Fi/X: Financial Intelligence Xchange
Vol. 5, No. 3 / Monday, February 4, 2002
Circulation this edition: 27,105 / Published since 1997
'The Worldwide Voice of the Financial Community'

<> PRIME SUSPECTS -- "Wall Street's X-Files"
<> SMACKDOWN -- Corporate Control Dispute Turns "Ugly"
<> RESEARCH CORNER -- Month-in-Review
<> OKEY-DOKEY -- NIRI "Opens the Door" to "Paid-For" Research
<> GOING PUBLIC -- Thru the Back Door
<> THE CYBERTRAINER -- "The First 20 Minutes"
<> SITESEARCH -- Book Your Next Speaker Online
<> WHAT'S HAPPENING? -- Davos Schmavos.
<> PERSONAL PRIVILEGE -- Obsessing the Ticker

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PRIME SUSPECTS
Scams on the rise, public companies among targets for "Fraud of the Century"
NASAA says bogus schemes are likened to "Wall Street's X-Files"
http://www.nasaa.org/nasaa/abtnasaa/display_top_story.asp?stid=229
http://www.nasaa.org/

If your "overseas" deal is to be guaranteed by a "prime bank," that's your signal to run for the hills; and if you've got a deal already cooking guaranteed by a "prime bank," your best option may simply be to run for the nearest bar -- and try to fog it out of your mind.

The bottom line is, no matter how fanciful the documentation or cut of the deal-maker's suit, there is ... uh ... no such thing as a "prime bank."

State securities regulators have warned that losses from "prime bank" scams well over $1.5 billion last year, by one estimate are rising dramatically. State securities regulators said that the recession and volatile stock markets are making investing through the supposedly secretive portfolios of "prime banks" seem more appealing to investors. At a press conference at the National Press Club, regulators showed videotape of promoters claiming that prime bank trading programs can yield huge returns with no risk. In reality, securities regulators said, neither prime banks nor the instruments they claim to trade exist.

In a typical pitch, increasingly made over the Internet, investors are promised access to secret, high-yield investments made through trades among the world's top or "prime" banks. Prime bank promoters falsely claim their investments are guaranteed or secured by some sort of collateral or insurance. So many prime bank scams succeed that the Commercial Crime Bureau of the International Chamber of Commerce calls them the "fraud of the century."

State securities regulators say that many victims of prime bank scams fail to report their losses because they don't want to appear foolish. Others simply can't believe close friends, trusted business associates, or people they met at church ripped them off. Over the past three years, state regulators¹ have brought actions on behalf of more than 41,000 people nationwide who invested at least $470 million in prime bank scams.

"People want to believe there are secret ways to make fabulous amounts of money," said Joseph Borg, president of the North American Securities Administrators Association (NASAA) and director of the Alabama Securities Commission. "But investors have a better chance of running into Elvis in the checkout line at the supermarket than finding a legitimate investment with the words 'prime bank' anywhere in the promotional materials."

Besides promising high returns with no risk, some prime bank scams appeal to conspiracy buffs and those who distrust government or want to avoid paying taxes through offshore accounts.

In Texas, a Harlingen-based con artist promised returns of 6% to 8% a month through a secretive web of money dealers supposedly set up by a coalition of governments in 1914 to pay for World War I debt. In videotape shown at Thursday's press conference, the promoter claimed that seven "world traders" control the entire global money supply. The "world traders" were said to act as a sort of board of directors for 150 "licensed traders." In the end, the scam took over 300 investors for roughly $6 million.

"Prime bank promoters promise to open the X-files of the financial world," said Tony Taggart, director of the Utah Securities Division. In cooperation with the U.S. attorney in Sacramento, Utah regulators shut down Castlerock/IFR Trust, a $110 million prime bank scam that was funneling money to the promoters' bank accounts in Latvia.

"A veneer of sophistication is often all that's needed to sell a prime bank scam," said Assistant U.S. Attorney Benjamin Wagner. "The con artists use a lot of financial jargon and the investors don't question them because they don't want to appear naïve. But there are no dumb questions when it comes to your money."

Over the last three years, regulators at the Securities and Exchange Commission have shut down roughly three dozen prime bank scams, with losses totaling hundreds of millions of dollars.

One reason prime bank scam artists are able to mislead people is because the instruments they claim to be using standby letters of credit, bank debentures and bank-secured trading programs, to name a few mimic legitimate financial instruments closely enough to deceive people outside the specialized world of international banking.

"In prime bank schemes like these, investors should ask themselves, 'Why me?'" said NASAA president Borg. "If this scheme really works, why is some stranger in a hotel meeting room or on the telephone or the Internet offering to cut me in on it? Prime bank trading programs don't pass the smell test." NAASA's site contains a series of questions worth asking before undertaking any deal that is from anyone you haven't done business with before or contains any kind of esoteric language.

_________________________________
SMACKDOWN
Corporate control dispute turns 'ugly'
http://www.wwf.com
http://us.imdb.com/Title?0120755

Not since Mission Impossible agent Ethan Hunt (Tom Cruise in MI2) arrived on a terrorist-controlled island to save Australia from a deadly virus about to be launched by an arch-villain hell-bent on gaining control of a bio-tech's stock options has the business world seen such an ugly corporate take-over dispute.

Any public company chairman or CEO who has gone to the mat against an insider-led shareholder plot could appreciate World Wrestling Federation Entertainment, Inc. (NYSE:WWF) Chairman Vince McMahon being decked by Stone Cold Steve Austin as former world champion Ric "Nature Boy" Flair refused to sign documents to sell his "stock" back to McMahon in a televised finale to Thursday night's "WWF Smackdown."

Of course, McMahon taunting Flair and calling his audience (and likely shareholders) "stupid" didn't help matters. Then there is the little matter of the televised marital dispute between McMahon's daughter and current WWF Champion "Triple H." So far, wife, mother and CEO Linda McMahon has not intervened; but who knows, as both the shareholder and marital disputes move to TNN tonight on "WWF Raw," along with a half-dozen other sub-plots.

If you missed the mandatory SEC filing for this proposed transaction, could it be it's only soap opera? Naaah. Must be real. We're hooked. Yesterday the Superbowl ... now on tonight to the real thing! Slam 'em with your proxies Vince!

_________________________________
RESEARCH CORNER
Investrend's Month in Review: IOMC, USXP, RVP, DLA, SGMS, LTRY, CTHR
This week's new enrollees for analyst coverage: CYTP, MGHA, SWEB
Write info@investrend.com to nominate a company for coverage.
http://www.investrend.com
http://quote.yahoo.com/q?s=IOMC.OB&d=c&k=c1&t=3m&l=on&z=m&q=l
http://quote.yahoo.com/q?s=USXP.OB&d=c&k=c1&t=3m&a=v&p=s&l=on&z=m&q=l
http://quote.yahoo.com/q?s=DLA&d=c&k=c1&t=3m&a=v&p=s&l=on&z=m&q=l
http://quote.yahoo.com/q?s=RVP&d=c&k=c1&a=v&p=s&t=6m&l=on&z=m&q=l
http://quote.yahoo.com/q?s=LTRY.OB&d=c&k=c1&a=v&p=s&t=3m&l=on&z=m&q=l
http://quote.yahoo.com/q?s=CTHR&d=c&k=c1&t=3m&l=on&z=m&q=l
http://viavid.com/vvasx/0000044200000000.asx

With the introduction of NewsNotes to our coverages, January was eventful. It also marked the debut of the AnalystBroadcast.Network and FirstAlert Network, distributed by InvestorWire.

'Targets' below are 12-month analyst valuations from each report date converted to per-share expressions:

I/O Magic (IOMC) analyst David Shen, CFA, issued a $3.25 target, and the company is up 32.3%, after putting pressure ($0.96) on its 52-week high of $1.12.

Universal Express (USXP) analyst Jane Freedman issued a $0.50 target, and the company is up 20%.

Delta Apparel (DLA), targeted at $29 by analyst Gary N. Clark, Ph.D., CFA, is up 24.3% after crashing through its all-time high ($20) to $22.50.

Scientific Games (SGMS), targeted at $8.50 by analyst Gerald LaKarnafeaux, CFA, is up 73% at a new high of $9.52.

Retractable Technologies (RVP), targeted at $12.60 by analyst Sherry Grisewood, CFA, is at $5.10, up 50%, but down 32% from the post-report high of $7.50.

MDI Entertainment (LTRY), targeted at $5 by analyst Piyali Chakravarty, is at $2.45, up 122%, putting pressure on its 52-week high of $2.70.

Charles & Colvard (CTHR), rated a "Speculative Buy" by analyst Randall Lewis, CFA, raced to a new 12-mo high of $2.50 and is currently at $2.05, up 129.4%.

_________________________________
CYBERTEL COMMUNICATIONS CORP. (CYTP)
http://www.cybertelcorp.com
http://www.investrend.com/Analysts.html
http://quote.yahoo.com/q?s=CYTP.OB&d=c&k=c1&a=v&p=s&t=2y&l=on&z=m&q=l

... is a fully integrated telecommunications service provider that supplies a wide range of telecommunications services. The Company can offer highly competitive rates to its residential and business customers on long-distance, personal 1-800 numbers, calling card calls, as well as completely free traditional Internet dial-up access with its Internet call-waiting feature. For businesses, Cybertel offers a wide variety of value-added services. These included virtual private networks (VPN), unified messaging and Web hosting services. Cybertel is also in the process of building a state-of-the-art Internet telephony network throughout the United States. Cybertel plans to expand its network over the next year to include 56 gateways around the U.S., which will serve the entire country. The Sonus gateways give Cybertel a significant advantage over its competition.

Ann M. Northrup, CFA, is scheduled to be the Investrend analyst.

_________________________________
MINGHUA GROUP INTERNATIONAL HOLDINGS (MGHA)
http://www.investrend.com/Analysts.html
http://www.minghuaev.com/
http://quote.yahoo.com/q?s=MGHA.OB&d=c&k=c1&a=v&p=s&t=3m&l=on&z=m&q=l

... has announced that its Environmental Protection Electric Vehicle Research and Development Center, established November 28,2001, in Shenzhen, China is fully operational, with 21 researchers and other staff members currently working on a second generation electric battery for use in Minghua's hybrid vehicles. Minghua's indirect subsidiary, Shenzhen Minghua Environmental Protection Vehicles Co., Ltd. (the ``Environmental Vehicle Company''), owns all of the assets of the R&D center and operates it, having invested approximately U.S. $500,000 in it to date. The Environmental Vehicle Company is the owner of patented technology relating to hybrid vehicles powered by a combination of a combustion diesel engine and an electric power system. Minghua's subsidiary is initially focusing its efforts on the Chinese public transportation sector. Its hybrid vehicles consist of four models (coaches and mini-buses) that can be used in this sector. Minghua's subsidiary has not made any sales of its hybrid vehicles to date, however, it has entered into 4 non-binding letters of intent for the sale of up to 110 coaches.

Susan Laws, CFA, is scheduled to be the Investrend analyst.

*****

STOCKGROUP INFORMATION SYSTEMS (SWEB)
http://www.stockgroup.com
http://www.smallcapcenter.com
http://www.investrend.com/Analysts.html
http://quote.yahoo.com/q?s=SWEB.OB&d=c&k=c1&a=v&p=s&t=1y&l=on&z=m&q=l

... has transformed itself to become a leading provider of private labeled financial content management software solutions to media, corporate and financial services companies. Stockgroup employes proprietary technologies which enable its clients to provide financial data streams and news combined with cutting edge fundamental, technical, productivity and disclosure tools to their customers, shareholders and employees at a fraction of the cost of traditional internal methods. Stockgroup is also a provider of Internet communications products for publicly traded companies. Its financial web site SmallCapCenter.com is a state of the art online research center for the investment community.

Michael Whitney, CFA, is scheduled to be the Investrend analyst.

===========================
OKEY-DOKEY
NIRI "Opens the Door" to "Paid-for" research
About-face comes as investment banking research is being "Enronized"
http://www.niri.org/attach/executive/EA-PaidForResearch.doc
http://www.aimr.org/standards/ethics/code/full_code.html
http://www.aimr.org/standards/ethics/conduct/complaint_center/standards.html
http://www.investrend.com/iwirenytedit072791.html
http://www.investrend.com/FiXarticle8.html

The collapse of Enron has introduced a new word into the common business lexicon. Whenever a company or organization responsible for public access or disclosure appears to serve two masters, or provides too-complex data, and the public reacts, it is said to have been "Enronized."

The "Enronization" of the Big 5 has begun, as most are pulling back from consulting gigs for their auditing clients (see Fi/X 01/22/02). Now, as investment banking research comes under increasing scrutiny from the NY Times, Shareholder Value and the U.S. Congress for similar conflicts, the National Investor Relations Institute, long the bellwether for U.S. corporate shareholder behavior, has reversed course and endorsed "paid-for research" meeting certain criteria.

NIRI said that it had revised its guidance to "open the door" to public companies not served by "traditional" sell-side coverage to "pay for research" as long as those writing are "qualified analysts" operating legitimately and not in violation of federal securities laws. NIRI warned, however, of "stock promotion firms" that operate under the guise of "investor relations" consultants that write "research reports" and then hype companies' stocks to individual investors, often over the Internet.

The guidance also raises questions about whether "research" could provide recommendations, but the organization was said to be studying further clarification of that recommendation when the research author is qualified under the ethics and standards of the Association for Investment Management Research, which holds that those who have passed any of the three levels of its Chartered Financial Analyst program are qualified to set valuations and make recommendations.

GOING PUBLIC
Thru the back door: the "Reverse Merger"
http://www.halterfinancial.com/best_method.html

When the average person talks about "going public," he or she is usually thinking about an "IPO," says Timothy Halton, president of Halter Financial Group, and a leading expert on "Reverse Mergers" -- the "other" going public method. Halter, who has been principally involved in more than 50 reverse merger transactions, says an IPO is essentially a "capital raise," whereas a reverse merger is the use of an existing public shell, usually with no viable assets except trading stock, by a private company.

Generally, says Halter, millions of new shares are issued to the company it is "acquiring," to compensate for the disparity in revenues, earnings and assets, so that the seller of the public company becomes the new majority owner of the public company. The merged entity is now public, and can use its publicly traded stock as currency for acquisitions or to raise capital. It is easier than as a private company, because now those receiving stock have liquidity and an exit if they want one.

Halter states that "one thing that the reverse merger does not directly provide is capital." In fact, he notes, it is not uncommon for companies to spend $200k to $400k to complete a reverse merger --- yet this is often far less than the cost of an IPO. Many companies not yet needing capital take this route so they will be prepared if and when an opportunity arises.

He cites several examples of successful "reverse mergers," such as Ted Turner's 1970 reverse merger with Rice Broadcasting that became Turner Broadcasting Systems, and ultimately a major shareholder in AOL TIme Warner. Armand Hammer used the process as early as the 50's to start Occidental Petroleum, and other well-known companies such as Radio Shack, Blockbuster and Waste Management all started in this fashion.

The sooner and more efficiently you rev-up your metabolism each day, the better. Doing so consistently has a profound, deeply-rooted andlasting effect. Being active "first thing" in the morning, on an empty stomach, emphasizes your 'fat-burning' metabolism and sets it strongly in motion for the rest of the day -- because your body's fuel supply is depleted, and stored fat becomes its fuel of choice.

For as long as the first 20 minutes of aerobic exercise, the body's anaerobic (or 'high intensity'-oriented) systems are working substantially to "catch-up" to the suddenly imposed energy requirement. That's why aerobic activity has to be prolonged in order to be truly aerobic.

Starting the day with 10-20 minutes of comfortable to vigorous activity is an amazingly effective training tool. The cumulative effect of repeatedly activating the body systems involved during that first 20 minutes is easily one, in a three-way tie for first, on my highest-possible-return-for-your-effort list. All i'm really talking about here is going for a walk, maybe jog a little, get into a good striding run toward the end -- if you're in that kind of shape -- or the equivalent climber, rower, bike, cross-trainer, etc. version of that.

Think of it as a cup of coffee.

Please be sure to get loose, before turning it up. And don't forget to drink water.

Want Ed McMahon at your next annual meeting or event? Or former Commerce Secretary William Daley? Or how about Bobby Knight, the terror of Indiana now at Texas Tech? NY Times columnist and former Agnew speechwriter William Safire? Claude Barfield, foreign trade expert? NBC Anchor Tom Brokaw? Got $25k to $50k? -- plunk it down and Tom will speak to your company softball team. Mountain climber Mark Pfetzer?

Or maybe you'd prefer corporate comedian Calvin Coolidge ... negotiable up to $5k. And he is a cousin to the real guy. But then, Cora Coolidge, Herbert Hoover's nemesis' great-grandniece, hangs out with this writer's daughter, and as an aspiring songstress, will break out a show tune for nothing. President Coolidge may not have left a big Washington legacy, but he left a lot of relatives. At ASAE's SpeakersDirect, you can book 1,000 speakers -- but not Cora -- online.

We've selected some other sites that provide a variety of speakers as well. Leading Authorities offers precisely 803. And if you can't quite afford the real thing, there are always look-alikes: dozens, from George Bush to the Blues Brothers -- or would that be more appropro vice versa?

Davos in New York turned out to be so much Springtime in Paris. Mostly warm weather, light drizzles here and there -- and except for traffic snarls on New York's east side, the World Economic Forum made barely a dent. Anywhere else it might have been voted "something" on Late Night with David Letterman. But a gathering of world leaders in Gotham City? That's pretty much every day at the U.N., a few blocks from the Waldorf. Colin Powell speaking at the Waldorf? As a kid, he rode his bike over.

World series championships, Madison Square Garden championship fights, galactic headquarters for the Men in Black, World's Fairs ... Party of the Millennium in Times Square? Zzzzzz! Wanna see 1,000,000 people come together, drop a ball, blow some whistles, send up some balloons and except for street sweepers, disappear down into the vast subway system 15-minutes into each New Year? Compared to a crowd like that or the daily sessions of the United Nations, what's a few 100,000 demonstrators or 2,700 world leaders, more or less? Except for cursing the traffic hang-ups, which New Yorkers do every few weeks anyway when the President's in town, the main focus in The Big Apple this past week was 1,500 miles away -- in New Orleans. Oh, yeah, and a little Knicks streak. Piece of cake, this Davos thing. Maybe that's why they call it New York.

February
31-February 5: "Davos" World Economic Forum Annual Meeting, New York City, Waldorf-Astoria
http://www.weforum.org/site/homepublic.nsf/Content/Annual+Meeting+2002
31-February 5: World Social Forum 2002, Porto Alegre, Brazil
http://www.forumsocialmundial.org.br/eng/index.asp
1-3: Financial Forum, Calgary, Telus Convention Centre
http://www.finforum.com/calgary_directions.asp
2: Commonwealth-Africa Investment Conference, Abuja, Nigeria
http://www.cbc.to/
6: Institutional Investor All-Europe Research Team Awards, London, The Dorchester Hotel
http://www.euromoneyconferences.com/customer/emc/emcprogramnotes.asp?iEventId=161&referer=eventcalendar
11-14: Wall Street Analyst Forum Institutional Investors Conference, New York City
http://moneycentral.msn.com/investor/calendar/events/current.asp
12-13: 23rd Annual Global Aerospace Conference, New York, Essex House
http://www.sgcowen.com/conf/conf2.html
12-13: Corporate Venturing & Strategic Investing 2002, Palm Springs, Ritz Carlton Rancho Mirage
http://www.ibforum.com/
15-17: Financial Forum, Vancouver, Convention & Exhibition Centre
http://www.finforum.com/vancouver_directions.asp
19-22: The Wall Street Journal Europe's 7th Annual Fund Management Conference, Munich, Arabella Sheraton Grand Hotel
http://djconferences.dj.com/

One of the warning signs listed last week by a Morningstar analyst in the wake of the Enron collapse was the practice of a CEO speaking out about his company's stock price, or even paying attention to it.

Granted, we have been in the offices of small-cap CEOs who are fixated on their Level 2 quotes, and we've even seen one enter into real-time online dialogues (supplemented with frantic phone conversations) with stockbrokers, fighting against every market-maker collapse on either the bid or the ask. That was a frightening experience, as the CEO couldn't complete three sentences without rushing back to his computer screen to check any minute deterioration in quotation or price. Even scarier, he was quite "proud" of his "control" over matters. The stock of that company -- still with revenues below $100k and losing well over $1m a quarter -- was around $2 at the time, give or take a few hard-fought pennies on the bid. Now it's scrambling to stay at $0.07.

Likewise, a CEO too aggressively proclaiming his company's stock is "on the way up" could someday find those statements to come back to haunt him or her, as has Enron's Kenneth Lay, who will be asked more about that in Congress today. There are now professional, third-party valuations available to every public company, so that a CEO can focus on actually creating and maintaining the shareholder value that an unbiased expert will be able to recognize and validate, if it is verifiably real.

On the other hand, as long as there is an OTCBB "governed" (there's a contradiction of terms) by a market-maker system that invites and even tacitly condones outright manipulation, and as long as price-per-share is an available indicator of changes in market capitalization -- a vital element of financings, dilutions and equity capital raises -- a good CEO who has independent acknowledgment of his company's true valuation, certainly needs to keep at least one eye peeled on the stock price range, along with his or her other duties. If someone says you should not, ask to monitor his or her trading account.

It is not unusual for companies in the middle of equity financings tied to stock price to find "inexplicable" declines in the stock price prior to closings. It doesn't take a rocket scientist to figure out why, nor much of a nudge for the little investor, not being in on the "plot," to "bail out" -- so the IB or MM doesn't even need to expend much energy or capital on selling or shorting to accomplish the objective of squeezing the shareholders for more dilution than you had intended.

And because the OTCBB was set up as a "Third Market" (Third-World Market is more like it), with few regulations except restrictions on the issuers, manipulators with the need for greed can easily wreck companies, their unsuspecting shareholders and set back serious business plans.

No, a CEO shouldn't obsess on the ticker, nor protesteth too much. But share price is not something that can be ignored, either; as market capitalization is as a matter of fact a crucial element in any public company's ability to do business. As Goldilocks learned, one can find a porridge that's just rig

--- [c] Copyright, 2002, all rights reserved, by Investrend Data Services Publishing Group, wholly owned division of Investrend Communications, Inc., an ESCO Company. Fi/X merges 'IR/x: Investor Relations Xchange' and 'IR/j: Investors Research Journal,' both published since 1997. Sometimes recipients are forwarded our publications via current or previous subscribers. If you believe you have received this or any ESCO publication by mistake, please click on the 'UNSUBSCRIBE' link below and your address will be courteously omitted from the subscription list. Thank you.