Here is the article in full from this mornings WSJ. Once properly ingested, should be good for LOCK:
<At this time, 2:39 est, LOCK has recovered to 4.2. Bad news for TechTrader & Quantum>
On-Line Investors
Take Sides
Amid Sniping Over
Saf T Lok
By CARRIE LEE
THE WALL STREET JOURNAL INTERACTIVE EDITION
Saf T Lok Inc. shares plummeted this month after
a Wall Street trading firm -- with a short position
in the stock -- launched an unusual barrage of
criticism. Now, the on-line world is caught in the
cross-fire.
The tiny Tequesta, Fla.,
company, which makes
childproof locks for
handguns, first gained
attention last fall, when President Clinton added
his voice to a campaign to equip guns with safety
devices. The stock jumped to nearly 6 from just
1/2 in two days, and its on-line following grew.
Saf T Lok shares
zigzagged since then,
until early this month,
when they made
another run to 5. That is
where Quantum Group
Ltd., a New York
trading firm, stepped
in. Quantum issued a
press release, assailing
Saf T Lok for
compensation
agreements it has with a
public-relations
company and a brokerage firm, asserting that the
firms hyped the stock to take advantage of
incentives linked to Saf T Lok's share price.
In the aftermath, Saf T Lok and Quantum
swapped barbs in statements released to financial
news wires. Saf T Lok shares plunged 45% from
their high on Feb. 5, just before the press release
was disseminated, to their low during the
following trading day. On-line investors seized
on the controversy, and, as often the case, much
of what was passed around on-line as fact
remains in dispute.
As with many small companies, it is difficult for
investors to get an independent analysis of Saf T
Lok. The company, which has never posted a
profit and had revenue of just $38,531 for the
first nine months of 1997, isn't followed by any
mainstream Wall Street analysts. That has left
investors -- both on-line and off -- with little to go
on besides the assertions of Saf T Lok and
Quantum.
The two companies have vastly different takes on
the promotional agreements, as well as separate
assertions by Quantum that Saf T Lok insiders are
bailing out of their positions in the company's
stock. Also, allegations that Saf T Lok recently
announced a phony contract -- expanding on
charges initially made by Quantum -- are making
the rounds on the Internet. Those assertions are
staunchly denied by the company that set the
deal and its lawyers.
Face-off On-Line
On-line friends and foes of both companies are
sharply divided. "Someone from lock may end
up in jail on this scam. ...The reality of this is
another smoke screen designed to make you
believe this product is a success," wrote one
person on a Yahoo message board
(quote.yahoo.com), referring to Saf T Lok by its
stock symbol. Taking the other side, another
person wrote in a Yahoo posting: "Their negative
press won't affect this stock. Go lock."
Some people posting to on-line bulletin boards
allege that representatives of Quantum are
behind a surge in negative comments about Saf T
Lok. Steven Ehlers, president of Quantum, says
Quantum employees are "absolutely not" behind
any on-line postings.
To be sure, both Saf T Lok and Quantum have
had problems. Two years ago, Saf T Lok fired its
public-relations firm after the company released
fake product endorsements, purportedly from the
Secret Service and the National Rifle Association.
Meanwhile, a previous owner of Quantum faced
federal charges last year alleging that he
accepted a bribe to sell worthless stock. Quantum
says it isn't associated with the prior owner.
Now, John Gardner, president and chief executive
officer of Saf T Lok, says Quantum is simply
trying to sink the value of the company's stock
for its own benefit. In its original press release,
the trading firm disclosed that it had a short
position in Saf T Lok shares. Quantum wouldn't
divulge the size of its current short position, but
says it consistently has been short at least 10,000
shares since it started covering the stock. The
overall short interest in Saf T Lok shares has
jumped tenfold since the stock started to climb
last fall.
Short sales are bets that a stock will decline in
price. Shorts sell borrowed shares in hopes that
the stock will decline in price and they will be
able to repay their stock loans with shares that
were purchased at lower prices.
Unusual Recommendation
Quantum's press release itself was highly
unusual, in light of the company's short position
and the nature of its business. Wall Street firms
issue scores of stock recommendations every day,
but they are targeted at clients who pay for
stock-picking advice -- through commissions or
otherwise. Quantum is strictly a trading firm and
doesn't have such clients. The company isn't
related to a money-management firm with a
similar name that is run by billionaire investor
George Soros.
Mr. Ehlers said Quantum issued its release in an
effort to raise its profile as a market maker in the
stock. Even though Mr. Ehlers doesn't believe Saf
T Lok is a sound company, Quantum continues to
trade the stock. For professional traders, dealing
in volatile stocks like Saf T Lok can be lucrative.
Quantum's initial charges against Saf T Lok
centered on the company's agreements with
Marketing Direct Concepts, its public-relations
firm, and State Street Securities, a small
brokerage concern unrelated to State Street
Corp., a prominent Boston financial-services
company.
Saf T Lok's Mr. Gardner, in an interview, denied
that the agreements are structured in such a way
that Marketing Direct and State Street Securities
have an incentive to boost the price of Saf T Lok's
stock. But Quantum asserts -- and U.S. Securities
and Exchange Commission filings by Saf T Lok
confirm -- the companies will receive additional
fees if the stock hits certain targets that would
trigger the exercise of stock-purchase warrants
issued by Saf T Lok to investors outside of the
U.S. last year.
State Street Securities, meanwhile, on Tuesday
issued a research report of its own,
recommending the stock as a "strong buy." The
report was prepared in exchange for a fee paid
by Saf T Lok, said Howard N. Stillman, the
analyst who wrote the report. Although counter
to the practices of major Wall Street securities
firms, the idea of paying for research isn't unique
to Saf T Lok. It is a controversial practice some
small companies use at times to get attention for
their stock.
Saf T Lok shares rose 1/16 to 4 1/4 in trading
Wednesday on the Nasdaq SmallCap Market. On
Tuesday, the stock gained 3/8.
Insider Selling
Quantum asserts that Saf T Lok, in part, has
sought to lift its share price so that insiders at the
company could bail out of their positions at lofty
levels. In it press release, the company said Mr.
Gardner recently sold 200,000 shares of Saf T
Lok, while several other insiders sold tens of
thousands of additional shares.
Mr. Gardner counters that the proceeds of the
stock sales represented the only compensation
that some of the insiders received last year, and
he noted that even after the sale, he continues to
hold 477,000 shares. "Last year was a key year for
this company. The team put a lot of hard work
into it," Mr. Gardner says. "A lot of people who
sold shares took no salary for the year or any
other compensation. All of us are quite dedicated
to the company. All of them still own a
significant amount of shares."
Quantum alleged that Saf T Lok, in another effort
to boost its share price, fabricated a roughly
$550,000 order for one of its products, called
Grip Lock. In its press release Quantum belittled
the agreement, saying that United Safety Action
Inc., that company that entered the pact with Saf
T Lok, had little experience in the firearms
industry and little marketing muscle. In an
interview later, Mr. Ehlers asserted that he
believes the agreement itself was phony.
Call From a 'Reporter'
Arthur Braun, owner of United Safety Action, in
an interview, confirmed that he has little
experience in selling gun-related wares. But he
and his lawyer, Edward Burnbaum, of Lynch,
Rowin, Novack, Burnbaum & Crystal in New
York, defended the contract. "If it's a front, I don't
know why we spent weeks negotiating the deal,"
Mr. Burnbaum says.
Meanwhile, on-line investors jumped on the
United Safety Action story. Mr. Braun asserts that
even before Quantum issued its press release, he
received a telephone call from someone who
identified himself as a Bloomberg Business News
reporter. Mr. Braun says he later found an
account of his conversation in a posting on a
Yahoo message board.
Bloomberg says its doesn't have an employee
with the name that was given to Mr. Braun; its
reporter who covers Saf T Lok hasn't contacted
Mr. Braun.
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