SEC NO-SEE-UMS By CHRISTOPHER BYRON
July 10, 2006 -- THEY are Wall Street's version of the squee gee people. And if for mer Mayor Rudy Giuliani could get the squeegee people off the streets of New York, why can't the U.S. Securities and Exchange Commission sweep their counterparts from the gutters of Wall Street?
This week, we'll look at the SEC's continuing failure to police the lawless new world of e-mail-based investment fraud, in which billions of dollars have been flagrantly stolen from everyday investors while the SEC remains fixated on its pointless pursuit of hobgoblins like the so-called "naked short-seller" menace.
No one wants to start their workday by being accosted and panhandled from just outside the locked doors of their cars. Giuliani was smart enough to see the squeegee people, who lurked at rush-hour choke points like the East 96th Street entrance to the FDR Drive, as a "quality of life" issue that he simply had to deal with if he was to have any credibility in taking on the city's deeper problems.
After all, what was the point of talking about tax policy, schools or anything else if people came to feel that the only safe way to move around New York was aboard a 70-ton Abrams tank?
The e-mail spammers of Wall Street are more than just a symbolic challenge to the rule of law in the white-collar world of high finance. Increasingly, they are emerging as a market-moving force in their own right, creating huge, multibillion-dollar market valuations for worthless penny stock companies that in many cases exist as nothing more than corporate shells.
As I discussed a few weeks ago in this space, hedge funds have lately become players in this game as well, scrambling in growing numbers to load up early on the shares of e-mail spam stocks to build the "beat the market" performance numbers they have to show their investors at the end of each quarter.
And since big institutions ranging from banks and insurance companies to corporate and public sector retirement plans are handing over more and more of their assets to be managed by the hedge funds with the best performance numbers, it is easy enough to see how e-mail spam is developing into a whole new dog-wagging tail on Wall Street.
How has the SEC responded? By doing nothing.
The commission's most up-to-date comments on the matter are to be found in a report to Congress from nearly nine years ago, when Bill Clinton was in the White House and Arthur Levitt was chairman of the SEC.
Rereading the report now, one can see that the commission had already thrown up its hands in despair, declaring the volume of potentially fraudulent promotions over the Internet to be "huge, and potentially limitless." But, concluded the report on a happier note, nobody needed to worry about it because few of these "dubious promotions pose a serious threat to investors."
SINCE then, investor griping regarding mis leading and fraudulent spam has surged from nowhere to become the second-largest category of complaints the SEC receives, eclipsing such traditional and high-visibility areas of SEC concern as insider trading and price rigging in the markets.
And for the most part, the SEC has just stood there, staring dopey-faced at the passing parade. Over time it has brought only a handful of spam fraud cases, usually only after the media zeroes in on the fraudulent activity and publicly exposes it.
The New York Post reported in August 2004 on a billion-dollar swindle in the shares of a fake company called Concorde America Inc., which was being hyped by a gang of Boca Raton, Fla., pump-and-dumpers through the Internet and spam e-mail.
Yet it wasn't for seven more months, during which time this column traced the gang's trail into and out of a whole range of additional stocks, that the SEC went to court for an injunction to seize their assets and shut the operation down.
The SEC has ignored many more such abuses entirely. The most compelling recent example: a worthless New Mexico penny stock called CDC Systems, Inc., which the SEC shut down after this column revealed that virtually nothing the company claimed about itself was true.
But behind CDC Systems was a much larger operation involving other companies and similarly bogus claims, and 18 months after this column exposed the operation in detail in October 2004, the SEC has yet to act.
As a result, the group, for the most part, remains as active as ever. Recent example: a California company called Newport International Group Inc., which trades on the Over The Counter Bulletin Board for junk stocks.
Newport claims to be in the online software business, but its latest reported quarterly revenues of $17,000 for the three months that ended in March don't instill confidence that the business has much of a future.
Neither does the career of its chairman and CEO, one Cery Perle, an ex-stockbroker who was barred from the brokerage business for rigging the shares of a bogus Internet startup company in the 1990s called Shopping.com, Inc.
Newport's stock transfer agent, an Arizona-based outfit called Holladay Stock Transfer, also handled the accounts for CDC Systems. And the firm that paid for the endless flow of stock-hyping B.S. for CDC Systems, an outfit called ATN Enterprises, is the same bunch financing the e-mail spam concerning Newport International.
And Newport is only one of ATN's toys. There's something called Titan Global Entertainment Inc., which has filed no known financial statements, yet trades at 22 cents per share on the "Other-OTC" market, and is described in press releases as being "one of the fastest-growing entertainment companies in the world."
It would be nice to call up someone at ATN Enterprises and ask how they know that Titan is one of the fastest-growing anythings if the company has never filed any financials, but good luck with that.
SEC rules require any firms that issue press releases for public companies to disclose whether they've been compensated for doing so, and if so, by whom and for how much. Therefore, at the bottom of every Titan press release, there is some itty-bitty fine print stating that the ostensible issuer of the release - typically an outfit calling itself Wall Street Capital Funding - was paid anywhere from $15,000 to $40,000 by ATN to do so.
Who's behind any of these groups?
Everything is designed to keep it all a deep, dark secret. And so long as the SEC looks the other way, that's how it will stay.
What's plainly needed is to publicly identify who these people are and what their game really is. No one knows that better than a New York businessman named R. Cromwell Colsun, who acquired the original print publisher of over the counter stock quotations and revamped it for the Internet as Pinksheets.com. Since then, he has been trying to rid the business of the slimeballs that call it home.
TO that end, Colsun sub mitted a formal pro posal to the SEC five months ago to amend and augment its existing rules in ways that would force promoters to identify the individuals hiding behind corporate masks like ATN Enterprises and Wall Street Capital Funding.
But don't count on action from the SEC anytime soon, since once the names of the culprits are known to the public, SEC officials will have to do more than just wring their hands at how big and unmanageable a problem they're facing. And we all know what has happened so far when names have been available: Nothing!
cbyron@nypost.com |
