FBI Searches Offices of Santa Ana Firm : Securities: Southland Communications is being investigated over possible stock manipulation.
FBI agents searched the offices of Southland Communications Inc. on Thursday as part of a criminal wire-fraud investigation related to alleged manipulation of the company’s stock.
No arrests were made, said Fred Reagan, an FBI spokesman in Los Angeles. He declined to comment on whether agents seized records or questioned employees during the search.
The FBI’s involvement is the first indication that federal authorities have broadened their investigation of Southland, a small paging company, into possible criminal violations of federal securities law.
It comes a month after the Securities and Exchange Commission filed a 28-page civil suit against Southland President Ahmad N. Bayaa, Atlanta broker-dealer Shaw Tehrani and four others for allegedly manipulating the firm’s stock.
Bayaa could not be reached for comment Thursday. His lawyer, James Carroll III, said the U.S. Attorney’s office had informed him that the FBI was seeking information regarding the trading of Southland stock.
The FBI agents “are looking for the same information that the SEC is,” Carroll said.
On Thursday morning, the doors to Southland’s headquarters in Santa Ana were locked, but receptionists were answering phone calls and taking messages for FBI agents in the afternoon.
The company’s troubles became public in April when the SEC halted trading of its stock because of suspicious trading patterns. Southland had lost money in every year since 1985 and in January said that without additional financing it would be unable to continue operations. Yet its stock inexplicably soared in unusually heavy trading to $16.75 per share April 3 from $8.75 March 13.
The SEC alleges that Bayaa, Tehrani and their friends bought large amounts of the thinly traded stock to thwart short sellers expecting the price to drop. The group allegedly secretly cornered nearly 83% of the stock, in violation of SEC regulations.
The alleged scheme was designed to prop the stock price to complete a private placement of the issue that would have provided capital for the acquisition of another paging company.
The suit also says the sharp run-up was meant to hurt the short sellers, who were forced to cover their positions at a loss. Short sellers borrow stock and hope to sell it later at a lower price, pocketing the difference.
The SEC said Bayaa and Tehrani manipulated the stock upward by withdrawing as much of the stock from the open market as they could. They also allegedly created an illusion of national buying interest, engaged in pre-arranged transactions and spread fabricated optimistic reports about Southland’s future.
Carroll said Bayaa plans to file a formal response denying all the charges in the SEC suit next week.
Southland, which operates as National Paging Co., has other problems. Motorola Corp., one of its largest customers, has filed suit to recover $6 million it claims it is owed for lending Southland its paging equipment. Southland has not yet responded to the suit.
The company, which had about 70 employees and was founded in 1981, provides radio paging services that allow customers to receive messages away from the office. The firm, which went public in 1987, services about 48,000 pagers.
