WSJ: "Trading Halts Show Risks Of Investing in Small Caps By JOHN R. EMSHWILLER
Staff Reporter of THE WALL STREET JOURNAL
The Securities and Exchange Commission suspended trading of six stocks,
in another reminder of the risks associated with investing in small-company
stocks, particularly Internet-related issues.
The SEC said Friday's trading halts, which last until Feb. 11, were
prompted by questions over the accuracy and adequacy of public
information about the firms. All six issues traded on the so-called
electronic bulletin board, a relatively unregulated arena for small
companies.
One company is USA Talks.com, a La Jolla,
Calif., marketer of Internet-based
long-distance phone service. Company filings
with the SEC show that USA Talks doesn't
yet have revenue.
But the price of USA Talks' shares rose to more than $52 on Thursday
from about $3 in November, giving the firm a stock-market value of $1.5
billion based on about 30 million shares outstanding.
The SEC said questions about USA Talks included "the status and extent"
of the firm's business operations. An SEC official declined to elaborate.
Allen J. Portnoy, the company's chairman and chief executive, said "we
have been extremely careful" in public statements about USA Talks'
business affairs. Company officials said the firm expects to start producing
revenue from long-distance customers this week
Marketing of the company's service is being done by TrendMark of
Memphis, Tenn. In September, USA Talks announced a still-pending
agreement to purchase TrendMark for about 2.75 million shares. In June,
the Federal Trade Commission announced a settlement with TrendMark
of charges that the firm had made "a host of unsubstantiated" claims about
weight-loss products it was selling.
TrendMark President William McCormack said his firm didn't admit
wrongdoing but agreed to refrain from certain alleged actions in order to
settle the FTC case. USA Talks' Mr. Portnoy said he is confident
TrendMark isn't making any misstatements in marketing his company's
phone service.
To fund operations, USA Talks has sold $20 million of stock in recent
months in private transactions with individuals and institutions, Mr. Portnoy
said. He declined to identify the buyers or say how many shares were
involved. He said the shares haven't yet been registered with the SEC for
public sale.
USA Talks has also issued stock or stock warrants covering over 1.5
million shares to consultants as compensation for services, according to
company SEC filings. Of those, 15,500 went to a small video-production
company headed by Richard Langley, who is currently a defendant in a
federal criminal stock-fraud case in New York.
In an interview Friday, Mr. Langley denied any wrongdoing in that case.
As for USA Talks, Mr. Langley said his firm produced a promotional
segment for use on cable television. He said his company sold its USA
Talks shares for about $3 each.
USA Talks' Mr. Portnoy said he was unaware of Mr. Langley's New
York court case and knew him as just "a TV producer."
The other five firms whose stock trading was suspended are: Citron,
Electronic Transfer Associates, Invest Holdings Group, Smartek and
Polus. According to news releases from those firms, their businesses range
from Internet marketing to impotence products. Recent releases from all
five list the same Georgia phone number as a contact. The person
answering that phone declined to comment but said he would pass
messages on to the companies. None called back.
Like many bulletin-board companies, the five firms don't file financial
reports with the SEC.
Friday's Market Activity
Tech stocks overcame early weakness to push the Nasdaq Composite
Index to a second straight record. Small-capitalization stocks also
rebounded.
The Nasdaq Composite finished
with its 11th record so far this year,
climbing 28.55, or 1.15%, to
2505.89. The Russell 2000 tacked
on 3.25, or 0.77%, to 427.22. For
the week, the Russell advanced
4.78, or 1.13%, while the Nasdaq
rose 167.01, or 7.14%.
Tut Systems, a Pleasant Hill, Calif.,
maker of products that offer
high-speed data access over copper
telephone wires, priced at 18, then soared as high as 64 before settling at
57 1/2 .
Sterling Vision soared 5/8, or 21%, to 3 5/8 . The East Meadow, N.Y.,
optical retailer plans to launch an interactive Web site.
Shares of theglobe.com rose 6 1/8, or 10%, to 66 1/16. The co-chief
executive said in a CNBC interview last week that the New York Internet
company was considering joining with a larger company.
Security Dynamics Technologies shares fell 16% to 20 7/8 after the
Bedford, Mass., computer-security products company said it expects $5
million to $7 million in restructuring and other charges during the first
quarter.
American HomePatient dropped 29/32, or 27%, to 2 1/2. The
Brentwood, Tenn., provider of home medical care warned that its
fourth-quarter results would be lower than expected.
Supreme International rose 1 5/8, or 11%, to 16. The Miami sportswear
manufacturer agreed to buy Perry Ellis International for $75 million.
Cytyc, a maker of preparation systems for medical testing, lost 4 3/8, or
19%, to 19 1/8. The stock of the Boxborough, Mass., company was
downgraded by NationsBanc Montgomery Securities.
Checkers Drive-In Restaurants fell 3/32, or 18%, to 7/16; and Rally's
Hamburgers dropped 1/32 to 1, after the companies said they will merge
in a stock swap. The drive-though hamburger restaurant chains, which
already share management in Clearwater, Fla., plan to report losses for
their fourth quarters.
Small stocks declined in the morning as the technology rally seemed to run
out of steam, but then BancBoston Robertson Stephens provided a jolt
when it upgraded several semiconductor-equipment stocks. Leading the
group was Lam Research, which gained 6 1/16 to 38 3/8 . The
Philadelphia Stock Exchange Semiconductor Index rose 14.10, or 3.4%,
to 420.58, helping boost the turnaround in tech stocks.
--Loren Fox |
