Too Little, Too Late

By Christopher Byron
New York Post
March 14, 2005 

It was great to learn from the current issue of Business Week that the U.S. Securities and Exchange Commission has come up with a bold new plan to crack down on penny stock fraud.

And how encouraging it was to learn furthermore that this important new initiative has already led to action against two corporate evildoers: Concorde America Corp. of Boca Raton, Fla., and Absolute Health and Fitness Inc. of no certain abode anywhere.

But wait. Do those two companies ring the vaguest of bells? If so, maybe it's because we first peeked under the fraud-soaked petticoats of Concorde America for a column in this space seven entire months ago. And ditto for a look inside Absolute Health and Fitness Inc. four months after that.

And as for the news that the SEC will soon be tightening up its shell company registration rules, could it possibly be that the SEC has finally been roused to action on that particular matter by a column in this space five months ago that exposed billions of dollars in penny stock fraud occurring right under the noses of the regulators through loopholes in the very rules the SEC now belatedly intends to tighten?

In fact, what we have here isn't a bold new anything from the SEC, it's simply the latest effort at public-relations damage control from a bunch of Beltway bureaucrats who've missed the boat on virtually every major Wall Street swindle for the last 30 years.

It wasn't the SEC that uncovered Mike Milken's junk bond chicanery at Drexel Burnham & Co. two decades ago, it was a team of reporters from Forbes magazine. It wasn't the SEC that exposed Wall Street's next big mega-scandal - the Mafia's takeover of the penny stock market - 10 years after that, it was a reporter from the aforementioned Business Week.

Nor did the SEC blow the whistle on WorldCom or Enron or Tyco, or even worthless analysts like Henry Blodget or Jack Grubman. In just about every case you can name, the SEC got involved only belatedly - typically after reading what the press had uncovered first.

YOU'D think that a sense of shame would alone be enough to rouse the Commission to action. But PR posturing is about as far as the SEC ever gets, and with the SEC setting the pace, it's about all that law enforcement on Wall Street now amounts to anyway.

Consider that much hyped $1.4 billion settlement that New York State Attorney General Eliot Spitzer wrested from 10 of Wall Street's top brokerage firms two years ago for pushing bogus research on their customers during the bull market 1990s.

Most of that money will never reach the investors who were actually ripped off in the first place, but is already disappearing into nebulous and unnecessary PR pursuits like "research" and "education."

Officials involved in the settlement talks say that the brokerage firm defendants in the case strongly pushed for having as much of the money as possible earmarked for high-visibility PR gambits like "investor education" that would help transform them in the public's eye from swindlers and cheats into good corporate citizens. Think of that saucer of honey that you set out next to the blanket to keep the ants distracted when you have a picnic, and you've got the basic idea of what's really going on here.

Some $27.5 million of the settlement monies has thus now found its way into the coffers of an obscure Washington not-for-profit group known as the Investor Protection Trust. The Trust was founded by state regulators in an earlier fit of "investor education" more than a decade ago. The Trust accomplished nothing of note and promptly fell asleep for the next 10 years.

But the jingle of those settlement millions has now roused the Trust to action, and it has thus already budgeted $1.75 million of the loot to finance a 13-week series of half-hour "investor education" TV shows, which will begin airing on PBS next month.

Just as you might expect, the shows are really little more than slicked up infomercials for the stock market itself. Structured around a newsmagazine motif, they feature two co-hosts engaging in scripted and banal "anchor-chat" on topics like globalization, while carefully sidestepping any sense of the irony involved in the source of their funding: The penalties levied against the Street's most prestigious brokerage firms for stuffing worthless and misleading research down the throats of their own customers.

Back in real life, and with the ants suitably distracted by their little plates of honey, the feasting on Wall Street continues undisturbed. In the case of the SEC's action against the promoters behind the aforementioned Concorde America Inc. and Absolute Health and Fitness Inc., pee-arr says it all.

The shares of both companies were gyrating wildly for months before the SEC finally acted, in early December, to suspend the trading in one of the companies (Absolute Health and Fitness). In fact, the 10-day suspension only came after the press began questioning whether the company even existed.

Worse still, once the 10 days were up the shares were permitted to begin trading all over again, even though reporting in this column and elsewhere made clear that this so-called company had no assets, no employees, no revenues, no offices and no business address and was in fact nothing more than a hologram of a public company, conjured out of thin air by a fax and e-mail spamming campaign.

Many of the same group were behind the action in Concorde America Inc. as well - and trading in the shares of this outfit was never suspended by the SEC at all. Instead, by the time the SEC finally served court papers on seven of the principals in the two alleged swindles on Feb. 15, nearly $28 million had been stolen from the market by the ring in the fraudulent pumping and dumping of stock in the two companies.

So it's better than nothing, I suppose, that the SEC is now belatedly demanding that the $28 million be returned and that the defendants be made to promise to stop swindling in the future. But if everything the SEC is alleging is true (and I have no doubt that it is) then why are shares in these two fake companies continuing to trade, even as you read these words?

That’s right, folks, even as the SEC publicly accuses the only known officer or employee of Concorde America (one Hartley Lord of Boca Raton, Fla.) of running the business as a swindle machine out of his home office den, the stock itself continues to trade on the Over The Counter market, where 60,000 shares changed hands last Friday at prices ranging between nine and 10 cents a share.

Ditto for Absolute Health and Fitness Inc., which doesn't even have a den in Boca Raton to call home. Last week, more than 200,000 shares of this non-existent company crossed the Over The Counter tape at prices ranging between 30 cents and 60 cents per share - even though the shares themselves represent ownership of nothing at all.

If you ask the SEC why it allows things like this to happen, you'll hear endless whining excuses about how it doesn't have the resources, or the legal firepower, to stop them. But the one thing you won't hear is how it plans to go about getting the tools it needs to get the job done. Why bother with that when you can simply pretend to be proactive and "in control" - even as the white collar money riot that has consumed Wall Street for more than a decade continues to rage all around you?

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