Investors Push 2TheMart.com Stock Down 32%
2TheMart.com Inc.’s gyrating stock took another spill Thursday, tumbling 32% in one of the largest losses in U.S. markets for the day.
The shares fell $7.25 to $15.50, reducing the Irvine company’s market value in one day to $388 million from $569 million.
The stock’s wild swings--it surged from $2 to $50 a share at one point this year--have left observers in a quandary, since 2TheMart.com has no customers or revenue and has never released a balance sheet.
“It shows the lack of any underlying methodology to value Internet companies,” said Ulric Weil, chief technology analyst for Friedman, Billings, Ramsey & Co. “You can’t even get data on [2TheMart.com], because it’s a nonreporting company.”
The Internet auctioneer went public in January under the direction of Chief Executive Dominic J. Magliarditi, 35, and Chairman Steven Rebeil, 36. Two years ago, their attempt to become officers of Ameristar Casinos Inc. failed when the Nevada Gaming Commission denied the men licenses to run a casino after finding they were “not of good character, honesty and integrity” and shouldn’t run a public company.
The company’s shares soared from $2 on Jan. 13 to a high of $50 on Jan. 20, the day after it said its site would be running by the second quarter and would compete with established auction sites such as eBay Inc. and uBid.
“There’s, I think, a lot of Internet euphoria out there of investors jumping on to what they may believe are companies that are emerging,” Magliarditi said in an interview. “A lot of it is people trying to get in on the ground floor of the emerging market.”
Investor enthusiasm overcame a scarcity of financial information on the company. The company hasn’t filed reports with the Securities and Exchange Commission. Companies are only required to do so when their assets exceed $10 million and they have more than 500 shareholders of record.
Magliarditi said 2TheMart.com plans to file its first SEC report in a few days.
Magliarditi and Rebeil registered the site’s Internet address, 2TheMart.com, in December. They took the company public a month later by merging it with a shell company called CD-ROM Yearbook Co.
The two men each own 8.9 million of the company’s 25 million shares, worth a total of $138 million apiece.
Magliarditi and Rebeil have been business associates for more than six years. On Feb. 19, 1997, the Nevada Gaming Commission denied their applications for a casino license.
The commission found that both lied to investigators for the State Gaming Control Board and thus were not suitable to be “an officer, director or controlling shareholder of a publicly traded corporation.”
According to a transcript of testimony before the Gaming Control Board in 1997, investigators for the agency discovered that Magliarditi, an attorney who previously practiced tax law, underreported his income by about $70,000 in 1994.
“The board felt this wasn’t an honest mistake, but purposeful underreporting,” said Steve DuCharme, chairman of the Nevada Gaming Control Board. Magliarditi testified that he owed the IRS an additional $24,000 after he amended his federal tax return to include the previously unreported income.
Magliarditi also testified that he altered K-1 tax schedules reporting Rebeil’s partnership income after they were prepared and signed by the accounting firm of Arthur Andersen LLC. Magliarditi said the adjustments he made, at Rebeil’s request, lowered Rebeil’s 1994 income tax bill.
“I think they were whited out and then the numbers were inserted,” testified Magliarditi. He said more than a year passed before the accounting firm received a copy of the altered document.
Control Board investigators also found that Rebeil diverted “millions of dollars” from a home building company in which he was a partner to finance construction of his personal residence. Rebeil allegedly directed subcontractors to overcharge the builder and use the excess payments as credits toward work on his house, DuCharme said. Magliarditi testified that there “could possibly be” criminal wrongdoing by Rebeil in connection with the diversion.
Rebeil couldn’t be reached for comment.
Separately, in December, Magliarditi was fined $4,000, publicly reprimanded and placed on one-year probation by the Nevada State Bar Assn. That followed his conditional guilty plea to allegations he had had a conflict of interest when he represented clients on both sides of an issue.
