Shame on the SEC
By Christopher Byron
New York Post
January 10, 2005
INVESTORS with money in the large and well- capitalized companies of the Dow Jones industrial average certainly felt blue last week, as the first five trading days of the new year brought a 180-point, or 2 percent, drop on well-placed fears that the Federal Reserve intends to keep raising interest rates until the economy stalls out.
But to any of the growing legions of investors lucky, nervy, or foolish enough to have been slumming instead last week in the investing world's seediest dive of them all - the penny stock market - Wall Street definitely looked pretty in pink.
In contrast to the stagnating market for so-called "big cap" stocks like those of the Dow industrials, the lawless and completely unregulated "gray market" for non-reporting penny stocks has been on fire for more than a year, and in the absence of effective regulatory oversight by the Securities and Exchange Commission, has been making new and ever-more outrageous highs almost daily.
Recent days have brought one of the most startling examples yet of just what is actually going on in that market, as SEC regulators attempted to perform a public service by moving against a fishy-smelling company called Absolute Health & Fitness Inc. after its soaring stock price attracted Internet blog posters who began to question whether the company even existed.
Yet instead of heading into court for an emergency order to shut down the business and seize its books and records, the commission slapped a 10-day trading suspension on the company's shares.
What happened next is one for the record books, as this worthless stock - which has traded under at least five different names over the years, and has long been a plaything of scruple-free "investor relations" promoters - came out of the penalty box and back onto the ice on the last trading day of December, and almost instantly soared 800 percent, then collapsed all over again, in what had all the earmarks of a flagrant pump-and-dump operation.
Who actually profited from the runup is impossible to know because the company, which trades under the Nasdaq ticker symbol of AHFI, has yet to file a single financial report on itself to the SEC or anyone else - so who holds its stock remains totally unknown, at least to the public.
Yet the history of this trash stock - from its name changes over time, to its various promoters and so-called "investor relations" consultants - has been well imbedded in the public record for years, through nearly the whole of which it seems to have escaped the attention of the SEC.
On the evidence, AHFI appears to have crawled from the rubble of a bankrupted aerospace company called Micronics International in the early 1990s. By 1997 it had drifted into the Chinese import/export game, hiring a dodgy Florida investor-relations firm called Alexander Troy Consultants Inc. to promote it.
The now-defunct firm is named in Canadian law enforcement files for the role its president, David S. Heredia, played in a notorious and widely publicized 1997 stock-rigging scheme that reached from the Cayman Islands and Costa Rica to Vancouver. Heredia pleaded guilty to securities fraud and conspiracy, and was set for sentencing late last week in New York federal court.
In February of 1999, Micronics International moved from Chinese imports and exports to Hawaiian restaurants. Renamed as Premier Enterprises it was passed along, like the easy girl at the drive-in, from the Heredia crew to the next investor-relations bunch.
This outfit, bearing the name OTC Financial Network, is headed by a stock promoter named Geoffrey Eiten, who has been the promotional muscle behind a long list of shaky penny stocks.
At the time he was taking on the Premier Enterprises account, Eiten was simultaneously promoting a Great Neck, L.I., company called Juniper Group.
An SEC filing shows that the largest shareholder of Juniper at that time was a Panamanian company called Bluffdale Corp., which Miami-based KYC News Inc., a leading newsletter publisher, has identified as a mail drop for an international crook named Marc Harris. That man was convicted last May by a federal jury in Miami and sentenced to 17 years in prison for his role in a freon gas smuggling ring.
In late 1999, the company changed its name again - from Premier Enterprises to Hawaiilove.com, and in January of 2000 hired a Casselberry, Fla., investor-relations firm named Worldvision Financial Group to promote it.
That company, now defunct, was headed by a man named Orville Baldridge. Several months later, Baldridge was arrested and convicted on felony charges for lewd and lascivious acts involving a minor, and as a result his photo - shot from six different angles - was thereafter posted as a registered sex offender on the Web site of the Seminole County Sheriff's office.
A year later, the company moved from Hawaiian restaurants to Internet gambling, changing its name in late 2001 from Hawaiilove to Ornate Holdings. By spring 2004, it was onto its fifth (and current) moniker of Absolute Health & Fitness, taking on a whole new cast of IR promoters as well.
Key among them: a man named Thomas Heysek, an ex-broker with a history of violations, ranging from misuse of customer funds to lying to management about his activities.
Last summer Heysek could be seen on an Internet video clip, interviewing two young men about the grand future they anticipated for their company, a North Carolina-based network of workout gyms called Absolute Health & Fitness. The young men said they anticipated revenues of $23 million to $24 million by year's end, and as much as $100 million annually within three years. They claimed to own three facilities already, with five more soon to come.
Those claims, recycled through a barrage of fax spams, helped move AHFI from 12 cents per share in mid-May, to more than $5 per share by the start of December, giving it a market value of more than $300 million.
At that point, an astounding 9 million shares hit the market on Dec. 3, and the stock crashed back to $1.62. When North Carolina newspapers looked into the matter, they found it impossible to confirm anything about the company or its wildly hyped claims. This led, in mid-December, to the SEC's 10-day suspension of trading in the shares, which were halted with the price at $2.72 per share.
When trading resumed on Dec. 30, the shares opened at 25 cents. But by the end of the day they were back up to $1, after which they doubled again and by last Tuesday were selling for $2.32, before falling Friday to $1.30.
There's been a lot of talk in the last couple of days that the SEC did the only thing it could in suspending the shares, and that new and tougher regulations would be needed for it to have done more.
But that is nonsense. This company has had the lesions of fraud leaking from its every pore for years, and the SEC did nothing at all. Only after newspaper reporters in North Carolina and bloggers on the Internet did the work for the SEC did the commission even notice what was going on. And frankly, that's just not good enough.
Shame on them.
[ RGM Short Selling Home page ]