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Following please find a letter from me to the Enforcement Division of the Securities and Exchange Commission. If anyone has any experience with class action suits, Rule 144 sales, SEC enforcement activity, or knowledge of SEMX, I'd like to hear from you. Sorry if this hasn't formatted properly, I can't seem to get it to copy & paste properly. January 2, 1997 To Whom It May Concern: I am writing to apprise you of a situation which I believe warrants your attention. I will attempt to provide you with an accurate chronology of events and information as I understand them. In the interest of full disclosure, I must state that I am a Registered Representative with a major brokerage firm. Further, my own money, as well as that of some of my clients', was invested in the situation which I am about to describe. On more than one occasion in mid-December, the "chart" or "graph" of price-action in the stock of Semiconductor Packaging Material ("the Company," NASDAQ:SEMX) was among those highlighted in Investor's Business Daily as being an attractive looking pattern. I studied the chart of price-action and volume, and decided that it appeared to be an interesting situation which called for further examination. I got complete fundamental information on the company from a variety of sources, including Bloomberg and several sites available on the Internet that provide financial information, including the company's own homepage on the World Wide Web. At this time, the stock was in the 13 « - 14 « price range and I was beginning to buy. A few of my clients had also noticed the chart and we had begun discussing the relative merits of an investment in SEMX. Behind the scenes and unbeknownst to me, the Chairman and the CFO of the Company, Mr. Gilbert D. Raker and Mr. A. Lozyniak, respectively, had granted an interview to reporter Janet Purdy Levaux from Investor's Business Daily. Her telephone interview with them was held on December 20, 1996. The stock continued to climb over the next week or so on better-than-average daily volume, and was rapidly approaching 17 - 17 «. It appeared to be a legitimate "break-out" - higher prices (actually new highs) on heavy volume - an ideal and extremely desirable situation. I was continuing to buy in the low-to-mid 16 dollar range, convinced that the "break-out" was for real, and having no reason to think otherwise. Ms. Levaux's very bullish article appeared in the December 26 edition of Investor's Business Daily, and confirmed for me what the price-action had been telling me all along - here was a company whose business was booming. The article quoted Chairman Raker several times, and his comments were resoundingly positive. Mr. Raker indicated that while some companies had been hurt due to falling DRAM prices, SEMX "does not service as many DRAM clients as rivals, like those in Japan." Further, he stated that the Company did not see demand for its services being hurt over the next year or so, since the market is strengthening. Prices for memory chips, he explained, which fell 80% earlier this year, are stabilizing, and demand is on the rise thanks to strong PC sales. Lastly, the article mentioned that the Company plans to double capacity at its cleaning plant in Providence, R.I. The article could not have placed SEMX in a more favorable light, and there was not one cautionary word sounded by any of the company's officials. It is my understanding from Ms. Levaux that CFO Lozyniak also participated in the interview, although no quotes were attributed to him in the article. Again behind the scenes, it appears that Chairman Raker had filed to sell 20,000 shares of SEMX stock on December 24 - four days after his interview with Ms. Levaux and only one business day prior to said interview appearing in Investor's Business Daily. On the day the article appeared (Dec. 26), the stock had moved solidly into the 17 dollar range, and it closed on Friday, December 27, at 17 «. While I cannot state this with any certainty, I strongly suspect that Mr. Raker's 20,000 shares had been sold by Friday's close, or at the latest sometime in the morning of Monday, December 30, as the stock opened that day at 17 7/8. At this time I am uncertain as to what Mr. Raker's total SEMX holdings were at the time he filed. At mid-day on Monday, December 30, trading was halted in SEMX stock pending a news announcement. At 1:47 PM, the first of several press releases issued by the Company crossed the tape stating that the Company's "fourth quarter will be below analysts' consensus expectations and that the earnings for the fourth quarter will be below prior year levels. The Company said that its fourth quarter had been weak at several of its operations, including a decrease in orders for 8" silicon wafers which are reprocessed at its American Silicon Products Inc. subsidiary in Providence, R.I." (This is the same plant at which the Company said it plans to double capacity, according to the IBD article). When the stock re-opened for trading, it did so at approximately $12, down almost $6 from the day's opening price, and drifted lower from there. The stock has appeared to settle at approximately $11, down 38% from its high in a matter of hours. Needless to say, any number of investors have suffered substantial losses as a result of the stock's precipitous decline. My questions regarding this unfortunate sequence of events are as follows: Wasn't it unethical, at the very least, and quite possibly criminal, for Mssrs. Raker and Lozyniak to cooperate with what they knew would be an extremely favorable article in view of their knowledge of the Company's current abysmal quarter? Wouldn't the appropriate course of action on the part of Mssrs. Raker and Lozyniak have been to decline to give the interview at all, or, if they were intent on giving it, to sound a cautionary tone? Wasn't Mr. Raker's bullish sentiment as reported in the article both misleading and deceptive? Wasn't it unethical, at the very least, and quite possibly criminal, for Chairman Raker to file to sell 20,000 shares of stock in advance of two separate events which he had to have known would first inflate the stock's price and subsequently pummel it? When I called the Company on Monday afternoon (Dec. 30), none of the Company's officials were in and I was told the Company was officially closed for the holidays. I spoke to a gentleman who told me that his only reason for being in the office was to issue the press releases. On Tuesday, December 31, when Mr. Raker's 20,000 share 144 filing was made public, I called him at his home to ask him about the timing of his sale of stock, along with the timing of the Company's press releases. He said he felt it was important for the Company to respond quickly to the upbeat nature of the article in light of the fact that the quarter is not going well at all and that the Company would not be meeting analysts' expectations. In my opinion, this begs the question as to why the Company agreed to do the interview, since they were in possession of the knowledge that the quarter was not going well, and could have rightly assumed that the article would drive up the price of the Company's stock. I believe that the actions of Mssrs. Raker and Lozyniak were deceptive, misleading, and fraudulent, causing substantial and possibly unnecessary losses to shareholders of Semiconductor Packaging Materials, Inc. I think that at the very least, Mr. Raker's actions would be classified as "insider trading," which, I believe, by your own definition, "refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security." I would ask that you review events leading up to the Company's Dec. 30 announcements and make a determination as to whether or not any securities regulations have been violated. If applicable, I would also ask that you consider this correspondence an "Application for Award of a Bounty," to the extent that enforcement action is taken against the Company or any of its officers. Thank you for your consideration. If you have any questions regarding the facts as I have stated them above, please respond via e-mail to me at jfrankel@ix.netcom.com, or contact me during normal business hours. Sincerely, Josh Frankel | ||||||||||||||
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