IN THE MONEY: Global Links As 'Get Shorty' POSTER-CHILD
1 April 2005
Dow Jones News Service
English
(c) 2005 Dow Jones & Company, Inc.
By Carol S. Remond
A Dow Jones Newswires Column
NEW YORK (Dow Jones)---You've probably never heard of Global Links Corp. (GLKCE), a tiny real estate developer in Las Vegas.
But this little over-the-counter bulletin board company got some big attention recently when a powerful member of the Senate banking committee referred to the company as a potential victim of abusive short selling.
Sen. Robert Bennett, R-Utah, used the Global Links example to harangue Securities and Exchange Commission Chairman William Donaldson about the inefficacy of Regulation SHO, a new short selling rule put in place earlier this year.
A close look at Global Links, however, makes one wonder why the senator held it up as a POSTER-CHILD for abusive short selling. There are questions about the accuracy of the story used by Sen. Bennett to show how Global Links was victimized by short sellers. And the company has hardly been a financial success over the past decade or so.
Sen. Bennett referred to a story published by an online service called FinancialWire to point out alleged naked shorting abuses. The article told the story of Robert Simpson, an investor who says he bought 100% of Global Links' common stock in early February in the open market, two days after that company had reduced its shares outstanding to about 1.1 million shares from more than 350 millions shares.
"There were no shares available to be borrowed and yet in two days there were over 50 million shares traded," Sen. Bennett told Chairman Donaldson during the exchange.
Short sellers typically borrow shares to sell them, hoping that they will be able to replace them with shares bought at a lower price later. Trading without a borrowing agreement is called naked short selling. It's illegal for most investors, but brokerage firms that make a market in stocks can legally sell short without a borrow to instill liquidity in the market.
The article used by Sen. Bennett was supposed to show how although one investor bought all the shares outstanding of one company and took delivery of them, phantom shares continued trading in the market.
But as it turns out, Simpson, the chief executive officer of a small Michigan company called Zann Corp. (ZANC), says he never took delivery of his Global Links shares. That means that stock was still available in the financial system for others to trade. Trades typically settle three days after purchase.
Zann and Global Links are very typical of the small companies that have for months now been complaining that their stock prices are being hurt by naked short selling. The two companies have little sales, big debts, and make generous use of stock issuance to pay for services that they can't otherwise afford. Both companies have gone through a number of corporate reincarnations. Global Links' most recent business development includes the acquisition of a handful of properties from Utah-based Diversified Financial Resources Corp. (DFLR), a company under Securities and Exchange Commission investigation for its participation in an offshore boiler room scheme.
Frank Dobrucki, Global Links' chief executive officer and major shareholder, said that Simpson never contacted him. "He is just trying to get himself at the front of this (naked short selling) battle," Dobrucki said, later calling Simpson's purchase "make believe".
Although seemingly unrelated, Global Links and Simpson share a corporate lawyer, Norman Reynolds, and an investment banking adviser, Alexander & Wade Inc.
Simpson believes that his company has been the target of naked shorting. He said he knew nothing about Global Links when he decided to purchase all of its oustanding shares after noticing heavy trading volume in the stock. Simpson said he was trying to make a point about the plight of Zann and other companies victimized by illegal short selling. Simpson also said he knew nothing about FinancialWire or its distributor, Investrend Communications Inc., and that he had no idea why the service wrote about his purchase. Investrend publishes research about its corporate clients.
FinancialWire didn't identify Simpson as CEO of Zann in its March 4th article. FinancialWire also failed to note that ATNG Inc., the previous corporate incarnation of Zann, became one of Investrend's corporate clients in July 2002. Investrend articles about ATNG or Zann indicate that coverage has been suspended because the company failed to provide access to Investrend's analyst. It's unclear when the suspension occurred. According to Zann's website, Simpson agreed to take over ATNG operations in October 2002.
As it turns out, Simpson wasn't the only investor eager to buy up shares of Global Links and try to make a point about alleged naked short selling.
SEC filings show that Paul Floto, an Oregon investor, bought 180,000 shares of Global Links stock in early March. Floto said in filing that he bought what he thought was 15.5% of Global Links' outstanding shares, "to point out the complete failure of government and exchange regulatory bodies to maintain honest, orderly markets, and the corrupt actions of market makers and securities clearing bodies, which facilitate the sale of unissued, unregistered, counterfeit, or simply nonexistent securities."
Like Simpson, Floto's plan was to show how millions of non-existent shares are traded every day when brokers fail to borrow shares before selling short shares.
Unfortunetly, likely unknown to Floto, Global Links had already issued 3 million shares by the first week of March, bringing its shares outstanding to about 4 million. That means that it's likely that Floto never held the 15.5% of Global Links that he claimed in his March 9 ownership filing with the SEC.
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074; carol.remond@dowjones.com
