"It did not start out auspiciously. Liviakis’ first client, Cascade International, a cosmetics and clothing company, was unmasked in 1991 as a total fraud. The stores it claimed to own didn’t even exist. Liviakis reports that before Cascade’s chairman was indicted and fled, he had collected his fee in full."
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4/17/2000 @ 12:00AM
The Image Maker
WE HAVE 500 BROKERS AROUND THE COUNTRY participating today,” announces John Liviakis as he begins a giant conference call on Jan. 13. The brokers are going to listen to him talk up a once-obscure firm in Denver called Webb Interactive Services. Webb’s financial statements are pretty discouraging, but that doesn’t mean it can’t be a hot stock. Webb reported revenues in the latest quarter of $800,000; it has lost $46 million over its six-year life. For two years in a row, accountants expressed doubt about its ability to continue as a going concern. But despite that, look at what a little pitching can do. Within a month of the conference call, this stock’s price has climbed from $29 to a high of $68. In November 1998, prior to Liviakis’ signing on, it was just $3.25.
Who is John Liviakis? According to his own video, he is the “world’s leading financial relations consultant.” His clients are smallish, publicly traded outfits, some with checkered financial histories, that are merely in need of a story. He gets the message out to the investing public by using a network of 7,000 retail brokers who work at mostly small regional firms. Brokers listen if only because Liviakis has a reputation for making stocks move. They then pick up the phone and get their customers to buy. Upbeat press releases spew forth. When the process kicks into high gear, individual investors pick up the ball and run with it, talking up the stock they’ve bought in an Internet whisper campaign. Rumors abound in chat rooms like Raging Bull and Yahoo’s company postings that a top securities firm is writing a favorable report on Webb. It has never happened, but it helped build momentum for the stock. Liviakis denies any role in planting the chat room rumor, but explains: “It doesn’t matter if you’re a world beater if no one hears your story, especially on Wall Street.”
Liviakis prides himself on not taking cash fees, only shares that he is restricted from trading for two years. The payoff is impressive. When he took on Webb Interactive as a client its market cap was all of $10 million. His fee: 350,000 shares, 10% of the company. Even with a collapse in the stock price in the past month to $36, the fee is worth $12 million.
Liviakis, 43, has been in or near the brokerage business for a long time. After dropping out of UC Berkeley in the late 1970s, he went to work as a broker at E.F. Hutton. In 1986 he started his own investor relations firm, according to him, “specializing in business development.”
It did not start out auspiciously. Liviakis’ first client, Cascade International, a cosmetics and clothing company, was unmasked in 1991 as a total fraud. The stores it claimed to own didn’t even exist. Liviakis reports that before Cascade’s chairman was indicted and fled, he had collected his fee in full.
Now, he says, he sorts through hundreds of companies before picking the five to eight a year he agrees to represent. His clients today fit a pattern: The company has thinly traded stock and a potentially big product still to be developed and market share still to be garnered. Among them: Global MainTech Corp., which produces a virtual command center to monitor corporate information technology operations; SwissRay International, which manufactures digital radiography; and Omni Nutraceuticals, which sells nutritional supplements over the Internet.
Would you want to own stocks like these? Hardly. The only way is if you are a believer in momentum investing, a.k.a. the greater-fool theory: the idea that price doesn’t matter so long as it’s going up. Pass if you like your companies to have a solid earnings history. Take for example, Omni Nutraceuticals, a company that was about to lose its listing on the Nasdaq because it had so little tangible net worth. When Liviakis became involved in the stock, it was trading as low as $1.50 in December 1999. By the time he made his official announcement that he was representing the company, it was already at $8.50 a share. It’s still not making any money.
There must be a fair number of momentum players out there. Two years ago, for example, Liviakis started flogging something called Data Race, a money losing company that provides data and voice links between workers in the field and corporate headquarters. The stock was at $1 and went to $9.50 in a year, before dropping to $1 again within another year.
For Webb, Liviakis created an image campaign by engineering at least two different makeovers of the company. When he took on Webb, it was called Online System Services and supplied Internet services for rural cable companies. Then, with Liviakis’ help, it claimed to enter a medley of different business lines, including health care information and online banking. In its current incarnation, at least by the account of its newly appointed Chief Executive Perry Evans, 40, Webb is a pioneer in applying the XML Extensible Markup Language technology, a new open standard for Web site design. “The best way to think of us is as an Internet infrastructure company with the capacity to connect millions of small businesses with hundreds of millions of consumers,” explains Evans.
Whatever the line of business, Liviakis has created a demand for Webb stock. Here’s how: In the Jan. 13 conference call to brokers he exclaimed, “Webb continues to sell at only a fraction of its peer group’s market evaluations. This includes companies like Commerce One [links buyers and sellers into trading communities], which currently carries a market capitalization of $17 billion [now $15 billion], around 70 times Webb’s market cap.”
In that call Liviakis described Evans, who was sitting alongside him, to the brokers as the founder of Mapquest, a firm that combines interactive maps with business directories. In fact, Evans had been president of Mapquest, not the founder. During the call, Liviakis prompted Evans to mention that Mapquest agreed to be acquired by AOL recently for stock worth $1.1 billion at the time of the announcement. What was left out is that Evans left Mapquest long before it went public and way before its recent sale. Yet Liviakis managed to convey the impression that Evans created $l billion worth of value once, and can do it again.
Examine a few interesting Webb relationships. Four of Webb’s customers account for 79% of its revenues, and all of these customers were offered warrants “to build distribution relationships.” One example is Switchboard.com, an online directory of local businesses that hope to use Webb’s new technology–only partially available, we might note–to tailor a yellow page ad or a message to an online visitor.
Note also that one of the analysts who has written about Webb–who makes big claims about the benefits of the Switchboard deal–is employed by EBI Securities. Englewood, Colo.-based EBI and its employees have received options and warrants to buy 250,000 Webb shares at $8.
Of the 500,000 shares that Liviakis had accumulated by the end of last year–some of it restricted until just about now and some, he says, purchased in the open market–he has recently sold around 100,000. He’s going to do pretty well, it seems.
How about the people buying from him? |
