=DJ IN THE MONEY: EagleTech Loses Battle To Avoid Delisting
By Carol S. Remond
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Despite its best efforts to turn its regulatory woes into a forum against naked short selling, Eagletech Communications Inc. (EATC) has lost its fight to remain a publicly traded company.
The Securities and Exchange Commission on Wednesday ruled that Eagletech's securities will be deregistered because the company failed to file required financial reports since 2001.
The SEC had issued a deregistration order last year but Eagletech had appealed the move, blaming its failure to file financial reports on alleged criminal conduct by third parties.
It's unclear whether Eagletech will exercise its right to appeal the SEC's order in front of a U.S. court of appeals.
'Get Shorty' Legal Consortium Loses Another Battle
Eagletech is one of several small companies represented by a legal consortium led by Texas class action lawyer John O'Quinn. Companies represented by O'Quinn generally claim that their stocks have been illegally depressed by short sellers Vthrough chronic and widespread failures to timely deliver stock to close out securities transactions.
Short sellers typically borrow shares to sell them, hoping that they will be able to replace them with stock bought at a lower price later. Trading without a borrowing agreement is called naked short-selling. It's illegal for most investors, but legal for firms that make markets in stocks and bring liquidity to the market.
Over the last four years, O'Quinn and his corporate clients have mounted a comprehensive legal and marketing campaign to attract attentions to their claims. But so far, they haven't been very successful with most cases thrown out of court by judges who ruled either that the firms were unable to prove their allegations or rejected the lawsuits on jurisdictional grounds. Other cases are lingering in courts.
In the case of Eagletech, the company acknowledged its failure to file required financial reports, arguing that two separate manipulations, including alleged naked short selling, had led to financial difficulties and its failure to file.
SEC Rejects Eagleteach Affirmative Defense
The SEC noted in an opinion issued Wednesday that although Eagletech blames others for its financial crisis, "alleged criminal activity does not alter the fact of Eagletech's failure to file its quarterly and annual reports or its present inability to cure these deficiencies."
In its opinion the SEC also rebuked Eagletech's claim that a deregistration of its stock would constitute unconstitutional "taking of property."
Eagletech had argued that Regulation SHO, a short selling rule adopted by the SEC early last year, deprived its shareholders of property, violating the Fifth Amendment of the U.S. Constitution, when it excluded earlier failure to deliver stock from stricter settlement rules.
"This deregistration proceeding is not the appropriate forum in which to argue a claim that adoption of Regulation SHO somehow resulted in an unconstitutional taking. Regulation SHO was promulgated and adopted pursuant to the requirements of the Administrative Procedure Act and all interested and affected persons were afforded ample process in that rule making to assert their rights," the SEC said.
Responding to Eagletech's claim that the SEC engaged in selective prosecution when it failed to take action against individuals the company believes engaged in naked short selling, the commission said: "Eagletech has failed to allege, much less prove, any of these elements, and we find that Eagletech was not a victim of improper selective prosecution."
(Carol S. Remond is an award-winning columnist who won a Gerald Loeb Award in 2005 for best news service content with "Exposing Small-Cap fraud," a series of articles that described how three small companies unscrupulously pumped up their stocks.)
-By Carol S. Remond, Dow Jones Newswires; 201 938 2074;
carol.remond@dowjones.com
(END) Dow Jones Newswires
05-07-06 1904GMT
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