Dr. Howard, the trouble is many of these brokerages went long these stocks then shorted them on the way down. The activity is best discribed in NewsWeeks stories on "THE MOB ON WALL STREET" businessweek.com
In the below blurb is Kensington Wells Incorporated and mentions GUMM
Kensington Wells Incorporated whafh.com
Kensington Wells Incorporated ("Kensington Wells"), one of the Introducing Brokers, commenced operations in or about October 1992, was a registered broker-dealer licensed by the NASD, and cleared its transactions through Bear Stearns during the relevant time period until it filed for bankruptcy in 1997. Like the other Introducing Brokers that cleared their transactions through Bear Stearns, Kensington Wells was engaged in substantial illegality during the Class Period to the detriment of plaintiffs. A criminal indictment of two of the principals and eleven other employees of Kensington Wells (plus two other individuals) was filed in July1999 and remains pending in the United States District Court for the Eastern District of New York (the "Kensington Wells Indictment")(5) .
As the Kensington Wells clearing broker, Bear Stearns had: (a) access to confidential, non-public information concerning Kensington Wells' financial condition, liquidity, and net capital position; (b) the power to extend or deny credit to Kensington Wells based upon the value of securities it held as collateral; and (c) the authority to determine whether Kensington Wells could execute transactions on behalf of its customers. During the relationship, Bear Stearns used its reputation, capital, and resources to facilitate the fraudulent operations of Kensington Wells and directly participated in the fraudulent and manipulative scheme to artificially inflate and maintain the market prices for certain of the Manipulated Securities. In this way, Bear Stearns earned substantial profits from its relationship with Kensington Wells and, accordingly, failed to terminate its clearing relationship even after Bear Stearns knew, or was reckless in disregarding, that Kensington Wells was involved in substantial illegal conduct.
During the Class Period, Kensington Wells was the managing underwriter for at least the following five IPOs, all of which were Manipulated Securities:
XeChem International, Inc. ("XeChem"), which was declared effective on or about April 26, 1994;
Universal Automotive Industries, Inc. ("Universal"), which was declared effective on or about December 15, 1994;
VideoLan Technologies, Inc. ("VideoLan"), which was declared effective on or about August 10, 1995;
Gum Tech International, Inc. ("Gum Tech"), which was declared effective on or about April 24, 1996, and
Retrospettvia, Inc. ("Retrospettvia"), which was declared effective on or about September 23, 1997.
During the Class Period, Kensington Wells was a market-maker in at least the following securities, all of which were Manipulated Securities:
First Team Sports Inc.
Gum Tech
Iatros Health Network, Inc.
Retrospettvia (delisted)
Universal (classified as a fraudulent IPO in the Kensington Wells Indictment)
VideoLan (delisted; classified as a fraudulent IPO in the Kensington Wells Indictment)
XeChem (OTC/Bulletin Board listing; classified as a fraudulent IPO in the Kensington Wells Indictment)
Xybernaut Corporation (NASDAQ small cap listing)
First Team's ADV was below 70,000 shares per day and its price was below $5.00 per share during a material part of the Class Period. First Team traded at $1.312 per share on December 7, 1998.
Gum Tech's ADV was below 90,000 shares per day during a material part of the Class Period.
Iatros' ADV was below 100,000 shares per day during a material part of the Class Period. The security traded at $.09 per share on December 7, 1998.
Retrospettvia's ADV was below 35,000 shares per day during much of the Class Period. The security traded at less than $8.00 per share and as low as $1.50 per share during a material part of the Class Period and at $1.875 per share on December 7, 1998.
Universal's ADV was below 50,000 shares per day and traded at less than $4.00 per share during a material part of the Class Period. The security traded at $1.125 on December 8, 1998.
VideoLan traded at below $2.00 per share during a material part of the Class Period. VideoLan traded at $.84 per share on December 24, 1998.
XeChem's ADV was below 80,000 shares per day and traded below $5.00 per share during a material part of the Class Period. In fact, it traded below $1.00 per share during at least part of the Class Period and at $.09 per share on December 7, 1998.
Xybernaut's ADV was less than 100,000 shares per day during part of the Class Period and traded below $2.00 per share during a material part of the Class Period. Xybernaut traded at $5.00 per share on December 8, 1998.
As the Kensington Wells Indictment alleges, from in or about April 1994 through January 1997, the defendants therein devised, oversaw, and implemented a fraudulent underwriting scheme pursuant to which Kensington Wells was the managing underwriter for the fraudulent IPOs of three securities: XeChem, Universal, and VideoLan.
As the Kensington Wells Indictment alleges, each of the XeChem, Universal, and VideoLan IPOs was inherently fraudulent because in each instance the distribution of IPO stock in the market to customers was a sham distribution whereby the shares were "distributed" to "friendly customers" of Kensington Wells with the pre-arranged agreement that those customers would sell their shares back to Kensington Wells on the first day of trading.
The pre-arranged scheme to sell back shares of each of the XeChem, Universal, and VideoLan IPOs to Kensington Wells was a material fact that was concealed from the investing public.
Kensington Wells' consolidation and restriction of the shares of these three securities allowed it to manipulate both their prices and markets.
Kensington Wells then artificially inflated the price of the shares of the three securities by employing a number of fraudulent, manipulative, deceptive, and misleading sales practices, thus generating enormous profits for Kensington Wells.
The fraudulent, manipulative, deceptive, and misleading sales practices used by Kensington Wells included promoting each of these three fraudulent IPO securities with misleading and improper predictions of price increases and false representations about its business and purchasing securities of each for customers in the aftermarket (a) without receiving any authorization from those customers, (b) in amounts and prices well above what the customers authorized, or (c) in direct contravention of a customer's refusal to buy those securities.
Mr. Harriton, as stated above, was personally involved in each of XeChem, Universal, and VideoLan IPOs, approved Bear Stearns's involvement, and approved the extensions of credit and subordinated bridge loans necessary to finance the underwriting of the Manipulated Securities, including XeChem, Universal, and VideoLan.
Bear Stearns, as Kensington Wells' clearing broker, cleared each of the order tickets generated by Kensington Wells' initial distributions and its repurchases of the shares of each of the fraudulent IPOs. As a function of its transactional and operational responsibilities as the clearing broker, Bear Stearns knew or was reckless in not knowing that most of the shares in each of the fraudulent IPOs were immediately repurchased by Kensington Wells on the first day of trading.
During the time Kensington Wells was manipulating the price of XeChem securities, the common stock traded as high as $12.75 per share. After the above-described scheme ceased, the price of the common stock fell to below $5.00 per share and XeChem was delisted from NASDAQ on February 5, 1997. XeChem now trades on the OTC/ Bulletin Board at approximately $.09 per share.
Concerning the Universal IPO, in addition, Ruben Levy, who was named in the Kensington Wells Indictment, also participated in the operation of Kensington Wells and was responsible for much of the firm's day to day finances.
Mr. Levy was a registered person in the securities industry and, therefore was subject to industry rules and regulations.
As part of the fraudulent scheme to sell Universal shares back to Kensington Wells, Mr. Levy established a nominee account at Kensington Wells for the illegal benefit of Elias Tacher and another person.
Using the account, Mr. Levy purchased 60,000 units of Universal with money provided by Mr. Tacher and the other person. On the first day of trading, Mr. Levy separated the units in that account into shares of common stock and warrants, and sold back to Kensington Wells 60,000 shares of Universal common stock at $9.00 per share, and the Universal warrants at $3.50 per warrant, for a total approximate profit of $450,000.
Mr. Levy, because he was a registered person in the securities industry, was subject to the "hot issue" restriction which prohibit an individual connected with the securities industry from purchasing IPO shares directly from the underwriters in those instances when the IPO is highly sought after from the outset of public trading.
Bear Stearns, as the clearing broker for Kensington Wells, knew or was reckless in not knowing that Mr. Levy was a registered person in the securities industry and was thus prohibited from purchasing Universal IPO shares.
Bear Stearns, as the clearing broker for Kensington Wells which cleared each of the order tickets generated by Kensington Wells' initial distribution and its illegal repurchase of Universal shares, knew or was reckless in not knowing that Mr. Levy purchased Universal IPO shares as part of the IPO distribution in violation of the "hot issue" restriction.
Bear Stearns, as the clearing broker for Kensington Wells, which cleared each of the order tickets generated by Kensington Wells' initial distribution and its repurchase of Universal shares, knew or was reckless in not knowing that Mr. Levy sold the Universal IPO shares which he had purchased back to Kensington Wells on the first day of trading.
As of August 23, 1999, Universal traded at approximately $1.00 per share on extremely low volume.
Concerning the VideoLan IPO, Mr. Tacher established a nominee account at Kensington Wells in the name of Ruben Levy, which was for the benefit of Elias Tacher, Salvador Tacher, and another person.
Mr. Levy deposited into that account 950,000 shares of VideoLan common stock, which he had purchased directly from VideoLan for $47,500, or approximately $.05 per share. 400,000 of those shares were registered at the time of the VideoLan IPO.
Pursuant to the scheme, Mr. Levy flipped his 400,000 registered share of VideoLan common stock back to Kensington Wells on the first day of trading at over $10.00 per share, generating profits of approximately $4 million. Mr. Levy additionally laundered approximately $2.7 million of these proceeds by transferring them to Biscayne Insurance Company in Hollywood, Florida to be held for the benefit of Elias Tacher, Salvador Tacher and another person. In or about and between December 1995 and October 1996, the $2.7 million was returned by Biscayne to Elias Tacher and Kensington Wells.
The prospectus for the VideoLan IPO fraudulently represented that the 400,000 shares of VideoLan common stock belonged to Mr. Levy when, in truth, they belonged to Elias Tacher, Salvador Tacher, and another unnamed person.
During the time Kensington Wells was manipulating the price of VideoLan securities, the common stock traded as high as $44.875 per share. After the above-described scheme ceased, the price of the common stock fell to below $5 per share and VideoLan was delisted from NASDAQ.
Concerning its market-making activities, Kensington Wells also engaged in a pattern of fraudulent conduct involving the sales of the Manipulated Securities at grossly inflated prices.
Bear Stearns, as the clearing broker for Kensington Wells, knew or was reckless in not knowing from its clearing of all Kensington Wells' transactions in the ordinary course of business that Kensington Wells was engaging in unlawful, fraudulent, manipulative, deceptive and misleading conduct, including the fraudulent XeChem, Universal, and VideoLan IPOs.
Bear Stearns's relationship with Kensington Wells was typical of its bucket shop relationships, and the sale of XeChem, Universal, and VideoLan to the plaintiffs was typical of thousands of similar improper transactions effected and facilitated by Bear Stearns with members of the Class during the Class Period." |
