XYBR EARNING REPORT IS A SILK PURSE!!, Roy, why doesnt XYBR just pay Donner for another one of those "Strong Buys" like they did before? Maybe that would give some pep to the stock price.
WILL DONNER END UP LIKE CHRISTINA?
Silk purse in penny stocks
A tout makes money even as his clients’ shares collapse
By Bruce Kelly
Tech stocks have been decimated by the market downturn, but Jeff
Baclet has kept the faith.
After all, he’s paid by companies that have slipped so far in value that
they’ve fallen into the
netherworld of penny stocks.
Selling for less than $5 a share, they dwell in the low-rent district of
the Nasdaq’s Over-the-Counter
Bulletin Board and the Pink Sheets — thinly traded, rarely followed by
analysts, little known to
investors and subject to wild bursts of volatility.
That’s where Mr. Baclet, 31, comes in.
Using a mix of Bible-thumping zeal and unrelenting optimism, he hypes
a stable of companies for a
fee through Donner Corp. International. He founded the Santa Ana,
Calif., broker-dealer after a
peripatetic career on the fringes of the financial services industry.
“It’s like a public relations firm,” says David E. Rubbins, a New York
securities lawyer.
“The SEC would likely look hard at this kind of arrangement,” adds
Barry Barbash, a partner in
Washington with Shearman & Sterling who once ran the Securities
and Exchange Commission’s
division of investment management.
FULL DISCLOSURE
That arrangement is strictly cash, carry and buyer beware.
Given the precipitous decline of the Nasdaq Composite Index since its
peak last year, the OTC
market has become the elephant’s graveyard of dozens of
once-highflying tech companies. Many
are willing to shell out big bucks to try to regain some of the glory of
the tech boom.
Donner is one of about 200 firms that bottom-feed on the hopes and
dreams of wannabe moguls,
according to Key Ramsey, chief executive of Knobias.com, a website
he started after being
victimized in a penny stock scam. He follows 6,300 micro-cap
companies trading publicly on the
Nasdaq Small-Cap market and the Pink Sheets.
He says that Mr. Baclet and other brokers who tout penny stocks for
a fee are taking advantage of a
legal loophole to pump the price of a stock.
“Regulators we’ve talked to wish this would go away,” says Mr.
Ramsey.
GOD AND MONEY
Mr. Baclet, however, is unlikely to disappear anytime soon. He
opened the doors of his
broker-dealer in 1996, and he has never run afoul of Securities and
Exchange Commission
regulations, according to the federal agency.
However, some of the seven securities firms, one insurance company
and two realty firms he
worked for between 1989 and 1996 have.
Capital International Securities Group Inc. of Boca Raton, Fla., the
last company he worked for
before opening Donner, was hit with a class action in 1999 for
allegedly defrauding investors in a
pump-and-dump stock scheme that ran from August 1997 to August
1999.
Another of Mr. Baclet’s former Florida employers, GKN Securities
Corp., was ordered in 1997 to pay
$2.1 million in fines and restitution, according to NASD Regulation
Inc., the independent
enforcement arm of the National Association of Securities Dealers.
Between December 1993 and April 1996, the firm and 29 brokers
and supervisors allegedly
controlled the immediate after-market trading in eight stocks it
underwrote, and excessively inflated
those prices, according to the NASDR.
Mr. Baclet worked for Capital International Securities from July 1995
to December 1996 and GKN
Securities from August to November 1994. He was not named as a
defendant in the class action
against Capital International Securities, nor did the NASD name or
fine him for a role in the GKN
Securities case.
As well as pumping the hopes and dreams of penny stock moguls,
Mr. Baclet mixes Christian
evangelism with his investment advice.
His website, for example, provides a biblical justification to shun
trading on margin and gives
in-vestors an opportunity to donate to a fundamentalist Christian
charity that rails against Hollywood,
porn-ography and homosexuals.
SLIDING SCALE
For companies that pay a one-time fee, ranging between $3,000 and
$7,000, Donner publishes
press releases and “research reports” touting its penny stocks.
The higher Mr. Baclet can drive the stock, the greater the reward,
which can include stock options,
monthly retainers and fees that typically rise on a sliding scale along
with the stock price.
Mr. Baclet is quick to point out that his fee arrangements are fully
disclosed in accordance with SEC
rules.
“It’s clear it’s a fee-paid [service],” he says.
However, the information has a habit of finding its way into investor
chat rooms or onto computer
bulletin boards, where the disclaimer is sometimes not mentioned or
has been deleted.
In the case of Tickets.com Inc. (TIXX), an online ticket service,
Morgan Stanley Dean Witter analysts
gushed about the Costa Mesa, Calif., company when it handled the
initial public offering Nov. 4,
1999. The stock jumped to $32 a share, from an IPO price of $12.50,
before closing that day at
$19.25 a share.
Thursday the stock closed at 39 cents a share, and the Nasdaq says
the company is in line to be
taken off the exchange for failing to meet minimum listing
requirements.
Tickets.com was caught in last year’s tech-stock riptide and has
traded below $1 since November.
Donner took the company on as a client in December after the NASD
warned Tickets.com for the
first time that it was in danger of being delisted.
On Jan. 22, Donner issued a press release that glowingly described
the company’s prospects.
Donner’s research report on Tickets.com didn’t include a projection of
the company’s future earnings
on its cover or on any of its pages. Such projections are standard
fare for analysts’ reports.
The report does include, however, a quote from the Book of
Jeremiah.
“Before I formed you in the womb I knew you; before you were born I
sanctified you,” reads the
quote, which appears under a box listing Tickets.com’s revenue.
The report gave the stock a “speculative buy” rating.
According to ratings group First Call Corp., a “speculative buy” rating
falls between a rating of “buy”
and “hold” and means a stock has more risk.
“We believe Tickets.com is highly undervalued considering it is moving
forward with a business plan
to revolutionize the online ticketing industry,” Donner wrote.
But in its annual report this month, Tickets.com warned investors that
it soon might cease to exist.
“If we are unable to obtain additional funding on satisfactory terms in
the near future, we’ll have to
modify our business plan, reduce or discontinue some or all of our
operations, seek a buyer for
substantially all of our assets or seek bankruptcy protection,” the
company cautioned.
Even so, Donner’s January press release caused a stir among
investors in chat rooms on Yahoo!
Inc.’s financial website.
A VOLATILE SWING
The morning the press re-lease was published by an online news
service, one stock jockey,
Mtanda_ 2000, copied it in full, without the disclaimer, in a message
with the subject as “good buy
recommendation.” The identity of the writer could not be learned.
Over three days, Jan. 19, 22 and 23, Tickets.com saw its volume
surge, respectively, from 374,000
shares, to 829,000 shares, to 2.2 million shares. The price climbed to
84 cents over that time, from
50 cents.
The next day, both the volume and price fell back — to 925,000 and
78 cents.
“Like a lot of penny stocks, it fluctuates quite a lot,” says David
Kathman, a stock analyst who has
watched, but not formally covered, Tickets.com for Morningstar.com.
Donner would have benefited greatly from any strong move in the
stock price, according to the
release. It said Tickets.com was to pay Donner 1,000 shares of
stock for its work.
If the stock had closed at $10, $15, $20 or $25, Donner stood to
receive an additional 1,000 shares
of stock for reaching each plateau.
In another release, Donner disclosed that it would receive $7,000,
plus a $2,500 monthly retainer.
But in its research report, it says merely that it received a $5,250 due
diligence fee and a $6,000
retainer. The report also made no mention of shares potentially owed
to Donner.
“They’re following the letter of the law, but not the spirit,” says Mr.
Kathman.
BULLISH
Mr. Baclet says that in all but one of the sectors it covers, his team
has no specialists. He says, “It’s
a team effort when we go into a project.”
He likens his practice of taking a fee to cover companies with market
caps barely in the millions to
Wall Street’s practice of refusing to write “sell” recommendations of
companies worth billions.
Indeed, once a business has signed up with Mr. Baclet, it is just about
guaranteed to get a bullish
rating.
Donner has pulled at least one company from the list — Far East
Adventures, a phone card
company that Mr. Baclet says didn’t give his analysts correct financial
information.
Since March 6, 2000, Donner has produced at least 104 favorable
press releases and not one “hold”
or “sell” rating, according to a search of Dow Jones Interactive.
In that time, the Nasdaq Composite Index has fallen more than 60%,
and all 18 companies that
Donner lists as clients on its website have seen their prices tank.
Mr. Baclet says huge swings in stock price are part of investing in
penny stocks, and he insists that
he is not a stock touter. In fact, in the past, his clients have been
winners, he says. |
