A Sad Tale of Fictional S.E.C. Filings
By FLOYD NORRIS
High & Low Finance
The New York Times
June 22, 2007
When it comes to disclosures, Universal Express is not exactly a model company.
In its latest quarterly report filed with the Securities and Exchange Commission, Universal reports that its suit against the S.E.C., and an S.E.C. suit “against certain officers” of Universal, “are pending.”
It does not mention that the company itself is also a defendant in the S.E.C. suit, nor that during the quarter in question a federal judge in New York ruled that the company and the officers had violated securities laws and ordered them to pay $21.9 million.
The judge described Universal’s chief executive, Richard A. Altomare, and its general counsel, Chris G. Gunderson, as “repeated and remorseless violators” of the securities laws. He barred Mr. Altomare from being an officer or director of any public company, and barred both men from being involved in sales of penny stocks. None of that is mentioned in the quarterly report.
As for the company’s suit against the S.E.C., it does not appear to be pending at all. A federal judge in Miami dismissed it in 2005, and that judgment was affirmed by an appeals court in 2006. If there is a further appeal pending, it is not mentioned in the court docket.
The case of Universal Express, a small company that loses money even faster than it issues news releases, is not very important on its merits. But it shows how hard it can be for the S.E.C. to halt what it views as a fraud. The S.E.C. filed suit against Universal in 2004, but the company is still financing itself by issuing billions of unregistered shares.
In Universal’s world, it is the victim. It says the S.E.C. investigated it only in order to retaliate for the company’s criticism of the agency.
Universal says the only issue worth considering is its claim that its stock price fell because of “naked short selling,” in which shares were sold by traders who neither owned them nor borrowed them. Mr. Altomare calls the S.E.C. a “bully” and says the commissioners “will have to answer for their treatment of us whistle-blowers.”
He is dismissive of Judge Gerard E. Lynch of Federal District Court in New York, who ruled that Universal violated the law when it issued a series of news releases that were “at best misleading and sometimes wholly fantastical” and used them to sell 500 million shares that were illegally issued from 2002 to 2004.
All the federal judges in New York, Mr. Altomare told me, “tend to support the S.E.C. whether or not they read the depositions or research the laws.”
In one news release, the company forecast $9 million in annual revenue from 9,000 private postal stores. But, the judge said, “there is no evidence that Universal Express actually had a relationship with any such store and, indeed, Altomare has explained that its ‘network’ consisted of every postal store existing in the United States that had not somehow known to opt out of it.”
Nothing much has changed after the ruling. The latest quarterly report says those 9,000 stores are “members” of Universal Express’s network. The news releases the judge found to be false are still on the Universal Web site
If the S.E.C. was upset that Universal Express issued 500 million unregistered shares over 33 months, how do you think it feels about the fact the company issued 5.4 billion unregistered shares in the first three months of this year, with 660 million being sold and the rest issued for “deferred services,” which I think means the recipients are supposed to provide future services.
Universal claimed its old stock issues were allowed by a bankruptcy court ruling permitting it to issue stock options when it finished reorganization in 1994. Judge Lynch found that claim to be baseless and dismissed the company’s justifications for some news releases as “flatly ludicrous.”
Billions of shares in Universal Express now trade each week on the over-the-counter bulletin board. Calling it a penny stock may be a compliment, because you can get 25 shares for a penny. But last year it traded as high as 40 cents.
Big numbers are a staple of Universal announcements, but not of its financial statements. The S.E.C. suit cited news releases claiming a total of $885 million in financing, none of which seems to have arrived. For years Universal has said it hopes to collect hundreds of millions of dollars in judgments from investment bankers involved in a 1997 Universal Express financing.
In 2006, Universal lost $18.9 million on revenue of just $1.1 million. Mr. Altomare, acting as the sole member of Universal’s board, gave himself a $50,000 raise, to $650,000 a year. The company also forgave part of $1.6 million in loans to Mr. Altomare and his wife. The cash to pay that salary came from the sale of unregistered stock.
In Mr. Altomare’s view, the issues that bothered the judge are irrelevant. “Long and short of it,” he said in a statement issued by the company, “this is a naked short hallmark case in the making.”
Or it is proof that it can take a long time for the S.E.C. to stop a fraud.
High & Low Finance
The New York Times
June 22, 2007
When it comes to disclosures, Universal Express is not exactly a model company.
In its latest quarterly report filed with the Securities and Exchange Commission, Universal reports that its suit against the S.E.C., and an S.E.C. suit “against certain officers” of Universal, “are pending.”
It does not mention that the company itself is also a defendant in the S.E.C. suit, nor that during the quarter in question a federal judge in New York ruled that the company and the officers had violated securities laws and ordered them to pay $21.9 million.
The judge described Universal’s chief executive, Richard A. Altomare, and its general counsel, Chris G. Gunderson, as “repeated and remorseless violators” of the securities laws. He barred Mr. Altomare from being an officer or director of any public company, and barred both men from being involved in sales of penny stocks. None of that is mentioned in the quarterly report.
As for the company’s suit against the S.E.C., it does not appear to be pending at all. A federal judge in Miami dismissed it in 2005, and that judgment was affirmed by an appeals court in 2006. If there is a further appeal pending, it is not mentioned in the court docket.
The case of Universal Express, a small company that loses money even faster than it issues news releases, is not very important on its merits. But it shows how hard it can be for the S.E.C. to halt what it views as a fraud. The S.E.C. filed suit against Universal in 2004, but the company is still financing itself by issuing billions of unregistered shares.
In Universal’s world, it is the victim. It says the S.E.C. investigated it only in order to retaliate for the company’s criticism of the agency.
Universal says the only issue worth considering is its claim that its stock price fell because of “naked short selling,” in which shares were sold by traders who neither owned them nor borrowed them. Mr. Altomare calls the S.E.C. a “bully” and says the commissioners “will have to answer for their treatment of us whistle-blowers.”
He is dismissive of Judge Gerard E. Lynch of Federal District Court in New York, who ruled that Universal violated the law when it issued a series of news releases that were “at best misleading and sometimes wholly fantastical” and used them to sell 500 million shares that were illegally issued from 2002 to 2004.
All the federal judges in New York, Mr. Altomare told me, “tend to support the S.E.C. whether or not they read the depositions or research the laws.”
In one news release, the company forecast $9 million in annual revenue from 9,000 private postal stores. But, the judge said, “there is no evidence that Universal Express actually had a relationship with any such store and, indeed, Altomare has explained that its ‘network’ consisted of every postal store existing in the United States that had not somehow known to opt out of it.”
Nothing much has changed after the ruling. The latest quarterly report says those 9,000 stores are “members” of Universal Express’s network. The news releases the judge found to be false are still on the Universal Web site
If the S.E.C. was upset that Universal Express issued 500 million unregistered shares over 33 months, how do you think it feels about the fact the company issued 5.4 billion unregistered shares in the first three months of this year, with 660 million being sold and the rest issued for “deferred services,” which I think means the recipients are supposed to provide future services.
Universal claimed its old stock issues were allowed by a bankruptcy court ruling permitting it to issue stock options when it finished reorganization in 1994. Judge Lynch found that claim to be baseless and dismissed the company’s justifications for some news releases as “flatly ludicrous.”
Billions of shares in Universal Express now trade each week on the over-the-counter bulletin board. Calling it a penny stock may be a compliment, because you can get 25 shares for a penny. But last year it traded as high as 40 cents.
Big numbers are a staple of Universal announcements, but not of its financial statements. The S.E.C. suit cited news releases claiming a total of $885 million in financing, none of which seems to have arrived. For years Universal has said it hopes to collect hundreds of millions of dollars in judgments from investment bankers involved in a 1997 Universal Express financing.
In 2006, Universal lost $18.9 million on revenue of just $1.1 million. Mr. Altomare, acting as the sole member of Universal’s board, gave himself a $50,000 raise, to $650,000 a year. The company also forgave part of $1.6 million in loans to Mr. Altomare and his wife. The cash to pay that salary came from the sale of unregistered stock.
In Mr. Altomare’s view, the issues that bothered the judge are irrelevant. “Long and short of it,” he said in a statement issued by the company, “this is a naked short hallmark case in the making.”
Or it is proof that it can take a long time for the S.E.C. to stop a fraud.
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