KIS, you'll love this:
From Barrons: (my apologies if it's been posted)
05/01 5:23A (BN) BARRON'S: Plugged In: One Internet Supernova, Log On
America, Seems To Be Dancing With Some Dubious
Several pundits have expressed their bafflement at Log On America, which
sold 2.2 million shares at $10 on April 22, and a further 330,000 to meet
additional demand. The shares opened on their first day of trading above $29,
shooting up to $37, as 2.1 million shares changed hands, before closing at
$35. Altogether, the Log On IPO garnered $22.1 million for the firm, which had
nine full-time employees after seven years in business, and posted a loss of
$422,000 on last year's revenues of $760,000. About 40% of those revenues went
to fund compensation and loans to the Internet firm's 31-year-old president,
David R. Paolo, and to his father, Ray, a company vice president. With more
than 2.6 million shares between them, the Paolos should be good for the loans,
at least. And the firm's cash hoard should help it pursue its growth plans,
which include the offering of high-speed Internet service and phone service to
customers.
Some of the surprise greeting Log On America's stock performance relates to
the firm's underwriter. Unlike the bluechip bankers of Abovenet, which
included CIBC, Lehman Brothers and PaineWebber, Log On America's banker was
the Manhattan firm Dirks & Co., that had co-managed only three prior deals.
Ray Dirks says that his wife, not he, owns and runs the underwriter.
Although the 65-year-old Mr. Dirks was reached at the Dirks & Co. number, he
says he's a stock analyst at Security Capital Trading, which did a private
placement for Log On America in December.
Ray Dirks' history is long on color. He did a great thing once, when he
ferreted out the huge fraud at Equity Funding in 1973, then won a landmark
ruling from the U.S. Supreme Court saying it was kosher for Dirks to have
warned his clients before alerting the general public. Since then, however,
Dirks hasn't had a lot to brag about, considering the horrid performance of
many of the low-priced stocks underwritten by his former brokerage firms, John
Muir & Co., now defunct, and RAS Securities. The Securities & Exchange
Commission sanctioned Dirks after Muir's collapse. Dirks also gained notoriety
as the loudest member of the "Shortbusters Club," where he urged the purchase of
companies whose stocks had large short positions and underlying businesses
that Dirks thought were sound.
Dirks is not the only person whose Wall Street luck has turned around thanks
to Log On America. Last August, the Providence-based firm hired four
consultants, in exchange for warrants covering one million shares, exercisable
at $1 a share. Even at Friday's $29.50 close, those warrants have a total
potential paper profit of $28.5 million.
The recent prospectus lists the consultants as corporations, but goes on to
identify the owners of those corporations. A cool 250,000 of those warrants
went to ICC Consulting, owned by a Wayne Robbins. Another quarter-million went
to Scofield Dennison, owned by a Jacqueline Richardson. The prospectus shows
both corporations with addresses in Port Washington, New York. Scofield
Dennison's address turns out to be a post office box at Port Washington's Mail
Boxes Etc. Both Richardson and Robbins have previously shared the same
addresses, including some presumably cramped postal boxes.
After Barron's called Dirks & Co. and Log On America with questions about
these consultants, a Mineola, New York, lawyer named Leonard R. Sperber called
and confirmed that he represented the Wayne Robbins mentioned in the
prospectus. But Sperber answered no other questions, including whether ICC Consulting's proprietor was the Wayne Robbins arrested in 1987 for cocaine
possession while he presided over a notorious penny-stock firm called Brooks
Weinger Robbins & Leeds. The arrest of that Robbins and 16 others got
headlines as far away as Australia for Rudolph Giuliani, who was Manhattan's
U.S. Attorney at the time. Federal affidavits painted a lurid picture of
Robbins' operation, where the Feds alleged Robbins used coke as a routine
medium of exchange for inside information, stock and client lists. The
broker's lawyer in the drug case did not return Barron's call, and case
records on the drug bust had gone to archives. By the way, just before the
drug bust in 1987, Robbins and other co-owners of Brooks Weinger consented to
temporary suspensions, to settle SEC allegations of underwriting fraud --
which Robbins neither admitted nor denied.
When Log On America President David Paolo returned Barron's call, he
wouldn't describe the "business promotion and marketing" that earned the four
consultants the million warrants, saying the information was confidential.
"We're in our quiet period," said Paolo.
Ray Dirks says he wasn't involved in the IPO due diligence, but he guessed
that the consultants helped Paolo find technical people needed to manage the
So it is still possible that the Wayne Robbins of ICC Consulting is not the
former penny-stock broker. If that's the case, both Robbinses are the same age
and have somehow managed to live at the same addresses.
Although Wayne Robbins and the other consultants are in the money in a big
way, they must wait to cash in. The prospectus says that without Nasdaq's
consent, Dirks & Co. may not release security holders from lock-up agreements
for six months. |
