.IN THE MONEY: GeneMax Naked-Short Suits Dismissed
28 December 2004 17:42 Dow Jones News Service English (c) 2004 Dow Jones & Company, Inc.
By Carol S. Remond A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Two more lawsuits alleging illegal short selling by brokerage firms have been dismissed without much fanfare.
Biotech company GeneMax Corp. (GMXX) was at the forefront of companies protesting what they said were unfair attacks by short sellers in late 2002. Back then and through much of 2003, GeneMax and its then-marketing firm Investor Communications International, or ICI, led a campaign against naked short selling, or short selling without first borrowing securities to make delivery.
As part of its campaign, GeneMax filed lawsuits in Canada and in the U.S. to try to prevent brokerage firms from engaging in naked short selling.
GeneMax filed a lawsuit against Canadian brokerage firms Global Securities Corp. and Union Securities Corp. in September 2002 in the Supreme Court of British Columbia. The company alleged that the brokerages engaged in illegal short selling to manipulate the price of its shares.
A court order obtained by Dow Jones Newswires shows that suit was dismissed on Dec. 16. A countersuit filed by Global Securities and Union Securities was also dismissed.
GeneMax had widened its legal fight with the brokers to U.S. courts in October 2002 when it filed suit against 11 brokerage firms in the U.S. District Court for the District of Nevada. That suit was dismissed. But the company filed another suit in November 2003 that mirrored much of the illegal short selling allegations it made in its first Nevada suit, including fraud and racketeering. The original suit named Knight Trading Group Inc. (NITE), Charles Schwab Corp. (SCH) and nine others and seeks injunctions to prevent the firms from shorting GeneMax shares and unspecified damages.
Court documents show that the 2003 Nevada suit was dismissed on Nov. 9.
GeneMax's shares, which topped $20 a share in late 2002, are now trading at a mere 24.5 cents in very thin trading.
GeneMax's President and Chief Executive Ronald Hanford wasn't immediately available to comment.
GeneMax was the subject of three "In The Money" columns in 2002 and 2003. Those columns questioned whether insiders would benefit most from limits on short selling and GeneMax's connection to consultant ICI. GeneMax terminated its agreement with ICI in late 2003.
In a short sale, a security not owned by the seller is sold in anticipation of a decrease in the stock's price. In the U.S., NASD requires that before they engage in short sales for themselves or clients, firms make an affirmative determination that they can borrow a security or will be able to provide it for delivery on demand. Market makers are exempt from the affirmative determination rule when engaged in "bona fide market making activity" because they provide needed liquidity to the market. Earlier this year, NASD tightened its affirmative determination rule, making it harder for Canadian brokerages to take advantage of the fact that no borrowing requirement exists in that country.
In September, another suit alleging naked short selling was dismissed after Jag Media Holdings Inc. (JAGH), which also led the charge against naked short selling in the U.S., failed to make its case.
Jag Media and Gary Valinoti, the company's former chief executive, sued more than 100 brokerage firms, investment firms and financial institutions in July 2002, alleging that they entered into a civil conspiracy and concert of action to short sell Jag Media's stock. In the suit, originally filed in the Judicial District Court, Harris county in Texas and later removed to the U.S. District Court for the Southern District of Texas, Houston Division, Jag Media alleged that the financial institutions committed market manipulation and fraud and violated securities laws.
That case was dismissed by U.S. District Judge Vanessa Gilmore after she found multiple deficiencies in Jag Media's third amended complaint. Gilmore found that Jag Media didn't have a viable claim against those defendants.
(Carol S. Remond is an award-winning columnist and one of four who write the "In The Money" feature. Most recently, she shared a 2003 Best of Business Award from the Society of American Business Editors and Writers for her role in Dow Jones' team coverage of the Canary Capital mutual fund trading scandal.)
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074; carol.remond@dowjones.com [ 12-28-04 1742ET ]
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