Published Friday, December 26, 1997,
in the Akron Beacon Journal.
Knight-Ridder
newspapers
IMP case prompts closer scrutiny
Stock exchanges take steps to monitor companies who sell ''penny stocks'' after alleged manipulation
Glenn Gamboa
Beacon Journal business writer
Once a $40 million growth company in the burgeoning computer touch-screen industry, Interactive MultiMedia Publishers Inc., is now essentially nothing more than a defendant in court cases and a debtor in a variety of financial transactions.
The Akron-based firm also remains under federal investigation for alleged stock manipulation and is one of dozens of companies embroiled this year in securities scandals that may have had ties to organized crime.
While no charges have been filed against IMP and its founder P. Joseph Vertucci, several of those connected to the company have been sanctioned or linked to other alleged fraud cases brought by the Securities and Exchange Commission.
And the nation's stock exchanges have taken steps to try to better monitor companies, like IMP, that trade shares -- known as ''penny stocks'' or ''micro-cap securities'' -- for less than a dollar apiece.
''There has been a dramatic increase in the number of micro-cap securities in the public marketplace,'' Frank G. Zarb, chairman and chief executive officer of the National Association of Securities Dealers, said in announcing plans for closer scrutiny of about 6,800 small companies with ''micro-cap'' securities.
''These measures are designed to ensure that the level of integrity that exists in other parts of the market is achieved in the smaller capitalized section as well,'' said Zarb.
What happened with IMP and other companies like them in 1997 had some role in the changes the NASD proposed earlier this month.
From Feb. 7, 1996, to March 1, 1996, IMP's share price jumped 1,322 percent -- from 56 1/4 cents a share to as high as $8, giving the company a value of $40 million, more than 400 times its reported sales for the previous quarter.
Shaky stock
During that period, more than 1.7 million of IMP's 5 million outstanding shares changed hands -- even though only about 200,000 shares were available to the stock-buying public. The rest were controlled by a handful of people, principally Vertucci, according to company and SEC documents.
Hundreds of new shareholders, many who heard the company hyped by enthusiasts on the Internet, bought into IMP, hoping that growth rate would continue.
It didn't.
By the end of 1996, after the SEC called a halt to trading of the stock due to irregularities in the company's financial reports, IMP stock was essentially worthless and the investments were gone.
That sharp drop touched off inquiries of all sorts this year.
And in January, Vertucci confirmed that IMP was under investigation and that thousands of documents had been subpoenaed. That investigation continues.
A lawsuit filed by Vertucci's former business partner, Richard L. Herbruck, also uncovered some of IMP's problems when it went to trial in Summit County Common Pleas Court in April.
Douglas G. Furth of Aurora, who worked as a financial consultant to IMP for a few months in the fall of 1996, testified, as part of that lawsuit, that IMP officials schemed with a Chicago stockbroker and others to artificially drive up the price of the company's stock for their own gain -- a federal offense.
Profits from the sale of this inflated stock, Furth alleged, were funneled back through a series of front companies and bank accounts to Vertucci and the others.
Furth also testified that potential witnesses in the SEC investigation into IMP have been threatened with death if they tell what they know -- a situation, he concedes, that ''sounded like something out of a Godfather movie.''
Vertucci has acknowledged that IMP's money is gone, but has denied the mob is involved and denied taking part in any scheme to manipulate IMP's stock price.
''I mean, that's just so far off the wall,'' Vertucci said earlier this year.
Ripple in the pond
Such intrigue has not been proven. However, given investigations in other parts of the country, it may not be far-fetched.
Last week, the SEC charged 58 defendants with penny-stock manipulation, including La Jolla Capital Financial Corp., the San Diego-based brokerage house that was involved in the trading of shares of IMP. The company's involvement with IMP was not part of the lawsuits and company officials have denied any wrongdoing.
In September, the NASD fined La Jolla Capital nearly $1 million for its sales tactics regarding similar stocks. In a 51-page decision, filed by NASD Regulation, the Nasdaq exchange's enforcement division, La Jolla Capital offices in San Diego, New York City, Bethesda, Md., Las Vegas and Modesto, Calif., made 262 sales worth $679,988 that allegedly violated penny stock rules.
The company plans to appeal the decision.
R. Scott Haley, the attorney for Herbruck, said the recent developments help lend credence to his client's case against Vertucci and IMP to try and get a portion of the company's earnings.
''It certainly appears to be a continuation of a pattern of corrupt activity that is not dissimilar to what was used with the IMP stock,'' Haley said. ''Herbruck is now becoming part of a long line of victims.''
Herbruck won a judgment for part of his lawsuit after a jury trial in Summit County Common Pleas Court that included Vertucci serving as his own lawyer for part of the trial.
But Herbruck, along with others in line for money from Interactive Multimedia Publishers, continues to wait for investigators to pore through thousands of documents and for court decisions to be made.
Summit County Common Pleas Judge Jane Bond has not yet ruled on who should get the proceeds of the sale of Vertucci's house and personal property at an auction in June.
The second half of Herbruck's case against Vertucci, IMP and La Jolla has not yet been set for trial in Summit County Common Pleas Judge Ted Schneiderman's court, after it was sent back from federal court. A status hearing on the case is set for Jan. 15.
Neither of those cases addresses the losses of the hundreds of IMP shareholders who still hold stock in a company that has made no sales in nearly two years.
The company has moved out of its headquarters in the basement of a Highland Square office building.
''This whole thing was a debacle for the shareholders,'' Furth said earlier this year. ''The worst thing about this is that there are a lot of innocent people that have been hurt.''
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