Shopping.com Trading Halted Over Complaints
Citing possible market manipulation, the Securities and Exchange Commission suspended trading Tuesday in the shares of online retail service Shopping.com Inc.
Trading will be suspended for about two weeks because of a “lack of current and accurate information” about the company, the SEC said Tuesday.
Critics have questioned the prospects of the online retailer and whether its market maker, Waldron & Co. of Irvine, may have propped up its stock price.
Waldron insists that the complaints are unfounded and that the SEC action is unjustly fueled by bitter investors who bet the stock price would drop--and lost money when it didn’t.
SEC officials declined to comment beyond a news release. But sources at the NASD Regulation Inc., the enforcement arm of the National Assn. of Securities Dealers, said it also is looking into the matter.
Waldron officials denied any wrongdoing. “These are frivolous complaints,” said Cery Perle, the firm’s president. “The short-sellers don’t know what they’re talking about.”
Short-sellers bet that a stock’s price will fall. These investors borrow the shares and sell them, hoping to replace them later at a lower price.
Shopping.com, billed as the Wal-Mart of the Web, acts as a liaison between online shoppers and merchants looking to sell their goods on the Internet. The company raised $11.7 million in its initial public offering last November, selling 1.3 million shares at $9 each. Within four months, the stock lunged to more than $32 a share.
Like other online commerce ventures, Shopping.com has struggled to be profitable. The company expects to report a $4.7-million loss on sales of $802,000 in its latest fiscal year, which ended Jan. 31.
Analysts at Chatfield Dean & Co. have wondered whether the company has made even that much money. They point out that Shopping.com keeps just 5% of the sales price of all goods and services purchased through its Web site.
“Our clients had received some calls about the stock, so we looked into it,” said Kelli Donges, an analyst with Chatfield Dean in Englewood, Colo. “The company’s stock could slide down to $5 a share. They’re losing money now; it looks like they will lose money ($5 million) this year and they don’t have a lot of cash left (from their IPO).”
NASD officials said they had been told on March 16 that Waldron was no longer able to clear deals through its clearing broker, Wedbush Morgan Securities, in Los Angeles.
But three days later, federal officials said Wedbush had changed its mind, and reinstated Waldron’s ability to use the firm’s trading symbol and to clear deals.
Wedbush officials declined to comment Tuesday.
Shopping.com shares fell 23% Monday, or $6.63, to $22.25 in over-the-counter trading. One trade, at $22 a share, was executed Tuesday but it was later canceled.
Waldron officials insist they don’t exercise enough control over the stock to keep Shopping.com’s stock price artificially high.
Yet several brokers noted that short-sellers have been forced to purchase thousands of Shopping.com shares that Wedbush was unable to immediately deliver.
These transactions were sometimes made at prices far above the market. For example, on March 19, the stock closed at $26.25 a share. Shortly after the close of normal trading, 88,400 shares were traded at $39 a share.
“You’ve got Mom and Pop investors who are going to lose a ton of money over this,” said Anthony Elgindy, a broker who complained about Waldron to the NASD earlier this month. Elgindy is chief analyst for Key West Securities in Hurst, Texas.
“If the shares were trading at a few points above the market close, that’s one thing. But almost 15 points? This is not a fair or real market.”
Shopping.com was started by HomeBase founder Robert McNulty in 1996. McNulty owns 1.3 million shares of the company, worth about $29 million at Tuesday’s closing price prior to the halt in trading.
The company applied to be listed on the Nasdaq Small Cap stock market, but withdrew its request late last year after learning its application would be denied.
Before launching Shopping.com, McNulty settled an SEC complaint that charged he orchestrated a complex scheme to defraud investors in four other publicly traded retail companies.
Without admitting wrongdoing, McNulty agreed to a 1995 order barring him from violating securities law.
“I made a mistake. I paid dearly. I admitted an error in judgment,” he said. “I’m not the bad guy everyone wants to portray me as.”
Bloomberg News contributed to this report.
