Berlin exchange rejects Canadian, U.S. firms' charges of illegal share sales
Last updated by The Canadian Press (CP) at 18:41 on June 3, 2004, EST.
By DAVID RISING
BERLIN (AP) - Despite complaints from several Canadian and U.S. companies that their stock is being improperly traded, a German stock exchange said Thursday an investigation has revealed no evidence of impropriety.
The companies say their shares are being sold on the Bremen-Berlin exchange without their authorization, and in some cases are being sold short in an attempt to drive prices down. Most of the firms are listed in the United States on what's known as the over-the-counter market, which caters to smaller businesses.
To short-sell a stock, the seller borrows shares from a broker to put on the market, betting that the price will fall so the shares can be then bought back at a lower price.
Some maintain the tiny Berlin exchange is used to bypass tougher rules against short selling enacted by the National Association of Securities Dealers this year. The Securities and Exchange Commission is also considering tougher requirements for short sellers.
The Berlin exchange said its rules are tough - dealers have to be able to produce the actual shares within two days to settle a trade - and there was no substance to the complaints.
"On request of the SEC, we examined the prices made on our exchange for some companies," spokeswoman Eva Klose said in an e-mailed response to questions. "We came to the conclusion that none of these cases involved short selling.
"The Berlin Stock Exchange is in contact with the SEC via its regulator and checks all accusations."
Both the SEC and National Association of Securities Dealers declined to comment Thursday.
But U.S. regulators were expected to meet Friday in Berlin with officials from the Berlin exchange to discuss the issue, according to a source familiar with the matter, who spoke on condition of anonymity.
At least half a dozen U.S. and Canadian companies issued statements Thursday saying they had been listed on the Berlin-Bremen exchange without their knowledge or authorization and were seeking to be removed.
Klose said the companies are not listed on the exchange, but that shares are traded through a "specialist" firm that is required to check the prices on the exchange of the primary listing. Some 10,000 foreign stocks are traded on the exchange this way, she said.
"It's not against the rules, it's a normal process to trade international shares on German stock exchanges," Klose said.
Most of the Canadia and U.S. companies' shares are being traded through a Berlin-based brokerage, Berliner Freiverkehr. The brokerage's chief executive, Holger Timm, told Dow Jones Newswires it was all above-board.
"It's impossible to sell short here," he said. "All we do is bring the two markets together."
But the North American companies contend the exchange is being used to manipulate stock prices.
KleenAir Systems Inc. of Irvine, Calif., said Thursday that its share price has dropped more than 50 per cent in the last two to three weeks and the company believes the reason for the decline is the listing on the Berlin-Bremen exchange.
Fremont, Calif.-based Titan General Holdings Inc. said it believes the trading of its shares in Germany directly led to a drop in their price.
"During recent weeks the company's share price has traded significantly lower despite improved financial news," said CEO Ken Shirley. "Management believes that the downward trending of its share price in the market is related to the unauthorized listing on the Berlin-Bermen Stock Exchange."
German federal regulators refused to comment.
The Berlin exchange is one of seven in Germany, including the main stock market operated by Deutsche Boerse in Frankfurt. Regional exchanges such as Berlin handle only a tiny fraction of trades.
