Surge, ya finally made to the Times: "Stock Hucksters Thrive on the Web
By TIMOTHY L. O'BRIEN
NEW YORK -- When Uniprime Capital Acceptance Inc., a small
automobile dealer with an even smaller stock price, announced
early last month that it had acquired a new dealership, its share price
hardly budged.
Less than two weeks later, Uniprime made a more startling
announcement: It had a cure for AIDS. And with that news, transmitted
at lightning speed over the Internet, Uniprime's shares more than
doubled. Online message boards favored by individual investors were
abuzz with happy chatter about the company's prospects, making
Uniprime one of the Internet's most talked about stocks.
The AIDS cure turned out to be a stock fraud cooked up by a
self-described doctor named Alfred Flores, according to a civil complaint
filed by the Securities and Exchange Commission last week against
Uniprime and Flores in U.S. District Court in Manhattan. Last Thursday,
federal law enforcement officials raided Uniprime's headquarters in Las
Vegas and arrested Flores in connection with his role in the scam, which
regulators describe as unusually brazen. Flores' medical credentials now
appear to be dubious, and his resume, posted online, omitted an
important detail: a criminal conviction years ago for his role in a murder,
according to the complaint.
Like snake-oil salesmen who rode
into frontier towns peddling cure-alls
more than a century ago, modern
hucksters have taken to the Internet
with gusto. And as the Uniprime
debacle shows, amid the worthwhile
companies promoting themselves on
the Internet are shadowy scam artists who pose a real threat to unwary
or unsophisticated investors.
"What the Internet has done is make it possible for people to have a wide
geographic reach promoting cures and products very cheaply," said
Stephen Barrett, a doctor in Allentown, Pa., who specializes in
unearthing health scams. "So there are probably more people involved
with scams than ever before even though there's no way of finding data to
support that."
Uniprime came to regulators' attention last month when Cameron
Funkhouser, head of market regulation for the National Association of
Securities Dealers, was feeding his 4-month-old son early one morning as
he perused Internet stock boards. A message, bearing Uniprime's stock
symbol, flashed across his computer screen: "Buy UPCA!"
A little digging on the Internet about Uniprime convinced Funkhouser that
something was amiss. A few hours later, the NASD, the Securities and
Exchange Commission and the U.S. Postal Inspection Service began an
investigation of the company.
"Everyone wonders how these investigations get triggered," Funkhouser
said. "Well, that's how it happened. The wrong guy read the message
they spammed across the Internet."
The SEC and other securities regulators have been mounting an
increasingly public offensive against Internet fraud over the last year.
While regulators have brought dozens of fraud cases against Internet
companies since 1995, a large portion of the suits were filed this year and
last.
But even with heightened enforcement activity, resource-poor regulators,
who often have a difficult time keeping up with fraud in the off-line world,
face even greater challenges trying to monitor cyberscams.
Uniprime, and its chief executive, Gary Tabb, did not respond to
requests for an interview. Tabb, while named in the SEC suit, is not a
defendant. A lawyer representing the company and Flores did not return
phone calls seeking comment.
Federal investigators said the Uniprime scam was hatched this spring
when Flores, 45, was passing through Las Vegas and ran into a friend of
Tabb's at a local restaurant.
An introduction was arranged and Flores told Tabb that he had invented
Plasma Plus, a miracle cure that had effectively conquered the virus that
causes AIDS. Almost immediately, the two men decided to go into
business together, according to the SEC's suit.
From at least September 1998 until the Flores-Tabb meeting, Uniprime
had issued a stream of news releases about its intention to acquire car
dealerships and become one of the largest dealer chains in the country.
Uniprime currently claims to own only a handful of dealerships in New
York and South Carolina. In May, Flores and Tabb formed a company,
New Technologies, to promote Plasma Plus. Uniprime got a large stake
in the company and Flores, who signed over Plasma Plus' patent rights to
New Technologies, became New Technologies' president. Then the
games began.
Uniprime never released any meaningful financial reports, and, because it
trades in the loosely regulated online world of small-stock bulletin
boards, was not required to file extensive disclosure reports with the
SEC. Its glowing news releases about the promises of Plasma Plus,
though, were enough to stir up a frenzy among investors.
On July 19, the day Funkhouser of the NASD saw "Buy UPCA!" flash
across his computer screen, Uniprime announced a "major breakthrough
in the field of HIV research." The release claimed that five AIDS patients
in Spain had been successfully treated with Plasma Plus. The next day,
Uniprime's shares jumped $3.25 to $5 as more than 5 million shares of
the company were traded. Presto. Uniprime, with shares that were worth
about 25 cents each in January, now had a market value of about $100
million.
"Hallah! Hallah! Hallah! Shout it from the rooftops of the banks. Praise
the money. From the church of the immaculate buck. Praise the money,"
read the July 20 post of an apparent Uniprime investor, a "mr. r," on
Raging Bull, an Internet stock board.
Raging Bull is gossip central in the mania surrounding Uniprime. To date
more than 10,000 messages have been posted about Uniprime on the
site, making it one of the most talked about stocks on Raging Bull's
message boards.
Some investors were skeptical of Uniprime's claims from the beginning.
On July 21 an investor with the screen name "darking" took speculators
to task in a message posted on Raging Bull. "Believing this is a cure for
HIV is like believing (on my say so) that I have a cure for aging," darking
wrote. "Not bloody likely."
Even so, enough investors bought the hype to give Uniprime a valuation
far out of proportion to its real financial prospects.
But Uniprime devotees should have been skeptical. According to the
SEC's complaint, Flores had little in his background to suggest he had
stumbled upon an AIDS cure. In 1983, the complaint says, Flores was
convicted on a charge of conspiracy to commit murder "based upon his
participation in the murder of a friend's parents in their Colorado house
after they refused to hand over valuables to Flores and their son." Flores
was sentenced to 25 years in prison, but was paroled in 1992.
Moreover, Flores, who claims to be a native of Spain with U.S.
citizenship, went to great lengths to pad his resume. He claimed to have
spent 15 years in a laboratory outside Lisbon, Portugal, doing
immunology research, an impossibility given the prison time Flores was
serving. He also claimed to be an honors graduate of the University of
Colorado, but he never attended it.
Claims of having successfully tested Plasma Plus on five patients were
also dubious, and a supposed agreement to do further research with an
AIDS foundation in the Bahamas was a fabrication.
Although the SEC suspended trading in Uniprime's shares on July 22,
some investors, either because they could not be convinced otherwise or
because they were actively participating in pumping up the shares,
refused to lose faith in Uniprime.
"This investigation is not by the SEC!" posted "irvine" on Raging Bull on
Aug. 16. "This is the gov. trying to suppress information to the public with
pressure from THE MAJOR DRUG COMPANIES."
Small brokerages are often some of the most active participants in the
trading that envelops the freewheeling world of stock bulletin boards. The
bulk of the trading volume in Uniprime's shares passed through three
small brokerage firms, Knight Securities Inc., Wien Securities Corp. and
Hill Thompson Magid & Co.
Uniprime's shares, which resumed trading on Aug. 5, now trade at about
25 cents, beaten flat by last week's raids on the company by law
enforcement officials. Perhaps one burned Uniprime investor,
"consolimd," in a message posted on Raging Bull on Aug. 14, best
captured the current mood of Uniprime investors: "Aaaarrrrgggghhhh!"
Meanwhile, the Postal Inspection Service has filed a criminal complaint
against Flores and the SEC's investigation is continuing. While not new,
the lesson of the Uniprime scandal is still valuable, regulators say.
"It shows the perils of investing in companies that do not file disclosure
documents with the SEC. The only disclosure this company made was
press releases," said Andrew Geist, the SEC's associate regional director
in New York. "You wonder whether investors are looking at these
companies with a critical eye."
Related Sites
These sites are not part of The New York Times on the Web, and The Times has
no control over their content or availability.
Uniprime Capital Acceptance: Announcement of AIDS
breakthrough, from Business Wire/Yahoo Finance
Securities and Exchange Commission: Complaint filed against
Uniprime and Flores
National Association of Securities Dealers
Raging Bull
Raging Bull: Uniprime discussion board" |
