Company Alleges Trading Irregularities

Costa Mesa communications company Harrison Digicom Inc. said Friday it has been the victim of a stock-manipulation scheme that cut its shares to less than half their original price.

Harrison, whose stock trades over the counter, said it put on hold a $1-million private placement when it discovered that a company taking part in the placement was using an offshore brokerage firm to dump the stock, thus driving down the price.

John Bush, president and chief executive of Harrison, citing a fear of litigation, declined to name the brokerage, the selling company or any other parties involved.

Bush said Harrison did not notify the Securities and Exchange Commission about the alleged manipulation because it does not come under the SEC’s reporting requirements. An SEC official said the agency was unaware of the allegation.

The company, which provides discounted telecommunications services and equipment, has reported other irregularities since it began trading in April.

Harrison said it had 1997 earnings of $3.4 million on revenue of $12.6 million, but then its accounting firm raised questions about figures being supplied by a subsidiary in Vietnam. Harrison later restated its earnings to reflect a $4-million preoperating expense related to that operation.

Bush said the company disclosed the alleged manipulation Friday to explain the stock’s recent slump to shareholders.

Between Dec. 15 and Dec. 24, the stock steadily fell from $1.31 to 53 cents on unusually heavy trading, although the company had not disclosed any news. Volume more than doubled during that period and hit a high of 76,100 shares on Dec. 23. The stock has since recovered, closing Friday at $1.25, up 25 cents a share.

Bush said Harrison traced the mid-December activity to a company participating in the placement. Under terms of the placement, the company would have been allowed to purchase stock at a discount, he said, adding that the unidentified company is no longer participating in the placement.

Harrison and the company have reached an agreement not to pursue litigation against each other, Bush said.

The placement is back on track and fully subscribed, Bush said.