30 June 2007
How to Deflect an Accurate Accusation
It certainly brings some creativity to the business of deflecting accusations.
Between 2001 and 2004, Universal Express issued 500 millions shares of common stock without filing registration statements. Not unsurprisingly, this had a diluting effect. Its stock price lagged. Universal Express, though, in the person of its head honcho (and sole director) Richard Altomare, soon became very ardent in claiming that "naked short sellers" were the problem. Its own stock-distribution policy couldn't be at fault.
The SEC brought a lawsuit against Universal Express for its unregistered issuance, and in due time (February of this year) it won. Part of its complaint involved the noise Altomare had been making about naked short selling -- on the rationale that Altomare used that as part of a smoke screen to explain away the depressive effect on stock price that his own stock issuances were having. The NY federal district court ordered the company to pay $9 million in disgorgement and $9 million in penalties.
On June 21, Thursday, seeing that no effort at disgorgement had been forthcoming, and claiming that the company had become simply a vehicle for fraud whence the investing public required protection, the SEC asked the court to appoint a receiver.
The next day, the New York Times published an article by Floyd Norris, "Resilience of Fraud." His fifth graf read thus: "The case of Universal Express, a small company that loses money even faster than it issues news releases, is not very important on its own merits. But it shows how hard it can be for the SEC to halt what it views as a fraud. The agency filed suit against Universal in 2004, but the company is still funding itself by issuing billions of unregistered shares."
The Times later ran a Norris follow-up, "S.E.C. Seeks Receiver for Universal Express, Calling it a Fraud."
Mr. Norris wrote, "If a receiver is appointed and no more shares are issued, the company might have trouble financing itself. In the first nine months of its fiscal year, through March 31, it reported $2.7 million in revenues and a net loss of $21 million. It took in $11 million by issuing new shares."
On Monday, June 25, Mr. Altomare put out a press release comparing him to Rosa Parks. You read that right. He's decided that the SEC really doesn't like him because he's made the case against "naked short selling," and the offenses it claims he committed are a trivial excuse for this punishment.
"I am sure that Rosa Parks, Susan B. Anthony and others, who questioned previously accepted 'legal' practices, were vilified, criticized and even demonized prior to the truth finally surfacing. When the cause is just, the enemy must be engaged. Naked short selling and the unchecked abuse of power of a governmental agency are such valuable causes worthy of the battle." And so forth in a megalomanaical rush.
At no point in that press release, or so far as I can tell anywhere else over the course of the litigation, does the company or its sole director dispute the crucial facts: the issuance of the unregistered stock. Nor is it entirely obvious why a law requiring registration is entirely on a par with, oh, a city ordinance prohibiting blacks from sitting in the front seats of a bus.
Not entirely, mind you....but if your only real product seems to be your company's own shares, you have business problems that you can't blame (well ... can't accurately blame) on exogenous forces. Your problems, Mr. Altomare, are self-generated. Rosa Parks didn't banish herself to the back seats and then seek to inspire a boycott of the Montgomery bus system.
Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.