Tuesday, February 18, 2014

mvsi boiler room Stratton Oakmont









http://www.nytimes.com/1996/09/04/business/stratton-oakmont-s-drama-with-an-initial-public-offering.html



Stratton Oakmont's drama with an initial public offering.

By Leslie Eaton
Published: September 4, 1996
CURSES! Foiled again!'' snarls the villain at the end of old movie melodramas (at least until the next installment).
But in Wall Street's version of ''The Perils of Pauline,'' that line belongs to the guys in the white hats, while the bad guys overcome every effort to stop them (and investors get tied to railroad tracks).
At least that's the way some frustrated regulators see Stratton Oakmont Inc., which the Securities and Exchange Commission calls a notorious boiler-room operation.
In today's episode, Stratton is planning to underwrite the first stock offering of E-Net Inc. The company, which is based in Gaithersburg, Md., says it has a patented system to transmit voices over the Internet.


But as is so often the case with the companies Stratton sponsors, there is less (or more) here than meets the eye. E-Net has been in operation for only 14 months, and hired fully half of its eight employees just last May, according to filings with the S.E.C.
The company does own the rights to a patent on a system for Internet phone service -- but it must allocate $1 million by Dec. 31 to develop the product or the inventors can take the patent back. And it will be competing with companies like Microsoft, which have rather more resources.
While E-Net does have revenues, they do not come from the Internet telephone business, but rather from more mundane efforts like billing software and services. And the company has been losing money: its biggest expense has been the interest on loans from Stratton clients.
Among them is Edward Ratkovich, a retired Air Force general who in June became a director of E-Net. General Ratkovich is also the chairman and chief executive of MVSI Inc., which Stratton took public in August 1995. He did not return telephone calls yesterday.
The management of E-Net does have experience, although it is not necessarily of the sort that would comfort prospective investors. The company's president and chief executive, Robert A. Veschi, worked last at Octagon Inc., another Stratton-sponsored company that fell apart after questions were raised about a major contract, plunging from $14.50 a share to less than $2 in 1994.
Mr. Veschi noted yesterday that he joined Octagon well after the initial public offering (though two weeks before the stock began its meltdown), so the Stratton people ''were long gone.''
Regulators have charged that Stratton routinely rigs the market for its initial public offerings, controlling both the supply of stock and the demand for stock, and locking in profits for itself and favored customers. Indeed, in June, the New York office of the National Association of Securities Dealers charged that the firm manipulated five such offerings; the charge must be affirmed by the association's national disciplinary committee.
Stratton is fighting that charge and a series of other complaints from Federal and state regulators, including an April N.A.S.D. decision barring it from selling any stock from its own inventory.
As part of its hard line against Stratton, the N.A.S.D. thought it had found a way to block the stock offering: It would refuse to list E-Net on Nasdaq's small-cap market. According to the 11th amendment to E-Net's registration statement, the association's committee on qualifications approved E-Net's application, but a review committee said it would reverse that decision.
Mr. Veschi said that the stock received the stock symbol EENT on June 24. ''We became a stalking horse for a bigger prey,'' Mr. Veschi said, contending that the problems with the N.A.S.D. were not really related to his company.
Failing to get on the Nasdaq market would not mean E-Net's stock could never trade -- there is an electronic bulletin board for trading unlisted stocks. But unlisted stocks with prices of less than $5 -- which seemed likely in E-Net's case -- are legally classified as penny stocks. Brokers who sell such stocks jump through a lot of extra hoops intended to protect investors.
Stratton seemed stymied. It withdrew its request to list E-Net, according to a spokesman for the N.A.S.D.
But on Aug. 6, General Ratkovich, the E-Net director, put out a press release: MVSI plans to buy E-Net. The next day, MVSI's shares, which are listed on Nasdaq's small-cap market, jumped as high as $15.625, from $11.50.
General Ratkovich's announcement did not explain why MVSI -- which makes laser sensors for welding and distributes computer chips -- is buying E-Net. Nor did he release any terms.
Those terms are still under negotiation, Mr. Veschi said, but should be available by Friday, when the companies' letter of intent expires.
In effect, E-Net may end up being listed on Nasdaq without being cleared by the N.A.S.D. The company's current shareholders, including General Ratkovich, may find a market for their stock. And Stratton seems likely to collect a fee, since MVSI's registration statement says that it has agreed to pay Stratton up to a 5 percent finder's fee if it helps with mergers and acquisitions.
Stratton referred questions about the E-Net transaction to Thomas T. Prousalis Jr., a Washington lawyer who was MVSI's lawyer in its offering and was listed as E-Net's lawyer in its registration statement (and Octagon's, too, for that matter). He is also a major shareholder in both companies. Mr. Prousalis did not return messages left on his voice mail yesterday.
Investor excitement over the E-Net deal seems to have waned of late; as of yesterday, MVSI's shares had fallen back to just about where they were before the announcement. But in two weeks E-Net plans to announce its new product, which Mr. Veschi said would allow companies with internal data networks to use them for voice transmission as well. So it may be back to the edges of their seats for investors -- and regulators -- involved in the Stratton drama.




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