ACRT - what looks good with this one???
"That Road is Gold"
A tiny New York company called Actrade Financial Technologies claims to
have the Internet's best technology for commercial loans. Actrade shares have
climbed from pennies to as high as 44 over the last decade, as its officials talked
up the "multi-trillion dollar" opportunity beckoning the firm's Electronic-Trade
Acceptance Drafts, or E-TADs. "Whoever comes up with what is the currency
for the Internet … that road is gold," Actrade President Alex C. Stonkus
told me last week.
Some 2.3 million Actrade shares have been sold short by investors who may
recall how Actrade founder Amos Aharoni fled Israel, and his creditors, in
1985. Actrade's external affairs officer is David J. Askin, who settled SEC
administrative charges, without admitting or denying guilt, that he defrauded
clients amid the famed 1994 collapse of his $600 million hedge funds.
Despite the e-trappings of its E-TADs, Actrade is essentially a subprime
lender to businesses who are desperate enough to pay what amount to
20%-40% annualized interest rates for short-term trade financing. Actrade
reported earnings of $9.5 million, or 80 cents, in the December quarter.
Stonkus says that Actrade has been tightening its lending practices. There was
room for improvement. Of the eight borrowers highlighted in Actrade's 1999
and 2000 annual reports, four subsequently defaulted or entered bankruptcy
court.
Actrade can make loans as large as $16 million, Stonkus says, because insurers
reimburse Actrade in the event of default. But the firm's shares have slid to a
recent 24, as investors worry whether that insurance net is becoming a mirage
-- and defaults more of a threat to reported earnings. Last June, Actrade wrote
off $5.4 million in default claims due from one insurer that regulators were
liquidating. And last month, Actrade restructured $8.85 million in short-term
E-TADs into a four-year loan. Why didn't Actrade go to its insurers on the
$8.85 million? "If you entered in a car accident and got a $1,000 repair bill and
had a $500 deductible …" said Stonkus, on a call to analysts, "do you file
the claim and have your insurance go up … and have them drop you,
potentially?"
At least two former insurers are alleging they were duped by Actrade. In an
Atlanta federal court, Amwest Surety says it was suckered into underwriting
$4.5 million in E-TAD loans to a time-share marketer named Daniel DelPiano,
because Actrade's Stonkus didn't disclose that DelPiano aimed to use the
money to buy raw African diamonds, not time-shares. In a court-filed affidavit,
moreover, DelPiano says he bought the diamonds from a firm that he himself
owned.
Amwest and insurer CNA make even graver charges surrounding the $6.3
million default by Clifton A. Hinds. An inner-city booster known for his huge
parties, Hinds says in a court-filed deposition that Stonkus not only extended
Hinds credit, but sought to hire him as Actrade's Los Angeles broker. Hinds
supposedly borrowed Actrade's money to renovate multi-family dwellings, but
his former girlfriend, Gena Lofton, says, in her own court-filed affidavit, that
Hinds just pocketed the funds.
Hinds' ex further stated that Actrade's lending officer expressed concern in
1998 that the KPMG audit attestation on Hinds' financials was a forgery.
Lofton added that Hinds mollified the Actrade official's concerns by having her
purchase him a $15,000 Rolex. After first securing insurance coverage from the
hapless sureties, Actrade proceeded to lend Hinds over $6 million and solicit
$18 million from other lenders on his behalf.
Joseph Wargo, an Atlanta lawyer representing Actrade, says the company's
testimony, which it has not yet given, will disprove the self-serving and dubious
testimony of DelPiano, Hinds and Lofton. Actrade's business model is
foolproof, says Wargo, if its sureties carry out their responsibility to
independently investigate Actrade's customers.
This week, Hinds is scheduled to start serving a two-year sentence, after
pleading guilty to mail fraud, for using fake documents and assumed names to
borrow additional millions from eight banks. |
