The Quarrel Over Quigley part 4
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The Short Story Continued
Quigley's massive share expansion does, at the very least, dilute future earnings. For example, the company's anticipated first quarter earnings of $0.30 per share really amount to just $0.21 per share on a fully diluted basis. The share expansion also offers at least circumstantial support for the story told by Elgindy and others who believe Quigley is a stock rig.
In addition to the 530,000 shares and 585,000 warrants that have gone to officers and directors, more than 300,000 shares are believed to have been sold to Diversified at perhaps $3 per share or less, based on public filings and MacAniff's comments. Also, 300,000 stock warrants exercisable at $1 were issued to Pacific Rim Pharmaceuticals. As the company's critics are quick to point out, and MacAniff confirmed, Guy Quigley's brother Gary is one of the principals in Pacific Rim. Still, both MacAniff and the SEC filing indicate that Pacific Rim received these warrants for developing the Far East market for Cold-Eeze. Based in London, Gary Quigley is also working to market Cold-Eeze in Europe through Scanda Systems Ltd. Exactly who received all the other shares and warrants isn't public knowledge.
One of the shorts' more provocative claims is that the presumably orchestrated run-up in Quigley shares has been accompanied by discrete Quigley sales by insiders or outside conspirators, often through "nominee" accounts. Empire Securities in Syosset, New York is alleged to be one center of such trading. The SEC's Jonathan Levy has requested Empire's account records for anyone who traded in Quigley from January of 1996 to January 10, 1997. Levy also asked to see the firm's own trading records in Quigley, for which the firm did serve as a market maker.
Individual account statements, or partial statements, obtained by Rogue show that Empire managed accounts for Quigley family members and some associates of the company, including Ray Bloom. As Quigley stock rose through the teens during December, some of these people were selling Quigley shares.
These accounts were all managed by the same broker, confirmed to be Rich Fredericks, who left Empire on December 27th to join Long Island-based Colin Winthrop Securities. That firm makes a market in Quigley and is one of several that Elgindy said is involved in the alleged rig.
The question is, what does such information really tell us? The shorts say that it establishes a link between Bloom and the Quigley family, and that Fredericks's oversight of these accounts allowed him to manage the collective sell-out even as manipulators drove the stock higher.
When asked to comment on these accounts and the stock sales in the mid-teens, Quigley's MacAniff said, "They sold them way too early, didn't they?" Indeed, Quigley shares tripled in the month after these sales began. MacAniff also noted that Guy Quigley, his wife Wendy, and his children are the biggest holders of Quigley stock, with about 1.3 million shares not counting purchase warrants, and that "not one damn share of that has been sold."
According to Fredericks, the Empire accounts with any sizeable holdings in Quigley had been under his care for five years; he previously worked with a firm that did underwriting for Quigley Corp. He dismissed the idea that these accounts were connected to a stock rig. "Since the people owned the stock for five years, I find that a long time to wait." When asked directly if he had been helping manipulate Quigley Corp. stock, he curtly replied, "What, are you crazy? Good-bye." And with that he hung up.
Empire President Robert Spitzer said, "There's really no story here." He said that one of the Quigley family accounts had held Quigley Corp. shares with Empire for at least 2 to 3 years. To say, as the shorts do, that these were "nominee" accounts, is preposterous, according to Spitzer. "What do you think, these accounts are trading millions of shares?" He said Empire had "nothing to do with all of this" and that his company was "a peanut" in the SEC's probe.
Spitzer said that Empire's customers traded only about 75,000 Quigley shares during the entire month of December, a drop in the bucket when daily trading volume was running at about half a million shares. He also said that the firm's own trading didn't amount to much either "We're very conservative. We watch the net capital very carefully. We were out of the way [on the bid and ask] almost all the time on this thing."
Spitzer said that Fredericks's departure from Empire had nothing to do with anything involving trading in Quigley. Rather, Fredericks left the firm after Spitzer had decided to get Empire out of the trading business altogether. "I didn't like that whole side of the business. I didn't understand it. I just didn't like it. I was uncomfortable."
What Spitzer would really like to know is who obtained the individual account records from Empire that are now circulating. Moreover, how did someone obtain a copy of the letter sent to him by the SEC's Levy. "The SEC wants to know also. I didn't send it to anybody.... You tell me who's behind this whole charade." Spitzer added that someone he knew had received a false letter, supposedly from the SEC, on falsified SEC stationery.
On the face of it, it's hard to see that there's much to make of the Empire connection based on the materials Rogue could obtain. The company's critics have woven a compelling story around this material, but the plot sometimes falls flat. For example, Elgindy thinks that one Empire account held by Robert Smith-Felver and Martha P. Smith-Felver is a nominee account, and he wonders exactly who these people are and from where they're getting their shares.
The 10-QSB for June answers the question. The Smith-Felvers, in April of 1993, exercised their options to acquire 25,000 shares, after adjusting for the reverse stock split. Since "they were owed money by the Company for advertising services," they applied the $2,500 as payment for the shares. In August of 1994, they exercised their remaining options, applying an additional $2,500 owed to them by Quigley as payment for 25,000 shares. These shares were restricted.
Back to the Product
"We cannot evaluate the truth of the implications on the second page. But on the first page, when they talk about the research, they're in gross error.... And I resent it. If they're as inaccurate on the second page as they are on the first page, then they're a bunch of clods."
-- Dr. Nancy Godfrey on the reporting by Barron's
When queried shortly after the Barron's article appeared, Dr. John Godfrey and his wife Dr. Nancy Godfrey, patent holders and paid Quigley consultants, were initially quite taken aback by the conspiracy theory Alpert suggested. They both said that none of the figures mentioned in the article were familiar to them aside from Blumenfrucht and that despite sometimes daily, wholly unannounced visits to Quigley, they had never seen any signs that Guy Quigley or other company officials were less than honorable people. They admitted they might be naive, but their initial reaction was that the short story of intrigue sounded "almost like a total fabrication."
Dr. Nancy Godfrey, in particular, was furious at what she deemed Alpert's "gross error" in discussing the clinical research. What it comes down to is that the Godfreys don't believe even Macknin's specific caveats are warranted, since, they argue, the data from the Cleveland Clinic's trial are actually stronger than Macknin's group represented them as being in the paper published last July in the Annals of Internal Medicine.
The Godfreys said they were originally set to have their names on the Macknin paper since they had helped the Clinic set up the protocol, but that they pulled their names from it because Macknin insisted on backing away from their original agreement on what patients would be included in the final comparison. That is, Macknin insisted that the study compare study subjects on an "intent-to-treat" basis. That meant that anyone who enrolled in the study would be included in the final numbers, regardless of whether they followed the protocol. Some patients failed to record their symptoms on a daily basis, as required. Others took little or none of the medication. Others were treated for flu or with antibiotics, suggesting that these patients were suffering from more serious infections than a cold virus.
Comparing subjects on an intent-to-treat basis is a perfectly reasonable way of conducting a clinical trial. But according to Dr. John Godfrey, it was not the criterion of "protocol-evaluable patients" used in all of the previous studies, including the Godfreys' Dartmouth College trial, which the Cleveland trial was attempting to replicate. Based on the original plan, then, none of these unassessable patients should have been included in the final comparison between the group receiving zinc gluconate glycine and the group receiving the placebo. That meant that data for 10 of the 50 patients on zinc and 7 of the 50 patients on placebo should have been omitted from the final comparison.
If one assumes that the zinc works, as the Dartmouth study showed, then it's clear why this methodological change would water down the final results. Ten patients who might have benefitted from the zinc likely did not because, for example, they didn't take the medicine at all or they had more serious ailments. On the other hand, the seven patients on placebo missed nothing, or nothing but the placebo effect. Thus in a November article in Alternative Therapies that re-analyzes the Cleveland Clinic's data, the Godfreys suggest that that trial actually showed a 48% reduction in a cold's duration rather than the 42% which Macknin reported.
Dr. John Godfrey also disagrees with Macknin's cautionary view that it's possible that there was one virus going around the Cleveland Clinic at the time of the study that just happened to be especially susceptible to Quigley's product. "Let us be realistic!" Godfrey said, in a written response to Rogue on the subject. He pointed out that the Cleveland and Dartmouth trials both showed remarkable efficacy for the use of zinc gluconate glycine lozenges. And these trials were conducted at sites over 500 miles apart; were separated by over 5 years; were conducted in different seasons (Dartmouth in April, Cleveland in October); were conducted by investigative teams who both expected a negative result; sampled different populations (mostly young male undergraduates at Dartmouth and mostly mature female staff at the Cleveland Clinic); and were conducted according to nearly identical protocols.
"Realistically," Godfrey wrote, "what do you think the odds are that the two near-identical results could be due to both populations being infected with one particularly zinc-susceptible virus or to some other artifact(s) at both sites?"
Barron's did not speak with the Godfreys, however. What's more, Alpert does not even include Macknin's own specific defense of his data in light of questions raised by Gwaltney concerning how adequately patients were blinded to whether they were getting zinc or placebo. That information is in the Annals paper and Macknin was perfectly willing to discuss the matter when Rogue caught up with him in December.
In medical science, what counts as sufficient proof that a treatment works is often contingent on the politics of the disease and the clinician's sense of patients' needs. There is no hard and fast rule. Certainly, clinicians would like to see several large clinical trials conducted at different sites, with perhaps more than a thousand patients studied, before they are willing to say that a therapy is truly effective. But that kind of caution is hardly equivalent to saying, as some of Quigley's critics do, that the Cleveland Clinic study was bogus and that no medical professional would accept it as legitimate. A close reading of the published research suggests that that is a completely untenable position. Based on the available evidence compiled on 173 patients, Quigley's Cold-Eeze actually does appear to work quite well. Further research needs to be done, but that research seems likely to confirm and even further extend the findings of the Dartmouth and Cleveland Clinic studies.
Of course, the current battle between Quigley Corp. and its critics ultimately has little to do with whether the Cold-Eeze product works. It's about the integrity of a company and the integrity of the marketplace. Ultimately, the matter is now in the hands of the SEC.
--Louis Corrigan (RgeSeymour) |
