Big questions dog little company; A cautionary tale emerges from tiny eSat, where stock skyrockets and plummets amid a swirl of hidden and controversial information.
May 28, 2000 Sunday MORNING EDITION
SECTION: BUSINESS; Pg. K08
LENGTH: 1099 words
HEADLINE: Big questions dog little company;
A cautionary tale emerges from tiny eSat, where stock skyrockets and plummets amid a swirl of hidden and controversial information.
BYLINE: JOHN R. EMSHWILLER, The Wall Street Journal
BODY:
It seems a familiar tale from the cybercharged stock
frontier: The stock of an obscure Internet company shoots up in
price, amid positive news releases and online chatter. Then, it
falls sharply, dogged by questions about the accuracy of some of
the happy talk.
But there appears to be a bigger story, at least in the case of
tiny eSat Inc. It is a tale that involves several public companies,
tens of millions of dollars of stock, questionable information
given to investors and -- at the center of everything -- one felon.
He is Regis Possino, a 52-year-old disbarred lawyer with
convictions for fraud and drug dealing. He operates out of a former
art gallery on a commercial strip in Santa Monica. Possino didn't respond to numerous requests for an interview.
He and entities he controls have shown up in regulatory filings and
court documents as consultants and shareholders in half a dozen
public companies.
The saga involving eSat is a reminder of the perils of
investing in out-of-the-way realms of the online world. It
underscores how difficult it is for investors to determine the
backers of fledgling Web companies and their backgrounds.
Possino's current activities "suggest he may be involved in a
new network involving stock deals and promotions," says Stuart
Allen, a retired Securities and Exchange Commission investigator
who helped investigate a past stock-fraud network that included
Possino.
Recently, the SEC has been asking questions about Possino's
current activities, say people familiar with the matter. Idaho
securities regulators have done more than inquire: In December they
obtained a judgment and injunction in a Boise state court against a
company they said was owned by Possino. The judgment came after the
company didn't respond to the suit.
In their suit, regulators said the Possino-owned company and
one of its salesmen misled investors in the selling of two stocks
that produced more than $ 150,000 of losses for the buyers. Among
other things, the defendants allegedly failed to disclose that the
shares being offered were controlled by Possino or that one of the
stocks already had been at the center of an SEC manipulation
lawsuit. The Idaho case is pending against one other defendant, who
has denied wrongdoing.
Moreover, only one of the public companies in which Possino is
involved has made mention of his criminal past. According to
current securities laws, such disclosure isn't specifically
required. Yet this absence of disclosure, Allen says, "should be of
concern to every investor and law-enforcement official. "
Consider eSat, a Los Angeles satellite, microwave and
Internet-service provider that previously operated under the name
Technology Guardian. (The company is unrelated to Esat Telecom PLC,
which was acquired this year by British Telecommunications PLC.)
According to eSat regulatory filings, the company signed a
consulting agreement in September 1998 with Corporate Financial
Enterprises, one of Possino's business entities. Corporate
Financial clients later bought about 5 million eSat shares at
prices as low as 72 cents each, according to company records.
By January 1999, eSat shares topped $ 20 on the OTC Bulletin
Board. Helping fuel that rise were upbeat company announcements
trumpeting business relationships with major companies, including
Lucent Technologies Inc. Lucent supposedly was planning to sell
eSat's products nationwide, a prospect an eSat news release termed
"fantastic. "
But a Dow Jones Newswire story in March 1999 quoted officials
from supposed eSat business partners saying the Internet company
had overstated its relationships with them. Lucent said that while
it once bought eSat products from a distributor, the company had no
direct relationship with eSat nor any plans to distribute its
products -- a position recently reiterated by a Lucent spokesman.
In the article, an eSat official said there hadn't been any
intention to mislead. (If a company knowingly puts out false
information to the public, it could be guilty of stock fraud,
law-enforcement officials say.)
In any event, investors were steamed. By late 1999, eSat's
stock price was in the low single digits. It currently is at about
$ 2.50 a share.
Possino's name didn't appear in the Dow Jones story or the
questioned eSat news releases. However, one of the contact phone
numbers in the releases matches that of a phone number at Possino's
Santa Monica office.
Last month, eSat said in a regulatory filing that it had just
terminated its consulting relationship with Possino's firm. The
breakup was part of a settlement of a dispute about whether the
buyers that Corporate Financial had supplied had fully paid for the
stock they received. It isn't known whether the Possino-related
investors still hold their shares.
In an interview Thursday, eSat President and Chief Executive
Michael Palmer said the news releases came out before he joined the
company and he couldn't speak to their accuracy.
He also said eSat's relationship with Possino began before his
arrival. When asked about the reasons for terminating the company's
relationship with Possino, Palmer said: "Some investors are higher
maintenance than others. "
The eSat CEO added that since he joined the company in April
1999, it has put out accurate public statements and "certainly made
every effort to get on the right track. "
The company recently reported a 1999 operating loss of $ 8.9
million, though a noncash accounting adjustment left it with a net
profit, on sales of $ 423,640. In its most recent annual report,
eSat's outside auditor, Carpenter Kuhen & Sprayberry, expressed
"substantial doubt" about the company's viability as a going
concern. Palmer said he believes eSat has the resources to continue
and eventually be profitable.
Possino has received almost no public attention, though he has
long been of interest to law-enforcement officials. In 1978, he was
convicted in a state court in Los Angeles of attempting to sell 350
pounds of marijuana to undercover police officers. He was sentenced
to a year in jail and disbarred as a result.
In 1995, Possino pleaded guilty in a federal court in Los
Angeles to participating in a fraud scheme that used overvalued
stock to pump up an insurance company's balance sheet. He received
probation and agreed to cooperate with a federal organized-crime
investigation into the securities markets, according to court
filings. |
