Careful TRAV:(To all: worth reading)"As Internet Duo Battle Over Chromatics, Individuals Get Caught in the Crossfire."
>>>>PINK is a friend of ours in the war against fraud and manipulation.<<<<<
A battle waged on Internet message boards over the stock of obscure Chromatics Color
Sciences has left lots of individual investors caught in the crossfire, not knowing which
Internet "guru" to believe.
Individuals Caught in Crossfire
Of Duo's Battle on Chromatics
By KAREN DAMATO
Staff Reporter of THE WALL STREET JOURNAL
Florida stockbroker Alan "Skip" Davidson and his wife recently fled their home for five
days to avoid a barrage of obscenity-laced phone calls -- including death threats -- that he
says was unleashed by an adversary who goes by the moniker "Mr. Pink."
It's just one chapter in an odd and disturbing tale of small-stock
investing in the Internet era.
"Mr. Pink" and Mr. Davidson, using his screen name "Skipard," have been slugging it out
for months on Internet message boards dedicated to the stock of obscure Chromatics
Color Sciences International Inc. Mr. Davidson, 56 years old, is a big stockholder and
head-over-heels fan of the money-losing New York company, which is trying to market a
device to diagnose jaundice in newborns by analyzing their skin color. "Mr. Pink," a
Chromatics critic, describes himself as a hedge-fund manager who has sold shares short
in a bet that the price will fall.
Caught in the crossfire: lots of individual investors wondering which -- if
any -- Internet guru to believe. "Mr. Pink" and his fans have been the big winners lately,
as Chromatics shares have collapsed. The stock closed at $5.50 Thursday in Nasdaq
SmallCap Market trading, after closing as high as $17 on April 30.
Battling in the apparent anonymity of cyberspace, "Skipard" has slammed "Mr. Pink" as
"pond scum" and a "slimeball." "Mr. Pink" labeled Mr. Davidson "a loser" who "led your
followers to ruin."
Then "Mr. Pink" escalated the feuding by posting Mr. Davidson's full name, employer and
address on the Internet. "Anyone upset about losing millions on CCSI should call Skip
Davidson at [his home phone number]. Or send him a package with a gift to [his full home
address]," advised a June 22 posting on Yahoo! Finance. CCSI is Chromatics' stock
symbol.
"I am a big boy when it comes to winning and losing" money in the stock market, says Mr.
Davidson, who works from his home as a broker for First New York Securities. But
faced with personal threats, he says, "I'm afraid." While many of his longtime followers
haven't denounced him, he says, lots of other unhappy Chromatics investors "now have
someone to blame."
The Chromatics message boards are evidence that some of the virtual
communities spawned by the Internet are downright ugly places, driven by hostility and
awash in adolescent name-calling. "Skipard" and "Mr. Pink" are like the captains of two
teams engaged in a frenzied brawl.
The on-line war of words over Chromatics also highlights the risks for
investors at the dangerous juncture of small-stock investing and the
Internet: This new medium has made it far easier for adventurous stock pickers to
compare notes. But it also helps wrongdoers spread
misinformation to pump up the price of a thinly traded stock they hold --
or drive down one they have sold short.
Both sides in the Internet debate on Chromatics have leveled allegations of market
manipulation against the other, and a lawyer for Chromatics says U.S. Securities and
Exchange Commission staffers "said they would follow up" on the company's complaints
about possible trading irregularities by short-sellers. (Short-sellers sell borrowed shares of
a company they bet is overpriced, hoping to make a profit by buying cheaper shares later
on.) An SEC spokesman said the agency doesn't comment on pending investigations.
The squabbling over Chromatics hit the headlines in early June -- with dire consequences
for the stock -- when high-profile New York short-seller Manuel Asensio issued several
statements accusing the company of overstating the capability of and potential market for
its jaundice device. Many of those charges echoed those made earlier on-line by "Mr.
Pink," though there's no indication Mr. Asensio is he.
Chromatics has denied the allegations. Chief Executive Darby Macfarlane says the
company is exploring legal action against Mr. Asensio and possibly others while it
continues to be "in the last stages of negotiations to reach a definitive agreement for global
distribution" of the jaundice device. The company's attorney, Eric Lerner of Rosenman &
Colin, declined to say whether the firm is considering legal action against "Mr. Pink."
Also involved in the Chromatics saga: Michael Schonberg, the former head of two
Dreyfus mutual funds that had big stakes in the stock. Mr. Asensio charged that Mr.
Schonberg invested heavily in Chromatics for the funds in order to benefit his own
personal holding of Chromatics shares. Mellon Bank Corp.'s Dreyfus this week put Mr.
Schonberg on paid administrative leave, as the fund firm and the SEC investigate the
matter. A lawsuit alleging breach of fiduciary duty, which is seeking class-action status,
was filed in federal court in New York against Mr. Schonberg and Dreyfus; Dreyfus
spokeswoman Patrice Kozlowski said the firm "believes the lawsuit is without merit" and
"we intend to defend it vigorously."
However the still-unfolding Chromatics saga ends, one troubling aspect of the story is the
degree to which some ordinary investors loaded up on this one high-risk stock-in many
cases, it appears, acting on the suggestion of an Internet guru, "Skipard" (Mr. Davidson),
whom most had never met.
In recent weeks, Mr. Davidson says he has been swamped with phone calls and e-mails
from panicked followers who say their retirement-account balances, their financial futures
and even their marriages are in jeopardy because of huge bets on this one speculative
stock. Many had invested heavily in Chromatics shares using margin loans and have
watched their brokerage firms
liquidate shares to satisfy "margin calls" as the stock price fell.
Mr. Davidson says he feels responsible for his followers' losses because they looked to
him as a "rabbi" -- a role he clearly relished in happier days. But he also says, "They
shouldn't have bought so much stock. They shouldn't have margined it."
Cautionary messages have rarely showed up in Chromatics postings by "Skipard,"
however. He has repeatedly talked about his own huge bet on Chromatics -- now over
400,000 shares, Mr. Davidson says. And he reported excitedly in August 1997 that
followers who rarely use margin were taking on margin debt to increase their Chromatics
stakes.
The way to make big money as an investor, "Skipard" advised followers late last year, is to
"find the idea, be right, bet it big ... and pray like hell."
"What first caught my eye about Skip was his passion," says Jane Fulsang, an Illinois
homemaker who posts on the Internet as "Janybird." Ms. Fulsang, 36, who looks to Mr.
Davidson as a mentor, is now suffering with 80% to 85% of her family's investment
dollars in Chromatics. "I still think I made the right decision investing in this company. I
really do," she says. But the stock-price collapse "has been a killer."
And what of Mr. Davidson's on-line nemesis? "Mr. Pink" often refers to
himself grandly in the third person and many of his postings have an
ominous tone. "He speaks the Truth and is kind to His brethren, but woe unto those who
are rude to Mr. Pink or attempt to perpetrate fraud ...," declared one June 8 message.
But he comes across as far less self-absorbed and more thoughtful in many postings on
his own Silicon Investor message board (www.techstocks.com) -- "Mr. Pink's Picks:
Selected event-driven value investments" -- and in a lengthy telephone interview during
which the unidentified speaker simultaneously sends a message to this reporter through
Silicon Investor's private messaging system to confirm he is indeed "Mr. Pink."
"I thought it would be amusing to create this sort of delusional
character," he says in the interview. "Mr. Pink gets to be arrogant and
strange in a business where a real person can't be any of those things."
Internet posters have offered several names as the possible identity of
"Mr. Pink," including Daniel Loeb, 36, managing member of hedge-fund firm Third Point
Management Co. in New York.
Mr. Loeb, in an e-mail response to several messages, said, "Third Point does not comment
on the existence of its short positions and does not comment on negative stories about
companies." He didn't respond to the question of whether he is "Mr. Pink" in his e-mail,
and said he didn't have time to respond to questions in an earlier, brief telephone
conversation from his office.
Mr. Loeb's firm has certainly put its money where "Mr. Pink's" mouth is: Of a sampling of
18 stocks offered as "picks" by "Mr. Pink," 14 showed up as Third Point holdings on
March 31, according to
Third Point regulatory filings collected by Technimetrics Inc. Third
Point's top four holdings -- Summit Holding Southeast Inc., Independence Community
Bank Corp., First Sierra Financial Inc. and Solutia Inc. -- are stocks that have been
strongly recommended by "Mr. Pink." Third Point's record suggests the followers of "Mr.
Pink" have been right to hang on his words: The firm's primary fund returned 44.3% in
1996 and 52.5% in 1997, according to Managed Account Reports, New York.
"Mr. Pink," in the phone interview, asked a reporter not to "out" him as he had outed Mr.
Davidson. At the same time, he expressed no regrets about disclosing Mr. Davidson's
identity and accepted no responsibility for the harassing messages Mr. Davidson says he
has received. "I didn't make a single one of those calls," he says. "If people did that, they
were wrong."
Mr. Davidson says he "would pay a lot of money" to learn the real identity of his Internet
adversary -- but says he wouldn't send "Mr. Pink" anything beyond a Christmas card.
Above all, he says, "I just want my vengeance in being proven correct" about Chromatics |
