For those who don't read the NYT.
(aside to Lawrence - quis custodet custos?)
December 15, 1997
Market Place: Only Some Investors Defrauded by Amre Will Be Compensated
By FLOYD NORRIS
<Picture: I>f you bought stock in one of the great accounting frauds of the 1980s, Amre Corp., the Securities and Exchange Commission may have some money for you. But while it is nice to see defrauded investors get compensation, the way this one is being handled is hard to fathom. The SEC, it appears, does not understand stock splits.
To get compensation, an investor must be able to prove that he or she bought Amre on March 23, 1988. If you bought it the day before or the day after, you are out of luck. Anyone with a claim must file it by Monday.
The March date was chosen because the SEC says that was the day that Robert Levin, who was Amre's chief financial officer, sold 100,000 shares of stock. Levin previously settled SEC accusations of insider trading by agreeing to pay the SEC $1.78 million, and that is the source of the money being distributed.
The decision to pay only those who traded the same day as Levin seems odd, since investors who bought on other days suffered, too.
And the way this distribution is being handled makes it look positively absurd. The SEC, and the trustee appointed to distribute the money, are taking the position that stock splits are irrelevant. The result is likely to be that some deserving investors will not be able to collect, or will collect less than they reasonably should.
Amre was a company in the business of installing vinyl siding on homes, mostly as a contractor affiliated with Sears, Roebuck & Co. It was also, investors later learned, engaged in a huge accounting fraud to inflate its profits. That was something Levin knew when he sold his stock, but that others only learned after the SEC began an investigation late in 1988 and brought charges in early 1992.
The SEC began its investigation after the Market Place column in The New York Times on Dec. 19, 1988, questioned the accuracy of Amre's numbers, saying that it made no sense for Amre to be showing large amounts of "unbilled revenues." That is an asset often seen on the books of contractors involved in long and complicated projects, like those for the Pentagon. But this was a company that rarely took more than two or three days to finish a job, making such an asset seem odd.
In handing out the money to investors, the SEC and the trustee it hired, Robert Everett Wolin, a Dallas lawyer, who did not return repeated telephone calls, said that March 23 was the only date that buying counted. Levin's SEC filings showed he unloaded 100,000 Amre shares on March 25, 1988, and it was that date the SEC cited in its settlement with him. But the commission now says that further investigation has shown that the trade actually took place two days earlier.
Amre shares had been moving up rapidly then, on the basis of what turned out to be fictional profits. On March 23, the shares traded at $19.25 to $20, more than double the price of $7.875 the shares had fetched the previous December. They were destined to keep rising, peaking that August at $24.25.
One might think that those who bought later than March 23, at higher prices, also deserve compensation. But they had the bad luck not to trade on the same day as Levin.
Those who did buy on March 23 will be compensated by the SEC, but only to the extent that they did not sell shares before Amre acknowledged that its figures were wrong. That came in 1991. So if you bought on March 23, 1988, and then were a net seller of shares from that date through Jan. 11, 1991, you get nothing.
The interesting catch there is that in October 1988 Amre had a 3-for-2 stock split. Chris Mixter, chief litigation counsel for the SEC's division of enforcement, said the commission was treating that split as a stock dividend, which is the way it was legally structured. And it is treating stock dividends the way it treats cash dividends; it ignores them. So if you bought 1,000 shares of stock on March 23, 1988, saw them become 1,500 in October when the split took place, and then sold 1,000 shares, leaving you with 500, the SEC says you deserve nothing. After all, you bought 1,000 shares and sold 1,000.
On the other hand, if you bought 1,000 shares on March 23, and then sold 800 before the split, you wound up with 200 shares before the split, which became 300. You get compensation. In fact, you will get it even if you sold at the top, making a profit on your position.
Anyone who bought on that day, and did not sell the full position (defined without considering splits) by Jan. 11, 1991, is entitled to a payment of $3.25 for each share of the net purchase, the SEC says.
It is truly breathtaking that at least some people in the agency charged with enforcing the nation's securities laws think it is proper to ignore stock splits. One wonders if the commissioners approve of such absurdities.
<Picture: Just add AT&T>
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