At first glance Veltex seems like a great value.
However there are a few disturbing investrend articles (u can register for free on investrend.com and check them). One of them is pasted below. Apparently Veltex paid for analyst coverage, but the analyst couldn't get sufficient financial/business information and so never provided a report. There may have been SEC violations associated with this. I don't fully understand the situation here, but it is a big red flag IMO.
My question is this: If the financials and growth prospects are as good as the company says they are (they do tout the stock in their press releases it seems), then why can't they get a reputable auditor, investment banker, and analyst to cover them? If the prospects are that good, you'd think that these guys would love to get a piece of the pie.
I'm not trying to be a naysayer here. I just wanted to check whether you are aware of and comfortable with all these issues.
Thanks
MC
November 2, 2004. (FinancialWire) Veltex Corporation (OTC: VLXC) issued a press release Monday that contained the compensation for the Research Report that was not contained on the original press release.
November 2, 2004. (FinancialWire) Veltex Corporation (OTC: VLXC) issued a press release Monday that contained the compensation for the Research Report that was not contained on the original press release.
The report is available from IPOdesktop.com, whose editors say is quoted by Dow Jones’ (NYSE: DJ) Wall Street Journal and Dow Jones Newswires, Viacom’s (NYSE: VIAb) and MarketWatch’s (NASDAQ: MKTW) CBS MarketWatch, Reuters and USA Today.
The new press release discloses the information that was published with the report, that the firm had been paid $1,500 to write and publish the report.
The press release transparency as well as the report disclosure is necessary to meet the requirements of the U.S. Securities and Exchange Commission. The report itself also did not disclose its author or the credentials of the author as required by almost all organizations publishing research standards and ethics, and the follow-up published disclaimer also did not list this information, although this aspect is not required by the SEC.
The U.S. Securities and Exchange Commission Regulation 17(b) states:
“It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.
“The SEC has told FinancialWire that Regulation 17(b) means full and complete compensation for research and any other services provided, including amounts and sources, must be disclosed in ‘every press release’ as well as other published documents. The SEC states that third party compensations must include the relationship of the payer to the issuer.
“In an email to FinancialWire, John J. Nester, a spokesperson for the U.S. Securities and Exchange Commission, confirmed that regulators interpret 17(b) to mean that specific compensation information must be contained in press releases, and that a link to a disclosure somewhere else, for example, is a violation of the regulation. He further stated that the compensation disclosure required by the SEC includes ‘amounts and sources in any press release mentioning the company under research coverage’.”
CFA Magazine says its task force with the National Investor Relations Institute proposes that analysts:
“Accept only cash for their work and to decline any compensation that is ‘contingent on the content or conclusions of the research or the resulting impact on share price’;
“Disclose the nature and extent of their compensation, along with any relationship they may have with the issuer or an affiliate, their credentials and professional background, and any matters that might reasonably be expected to impair their objectivity; and
“Certify that analysts and recommendations contained in the report represent their true opinion.”
The SEC had previously told FinancialWire that it intends to enforce its provisions so that investors may have a fully transparent understanding of any potential agenda or lack thereof.
In a January 2000 research report, for example, the SEC said outside analyst Paul Bornstein, who it has charged with 17(b) violations and fraud, “failed to disclose that at least part of Bornstein's optimism about CyberCare (OTC: CYBR), then on the NASDAQ (OTCBB: NDAQ), resulted from his simultaneous employment by CyberCare's public relation's firm.
In subsequent communications with Nester, the SEC’s spokesperson, he appeared to equivocate on the subject of whether public companies bear the same disclosure responsibilities as do the research firms covering them. Nester said there is currently no authoritative interpretation from the Commission as to public disclosure transparency by public companies themselves.
On September 20, an Investrend Research proposal for the U.S. Securities and Exchange Commission to clarify Regulation 17(b), including confusion about the requirements of public issuers for full compensation transparency, was adopted by the annual SEC Business Forum on Small Business Capital Formation, and it has been reported out for submission to the Commissioners.
Investrend has also asked the National Investor Relations Institute and CFA Institute joint panel developing guidelines for independent research providers for permission to amend its March 20 comments to ask the panel to require public company issuers “to make all disclosures contemplated by Regulation 17(b), whether or not the SEC has issued an authoritative interpretation or the company’s counsel states that it does not have to do so by law.”
While independent research by standards-driven providers are “growing in legitimacy,” according to the Dow Jones (NYSE: DJ) in a recent article that singled out Investrend Research in that category, the article went on to quote Lou Thompson, president of the National Investor Relations Institute, which had issued new Guidelines in 2002 endorsing legitimate “paid-for” research, as warning of “various mutations of paid-for research." |
