Update: Asensio case February 27, 2002 To the Editor:
Philadelphia jury explains Enron to America.
A jury verdict in a libel case involving a small publicly-traded company and a short seller may hold the key to understanding what's wrong with our stock markets. Last Friday, a 12 person jury in Philadelphia voted 11 to 1 that I and my company, Asensio & Company, Inc., did not defame Hemispherx Biopharma, Inc. ("Hemispherx") by calling it an intentional stock fraud based on a medically useless drug. The jury also voted that we had not defamed Hemispherx by publishing over 50 reports stating that Hemispherx was "one of America's most offensive, deliberate and visible stock frauds" and that Hemispherx has "purposefully cultivated" false product claims "in order to defraud investors." This jury verdict would be of minor consequence except for the fact that Hemispherx has been continuously under a formal U.S. Securities and Exchange Commission ("SEC") fraud investigation for three years and six months; except for the fact that at least three leaders of the American Stock Exchange ("AMEX") profited from the Hemispherx stock fraud, while its former president Richard Syron (who had previously been Chairman of the Federal Reserve of Boston) defended their conduct and led an investigation of Hemispherx's critics; except for the fact that Hemispherx's shenanigans led to six federal criminal indictments and to a 2 year congressional investigation into the SEC and AMEX's failure to protect investors from Hemispherx's wrong-doers; and except for the fact that to this date nothing has been done to protect investors from the Hemispherx stock fraud or to prevent its insiders from getting rich and using a part of their ill-gotten wealth to buy influence and hurt their detractors.
The evidence Asensio & Company was allowed to present to the Philadelphia jury was very limited - far less than all of the publicly available information and presumably much less than the SEC has gathered in its 3 1/2 year fraud investigation. Yet after listening for four weeks to Hemispherx's doctors or other promoters testify about its "wonder" drug and the great wrong Asensio & Company committed in calling them "frauds" and without being able to hear about Hemispherx's long list of convicted stock swindlers or the two U.S. Food and Drug Administration rulings that Hemispherx illegally and falsely promoted its drug, 11 of 12 Philadelphia jurors voted against Hemispherx. A group of citizens faced with overwhelming volumes of Hemispherx's promotional materials, and blocked from hearing the most damning evidence by a series of Court orders, figured out in 20 days what the AMEX, SEC and Congress with the help of the U.S. General Accounting Office have not been able to do in three and a half years.
What does it say about the nation's securities regulation system? The answer is quite obvious: in America it is more dangerous to shop lift than to cheat for millions on Wall Street. That is the sad part. The sadder part is that cheating on Wall Street (what some economists politely call capital misallocation) costs our society far more than shop-lifting. The saddest part is that it could virtually be eliminated simply by reinforcing American principles: free speech and free markets.
"Wall Street" regulators are biased against investors who are critical about their product: stock promotion. Wall Street's "Bulls" earn their living by helping to persuade Americans to take enterprising risks with their savings. This is a complicated duty requiring balance between conservatism and speculation; between personal and societal interests. Investors who challenge the system's excesses are called "short sellers." Despite being unwisely hampered by out-dated restrictions "short-sellers" are the critics that work to keep the system balanced. But the critics are hampered by regulations that limit the amount of capital they can deploy and by the risk of retaliation from the powerful forces that control the market mechanisms. The SEC does not recognize short sellers as members of the securities industry. Short sellers have no protection under the SEC anti-fraud laws. Short sellers have no legal standing under current laws to sue public companies that are engaged in illegal conduct that harms investors. Shareholder class action suits, which are filed after investors have already been harmed, provide little economic benefit to society and riches to the plaintiff bar. These shareholder suits, with questionable value to investors, are one of Wall Street's biggest businesses. Yet a "short seller" with valuable factual information about corporate misbehavior has no protection under current securities law or, as we saw in Philadelphia (the cradle of freedom) the first amendment.
The solution to our country's stock market problems lies with evening the playing grounds between stock promoters and their critics. Wall Street talks a big game about competition. Yet in the securities business the big game is always one-sided: the sell side. Lets not forget that the buy side is America's savings. What could be better than giving more freedom to those that are in the business of protecting America's savings.
Manuel P. Asensio
Asensio & Company is a New York based investment bank that is actively engaged in short selling and advises its clients on securities it believes are overvalued. A complete documented history of Asensio's published work with short-selling transactions, and the firm's definition of gross overvaluation, is available on the Internet at www.asensio.com. Mr. Asensio is the author of the book "Sold Short: Uncovering Deception in the Markets" published by John Wiley & Sons and is the Chairman of Asensio & Company, Inc. |
