Mr. Pink revealed...
interactive.wsj.com.
July 10, 1998
Individuals Caught in Crossfire
Of Duo's Battle on Chromatics
By KAREN DAMATO
Staff Reporter of THE WALL STREET JOURNAL
Florida stockbroker Alan "Skip" Davidson and his wife recently fled their
home for five days to avoid a barrage of obscenity-laced phone calls --
including death threats -- that he says was unleashed by an adversary who
goes by the moniker "Mr. Pink."
It's just one chapter in an odd and
disturbing tale of small-stock investing in the
Internet era.
"Mr. Pink" and Mr. Davidson, using his screen name "Skipard," have been
slugging it out for months on Internet message boards dedicated to the
stock of obscure Chromatics Color Sciences International Inc. Mr.
Davidson, 56 years old, is a big stockholder and head-over-heels fan of
the money-losing New York company, which is trying to market a device
to diagnose jaundice in newborns by analyzing their skin color. "Mr. Pink,"
a Chromatics critic, describes himself as a hedge-fund manager who has
sold shares short in a bet that the price will fall.
Caught in the crossfire: lots of individual investors wondering which -- if
any -- Internet guru to believe. "Mr. Pink" and his fans have been the big
winners lately, as Chromatics shares have collapsed. The stock closed at
$5.50 Thursday in Nasdaq SmallCap Market trading, after closing as high
as $17 on April 30.
Battling in the apparent anonymity of
cyberspace, "Skipard" has slammed "Mr.
Pink" as "pond scum" and a "slimeball." "Mr.
Pink" labeled Mr. Davidson "a loser" who "led
your followers to ruin."
Then "Mr. Pink" escalated the feuding by posting Mr. Davidson's full
name, employer and address on the Internet. "Anyone upset about losing
millions on CCSI should call Skip Davidson at [his home phone number].
Or send him a package with a gift to [his full home address]," advised a
June 22 posting on Yahoo! Finance. CCSI is Chromatics' stock symbol.
"I am a big boy when it comes to winning and losing" money in the stock
market, says Mr. Davidson, who works from his home as a broker for
First New York Securities. But faced with personal threats, he says, "I'm
afraid." While many of his longtime followers haven't denounced him, he
says, lots of other unhappy Chromatics investors "now have someone to
blame."
The Chromatics message boards are evidence
that some of the virtual communities spawned
by the Internet are downright ugly places,
driven by hostility and awash in adolescent
name-calling. "Skipard" and "Mr. Pink" are
like the captains of two teams engaged in a
frenzied brawl.
The on-line war of words over Chromatics also highlights the risks for
investors at the dangerous juncture of small-stock investing and the
Internet: This new medium has made it far easier for adventurous stock
pickers to compare notes. But it also helps wrongdoers spread
misinformation to pump up the price of a thinly traded stock they hold --
or drive down one they have sold short.
Both sides in the Internet debate on Chromatics have leveled allegations of
market manipulation against the other, and a lawyer for Chromatics says
U.S. Securities and Exchange Commission staffers "said they would follow
up" on the company's complaints about possible trading irregularities by
short-sellers. (Short-sellers sell borrowed shares of a company they bet is
overpriced, hoping to make a profit by buying cheaper shares later on.)
An SEC spokesman said the agency doesn't comment on pending
investigations.
The squabbling over Chromatics hit the
headlines in early June -- with dire
consequences for the stock -- when
high-profile New York short-seller Manuel
Asensio issued several statements accusing
the company of overstating the capability of
and potential market for its jaundice device.
Many of those charges echoed those made
earlier on-line by "Mr. Pink," though there's
no indication Mr. Asensio is he.
Chromatics has denied the allegations. Chief
Executive Darby Macfarlane says the company is exploring legal action
against Mr. Asensio and possibly others while it continues to be "in the last
stages of negotiations to reach a definitive agreement for global
distribution" of the jaundice device. The company's attorney, Eric Lerner
of Rosenman & Colin, declined to say whether the firm is considering legal
action against "Mr. Pink."
Also involved in the Chromatics saga: Michael Schonberg, the former
head of two Dreyfus mutual funds that had big stakes in the stock. Mr.
Asensio charged that Mr. Schonberg invested heavily in Chromatics for
the funds in order to benefit his own personal holding of Chromatics
shares. Mellon Bank Corp.'s Dreyfus this week put Mr. Schonberg on
paid administrative leave, as the fund firm and the SEC investigate the
matter. A lawsuit alleging breach of fiduciary duty, which is seeking
class-action status, was filed in federal court in New York against Mr.
Schonberg and Dreyfus; Dreyfus spokeswoman Patrice Kozlowski said
the firm "believes the lawsuit is without merit" and "we intend to defend it
vigorously."
However the still-unfolding Chromatics saga ends, one troubling aspect of
the story is the degree to which some ordinary investors loaded up on this
one high-risk stock-in many cases, it appears, acting on the suggestion of
an Internet guru, "Skipard" (Mr. Davidson), whom most had never met.
In recent weeks, Mr. Davidson says he has been swamped with phone
calls and e-mails from panicked followers who say their
retirement-account balances, their financial futures and even their
marriages are in jeopardy because of huge bets on this one speculative
stock. Many had invested heavily in Chromatics shares using margin loans
and have watched their brokerage firms liquidate shares to satisfy "margin
calls" as the stock price fell.
Mr. Davidson says he feels responsible for his followers' losses because
they looked to him as a "rabbi" -- a role he clearly relished in happier
days. But he also says, "They shouldn't have bought so much stock. They
shouldn't have margined it."
Cautionary messages have rarely showed up in Chromatics postings by
"Skipard," however. He has repeatedly talked about his own huge bet on
Chromatics -- now over 400,000 shares, Mr. Davidson says. And he
reported excitedly in August 1997 that followers who rarely use margin
were taking on margin debt to increase their Chromatics stakes.
The way to make big money as an investor, "Skipard" advised followers
late last year, is to "find the idea, be right, bet it big ... and pray like hell."
"What first caught my eye about Skip was his passion," says Jane Fulsang,
an Illinois homemaker who posts on the Internet as "Janybird." Ms.
Fulsang, 36, who looks to Mr. Davidson as a mentor, is now suffering
with 80% to 85% of her family's investment dollars in Chromatics. "I still
think I made the right decision investing in this company. I really do," she
says. But the stock-price collapse "has been a killer."
And what of Mr. Davidson's on-line nemesis? "Mr. Pink" often refers to
himself grandly in the third person and many of his postings have an
ominous tone. "He speaks the Truth and is kind to His brethren, but woe
unto those who are rude to Mr. Pink or attempt to perpetrate fraud ...,"
declared one June 8 message.
But he comes across as far less self-absorbed and more thoughtful in many
postings on his own Silicon Investor message board
(www.techstocks.com) -- "Mr. Pink's Picks: Selected event-driven value
investments" -- and in a lengthy telephone interview during which the
unidentified speaker simultaneously sends a message to this reporter
through Silicon Investor's private messaging system to confirm he is indeed
"Mr. Pink."
"I thought it would be amusing to create this sort of delusional character,"
he says in the interview. "Mr. Pink gets to be arrogant and strange in a
business where a real person can't be any of those things."
Internet posters have offered several names as the possible identity of "Mr.
Pink," including Daniel Loeb, 36, managing member of hedge-fund firm
Third Point Management Co. in New York.
Mr. Loeb, in an e-mail response to several messages, said, "Third Point
does not comment on the existence of its short positions and does not
comment on negative stories about companies." He didn't respond to the
question of whether he is "Mr. Pink" in his e-mail, and said he didn't have
time to respond to questions in an earlier, brief telephone conversation
from his office.
Mr. Loeb's firm has certainly put its money where "Mr. Pink's" mouth is:
Of a sampling of 18 stocks offered as "picks" by "Mr. Pink," 14 showed
up as Third Point holdings on March 31, according to Third Point
regulatory filings collected by Technimetrics Inc. Third Point's top four
holdings -- Summit Holding Southeast Inc., Independence Community
Bank Corp., First Sierra Financial Inc. and Solutia Inc. -- are stocks that
have been strongly recommended by "Mr. Pink."
Third Point's record suggests the followers of "Mr. Pink" have been right
to hang on his words: The firm's primary fund returned 44.3% in 1996 and
52.5% in 1997, according to Managed Account Reports, New York.
"Mr. Pink," in the phone interview, asked a reporter not to "out" him as he
had outed Mr. Davidson. At the same time, he expressed no regrets about
disclosing Mr. Davidson's identity and accepted no responsibility for the
harassing messages Mr. Davidson says he has received. "I didn't make a
single one of those calls," he says. "If people did that, they were wrong."
Mr. Davidson says he "would pay a lot of money" to learn the real identity
of his Internet adversary -- but says he wouldn't send "Mr. Pink" anything
beyond a Christmas card. Above all, he says, "I just want my vengeance in
being proven correct" about Chromatics.
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