Red Herring Online: "FRAUD MAY EXPLAIN HOMECOM BUBBLE" - |
By Dan Mitchell
More material at that site.
Text of teaser online follows:
"March 26, 1998
Last December, we wondered why Web-hoster HomeCom's stock kept rising, even as the rest of the market was still queasy from the Asian flu.
Now we may have an answer. A stock promoter in New York pleaded guilty Tuesday to illegally buying blocks of stock in three companies to inflate their prices. Two of those were biotech companies, but the third was HomeCom (HCOM). The stock promoter, David Blech, purchased the shares between November 1997 and January 1998. The purchases occurred beginning seven months after he was first charged with defrauding Bear Stearns, which provided clearing services and credit for his company, D. Blech & Co. Bear Stearns had ordered Blech to sell stocks to meet his margin requirements, but he failed to do so, submitting phony statements that he had.
Blech on Tuesday pleaded guilty to two counts of securities fraud in Manhattan federal court, according to Reuters. He could go to jail for up to 20 years or be fined up to $2 million. Sentencing is set for September 15.
HomeCom's stock rose 20 percent during one week in December. It nearly doubled between late November and late December, and it rose 400 percent -- to 11 from 2.13 -- from the previous August. All this took place while the market in general was sinking.
Company officials attributed the rise to HomeCom's burgeoning Web-hosting business, and to be sure, if business was bad, the stock would likely not have risen so high, no matter what Mr. Blech may have been up to. Chief Executive Officer Harvey Sax also hinted that a major deal with "one of the top five telecommunications companies" was in the offing. But such a deal has yet to materialize. Mr. Sax could not be reached for comment Thursday.
Reality has since returned to the market in HomeCom stock: it closed at 2.03 Thursday.
Much of the fall has to do with the company's mounting losses. In March, HomeCom reported that while revenues were up more than 25 percent to $2.89 million in the fiscal year ended December 31, the company lost $4.89 million or $1.88 per share, compared to losses of $625,583 in 1996.
See more about HomeCom's IPO, and its December bubble.
Were you taken in? "
Doug (no position in HCOM)