INVESTCO NEWS--SPLATTT--LOL-->A Dow Jones Newswires Column
NEW YORK (Dow Jones)--There's an old saying among investors infinancial-services firms that goes something like this: A company is only as good as the assets that walk in and out of the front door each day.
With that in mind, investors in Investco Inc. (IVSO) would be well served to learn more about its "assets," and especially about the chairman of a firm that owns a controlling interest in Investco.
In other words, when looking at Investco, forget for the moment that it's next to impossible to figure out how many shares the company really hasoutstanding.
And forget the fact that just a few months ago the company was in entirelyanother business - voice recognition.
Likewise, pay no attention for the time being to the changing circumstances around its acquisition of a Costa Rican surety and insurance business.
Instead, begin with Michael Zapetis, the man who controls Investco through another company and a man who has had a few run-ins with the law.
This is important for a number of reasons, not the least of which is another major tenet of financial services firms: trust. A little background: Investco, formerly known as Intraco Systems Inc., is a small Florida-based company that reinvented itself into a provider of financial
services in January when it began offering financial guarantees to help would-be-borrowers secure loans.
Zapetis is the chairman of First International Finance Corp., or FIFC, a privately held invesment company that last December acquired 1 million shares of series C convertible preferred stock of what was called Intraco in exchange for $15 million of stock in Anglo American PLC (AAUK). Following a name change, the preferred stock is now convertible into 7.5 million common shares of
Investco. According to a January 30 filing with the Securities and Exchange Commission, FIFC holds about 94.4% of Investco's common shares after conversion.
What regulatory filings don't say, however, is that in 1987, Gerald Lewis, then Florida state comptroller and head of the department of banking and finance, charged Zapetis and three others in a civil suit alleging sale of
unregistered securities, sale of securities by unregistered persons, operation of an unlicensed bank and other violations.
Lewis charged that Zapetis and others through four unlicensed companies - First Union Guaranty Trust, First International Trust Corp., First Houston
Trust Co. and Marine Trust Corp - operated an advance-fee scheme, collecting funds upfront from customers and then failing to honor letters of credit issued by the companies.
Court documents show that just one month after Lewis filed his civil suit, Zapetis agreed to an order permanently restraining and enjoining him and others in the case from a variety of actions including: acting as a bank; doing business under any name or title containing the words "bank," "banker," "banking" or "trust company," and selling or offering for sale securities without first registering them. Under the order, Zapetis, with no admission of guilt, and others also agreed to make restitution to any party who can demonstrate that they had paid improper expenses or fees in connection with the
procurement of, or the commitment for letters of credit.
After seemingly staying out of trouble for almost a decade, Zapetis caught the eye of regulators once again. This time, in 1995, he was charged in a criminal case involving collecting advance fees from a would-be-borrower.
Zapetis pleaded no contest to a charge of petty theft and to a charge that he violated Florida law by collecting an advance fee while acting as a loan broker. He was convicted on the petty-theft charge but received a withhold of
adjudication on the more serious advance fee charge for which he was put on probation and forced to make restitution.
In this case, court documents filed with the 11th Judicial Circuit Court of Florida show that back in 1993, Zapetis told Robert Searles, an individual who was seeking a $5 million loan, that he could arrange such financing through
Merrill Lynch & Co. The same documents show that later that year Zapetis requested $25,000 as a fee to arrange the loan, demanding half in cash upfront. Searles paid Zapetis $12,500 in cash in July but soon discovered that Zapetis
never supplied a promised line of credit and that Merrill wouldn't provide the loan. A Merrill employee testified against Zapetis in 1995. Merrill declined to comment on the case.
This, by the way, was not the first criminal case filed against Zapetis. In 1982, he was convicted by the U.S. District Court of the Northern District of Florida of "knowingly and intentionally importing (a) quantity of marijuana into the United States." He was sentenced to a 15-year jail term. His sentence was later amended, and he was released after spending just eight months in federal prison.
Karen Carazo, Zapetis' wife and corporate secretary of FIFC, said that Zapetis wasn't available to comment.
Known: There ARE Shares
Meanwhile, if Zapetis' past indiscretions are not enough to make investors hesitate to endorse Investco's new line of business, lax information about the company's shares may.
A Feb. 13 SEC filing shows that Investco had 946,901 common shares outstanding as of Jan. 31 as well as 2.2 million in preferred shares which would convert into 7.512 million shares of Investco.
But earlier this month, Investco announced that it had received a tender offer from FIFC at $10 a share. The press release told investors that "FIFC planned to acquire at least 95% of Investco stock that is not presently owned
by FIFC (26%) and Mercury Surety & Insurance Company (70%)." The announcement went on by telling readers that FIFC intends to acquire at least 950,000 shares of the company's stock for cash. The 950,000 shares would come from the approximately 499,114 shares in the public float and approximately 500,000 shares of restricted shares currently being held by investors.
If FIFC and Mercury hold 96% of Investco stock and only the remaining 4%, or about 950,000 shares, is up for grabs, that would mean that the company has
about 23.75 million shares outstanding and not the 8.5 million showing up in the Feb. 13 filing (7.512 million from the convertibles and 946,901 common shares).
Asked about the inconsistencies in the amount of shares outstanding, a spokesman for Investco referred all questions to Joseph Lents, interim chief executive of Investco, who has so far been unavailable for comment. Carazo also declined to comment.
The number of shares outstanding isn't the only peculiarity when it comes to Investco's press releases and public SEC filings.
Information about Investco's most recent acquisition, Mercury Surety &Insurance Company of Costa Rica, is hard to decipher. In a Jan. 31 press release, Investco told investors that it would acquire 100% of Mercury from Capitales Tres De America S.A. with promissory notes and
restricted stock worth a total of $50.5 million. In the release, Lents saidthat the company planned to keep Mercury intact and use the $50 million in certificates of deposits on the Costa Rican insurance firm's balance sheet to
provide guarantees. By March 7, Investco had changed its mind, saying in a press release that it would acquire Mercury for $100 million in promissory notes and restricted stock. According to that release, Mercury had $250 million
in certificates of deposit on its balance sheet that would help Investco meet increasing requests for asset guarantees and collateral enhancements.
So is it $50 million or $250 million? Well, according to yet another press release issued by Investco on March 14, Mercury has $100 million in certificates of deposit on its balance sheet. Again, Lents wasn't available to comment.
Given FIFC's Zapetis charged past when it comes to loans and guarantees and Investco's apparent inability to clearly state its intentions, perhaps investors should be well advised to wait for clarifications from the company before investing in Investco stock.
The company is late in filing its annual report for the year ending Dec. 2001, a document that will hopefully include information about FIFC and its officers. (Investco's or rather Intraco's past filings are of little value to investors since they deal with the company's previous business, voice recognition).
Investco stock was recently trading at $1.35 a share. The stock spiked to $8.50 a share in early January before slowly retreating to its current level.
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074;
carol.remond@dowjones.com.
(END) DOW JONES NEWS 04-12-02 |
