=DJ IN THE MONEY: Gluv Hits The Printing Press To Clean Up Mess
By Carol S. Remond
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Perhaps perfectly illustrating the Wild West
aspect of the Over-the-Counter-Bulletin Board market where the shares of
tiny public companies trade, Gluv Corp (GVRP) said it will issue 414
billion shares to help clean up billions of unsettled trades.
What Gluv, a small company that recently changed its name to Media
Magic Inc., didn't say is whether its fantastic stock issuance plan has
been endorsed by securities regulators who are looking into recent
unusual events related to trading in the company's shares.
Trading in Gluv stock was temporarily suspended by the Securities and
Exchange Commission in late May after billions of shares of the company
were improperly traded. Gluv shares are now free to trade, but warnings
by securities regulators have reduced trading to a trickle amid
continued questions about the validity of some or all of the billions of
shares traded in the week preceding the SEC trading suspension.
Gluv shares last traded on June 15 at $0.0001 giving this shell
company with no assets a $900 million market capitalization. Stock price
aside, the stakes are high for securities firms that traded billions of
shares before the SEC halt and are left unable to settle their
positions. The NASD, which regulates these firms, took the very unusual
step earlier this month, to ask the SEC on behalf of the firms, to waive
net capital requirements. The SEC granted NASD's request, practically
giving brokerage and clearing firms a pass on a requirement to maintain
a certain level of capital relative to trading positions. The SEC and
the NASD declined to comment on the matter. But market observers said
that NASD's request was a sure sign of the risk of failure by some firms
saddled with monstrous positions in Gluv stock.
A spokesman for the SEC declined to comment on Gluv's latest stock
issuance plan. Steve Dreyer, a lawyer for Gluv, said he advised the SEC
of the company's plan.
Gluv is fairly typical of the companies with little or no revenues
that trade in the loosely regulated OTCBB market. The West Palm Beach,
Fla.-company recently attempted to reincarnate itself as a multimedia
services company through a reverse merger with DigiKidz Holdings Inc. In
order to complete the transaction, Gluv completed a 6.5 million-for-1
reverse stock split on May 12 that resulted in a shell company with 11
shares. A week later, Gluv said it would conduct a 3 million-for-1
forward stock split that would bring the shares outstanding to 33
million shares. None of these 33 million shares were supposed to trade
before Monday May 23.
But somehow one of the 11 shares, the only one that was free trading
under a state exemption to federal registration requirements, was
converted into 3
million new free trading shares early and some of their owners started
selling stock that was not supposed to be trading.
According to Gluv's most recent press release, 138,000 shares were
sold into the market "on or shortly after the May 13 record date of the
stock dividend, (resulting) in significant confusion among various
brokerage firms and their customers as to whether a 3,000,000 share
stock dividend was attached to each of those 138,000 shares as a 'due
bill' requiring the delivery of more than 418 billion on the May 20
payment date of the stock dividend."
Gluv's lawyer Dreyer said the company would not be required to
register the 414 billion new shares it plans to issue because these
shares "are attached to the 138,000" free trading shares sold into the
market which themselves were exempt from registration requirement.
But some securities lawyers said that the SEC was likely to frown upon
Gluv's use of a state registration exemption to issue free trading
stock.
"This doesn't pass the smell test," said Steve Nelson, a lawyer whose
clients include the Pink Sheets LLC. Nelson said that a state exemption
related to a private placement to accredited investors is unlikely to
hold in the face of a large distribution of stock to the market place.
"This stock issuance is problematic under law," said Martin Kaplan of
law firm Gusrae, Kaplan, Bruno & Nusbaum. "If they (the company) can do
this, they can do anything."
Gluv said in its press release that in about two weeks, after all
trades are settled, the company will revert its share structure to its
original plan. Lawyer Dreyer said that the 9 trillion shares currently
outstanding would be reverted to 3 million free trading shares. Also
outstanding will be 77 million restricted shares.
(Carol S. Remond is an award-winning columnist and one of four who
write the "In The Money" feature.)
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074;
carol.remond@dowjones.com
(END) Dow Jones Newswires
|
