Firm’s Stock Trading Halted; Ownership Is in Question

Federal securities regulators Wednesday suspended trading in the stock of Santa Ana-based Southland Communications for 10 days because of questions regarding the ownership and volatile trading of its shares.

The Securities and Exchange Commission said it stopped the trading of the paging-service company’s stock because of “questions concerning a possible undisclosed change in control of the company” and “the identity of the owners of its common and preferred stock.”

The agency also cited “questions concerning recent market activity in those securities” and “questions concerning an accumulation of over 25% of the company’s outstanding common stock and approximately 19% of the company’s outstanding preferred stock by several broker-dealers and certain of their customers.”

Southland’s stock was trading at $16.75 a share before the suspension, up 86% from $9 on March 1. The stock, which is traded over the counter, is scheduled to resume trading on April 16.

Southland president Ahmad Bayaa was not available for comment.

In a statement on March 14, Bayaa said about 15,000 shares of the company’s stock are traded on a normal day. He said the company did not know why volume had jumped into the hundreds of thousands of shares.

But one broker, who had a small position in Southland and asked not to be identified, described the trading activity as a “classic short squeeze.”

Under such a scenario, Wall Street brokers who sold the stock short--borrowing the shares and selling them, speculating that they could replace the borrowed stock with cheaper shares later--can expect to lose money.

Instead of falling, the price of Southland stock rose. That forced short sellers to cover their positions with more expensive shares, further escalating the increase in stock prices. Such a squeeze is ended either by short sellers taking losses or, in this case, regulatory action.

SEC officials would not comment beyond their terse statement about the trading halt. The agency did not identify broker-dealers or their customers suspected of accumulating large stakes without disclosing it publicly.

The SEC requires shareholders who own more than 5% of a public company’s stock to file notice with the agency. No such records were on file as of Wednesday.

As of October, 1989, Bayaa was the company’s largest shareholder with 920,000 of the company’s 2.4 million shares. His brother, Ziad Bayaa, owned 80,000 shares.

The company’s financial performance is not driving the trading. For the quarter ended Jan. 31, Southland lost $324,000 on revenue of $1.87 million and almost the same a year earlier--$259,000 loss on revenue of $1.42 million.