To old-timers on Wall Street, the American Stock Exchange is the "Curb" -- a throwback to the horse-and-buggy era, when Amex traders bought and sold stocks outdoors. But over the years, the Amex has come light-years from its open-air origins, achieving a reputation for innovation that has been reinforced under its aggressive but folksy chairman, James R. Jones. The Amex has been a pioneer in options and new financial instruments. But the former Washington heavyweight has been unable to reverse a somber trend: When it comes to another Amex franchise, secondary stocks, the exchange is left in the dust by the NASDAQ over-the-counter market.
Well, the Amex is fighting back. On Mar. 18, the exchange inaugurated with much fanfare an Emerging Company Marketplace of 23 small companies. The ECM companies are tiny "penny stocks," $ 30 million in average market cap, but top-heavy with high-tech innovators in fields that range from cancer therapy (Epigen Inc.) to air-cooled krypton lasers (Ion Laser Technology Inc.) (table). The companies were handpicked by a "blue-ribbon committee" of Amex members and money managers, and screened for quality as well as financial soundness. Securities & Exchange Commission filings were scrutinized, Amex staffers insist, to weed out companies infected with the malady that has plagued the penny-stock arena -- regulatory troubles.
TRACK RECORD. The result, the Amex boasted in one ad, is an amalgamation of "some of the best companies in the country." Or as Jones puts it: "We want ECM to be a prestige place to start" -- an "incubator" for companies on the way up. Jones bristles at criticism of the ECM for including some companies that originated as "blind pools" -- shell companies that are frequently subject to manipulation by penny-stock promoters. "That's an unfair swipe at some very distinguished people who served on the blue-ribbon committee," says Jones. And three committee members who would speak for the record -- Bankers Trust Senior Vice-President William J. Newman, Prudential Securities Inc. Managing Director Alexander C. Schwartz Jr., and Beekman Capital Management President Nedim Hamarat -- say the panel weeded out dubious companies. "Where there was prior wrongdoing by any principals of the listed companies," says Schwartz, "the panel in almost all cases took an extremely negative view and disqualified the company."
"Almost all"? Were any companies with regulatory problems allowed to list on the ECM? The answer is yes. And that raises questions that go to the heart of the new Amex marketplace, because small-company stocks are largely sold to small-fry investors, who are wary of penny stocks because of past abuses.
An examination of public information by BUSINESS WEEK indicates that one of the ECM companies recently had significant regulatory troubles that were known to the Amex. The chairman of yet another ECM company has blots on his past that could have been -- but were not -- easily uncovered by the Amex: He was expelled from the securities industry in 1974, and false statements concerning his academic background appear in company disclosures.
The track record of two little companies would usually be of small consequence -- except, of course, to their shareholders. But the regulatory pedigrees of Printron Inc. and Cancer Treatment Holdings Inc. Chairman Lawrence Levinson raise troubling questions about the adequacy of the ECM company-selection process:
-- Printron Inc. This Albuquerque (N. M.) company, which is developing an advanced method of making printed circuit boards, is the subject of an ongoing SEC probe. In a federal court complaint against the company by the SEC last Sept. 26, Printron is described as owing much of its existence to a convicted felon and disbarred New Jersey attorney named Karl R. Huber Jr. Huber was convicted in 1985 of filing false tax returns, and in 1979, he was found guilty of conspiracy, perjury, mail fraud, racketeering, and lying to a government agency.
According to the SEC complaint, whose allegations were neither admitted nor denied by the company, it was Huber's idea to take the company public, and Huber was instrumental in the hiring of Printron CEO Eleanor Schuler and a director, Thomas Beam, who is the company's former chief financial officer and treasurer. The SEC maintains that two companies "associated" with Huber received in 1987 a 37% stake in Printron, 370,000 shares, for 7~ a share, or $ 25,000. With Printron shares now trading on the ECM at $ 9, that stock is now worth $ 1.1 million.
The SEC's beef with Printron was not that Huber was intimately involved with the company -- but that his involvement was not disclosed to shareholders. To settle the charges, Schuler and Printron agreed last September to refrain from future violations of SEC reporting requirements. "We were assured by the Amex staff that the issue had been resolved," notes panel member Hamarat.
But Printron's troubles aren't over. The SEC is continuing an inquiry into similar allegations concerning Printron directors Clifford Lloyd and Beam, neither of whom could be reached for comment. Printron corporate secretary Valerie Winters says that settlement talks are under way, and Schuler, who says that she was aware of Huber's criminal record, notes that Huber is no longer employed by the company. "There were no victims," says Schuler. "No shareholders were harmed." An Amex spokesperson would not comment on Printron, "because of the regulatory nature" of the matter.
-- Cancer Treatment Holdings Inc. This Fort Lauderdale (Fla.) company runs radiation-therapy centers, mainly in Florida. Its chairman is Lawrence Levinson, who in 1974 consented to an SEC-obtained court order banning him from the securities industry for life. "I voluntarily turned my license in because I had a net capital violation," says Levinson. "Did I do anything wrong morally or ethically? No." But the SEC alleged, and Levinson neither admitted nor denied, that he "willfully violated" the antifraud provisions of the securities laws in connection with the sale of unregistered stock -- in addition to net capital violations by a defunct securities firm headed by Levinson, Quodar Equities Ltd.
Levinson's 1974 troubles did not have to appear in Cancer Treatment documents because they were more than five years old. But the CTI prospectus, filed with the SEC in 1988, was equally notable for what it did contain. It described Levinson as a certified financial planner since 1981 who holds a PhD in pharmacology from Columbia University and a "master's equivalent degree" in pharmacology from the Brooklyn College of Pharmacy -- all of which is denied by Columbia, Long Island University (successor to the Brooklyn College of Pharmacy), and the International Board of Standards & Practices for Certified Financial Planners, which says that Levinson was never a CFP.
Recent corporate filings have not repeated -- nor retracted -- the statements in the 1988 prospectus, but in the 1991 fiscal year annual report, the chairman is described in a photo caption as "Lawrence Levinson, PhD."
Levinson insists that he was a CFP in the mid-1980s and that he earned 41 credits toward a master's. He describes the Columbia PhD notation as a "mistake" and says that he has a mail-order PhD from a now-defunct institution. "I never misrepresented anything," says Levinson. "I have a PhD. Is it a meaningless PhD? Probably." In any event, Levinson maintains, the question is moot. "People invested in a concept, an idea," he says.
Amex officials say they were unaware of Levinson's background -- a history that Schwartz maintains would have disqualified a company from inclusion in the ECM. "Those kinds of things hopefully were screened out by the staff," says Hamarat. But they weren't. And unless the Amex repairs the holes in its screening procedures, the exchange will allow a pall to be cast over the ECM companies that have unblemished records -- and may truly be among the "nation's best companies."
THE AMEX'S NEW LIST OF EMERGING COMPANIES ADVANCED PHOTONIX Light and radiation detection devices ALTA ENERGY Oil and gas exploration and development AMERICAN PACIFIC MINT Jewelry and bullion products AUDRE RECOGNITION SYSTEMS Designs and markets software systems CANCER TREATMENT HOLDINGS Radiation therapy centers COLONIAL DATA TECHNOLOGIES Telephone caller-identification products DIGITRAN SYSTEMS Simulator training systems EPIGEN Developing cancer-treatment products INTERTEL COMMUNICATIONS Telecommunications services ION LASER TECHNOLOGY Medical laser technology MEDIA LOGIC Test equipment for disk-drive makers MEDPHONE Medical products that use phone lines NORTH COAST ENERGY Oil and gas drilling NORTHERN INSTRUMENTS Electronic sensing devices OCEAN OPTIQUE DISTRIBUTORS Imports and distributes eyeglass frames PNF INDUSTRIES Fire-retardant ceramic coating products PRINTRON Printed-circuit board technology PROFESSIONAL DENTAL TECHNOLOGIES Dental instruments and fluoride products RANDERS GROUP Real estate development and construction THREE-FIVE SYSTEMS Diodes and liquid-crystal displays TOP SOURCE Develops and markets auto technologies TOPOX Products for skin disorders UNIQUE MOBILITY Developing brushless electric motors DATA: COMPANY REPORTS