Thought you might enjoy this article....
TECH REPORT >> NET RUSH
A Cybersleuth Claims Credit for SEC Action on Bulletin-Board Stocks
By Eric Moskowitz
Senior Writer
2/5/99 3:00 PM ET
With the explosive growth of online trading, a nether world is evolving in which individual investors, cybervigilantes and Internet gurus meet in online stock chat rooms. Like bit players in a John Ford movie, these colorful characters populate the Wild West of Wall Street.
See also
Trading Suspensions Growing More Common
WWW Internet Fund Finds Net Stocks Can Turn South Quickly
With individual investors taking an increasingly prominent role in this bull market, these online main streets -- full of gossip, opinion, invective, hype and sometimes hard news -- can exert hefty pressure on stocks. And taking center stage are the Silicon Investor chat boards.
The cybersleuths here, often dismissed as kooks or crooks, recently received some vindication from regulators. Last Friday, the Securities and Exchange Commission suspended trading for 10 days on six over-the-counter bulletin board stocks after they suddenly rocketed even without any material news. The impetus to halt trading came from Steve Pluvia (not his real last name), a well-known poster on Silicon Investor who has seen his fair share of controversy. On Jan. 25, a full week before the SEC halted trading in four of the stocks, Pluvia started a thread titled "One Big Scam? CTRN, ECTS, IVHD, SMEK and MALB." The stocks subsequently halted by the SEC included Citron (CTRN:OTC BB), Smartek (SMEK:OTC BB), Electronic Transfer Associates (ECTS:OTC BB) and Invest Holdings Group (IVHD:OTC BB).
Pluvia and his cyberassociates, who use Web names such as Bear Down, Floydie and Tastes Like Chicken, represent a new breed of sleuth/investor in search of instant gratification. Perhaps this breed owes its existence to the rampant bull market and evolving computer technology. Ever since Silicon Investor -- now owned by Go2Net (GNET:Nasdaq) -- started more than three years ago, Pluvia has used the chat boards to communicate his findings as he tracks small-cap companies that fall beneath Wall Street's radar.
"I spent a good 15 hours researching the companies two days before I started the thread and discovered all these companies were related to each other," says Pluvia, a self-described private money manager who works from his Las Vegas home with a Level II Nasdaq trading station by his side. Pluvia says he sent his research to the National Association of Securities Dealers and the SEC. "I feel comfortable that these stocks were halted because of the information we brought public." (The SEC and NASD are keeping mum about what prompted the trading halts.)
What tipped him off? The companies' press releases shared a common contact person, Pluvia says. "When I called the number, someone would answer Citron, and then when I called later, they would say hello, Smartek," he explains. "That's when I knew something wasn't right."
Smartek, an Idaho-incorporated company that says it is involved in wholesale menswear and federally subsidized housing, felt the impact. The penny stock jumped last month to over 7 from 2. After Pluvia's report hit the Internet, it reverted. When trading was halted four days after the report, Smartek was at 1/4.
Bill Hazelton, who answered the telephone in Smartek's New York offices, said he hadn't heard of the chat-board discussions. Hazelton declined to identify his role at Smartek but added that the company would provide the information the SEC requested. "We plan on our stock resuming trading," he said.
"Pluvia does his homework, goes to the conferences and knows more about technology than most Wall Street analysts," says a West Coast-based hedge fund manager who doesn't invest in penny stocks. But while some money managers respect Pluvia's diligence, they prefer not to be associated with him.
--------------------------------------------------------------------------------
'Wall Street has short memories,' says Tony Elgindy.
--------------------------------------------------------------------------------
"They are 100% responsible for uncovering the scams," Tony Elgindy, director of research and trading at Pacific Equity Investigations, says of Pluvia. Elgindy himself claims credit for uncovering the activities of another stock halted by the SEC last Friday, USA Talks.com, an outfit headed by Allen Portnoy, the former CEO of Digitech, a voice-recognition software company delisted from the Nasdaq in 1989 for failing to meet equity requirements. "Wall Street," laments Elgindy, "has short memories."
But cybersleuths never forget. "I remember when I wrote about Premier Laser Systems (PLSIA:Nasdaq), I started getting death threats," recalls Pluvia. "When people lose money, they sometimes do crazy things." Pluvia raised questions about Premier Laser on Silicon Investor in August 1997, when the stock was hovering around 10. This week, Premier was trading just above 3.
Although Pluvia says he never had a short position in that stock, he and his clients, after locating a suspicious company, more often than not go short and air their findings on Silicon Investor. Pluvia, who claims to be in his mid-30s, says he shorted 2,000 Citron shares when the stock was trading at 12 in mid-January. When Citron rose to 42, Pluvia started the "One Big Scam" thread. The stock retreated to 27, which is when Pluvia shorted the stock again. By the time the SEC halted trading, Citron was hovering around 19 7/8.
The online sleuth says never graduated from college but has worked as a broker. "I only have three clients and you need to manage a certain amount of money to register with" the SEC, he says. Three clients? "Actually, it's just me and few others pooling our money together," he concedes. Investment advisers need to register with the SEC only if they manage more than $25 million in assets.
"When I would ask these companies legitimate questions -- like Can we see some financials? -- they would say no. Eventually they would just hang up on us. Aren't these all public companies?" Obtaining financial data on companies that are listed on the over-the-counter bulletin board is tough, since there is little oversight. The SEC actually approved a Nasdaq request earlier this year to make all 7,000 bulletin board stocks file with a regulatory agency, says Nasdaq's Shokouhi. About half of these companies regularly file already, he adds, and the rest will need to do so by July 2000.
Not everyone is enamoured of Pulvia and his tactics. In fact, one executive accuses Pulvia and his comrades of working for a collection of hedge-fund or money managers looking to make a killing by shorting these underfollowed stocks. "I believe they are organized in some way," says John Reed, president of Dallas-based interactive advertising company Source Media (SRCM:Nasdaq). Reed watched in horror as its stock fell to 4 from 39 last summer after Pluvia and friends wrote about the company. (TSC covered Source Media's eventful summer.)
Pluvia admits working with some "money-manager types" in order to uncover that scam quickly. "You don't want online traders to step on a landmine," he says. But he stands by his contention the company's main interactive product's trial run was "a bust." Although he acknowledges having a short position in Source Media and Citron (less than 1% of his portfolio, he says), he maintains he didn't have a position in the other four stocks in the Scam thread. "I even posted a disclaimer on the [Jan. 25] Scam thread not to go long or short the stocks listed because insiders were making them extremely volatile," says Pluvia.
Now in the chat rooms, plenty are ready to claim success. Tod Pauly, another self-described cybervigilante, says that since the SEC's action, there has been a flurry of chest-beating on the message boards. "Suddenly everyone is an expert in finding scam stocks," Pauly says.
|
