XLA<---massive scam!!
Alexander Vik, chairman and CEO of Xcelera.com.
Vik?s vapor stock
How press releases and dot.com name gassed up a 74,000 percent balloon
OPINION
By Christopher Byron
MSNBC CONTRIBUTOR
April 25 ? An extraordinary company has been getting the attention of investors lately. The company in question ? which bears the recently acquired cyberspace moniker of Xcelera.com ? turns out to be headquartered not in Silicon Valley, or indeed anywhere else within the lawful jurisdiction of the United States, but in a post office box in the breeze-caressed offshore tax haven of the Cayman Islands.
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THIS IN TURN means that Xcelera.com Inc., doesn?t have to file quarterly financial statements with the Securities and Exchange Commission or anyone else. And since the company doesn?t have to, it doesn?t. Instead, the company reports only once a year on its business and financial affairs.
And since the latest such report was filed last August and covers the fiscal year that ended in January 1999, there are no current financials to explain the fact that between then and, oh, about three weeks ago, Xcelera?s stock price soared from 30 cents per share to $223 per share ? which is to say, rose by more than 74,000 percent in value ? which is, I would suspect, the greatest one-year rise of any exchange-listed stock in the history of Wall Street.
ALEXANDER VIK?S MANEUVERINGS
Our story on these matters begins back in the late 1980s, when a Greenwich, Conn., investor named Alexander Vik led the takeover of an obscure American Stock Exchange-listed, closed-end investment trust bearing the name The Scandinavia Fund. Mr. Vik moved the business into a privately held investment firm he ran out of Monte Carlo (Vik Brothers International), and from there to the Cayman Islands, where, in 1993, it wound up in possession of a hotel in the Canary Islands.
Xcelera.com (XLA)
price change
$78.06 +2.063
Full quote data:
price
+2.063
% change:
+2.71%
volume:
469,600
day high:
$82.00
day low:
$73.75
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Until dot-com mania began sweeping Wall Street five years later, running that hotel was about all The Scandinavia Company really did. But then, in June 1997, a struggling Internet outfit named Mirror Image Internet AB began trading on the Stockholm Stock Exchange at roughly a dollar per share, and not long afterward it looks to have caught the eye of Mr. Vik, who began acquiring stock in the company.
Yet Mirror Image was no General Motors. The company had no material revenues, no income, and no assets except for the money that The Scandinavia Company had begun pumping into it. By spring 1999, Mirror Image?s disappointed investors had knocked the shares down to barely 4 cents each, giving the entire company a market value of not much more than $700,000. Yet by this time Vik and the boys were already in the hole to the tune of $5.9 million for more than half the company?s shares.
LAVA FLOW OF PRESS RELEASES
It was at that point that Mr. Vik and his company, apparently anxious to pump some life back into their collapsing investment, suddenly erupted in a lava flow of press releases about Mirror Image. Thus, on April 1, 1999, The Scandinavia Company issued the first of more than 50 press releases on Mirror Image ? this one declaring that the Vik group had acquired a majority interest in the company, which the release described as ?a leading Internet caching company.?
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In fact, in the quarter that had ended right before that press release was issued, Mirror Image had booked revenues of barely $240,000. The Scandinavia Company?s own August 1999 filing with the Securities and Exchange Commission described Mirror Image as a ?startup? lacking ?significant revenues or expenses,? and with no material assets other than the $5.9 million that the Vik crowd had pumped into it.
On a recent appearance on CNBC?s popular weekday-morning Squawk Box program, Mr. Vik was asked by the show?s avuncular anchor, Mark Haines, whether he didn?t think it odd that, if Mirror Image?s technology was so valuable, the company would have been willing to sell half its equity to Mr. Vik?s outfit for less than $6 million when ?there are oceans of venture capital money looking for ideas to invest in.? Mr. Vik answered: ?The reason for that is that the company started in Sweden, and in Sweden, you know, a year or two ago, there weren?t oceans of venture capital money looking for companies.?
In fact, though Mr. Vik maintained in an interview with me that he did not relocate Mirror Image from Sweden to the United States until 1999, Mirror Image itself had issued a press release a full year earlier, in April of 1998, describing itself as being ?based? in Woburn, Mass., in the very heart of Massachusetts? high-technology corridor along Route 128. It stretches credulity to believe that the venture capital community of Boston, which had already pumped huge amounts of money into such Internet caching-related startups as Sycamore Networks Inc. and Akamai Technologies Inc., was oblivious to the existence or potential of this firm ? especially when Mirror Image had been issuing its own press releases all along, claiming business ties with Cisco Systems Inc. and others.
STOCK EXPLOSION
Be that as it may, no sooner did The Scandinavia Company?s press release get distributed on the World Wide Web on the morning of April 1, 1999, than The Scandinavia Company?s stock exploded, tripling from 39 cents per share to $1.18 on 60 times normal volume. In Stockholm, of course, investors knew better, and the fact that The Scandinavia Company had now announced its majority ownership of Mirror Image ? which everyone knew was coming all along ? was a complete non-event: Mirror Image?s stock price, which by now had crashed to 4 cents per share, didn?t budge a penny.
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Between April 1 and September 29 ? a period during which The Scandinavia Company issued 18 more press releases in addition to announcing that it was selling its hotel in the Canary Islands and changing its name to Xcelera.com ? the company?s stock rose 375 percent more, to $5.61 per share.
By that time, the press releases and rising stock price had caught the eye of someone with a real megaphone ? a financial writer at Microsoft Corp.?s MoneyCentral Web site ? who gathered what little information he could about the company, pronounced it ?nothing if not an enigma,? then summarized its business as helping Internet companies ?conserve bandwidth and boost speed,? and pronounced its recent stock performance ?just a start if its smart Web infrastructure investments keep up.?
(Microsoft is a partner in MSNBC.)
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In the following two trading days, The Scandinavia Company?s stock spurted another 50 percent, as momentum traders began chasing after the rising price of the shares now that the company?s story had moved beyond mere press release distribution. Meanwhile, the press releases kept coming (nine more through the month of October) as the stock price nearly doubled again ? helped along toward month?s end by an October 28 recommendation on Microsoft?s MoneyCentral site that proclaimed the company a ?phenomenon? and predicted yet more gains for its stock.
Though the company issued seven more press releases during December, they were actually no longer necessary. The stock price of The Scandinavia Company (now known as Xcelera.com) had caught an unstoppable updraft and was soaring on its own. By the first week of January, when MoneyCentral published yet another ultra-upbeat story on the stock, it had tripled yet again and stood at $45 per share.
A ?CHANCE TO CHANGE THE WORLD?
Between the publication of the MoneyCentral Web site story on Jan. 7 and the middle of February, Xcelera.com?s stock price soared another 42 percent, to $64 per share ? at which point came the biggest and most dramatic surge of all. This occurred when George Gilder, the widely followed technology writer and commentator, endorsed the company in one of his newsletters, saying that its ownership of Mirror Image gave Xcelera.com a ?chance to change the world.? The very instant the story was published, on Feb. 17, Xcelera?s stock rocketed skyward all over again, closing at $95 per share, for a 50 percent gain on the day, on 12 times normal volume. In the four weeks that followed, the shares performed yet another tripling feat, reaching $223 on March 23 when they topped out on an announcement that Exodus Communications, the Web hosting outfit, had made a 15 percent equity investment in Mirror Image and agreed to offer its service to Exodus customers.
In short, from April 1, 1999, to March 23, 2000 ? a period just shy of one year ? this Cayman Islands-based company that almost no one had previously heard of, with audited financials a year-and-a-half out of date, had risen by 74,333 percent in value, to $223 per share, putting an $11.7 billion market valuation on the company on the basis of nothing but a deluge of self-serving press releases and the enthusiastic writings of two people on the Web.
Now granted, it is entirely possible that Mirror Image really will ?change the world? ? or at least the digital part of it, in Mr. Gilder?s somewhat overwrought expression. It is also possible that, when the Hewlett-Packard Co. agreed back in December to invest $32 million in Xcelera (an amount that has now been increased to $52 million), the Hewlett-Packard people saw in the Mirror Image technology whatever it was that Mr. Gilder claims to have seen. Certainly investors who noticed the press release announcing the Hewlett-Packard deal took it as evidence of Hewlett-Packard?s confidence in the company.
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On the other hand, it is also possible that all Hewlett-Packard really wanted to do was sell some equipment the easy way ? by lending the customer the money needed to buy it. In the deal, Xcelera is borrowing some $50 million from Hewlett-Packard, by way of a convertible debt offering, then handing some 80 percent of the proceeds right back to Hewlett-Packard in return for 32 servers and associated software and support. This means, in effect, that Hewlett-Packard is creating roughly $40 million of revenue for itself by simply lending Xcelera.com the money to buy its products ? betting in the process that Xcelera?s rising stock price will more than offset the risk of lending to the company in the first place.
XCELERA TAKES A HIT
That bet may have looked smart when Xcelera?s stock price was tripling every month, but it suddenly doesn?t seem so clever. Since March 22, the collapse in Internet stocks has flattened not just Xcelera but the entire dot-com sector, with Xcelera having given back, in four weeks, roughly 66 percent of the gains it racked up throughout the whole of the previous year. Bad news for everyday shareholders in Xcelera? Obviously. And for Hewlett-Packard? Maybe.
But want to guess who?s not gotten hurt in the rout? Try Mr. Vik and his chums. SEC records show that since late February, the Vik-controlled V.B.I. operation has quietly filed to sell an incredible $326 million worth of Xcelera.com stock, which it held via an address in the Turks & Caicos Islands in the British West Indies. In so doing, it would appear, we may conclude, that Mr. Vik and his chums have answered once and for all ? if anyone needed to ask in the first place ? whether the folks behind this tax-haven operation really thought the shares they were holding were worth more than the money they could get by selling them before their own personal 74,000 percent bubble went pffft.
You can reach me by e-mail at cbyron@optonline.net.
This column appears courtesy of The New York Observer, where it first appeared. For more of the Observer, visit its Web site at observer.com
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