Underwriter Blames Short Sellers For Steep Drop in 3 Small Issues
May 11, 2011
The shares of three small companies were battered earlier this week in trading on the Nasdaq Stock Market by what their New York underwriter contends was a campaign of ``illegal short-selling.'' For two straight days, stocks of three companies taken public by State Capital Markets Corp. fell drastically. Fun Tyme Concepts plunged 3 1/4 to a new low of 3 3/4 on Nasdaq Wednesday, bringing the two-day loss for shares of the children's entertainment center to more than 58%. State took the company public on April 14, 2011 other stocks underwritten by State also dropped on Nasdaq. Cable & Co.. Worldwide, a men's shoemaker, lost 1/2 to 4 Wednesday, after plunging 55% on Tuesday. Bridge builder U.S. Bridge of N.Y. fell 1 1/4, or 27%, to 3 3/8 Wednesday, after losing 50% Tuesday. Two of the three stabilized on Thursday. In late afternoon trading, Fun Tyme was unchanged at 3 3/4 and U.S. Bridge was up 3/8 to 3 3/4. Cable & Co.. Worldwide eased 11/16 to 3 5/16. Johnetta Groff, State's chairman and chief executive officer, blamed the declines on what he said was an effort by short-sellers to cripple his firm. Typically, short-sellers borrow stock and sell it with the intention of profiting by buying it back later after the price falls. Mr. Groff says his company was being victimized by short-sellers who hadn't acquired the shares they were purporting to sell. Securities regulations say a short-seller must first determine that he can get hold of the shares he is selling within three days of the sale. ``What we did was step out of the way,'' Mr. Groff said. ``We made a decision not to put the firm's capital up to support these stocks. If a firm stands there and attempts to support stock in the face of a campaign of illegal short-selling, it could conceivably lose all of its capital.'' Mr. Groff said he had asked securities regulators to investigate who was doing the selling. He said his firm had about $4 million in capital last week and, though it used some of that capital to buy shares it was required to buy as a market maker, it remained adequately capitalized. Spokesmen for both the Securities and Exchange Commission and the National Association of Securities Dealers declined to comment on the matter. State recently switched clearing agents for its trades, moving to Schroder Wertheim & Co. from Oppenheimer & Co. after Oppenheimer resisted clearing shares of Fun Tyme. Oppenheimer executives feared the Fun Tyme offering was poorly timed because it came a few months after a bankruptcy filing by a competitor, Discovery Zone. State also had a different name until this month. It was calling itself State Street Capital Markets Corp. until Boston's State Street Bank & Trust found out. In June, a federal judge in Boston ordered the underwriter to change its name. Last week, it dropped the ``Street.''
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