|Moderated By: StockDung -- (Not Moderated) -- Started: 6/13/2000 11:26:00 AM Revision History|
Investigative reporter AARON ELSTEIN did an excellent job exposing the real reason for the price spike in Creative Host SVCS. Who was the market anonymous manipulator that put out the Spam report? Who paid this person 3,214 in freely trading shares of Creative Host stock? Seems all that CEO Sayed Ali would have to do is call the transfer agent and find out who transferred 3,214 of stock and to who it was given too. Someone made millions on this RIGG. No need for a PI. Maybe I should send him a bill?
Creative Host Warns Investors
About Rosy Report on Its Stock
By AARON ELSTEIN
Creative Host Services, an operator of airport-concession stands, has some unusual advice for investors considering its highflying stock: beware.
In a warning last week, the San Diego company said it "does not in any way endorse" bold predictions about its stock that were made in an anonymous report posted May 17 on a Raging Bull message board (www.ragingbull.com).
The company's shares rocketed, jumping from 18 15/16 to 29, after the report called the stock "a very strong buy" that is worth as much as $70 a share. The report also described Creative Host as "one of the most thrilling businesses we have encountered in recent memory."
While the authors' motives are unknown, the story highlights a point that securities regulators are constantly making to investors: Don't believe everything you read on the Internet; the source could be unscrupulous con-artists.
Creative Host operates Taco Bell, Little Caesar's Pizza, Mrs. Field's Cookies and other fast-food franchises in airports in Los Angeles, Denver and other cities. The company is struggling to turn a profit.
In November, its stock was languishing at 3/4 on the Nasdaq Stock Market.
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Online newsletters like the one about Creative Host Services often come from people who have been paid to promote a stock. But Creative Host says it wasn't involved with the anonymous report behind its stock rise, and in fact has publicly tried to debunk it.
Sayed Ali, the company's chairman and chief executive, says he is considering hiring private investigators to find out who is behind the report. "This is absolutely baffling to me, and it is very frustrating," he says. Mr. Ali owns 20% of the company's stock and stands to benefit from any increase in its value.
Creative Hosts has used paid promoters to talk up its stock, Mr. Ali confirmed. But two of those promoters deny any involvement with the report, which first surfaced May 12, when it was sent to members of a news group called eGroups from an e-mail service registered in the British Virgin Islands.
"I can emphatically say that my firm does not send out spams," says Patrick Shane, a vice president at Continental Capital and Equity, a Longwood, Fla., financial public-relations firm, using the colloquial term for junk e-mail messages. Continental Capital says it was hired by Creative Host in early May and is still working on a report about the company.
David C. Olson, president of Summit Financial Relations, Englewood, Colo., which also had been hired by Creative Host to promote its stock, denies being involved with the anonymous report. Mr. Olson says Summit isn't working for the company anymore. However, he says Creative Host's stock is "overvalued." "No one ever expected it would do anything like this, although there are opportunities out there for the company," he says.
Mr. Olson acknowledges that he has benefited from the stock's rise, saying that he sold some his shares two weeks ago as the stock rallied. He says he won't sell any more shares until the company can figure out why the stock is moving like it has.
Mr. Olson filed to sell over 35,000 shares he has received at prices ranging from 1 3/8 to 3 7/8 as compensation for "financial and consulting services" to the company. Additionally, he registered 120,000 warrants that give him the right to buy the stock at 1 3/8, which he received in exchange for helping the company raise $3 million in late 1998.
Mr. Olson is one of many Creative Host Services shareholders who has filed to sell stock. According to a March company filing, investors have filed to sell up to 1.7 million shares that they acquired last year through a private placement or a convertible note offering at prices ranging from 80 cents to 2 5/8 to per share. Mr. Ali says he doesn't know if these investors are in fact selling, or if any are behind the newsletter.
It is certainly not illegal for people to profit from rising share prices, but the Securities and Exchange Commission has filed suits against people who have promoted stocks without disclosing whether they are being compensated for their recommendations. The commission also has prosecuted promoters who have issued reports that contain false or misleading information about companies.
The anonymous report promoting Creative Host contains a disclosure saying the author was paid 3,214 in freely trading shares of Creative Host stock by an unidentified third party. But the report contains no information about the author's identity or the person who paid for the report. SEC rules require total disclosure.
An SEC spokesman declined to comment about Creative Host and the report.
Creative Host reported a loss of $580,000 in 1999 on revenue of $18.2 million, compared with a profit of $481,000 on revenue of $14.7 million in 1998. The company was saddled with $7 million in debt late last year and was struggling to avoid default on its bonds, Mr. Ali says.
The company had a loss of $72,000 in the first quarter of the current year, compared with a loss of $123,000 a year earlier. Revenue grew 7.5% to $4.5 million.
At the same time, Mr. Ali says the company cut its debt 40% by selling warrants to investors at an exercise price of $5.40 per share and also selling 240,000 shares at $5 each via a private placement.
"Our financial picture has really improved in just the past few months," says Mr. Ali, who says he wants to use the cash to buy rival companies. "I just don't want anyone thinking we endorse projections about our stock."
Write to Aaron Elstein at firstname.lastname@example.org.