PENNY-STOCK PAYDAY
By CHRISTOPHER BYRON
January 24, 2005 -- LAST week we poked through the hodge podge of conflicting information that a North Carolina-based stun-gun company called Law Enforcement Associates Corp. (LEA) has filed with the Securities and Exchange Commission over the last couple of years.
Now, still more information has come to light showing how the company's filings helped hide the role that a North Carolina politician named John H. Carrington played in orchestrating the sale of his family's law-enforcement supply business to a Nevada penny-stock company in December 2001.
Public investors were never informed — by Carrington or anyone else — that at the time of the sale, Carrington himself controlled both sides of the penny-stock deal, making all that followed inherently suspicious, whatever the deal's terms eventually turned out to be.
Until recently, investors in the shares have done well. Law Enforcement Associates' stock price has risen from pennies per share to a peak two weeks ago of $12.70 on market excitement over news that the company would soon be introducing a "non-lethal electric stun gun" for the law-enforcement market. But stun-gun stocks are now falling, with LEA's share price tumbling nearly 46 percent in little more than the last week. The slide has been worsened by LEA's own top brass, who have emerged as big sellers of shares in their own company.
According to federal filings last week, the company's president, Paul Feldman, sold 14 percent of his LEA stock for roughly $800,000 during the preceding workweek, and his boss, Carrington, LEA's controlling shareholder, pocketed a similar amount from stock sales of his own. Neither man returned phone calls for comment about their stock sales or several related matters.
The stock that they sold two weeks ago began its life seven years earlier, in May 1998, with the founding of a Nevada penny stock shell company called Academy Resources, Inc.
With a Canadian stock promoter named Nolan Moss as its one-man board of directors, Academy made at least two failed attempts to merge with private businesses and begin promoting itself as something worthwhile to invest in. Press releases trumpeting these stillborn deals were issued on behalf of Academy by an ex-con Florida sex offender named Orville Baldridge.
FINALLY, in June 2000, Academy Resources announced a merger with a New York outfit called Myofis Inc. Company press releases described Myofis grandly as "a start-up Internet service provider [that] provides dial-up access to the Internet for a flat fee of $14.95 per month from any of its 152 access nodes located in the nation's largest cities."
In fact, the Myofis operation was worthless, and as a subsequent SEC filing eventually showed, Academy Resources acquired it by issuing 21.09 million shares of its own worthless stock, valued at one cent per share, or just $21,093 for the entire business.
By the end of 2000, Academy had written off the entire investment and begun looking for some other private business to take over, which is when the shell company and Carrington found each other.
An SEC filing by the two merged companies more than a year later shows that Carrington, then a member of the North Carolina state senate, became a private investor in Academy Resources in August 2001 — four months before the creation of LEA — via an initial $50,000 cash outlay for which he received back five million shares of Academy stock valued at one cent per share.
But no known SEC filing by the company disclosed that barely six weeks later, on Oct. 16, 2001, Carrington made a second, larger — and, at least so far as the public was concerned, entirely secret — investment in Academy, buying 13.6 million more shares of its stock for $115,000. This stock didn't come from the company itself but, as we now know, from several of Academy's so-called "Myofis" investors.
We'll turn in a minute to how we know this, but for the moment it is enough to say that as late as of last week, even one of Carrington's own hand-picked LEA board members seemed unaware of the fact that Carrington had already secretly acquired control of Academy before merging it with his family business.
That individual is yet another North Carolina politico: State Senate Democratic Leader Anthony Rand, who told The Post last week that Carrington had explained that he, Carrington, hadn't purchased the Myofis shares until after the merger. Be that as it may, the two purchases, when added together, gave Carrington roughly 60 percent of all Academy shares in existence, making him secretly, though indisputably, the company's largest — and controlling — shareholder.
SIX weeks later, on Dec. 3, Academy Re sources issued 25 mil lion shares of its stock to purchase Carrington's family-owned policing equipment business, then changed its name from Academy Resources Inc. to Law Enforcement Associates Corp. Next, the company ordered a one-for-three reverse stock split to reduce the total shares outstanding from 56 million to fewer than 19 million, thereby making them three times more appealing to investors on their scarcity value alone.
Then the company began issuing stock-hyping press releases about LEA's bright new future in the post 9/11 world. Several of these releases were signed by a New York-based stock promoter named Guy Cohen, who had been the Myofis group's eyes and ears with a seat on Academy's one-man board of directors.
Cohen soon moved on from LEA to promote other penny stock deals, operating out of a swanky office on Park Avenue. In fact, the office in question turns out to be a mail drop and message center that was raided last December by state investigators seeking evidence against a ring of Caribbean scamsters who had been using the place as a mail drop for an investment swindle that preyed upon immigrants.
As for LEA, it took seven more months before the combined company filed any SEC documents purporting to describe what had actually happened in the merger with Academy Resources. And when it finally did so — in July 2002, by way of a so-called 10SB "registration statement" — the company adjusted most, but not all, of the stock-related calculations in the filing to reflect "post-split" instead of "pre-split" share totals, making it almost impossible for outside investors to figure out what went on.
Worse still, when Carrington finally filed his own papers with the SEC, on Sept. 11, 2002, to show the number of LEA shares he actually held and how he had acquired them, he gave Aug. 29, 2002 — and not Aug. 29, 2001 — as the date when he purchased the 5 million shares from Academy directly.
And when it came to the 13.6 million shares that he acquired on Oct. 16, 2001, from the Myofis group, Carrington provided no date at all, saying only that he acquired them from "other shareholders."
Much of this has now come to light from the company's own lawyer, Eric Littman, who is himself currently facing SEC charges for an alleged role in a separate penny-stock swindle. In extensive interviews last week, Littman insisted that his client's SEC filings were accurate, then to prove it, he proceeded to spell out the previously undisclosed details of Carrington's pre-merger stock purchases.
Of such elements is the penny-stock world composed, so what else is there to say but, beware.
cbyron@nypost.com |
