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Anatomy of a Creeping Phone Stock Scam






Aug 23, 2004 (financialwire.net via COMTEX) -- (FinancialWire) According to the Knight-Ridder's (KRI) Philadelphia Inquirer and Viacom's (VIAB) CBS MarketWatch, the voice mail scam that FinancialWire wrote about last week has targeted five companies and their shareholders.

Among those are 5G Wireless Communications (FGWC),and Maui General Store (MAUG). These were identified by the Oregon Attorney General's office.

According to the Inquirer and other media sources, the targets also included Donini Inc. (DNNI), Power3 Medical Technologies (PWRM) and Food Innovations (IVFH).

The calls have been left on answering machines around the company, beginning with "Debbie" or "Wendy" who are "mistakenly" leaving a "hot stock" tip meant for a friend. The U.S. Securities and Exchange Commission pointed out that the slickly scripted calls are just a new twist on "pump and dump."

According to the Inquirer, Wendy even apologizes for chewing while talking, to make the calls seem even more "real."

Last Tuesday, the SEC's Web site posted an investor advisory on the calls. Yesterday, Susan Wyderko, director of the SEC's office of investor education, said her office received 33 calls within 20 minutes after a Miami television station reported on the scam and ran her unit's phone number.

""They are just coming in through every conduit, through phone numbers all over the commission," she said.

Said the Inquirer: "The scam seems to have worked.

"On July 27, 180,000 shares traded of one of the target companies, Power 3 Medical Products, of the Woodlands, Texas. The stock, traded via the Over the Counter Bulletin Board, closed that day at $1.99.

"On Tuesday, almost 5.7 million shares were traded, and Power 3 shares sold for as much as $4.88 apiece.

"Power 3 is a real company with real prospects, according to its own public statements. It has clinical studies under way of tests it says can analyze proteins in blood serum, which may help with the early identification of breast cancer and neurodegenerative diseases, such as Parkinson's.

"On the other hand, it has no sales so far of the diagnostic products, and only about a dozen full-time employees," said the Inquirer.

""The company is bewildered by this," said Irving Einhorn, an attorney who represents Power 3 and who calls the scam "the worst thing that could have happened to the company.

""They've been asked if they hired anybody to do this, or know who's doing this," Einhorn told me. "They have no clue."

"Einhorn said Power 3 insiders aren't even in a position to profit from the scheme. Because of restrictions on the shares they hold, it will be months before any of them can be sold, whatever the price.

The SEC's Wyderko was quoted as saying there was no reason to assume that insiders were connected with a pump-and-dump, which can be profitable to anyone who holds a company's stock. "Often, the companies are as much victims as the shareholders," she said.

According to

At one company that was mentioned in the calls, Maui General Store (MAUG: news, chart, profile), shares surged to a 52-week high of $1.20 on Aug 9. They were in the range of 15 cents to 20 cents a share six weeks earlier and closed at 35 cents Thursday, down 36 percent as news of the scam spread.

On August 11, an investor contacted FinancialWire about one of the messages, but unfortunately had not kept the recording. FinancialWire began to contact involved companies as part of an effort to verify the occurrence, and to determine if any of the companies were involved, even as it later learned that various message board posters and discredited websites were claiming, after jumping to that conclusion without journalistic diligence.

In fact, one so-called "watchdog" website run by an admitted securities fraudster well known for its inaccurate conclusions continues to leave its claim that a company's management was involved in the phone scam even while linking readers to the SEC's statements that none of them were.

Within a day, FinancialWire learned of the SEC's involvement from one of the targeted companies, and from that, the SEC's public warning about several companies.

Richard Miller, president of Maui General Stores, said he got wind of the scam during the first week of August, when some prospective investors called after hearing the message. He said he subsequently heard a tape of the message and talked to SEC officials, said CBS MarketWatch.

" The SEC went out of its way to keep the identity of the firms involved a secret, which other investigators said is a sign that management was not involved with the scam."

"We had news," Miller was quoted as saying. "We just got a license from a major company, so when I looked at the stock price and the volume, I thought it was because of the news. I had no idea that somebody was underneath the company doing this voicemail thing. "I have never heard of anything like this. I got caught up in something here that I had no involvement in, and this is an unfortunate situation for the company and any investors who were taken in by it."

Both Donini and Power3 issued press releases stating that they were not aware of any news that would have resulted in the market activity. For several days, FinancialWire, which routinely follows Power3 Medical Products because it is enrolled in one of its parent company's shareholdere empowerment and financial intelligence platforms, had similarly noted as it reported on the volume and price that the activity was based on "no news."

Donini did take the opportunity in its press release to point out that it has completed the development of a frozen microwavable pizza that it says is the "first truly Pizzeria tasting pizza coming out of a microwave," which if true, is the best news to come out of the mess.

Power 3 Medical Products is enrolled in Investrend Research's unique and pioneering professional analyst program, which facilitates independent analysts to provide financial coverage for shareholders and investors in companies that otherwise would have little or no analyst following.

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