February 18, 1999
USATalks.com's highly touted system for putting long distance phone calls over the Internet is not working anywhere near reliably, according to an internal company memorandum retrieved by the Union-Tribune.
I have no reason to believe that the internal memo was forged by a short seller trying to drive down the stock of the company, which yesterday closed at $5, unchanged.
In fact, the memo was supplied by a person with access to the board who has reason to see the stock rise, although the source is disenchanted with the company. USAT stock resumed trading last Friday after a two-week suspension mandated by the Securities and Exchange Commission, which had questions about the adequacy and accuracy of information disseminated about USAT.
The memo was written to the USAT board by Maggie Yates, director of marketing. It was dated Tuesday, Feb. 16. "The system is not producing calls with appropriate network reliability," she told the board.
"System unreliability has plagued the network for the past two weeks," said the memo. "San Diego was down for a period of three days during the past week."
On Thursday, Feb. 11, there were red alerts -- signifying that the system was completely down -- in San Diego and San Jose, according to the memo. Also, there was a yellow alert in Irvine -- signifying jam-ups and busy signals.
"On Thursday and Friday, Feb. 11-12, I placed approximately 15 calls during the day," said Yates' memo. "Only three of these calls were near toll quality. The remainder had noticeable echoes, clipping and latency."
Said the memo, "I do not know if network problems caused the number of quality problems or if the quality issues are inherent to the system."
If quality issues are inherent to the system, as suspected by persons outside of the company, USAT has a huge problem: The company intends to enlist subscribers March 1. Yates' memo suggested that, "network reliability and call quality be of sufficient grade for a period of two weeks before customer billing commences."
When trading of the stock resumed last week, chief executive Allen Portnoy said, "We have provided the SEC with evidence of the existence of our service, its utilization during the test period and our underlying technology." The company has publicly stated its technology works.
Upon seeing the memo, an SEC spokesperson said, "If we were to learn of evidence that contradicted the public comments or press releases of USAT, we would of course be very concerned."
I tried to get five different persons with USAT and its public relations agency to comment on the letter and its contents, but could not get a response.
Compliance monitor
San Diego Superior Court Judge William C. Pate yesterday appointed John Cione, a local securities lawyer, as compliance monitor over Pacific Cortez Securities, formerly known as La Jolla Capital Financial.
In early December, the Department of Corporations charged the high-pressure brokerage specializing in speculative stocks with engaging in unauthorized and unfair trading, selling unsuitable securities and failing to disclose its extensive history of being disciplined by state and federal agencies.
On Jan. 14, Pate said that an "independent cop," or compliance officer should be installed at the firm to examine the firm's practices, resolve customer complaints, get rid of undesirable employees and submit written reports to the court. Pate also issued an injunction to prohibit the firm and its principals from violating securities laws.
Cione has almost 40 years of experience in the securities industry. |
