counsel. The former
analyst's job will be to "follow the company and answer shareholder
questions," according to a press release.
Write to Aaron Elstein at aaron.elstein@wsj.com
KJC |
