The further adventures of SPADE BOY, and D'Amato tries to bite the bullet.
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LesLFrench
Veteran Reporter
User # 3
User Rated:
posted 02-24-2002 12:12 AM
Jeffrey Sonn seems to be an honorable man. He is the attorney representing Eagle Building
Technologies (EGBT) in its lawsuit against SPADEBOY, an anonymous poster on Raging Bull's message
board. SPADEBOY posted a series of 9 messages in a single day last December, forewarning investors
that EGBT was a house of cards ready to collapse, calling it a "pyramid scheme". In the messages, SB
pointed out that he/she was not able to short the stock (EGBT cannot legally be shorted by a U.S.
person because it is not marginable) but that SB would have if it was possible.
Instead of heeding SB's warnings, the Company instead appeared online almost instantly, threatening
to sue SB. Then on December 11, 2001, EGBT filed an 8-K with the SEC, announcing that EGBT had
filed suit against the anonymous poster.
John Does Anonymous Foundation (JDAF) was contacted the next day by SB, requesting legal
referral/assistance. I checked with Raging Bull, who informed me that RB had not been served with a
subpoena for any discovery from EGBT. So I called Mr. Sonn to see what his intentions were relating to
discovery.
I believe Mr. Sonn to be genuine in his capacity as attorney for EGBT. As a securities lawyer, he has to
be cognizant of BOTH his client's interests, and the law. We spoke for about 30 minutes. The gist of
the debate was my position that SB's internet posts were privileged. Mr. Sonn said that they were
intended to manipulate the price of the stock in favor of "shorters". I pointed out that, according to the
posts, SB had not "shorted" the stock. I also pointed out that no reasonable person would base an
investment decision on opinions posted on the internet by an anonymous person known as
"SPADEBOY".
Still, EGBT sued SB, claiming SB shorted the stock, and disparaged it by calling EGBT a "pyramid
scheme". I proposed to EGBT, that if we produced SB's trading records, with name redacted, showing
that their allegations were false, that they drop the suit. I even proposed to disclose SB's identity to
outside counsel, predicated that no one inside the corporation, or its house counsel, would have access
to that information. EGBT declined.
EGBT served a Florida subpoena on Raging Bull, a Massachusetts company. As soon as I received
notification of the subpoena from RB's legal department, JDAF connected SB with Lyrissa Lidsky,
Associate Professor at Levin School of Law, University of Florida, who agreed to represent SB. Dr.
Lidsky further attempted to negotiate reason with EGBT, but EGBT failed to respond and the
negotiations broke down. A motion to quash the subpoena was filed and a hearing is set for early next
month.
In the meantime, SB's disclosures have begun to come true. First, a scandal arose on the RB message
board, disclosing that EGBT President and CEO Anthony D'Amato had lied about obtaining a business
administration degree at CW Post College, a university in New York. In fact, the registrar's office had no
record of his attendance there. The company's web site was amended to say that D'Amato "had
attended classes" there, but no further details were given.
Shortly after revelation of the D'Amato college degree scam broke on the Raging Bull message board
several weeks ago, D'Amato had to be checked into the psychiatric ward of a South Florida hospital
after suffering from suicidal ideation, and an apparent suicide attempt. No one from the company
claims to have been in contact with Mr. D'Amato. D'Amato checked out of the hospital this past week,
and has not been heard from since.
The company has now admitted that it produced fraudulent financial reports. One of its directors, a Mr.
Meyer Berman, in what a appears to be a last-ditch effort to patch up the hole in EGBT's sinking rubber
raft, told a news reporter that the company had been scammed by its CEO, Mr. D'Amato, from false
reports of overseas transactions. Mr. Berman called the offshore earnings reports "fraudulent". On
February the 14th, the company filed an 8-K, stating that it had requested the SEC to intervene, by
suspending the company's stock. The 8-K was signed by a director, a Mr. Ron Lakey, who is also listed
as the company's treasurer and chief financial officer. However, under what authority Mr. Lakey signed
and filed the 8-K is unclear.
Some of the regular touters on the Raging Bull board suggested that the stock was being halted. A
"halt" is an extreme measure, used on rare occasion by exchanges or the SEC to protect a company's
market for its stock, when unusual or uncontrollable conditions merit.
But instead of a "halt", the SEC suspended EGBT's stock from all trading for a two-week period. A
trading suspension, unlike a halt which is intended to protect a stock, is a tool used by the SEC for the
express purpose of notifying the public that the SEC has substantial reason to believe that publicly
available financial statements are inaccurate and potentially misleading. Furthermore, when the
suspension is lifted, a broker-dealer, before trading the stock, is required to inform the customer that
accurate financial statements may not be available on the stock.
Many brokers will not trade transactions on a stock once it has been suspended. A suspension also
means that EGBT, upon notice, could be kicked off its listing service, the OTCBB, an over-the-counter
quotation service which is managed by NASD. In an effort to clean up its scam-ridden reputation in the
penny stock market, the OTCBB recently revised its rules which required that a stock quoted on its
service maintain up to date financial filings with the SEC.
Even before SPADEBOY first posted in December, warning signals were evident. EGBT's former auditors
were charged with fraud in proceedings likely to end in criminal convictions. Although unrelated to the
activities of EGBT, investors should be wary of companies who use accountants who have been linked
to fraudulent activities, because it is well known on the street that the services of unethical accountants
are sought after by scam companies.
But perhaps the greatest caveat of all was EGBT's own news releases, following the 9/11/01 attack on
the U.S., proclaiming EGBT's entry into the anti-terrorist business. EGBT, a company which claims to
build low-cost construction structures out of concrete substances in offshore markets, announced that
it was marketing its own anti-terrorist software, to track money laundering by Al-Qaeda and other
terrorist money launderers. One has to wonder, in light of the fraudulent financial reporting, what
insight the management of EGBT has into money laundering? The company also purports to be
experimenting with terrorist identification baggage screening technology to be installed at airports. The
company touted a letter from Congressman Jay Inslee inviting the company to show up at the U.S.
Capitol and to demonstrate its technology before the joint committees on airline safety. But there is no
indication that EGBT ever demonstrated its miraculous new technology, even with the Congressional
invitation. My calls to Representative Inslee for comment have not been returned. Perhaps Congress
would better be served by having EGBT demonstrate its financial fraud techniques before the
committees investigating Enron.
Any rational person, given the above, would conclude that EGBT is a House of Cards, that is a "Ponzi
scheme", ripe for collapse. Yet EGBT persists in pressing ahead with its lawsuit against the prophet
SPADEBOY. A pattern that we have seen hundreds of times with the so called SLAPP corporations,
EGBT appears to pointing the finger at everyone except itself for its financial disaster.
Last week, EGBT's in-house counsel, a Mr. Carter, sent a nasty and threatening letter to Dr. Lidsky,
who represents the anonymous defendant, SB. The letter threatened to bring ethics charges against
Dr. Lidsky, for requesting that Lycos not turn over information on the defendant while settlement
negotiations are in progress. One can only imaging what Mr. Carter is thinking... after all, he does not
represent the company in the SPADEBOY case, and there is a great deal of question as to how much
authority a Florida subpoena has in a Massachusetts jurisdiction.
But if the revelations of Mr. D'Amato's attempted suicide and depression are not startling enough, new
information from a credible source reveals that shortly after the accusations of Mr. D'Amato's lying
about his degree surfaced on Raging Bull, that EGBT insiders, including EGBT's lawyers, began unloading
shares of EGBT stock that they owned.
First of all, why is EGBT giving stock to its lawyers? Isn't there a conflict of interest, there? How can Mr.
Sonn fairly conduct his duty to the company, and to the law, when he is being paid in stock of the
company? I have long advocated that lawyers, like auditors, must maintain independence.
Secondly, does not the sale of the personally owned stock, on the part of EGBT's attorneys, vindicate
the SPADEBOY defendant?
And last, but not least, isn't this what the SEC calls INSIDER TRADING???
Now that EGBT, through the public comments of Mr. Berman and Mr. Carter, appear to be attempting
to "repackage" the company as an honest company which was a victim of a dishonest manager, is
attempting to place all the blame on Mr. D'Amato. But the posters on Raging Bull aren't buying it. What
they want to know is, what did Mr. Berman and Mr. Carter know, and when did they know it?
We have to wonder, because it appears that the anonymous prophet known as SPADEBOY has done a
favor for the investors and to the EGBT board of directors by disclosing the fraud to the market. Are
Mr. Berman and Mr. Carter angry because SB reported the fraud before they did?
A more logical reason has been proposed by EGBT's critics on Raging Bull. They believe that, in fact, at
least one of the anonymous touters pumping EGBT's stock on Raging Bull is, in fact, connected with
Mr. Berman, if not Berman himself, who also turns out to be EGBT's largest shareholder.
Several years ago the SEC revised its rules, in an effort to deal with internet stock fraud, to prohibit
officers, directors, employees, consultants, and agents of a publicly traded company from commenting
online about the company or its stock, without first disclosing the identity of the person, and his/her
relationship to the company. The rules were amended after Systems of Excellence (SEXI) CEO Huttoe
was caught touting his own stock on an anonymous AOL stock message board. Huttoe, who ran SEXI
from the same Florida region where EGBT is located, is now serving his sentence in prison for stock
manipulation and other issues.
If the allegation is true, then at least one of EGBT's directors has been touting the stock of EGBT in
violation of SEC regulations, while other insiders have been selling. This is called "pump and dump".
If it is not true that Mr. Berman has been posting anonymously on Raging Bull's stock board, then we
can expect that Mr. Berman will want to publicly deny the allegation and clarify this situation. On the
other hand, if the lawsuit against SPADEBOY moves forward, we can expect some interesting
revelations to come from the discovery process.
Copyright 2002 Les L. French - All Rights Reserved. |
