Imagine that, Companies claiming NSS, selling unregistered shares:
Anti-Short Crusaders Accused Of Illegal Sales
By Carol S. Remond
31 July 2008
Dow Jones News Service
(c) 2008 Dow Jones & Company, Inc.
Brent Pierce and Grant Atkins, two Canadian citizens who were central in crafting an anti-short-selling campaign back in 2002, are now accused of violating federal securities registration laws.
According to a cease-and-desist order issued by the Securities and Exchange Commission Thursday, Pierce, Atkins and a now bankrupt company named Lexington Resources Inc. illegally sold stock without properly registering it with the commission.
The SEC alleges that stock promoter Pierce and his associates spearheaded a massive promotional campaign to pump the stock and improperly resell it to the public through an account at an unidentified offshore bank. The SEC alleges that the illegal sales generated proceeds of "over $13 million."
Atkins declined to comment or provide the name of his lawyer. Pierce couldn't immediately be reached. A recording on a Swiss cellphone listed for Newport Capital Corp., a firm for which Pierce is a director and officer, advised callers to try later.
Atkins and Pierce have 20 days to reply to the allegations in the SEC order.
The two have been involved with several small-cap companies over the years. Back in 2002, Atkins and Pierce were associated with Investor Communications International Inc., a Blaine , Wash. , promotional firm that was a large investor in a budding pharmaceutical company named GeneMax Corp.
In a move designed to hamper short sellers who were taking bearish bets on the company, GeneMax that year attempted to exit the global electronic settlement system managed by the Depository Trust & Clearing Corp., or DTCC.
The campaign to exit DTCC gained some support among small companies, mostly trading on the over-the-counter bulletin board, that believed they were subject to illegal short selling. But the move was later defeated by the SEC, which ruled that investors, not companies, should decide whether to hold securities in electronic or physical format.
Atkins, who had been president of the shell company used to take GeneMax public, was a director of the company and a consultant for ICI. Meanwhile, Pierce was identified as a shareholder, "controlling person" and president of ICI in two filings with the SEC.
Making Popular 'Naked Shorts'
In September 2002, GeneMax filed lawsuits against two Canadian brokerage firms, alleging stock manipulation. A month later, the company filed suit against various broker-dealers in the U.S. , accusing them of illegal, or naked, short selling.
Both suits were later dismissed. But the suit filed in federal court soon became a model in a still-ongoing legal campaign against DTCC and brokerage firms accused by some companies of facilitating abusive short selling.
Several of these suits have been dismissed over the years. Most recently, online discounter Overstock.com (OSTK), Canadian companies Biovail Corp. (BVF) and Fairfax Financial Holdings (FFH) filed suits in state courts alleging some form of abusive short selling. Those suits are ongoing.
(The term "naked short selling" gained prominence earlier this month after SEC Chairman Christopher Cox used it to explain the adoption of an emergency order to protect 17 financial institutions and mortgage behemoths Fannie Mae (FNM) and Freddie Mac (FRE) from investors betting against their stocks. Short sellers typically borrow stock in the hope of profiting when the price of the security goes down. Short-selling without borrowing the stock has been dubbed naked short selling.)
This is hardly the first time that an insider who claimed that his company was victim of illegal short selling is accused of improperly selling stock.
In 2005, the SEC sued Gary Valinoti, alleging that the former chief executive officer of Jag Media Holdings Inc. (JAGH) engaged in unregistered sales and transfers of securities. Without admitting or denying the SEC allegations, Valinoti agreed to settle the charges and consented to a final judgment that permanently enjoins him from violating securities laws. Under the deal, Valinoti agreed to disgorge about $2.9 million in illicit gains and to pay $1.39 million in pre-judgment interests.
Jag Media, like GeneMax, had sued brokerage firms it accused of manipulating its stock. That suit was also dismissed.
Same goes for Universal Express Inc. (USXP), another self-proclaimed poster child of the abuse of naked short selling. The SEC sued Universal Express and Chief Executive Richard Altomare in 2004, accusing them of selling 500 million unregistered shares into the market, using erroneous press releases to prop the company's stock price.
The company went into receivership last year and Altomare recently served several months in jail for failing to pay his share of a $21.9 million fine imposed by the SEC.
All fine examples of companies and insiders complaining of naked short selling whom Chairman Cox might want to consider before extending his restrictive short-selling order to other securities.
(Carol S. Remond is an award-winning columnist who won a Gerald Loeb Award in 2005 for best news service content with "Exposing Small-Cap Fraud," a series of articles that described how three small companies unscrupulously pumped up their stocks.)
-By Carol S. Remond; Dow Jones Newswires; 303-997-5783 ; carol.remond@dowjones.com
