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Thursday, 10/14/2004 8:53:45 AM

Thursday, October 14, 2004 8:53:45 AM

Post# of 387
MYSTERY FIRMS HIT PINK SHEETS

By CHRISTOPHER BYRON
-------------------------------------------------------------------------------- http://www.nypost.com/business/30190.htm

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October 13, 2004 -- The Nasdaq operations department did not investigate the claims of a purported $500 million New Mexico natural gas company before issuing it a stock-market trading symbol last month, The Post has learned.
The company, CDC Systems, Inc., trades on Wall Street's so-called pink sheets market, where it has been one of the hottest stocks of the year, soaring from a low of 40 cents in late September, to a high of $5.30 last week.

At one point last week, the company's soaring stock price gave CDC Systems an apparent market value of more than $2.3 billion.

The company, which is referred to in recent press releases as both CDC Systems and CDS Systems, has never filed paperwork with the Securities and Exchange Commission enabling its stock to be legally traded on the public market.

But the shares began trading anyway on Sept. 24, under an obscure regulatory loophole that allows Wall Street brokers to post quotes for unregistered stock when the customer approaches with an unsolicited offer to buy or sell the shares.

In such cases, the broker then contacts the operations department of the quotation service for the Nasdaq Stock Market and asks to be issued a trading symbol, which is then used by the broker to post the customer's offer on computerized quotation terminals.

Industry officials say the trading symbols are issued under an SEC regulation that does not require Nasdaq to investigate the customer's claims before issuing the stock a trading symbol.

Sources familiar with this exemption say that hundreds of companies are now trading publicly as a result of the rule.

CDC Systems claims to have developed an array of specially designed mechanical compressors to extract natural gas from depleted gas fields.

But The Post and other publications have questioned the company's claims, which have been widely distributed by press releases over the Internet.



Press releases by an array of stock promoters have described CDC as a highly attractive investment, and have reported that demand for its compressors is so strong that some of the work involved in supplying them has been subcontracted to a company called Lobo Compression, in Bloomfield, N.M.

But Lobo turns out to be an unincorporated smallbusiness that repairs and rents out compressors from an adobe-style facility in Bloomfield. Business databases list it as having one-to-four employees, and a visitor to the place yesterday reported it to be nearly deserted.

CDC as well lists its current address in Bloomfield, but only as a post office box. A woman who answered the phone at Lobo Compression and claimed to know all about the deal with CDC Systems, said no work had yet begun on the contract, and that she had no idea where the company itself is based.

CDC's stock transfer agent, Holladay Stock Transfer, in Scottsdale, Ariz., which processes stock transactions for clients, has been charged by the Securities and Exchange Commission with helping clients sell restricted stock by stripping the restricting warnings off the certificates.

The first brokerage firm to quote a price for CDC, J. Alexander and Co. in Los Angeles, has been publicly linked to numerous suspect stocks in the pink sheets arena. Yesterday, Nasdaq terminals listed all J. Alexander's market-making activities in over-the-counter stocks as having being "suspended."

Efforts to obtain a comment from the firm proved futile as phone calls went unanswered.



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