Institutional Memory

The following articles were not written by anyone at BuyersStrike! HQ, rather they are a collection of writings that need to be saved so that the institutional memory of scams and scammers can be preserved. Copyright belongs to the original authors.

Forewarned is forearmed.

And with that, presenting the story of Copytele (now ITUS), a very long running con. This is from 1997, by Christopher Byron.

Meet Magicom 2000! A High-Tech Gadget That No One’s Seen
by Christopher Byron

A fabulous new computer product looks just about ready to hit the market. For $2,000, more or less, you can be the proud owner of a “Magicom 2000” desktop telephone-scanner-computer interface-voice mail-fax machine-handwriting transmitter and just about anything else you can think of, all rolled into one handy, breadbox-size package that will sit right at your elbow, right there on the desk. Best of all, you’ll be able to buy this wonderful, labor-saving device from a home-grown American company based on Long Island.

Unfortunately, there’s just one problem: If you want to get yourself a Magicom 2000 now, you’ll have to go to Russia, Asia, Brazil or someplace like that. That’s because the company making the Magicom 2000 doesn’t plan to be marketing it here in the global capital of business technology-i.e., the United States-just yet.

Why not? Because, as explained by the company, it makes more sense to beta-test the thing out there in Russia, North Africa, China and other such places first-to get the bugs and kinks worked out, you understand. After all, who should be better equipped to evaluate the merits of a cutting-edge business productivity tool than all those laptop-toting Azerbaijani business tycoons wandering around Russia, looking for ways to wring the most out of every minute in the new age of global capitalism?

That, at any rate, is the explanation regarding the perplexing introduction of the Magicom 2000 from the head of marketing for the company in question-Copytele Inc. of Huntington Station, L.I. Said the senior vice president of marketing, Frank Trischetta, “We’ll be launching in the U.S. very soon. It’s a product for architects, doctors, motion picture executives, police departments-everybody!”

So here’s this week’s question for devotees of how the game of conjuring something out of nothing is actually played on Wall Street: Does the name of the aforementioned company, Copytele Inc., perchance ring a bell?

If not, maybe the following headline from a yellowing 13-year-old Fortune magazine clip will help: “The Mystifying Business Behind a Magical Stock.” The story goes on to detail the unusual history of what was then a barely year-old high-tech development company whose stock had surged on claims of a breakthrough new product destined to “reshape the copier business.” Dubbed the CT-100, the soon-to-be-introduced gizmo would allow ordinary copiers to function as computer printers. There was just one problem. According to the article, the company had no products or revenues, nor even a working prototype of what it was trying to develop. All it had were lots of name-dropping press releases and a clique of True Believer investors ready to chase the stock to Mars.

Thirteen years later, not a whole lot has changed. Gone is the fanatical following of Copytele bulls on Wall Street. From a split-adjusted high of nearly $60 per share back in the 1980’s, the stock has sunk almost out of view and now trades on the Nasdaq electronic stock market at barely $3.25 per share. Gone as well are the claims for the CT-100 that was allegedly destined to upend the computer and copier industries. It seems that the product just never worked out.

But with that exception, it seems that life at the office at Copytele remains pretty much what it always has been-lots of hype about that big, new drop-dead product that lies just around the corner, but only the skimpiest of details to prove it. This time around, the claims center on the Magicom 2000, which the company says will simultaneously maintain two-way transmission of voice and image data over a single, ordinary phone line.

Yet is that technologically possible? A check with AT&T Corporation produced a skeptical response. “If you’re talking about an ISDN line, then, yes, it’s not hard at all,” said an official. “But if you’re talking about using an ordinary telephone line, then the fact is, there just isn’t enough bandwidth on the line to support it. AT&T had a product in the market a couple of years ago called the Videofone, but the images were very jerky and we gave it up. No one wanted it.”

A check with sources at the Xerox Corporation and the Hewlett-Packard Company brought blank stares: No one had ever heard of Copytele or its soon-to-shake-the-world Magicom 2000. “I can tell you this,” said one Hewlett-Packard source. “We watch patent filings in the industry very carefully, and if there was anything to what is being claimed, we’d know about it.”

We’ll just pass over the question of whether Russia, China and other such technologically challenged countries are suitable beta test sites for ISDN-dependent telecommunications equipment, and move on to the equally perplexing matter of Copytele’s finances, the accounting for which seems to force the outer limits of the credible.

We begin with the fact that in its 15 years of existence, Copytele has not reported one thin dime of revenues from any source, ever. Run your eyes across the company’s operating statements, and year after year, you see nothing on the revenue line but zero after zero, perhaps the longest stretch of its kind on record: a full decade and a half in which a publicly traded Nasdaq company has reported absolutely no revenues whatsoever. Meanwhile, selling, general and administrative expenses have gone from $2 million in 1992 to $6 million in 1996.

In the company’s latest quarterly report to shareholders, there is the mystifying statement that, because it is a development-stage company and because the Magicom 2000 is its first product, Copytele has, for the time being, decided to “defer” the reporting of sales revenue. What that seems to mean is that the company is taking in no sales revenue at all, in Russia or anywhere else, and is simply shipping machines on consignment to those beta-test-site guinea pigs out there in the third world.

So, where’s the company getting the money to run the business day to day? Copytele does, after all, have about 60 employees, and there’s also the monthly nut on its rental digs in Huntington Station.

The money is sure not coming from investments. Since 1982, when accounting at Copytele began, the company has taken in a total of barely $4 million in interest income on its cash balances, or about $275,000 per year. That interest income seems to come mainly from cash deposits. But during the same time, Copytele has been shelling out maybe $2.5 million-or roughly nine times its interest income-in annual cost outlays.

How does the gap get closed? Mainly, it would seem, by a clever stock-selling ploy that benefits insiders more than anyone else. As explained by Michael Murphy of the Half Moon Bay, Calif.-based Overpriced Stock Service newsletter, instead of simply arranging for stock offerings by the company, Copytele’s insiders, led by chairman and chief executive officer Denis Krusos, have periodically been selling large blocks of their own stock on the open market, raising cash, then using only a portion of it to purchase treasury shares from the company itself.

So, the business they’re really in is the selling of Copytele stock. They have actually sold $52 million worth of stock over the past 14 years. Out of that, they’ve blown $36 million and now sit with a fat little cushion of $16 million in cash, no doubt to take care of the directors in their old age, four out of five of whom are over 69 years old. If they had some brains in their heads, they’d buy a bread-and-butter company with the cash and some borrowings, and live off it very nicely for the rest of their lives. Come to think of it, maybe they’re not so dumb after all. They’ve been living very nicely off a company that doesn’t have any borrowings at all; the whole fandango is being supported by witless outside shareholders.

This arrangement keeps the company liquid with cash while putting millions into the pockets of Denis and his gang, but in the process, outside investors have gotten shellacked: Copytele’s share price has plunged even as the number of shares has soared, from 690,000 publicly traded shares in the 1983 initial public offering to maybe 58 million shares now.

That share volume now gives Copytele, at its current price of around $3.25 per share, a market capitalization of nearly $190 million-this for a company that has racked up 15 years of losses that now total $33 million, and whose net worth seems to consist almost exclusively of the periodic cash infusions that come from the stock sales.

How long can this go on? Probably for as long as investors gullible enough to keep buying Copytele’s shares can still be rounded up on Wall Street-which means for a very long time indeed. To that end, the company has now begun cranking up its promotion machine all over again, and the press releases have begun pouring forth anew. Copytele has even signed up the Burson-Marsteller public relations firm to promote the stock.

Explained the P.R. agency’s account rep on the case, Nicholas Platt, “I’m just here to provide stock price quotes and that sort of thing.” For actual financial details about the company, Mr. Platt said to contact Mr. Krusos. Yet after hearing the questions that seemed to need asking, Mr. Krusos decided not to be interviewed. Big surprise.

The following is one of my all time favorites. Chris Byron exposes a shadowy cabal, led by a disbarred broker, which created over $1.2bn in market cap out of thin (hot) air. It originally appeared on

THE STORY HIGHLIGHTS CHARGES of fraud, threats and the participation of brokers at the Wall Street investment firm of Morgan Stanley Dean Witter. The yarn also casts doubt on the capacity of the National Association of Securities Dealers to police the Over the Counter bulletin board market. And in the end, the saga serves as a cautionary tale for anyone buying or thinking about buying the thinly traded shares of stocks on a market where swindlers and charlatans abound.

At the center of the controversy is one-time stockbroker named Peter C. Tosto, who was drummed out of the securities industry by the NASD in 1991 following a fine for swindling clients. Tosto then set up a stock promotion firm named Investor Relations and started swindling investors all over again. In 1997, Tosto was fined $1.1 million by the Securities and Exchange Commission for a swindle in the shares of a company named San Diego Bancorp.

Also at the center of events with Tosto is J. Alexander Securities Ltd., a Los Angeles-based brokerage firm with its own legal headaches. In September of 1998, National Financial Services Corp. sued the brokerage firm, charging it with arranging for the launch of trading in an OTC bulletin board stock — H&R Enterprises — that quickly became the focus of a “massive international securities market manipulation” in the summer of 1997, according to the lawsuit.

J. Alexander, a member of the NASD, surfaces in the current controversy as the so-called “sponsor” of three companies — Citron Inc., Electronic Transfer Associates Inc. and Polus Corp. These three companies began trading as “non-filing” microcap stocks on the OTC bulletin board between June and October of 1998. So-called non-filing companies are firms that “go public” through IPOs that raise less than $1 million in the offering. So-called “sponsoring” broker-dealers are member firms of the NASD that thereafter file documents with the NASD in order to begin trading publicly in the shares on the NASDAQ electronic quotation system.

J. Alexander declined to produce copies of the companies’ financial statements and referred inquiries to the companies. The phone number provided reached an answering machine.

Three of the companies involved — Citron, Electronic Transfer Associates and Polus Inc. — all have seen the value of their shares explode in recent weeks, with Citron at one point this week touching $42 per share — up from a mere $1.50 on Dec. 31. With company press releases claiming that Citron currently has 10.2 million shares outstanding, the $42 quote puts a market value of $428 million on the company.

Polus sold for as little as 90 cents as recently as Dec. 31. By the start of this week, the price had climbed to $13 per share. With company press releases appearing to claim that Polus has a total of 13.3 million shares outstanding, the $13 quote puts a market value of $173 million on the company.

And Electronic Transfer Associates sold for as little as 75 cents per share as recently as Nov. 4. By last week the price had reached $31 per share. With an apparent total of 20 million shares outstanding, the price puts a market value of $620 million on the company — a company with no business telephone listing to be found anywhere, and whose only known corporate office is 500 square feet of rent-free space in an office in Denver.


The lack of public information about these companies is both astonishing and calculated.

The press releases have mainly been distributed by two competing distributors of electronic news releases for corporations, PR NewsWire and BusinessWire. But the releases show only a “contact” name and a Madison, Ga., telephone number. Inquiries to that number produce someone who sometimes answers with the greeting “Corporate offices …” and other times with “Marketing consultants…” and declines to say more.

As a result, would-be investors have no way of knowing that behind the hype is the disgraced, fined and disbarred former stockbroker Peter C. Tosto and his firm Investor Relations. PR NewsWire’s own office files list Tosto as the contact for an entity known as Tellerstocks, which has been distributing the releases. Citron Inc (CTRN) pricechange$22.00-7.250 Polus Inc (POLU) pricechange$5.75-5.250 Smartek Inc (New) (SMEK) pricechange$5.06-0.938 Electronic Transfer Assoc Inc (ECTS) pricechange$19.75-4.250 Invest Holding Group Inc (IVHD) pricechange$0.23-0.010 Malibu Inc (MALB) pricechange$3.25-2.750 Data: Microsoft Investor and S&P Comstock 20 min.delay

Tosto, a New Yorker, first enters our story in August of 1997. That’s when he and two friends — Armando Frusciante and Thomas Telegades, both of the Bronx — arranged for a stock sale of a company they controlled named Smartek Inc., which had been formed two years earlier out of a reverse merger into a defunct silver mining company.

Because the men planned to raise less than $1 million in the offering, they did not have to file a detailed stock registration form but only a skimpy “Form D” that listed Smartek’s officials and promoters.

Also listed in the filing is a company by the name of Tostel Corp., which is identified as a beneficial owner of Smartek shares. In the filing, the address given for Tostel Corp. is the same as that given for Tosto himself: 124 West 72nd St. in Manhattan. That, plus the fact that the corporate name “Tostel” appears to be an acronym for Tosto and Telegades, suggests that Tostel was in reality a holding company for shares in Smartek on behalf of both men. No other shareholders are listed. The stated reason? All are “corporations organized and/or having principal executive offices in the Isle of Man” — a popular offshore tax haven. Meanwhile, action had been developing on other fronts.


By the summer of 1998, a penny stock bearing the name Invest Holdings Group Inc., a marketer of baldness cures in the United Kingdom, had hooked up with Smartek and several other firms to form a loose network of penny stocks, all linked by the common involvement of Tosto, Frusciante, Telegades and now a Briton named Andrew Bryant who was listed in records as one of Invest Holdings’ promoters.
The linkages began to emerge in June when yet another company, Polus, materialized and, thanks to J. Alexander Securities, gained a listing for trading on the NASDAQ OTC bulletin board. No press release or public document heralded Polus’s arrival in the capital market. But it did not take long before a press release issued forth from Madison, Ga., to declare that Polus had “finalized terms of a merger” with a company bearing the name “Tostel Inc.”

According to the release, the deal contemplated each Tostel share being valued at three Polus shares and suggested this valuation was warranted by the fact that Tostel had somehow wound up with 12 million shares of a company known as Smartek.
The only hint the press release gave as to what was really taking place in the transaction was the passing mention that, as part of the deal, Polus’s shareholders had elected two otherwise unidentified individuals — Armando Frusciante and Andrew Bryant — to seats on the company’s board of directors. In this apparent attempt at public disclosure, the release failed to point that Frusciante, like Tosto, was in fact working as a stock promoter on behalf of Smartek, and also may have had an interest in Tostel as well.

How Andrew Bryant became involved with Tosto remains unclear, but by the summer of 1998 the involvement was substantial. Bryant himself had first appeared on the scene as a promoter of IVHD — the baldness cure outfit — back in 1996, and within a year he was distributing baldness cure testimonials in Britain under the name “Andy Bryant, author and researcher.” British court records show that in March of 1998 he and his company — identified as “NHP Marketing t/a Invest Holdings Group, Inc.” — were slapped with a cease and desist order for making deceptive claims about his product’s ability to grow hair.

Following the Polus press release, yet another press release materialized. This one announced that yet another recently launched J. Alexander bulletin board stock — Citron — was acquiring a British company bearing the name Project Rainmakers Ltd. and by the start of December Bryant had surfaced as Project Rainmakers’ “president.” Project Rainmakers’ financial records show the company was incorporated in 1996 and at the time of the Citron “acquisition” had cash on hand of approximately $25.

Meanwhile, a near flood of press releases had begun pouring forth about Citron’s great future on the Internet. There were press releases about plans to launch an international freight forwarding business, plans for an advertising service for Web-site operators, even a press release predicting that Citron would take in $10 million in revenues and 40 percent of that in earnings in 1999.

Investors of course had no way to verify these claims. Nor were they likely to see through the misleading puffery of the releases themselves — documents that tried to create the image of a company putting together a transatlantic Internet empire by announcing deals and agreements that were actually nothing more than transactions between undisclosed related parties.

Many of the shares of these companies reached investors, amazingly enough, by way of the white-shoe Wall Street brokerage firm of Morgan Stanley Dean Witter & Co. A broker in the firm’s Austin, Texas, office, who agreed to be quoted so long as his identity was not divulged, said he had been approached in a “cold call” roughly a year and a half ago by a man identifying himself as Peter Lybrand, an alias Tosto is known to use.

According to the broker, Lybrand claimed to be involved in financial consulting and began passing along tips about hot microcap stocks. In the summer of 1998, Lybrand tipped the broker to Citron, and the Morgan Stanley man began loading up, both for himself and his clients. “I was talking to Lybrand five times a day,” said the broker. “The stocks were flying.” “He had five or six companies. Citron, Polus, Smartek, ECTS, Malibu. He said, ‘You can work one of them or all of them, I don’t care. We just need to get volume.’ He wanted us to get started immediately.”


Stock promoter Meanwhile, the broker had passed along Lybrand’s name to a Morgan Stanley colleague in the firm’s Pikesville, Ky., office, and that broker as well began loading up. That individual, who as well was contacted and interviewed for this story, confirmed the Austin broker’s account, acknowledging that he, too, had taken substantial positions in the shares, both for himself and his clients.
Both brokers say they had no idea that the man they were talking to — ostensibly Peter Lybrand — was actually Peter Tosto. But at least one individual says he quickly became suspicious.

That person was a Beverly Hills stock promoter named Michael Ager, who was introduced to Lybrand through the Morgan Stanley broker in Austin. As a result of that introduction, Ager and a colleague met with Lybrand over the Thanksgiving weekend at the Peabody Hotel in Orlando, Fla., and listened as Lybrand invited them to take on several companies and pump up their market values.
“He had five or six companies,” says Ager. “Citron, Polus, Smartek, ECTS, Malibu. He said, ‘You can work one of them or all of them, I don’t care. We just need to get volume.’ He wanted us to get started immediately.”

According to Ager, Lybrand thereupon opened up a briefcase and showed him a valise full of stock certificates, saying the shares represented essentially the entire public float of Citron.

“He said, 50,000 shares of buying in Citron would put the stock [then selling at $3] to $10-to-$12 immediately.”

“We promoted Citron on our Web site [],” says Ager. “And we did a dog-and-pony show with a lot of brokers, and Citron’s stock started to take off.” But, says Ager, on Dec. 9, Lybrand telephoned in a rage and accused him of secretly shorting Citron shares and demanded that Ager return all the Citron stock he had been given as compensation. When Ager dropped the account, he sent a letter to his clearing firm and his own broker to alert them that he believed the entire promotion was “a scam.”

The public of course knew nothing of this, and though Ager had dropped the account by Dec. 12, Tosto and his crew down in Madison, Ga., were still slogging away.


In early January they finally hit the mother lode, as the third and last of the J. Alexander Securities penny stock promotions — Electronic Transfer Associates Inc., or ECTS — started to surge on Wall Street’s quote screens.

On the strength of Ager’s promoting efforts, ECTS’s stock had already rocketed more than 800 percent, to $7 per share, by Jan. 7. And when Tosto now put out a press release announcing that Electronic Transfer was “in negotiations” with a company named Citron regarding some “internet software,” Citron quintupled and ECTS nearly quadrupled in the week and a half that followed.
Whether this rag bag of stocks is worth even 20 cents, let alone $1.2 billion, is unfortunately simply unknowable since there is no credible information available about the companies at all.

The Web site for “Internet company” Citron ( is a one-page block of static text. Most of it is devoted to preposterous claims about the company’s growth prospects. Biographical summaries about the principals are hilarious — as if written by someone only passingly familiar with the English language. Here’s what the site says, in part, about Bryant: “In recent past he was appointed President of a non-profitable [sic] American publicity [sic] traded company.”

Behind this billion-dollar microcap illusion of real business is, of course, the conjurer who concocted it in the first place: Peter Tosto. Requests for an interview with Tosto proved pointless, as whoever answered the phone in Madison, Ga., would say he had no idea who Peter Tosto was, then hang up the phone.

Yet for all a caller knew, the person on the other end might well have been Tosto himself, and the last time this reporter called there, that seemed to have been the case, as the man on the other end would identify himself only as “Peter Lybrand.”

From a cross-check of Social Security numbers, it appears that a man named Peter Tosto, residing at 115 S. Main St., Madison, Ga. — and listing himself as chairman of a company named Investor Relations Inc. — had an evident fondness for aliases. Among those listed was this one: Peter C. Lybrand. Enough said.

And another from Byron, originally appearing in the NY Post on January 13, 2003. This piece discusses bio-turd Nephros (NEPH) and its connections to Ron Perelman and Michael Lauer of the notorious Lancer Funds.


January 13, 2003 —

WE’VE been pounding the table for quite a while now, arguing that the offshore hedge fund business is a $400 billion time bomb waiting to explode. This is a business in which nearly half a trillion dollars moves in and out of U.S. capital markets with almost no regulation or oversight, attracting exactly the sorts of people you wouldn’t want your daughter to bring home for dinner.

Now, no less savvy a Wall Street operator than Ron “The Finagle King” Perelman has become entangled in the brambles of offshore finance. Evidence of his predicament surfaced just before Christmas in a Securities and Exchange Commission filing by a company in which Perelman and colleagues are calling the shots as controlling investors.

The company in question, which bears the name Nephros Inc., is a biotech startup in the field of kidney disease. The New York-based outfit is typical of many such biotech startups in that it’s an itty-bitty operation with grand plans for the future. Best evidence: the company’s microscopic revenues of less than $300,000 over its entire six years of life, as against cumulative losses of more than $13 million during the same period.

With numbers like those, it’s usually just a matter of time before such a company turns hat in hand to Wall Street and the IPO market for the capital to stay in business. And since it’s easier to sell stock in a company that already has some cash showing on the balance sheet, these IPOs are typically preceded by recapitalizations designed to prettify things up a bit with the financial equivalent of lipstick and rouge.

IT was under those circumstances, back in the summer of 2002, that King Finagle and his finaglettes began tarting up Nephros Inc. for an IPO. And in a decision they’ve all now clearly come to regret, they did so by inviting in some money from the world of offshore finance – in this case, from an offshore hedge fund group with a name that regular readers of this column may well recognize.

Back in September, we told you the story of Michael Lauer and his Lancer group of hedge funds, with its “Lancer Offshore Fund” as the group’s centerpiece operation. In that story, Lauer claimed his Lancer Offshore Fund alone had “a billion bucks” under management, though we questioned whether the stocks in all the group’s combined portfolios were worth much of anything.

A search of SEC records turned up dozens of illiquid, thinly traded and easily manipulated penny stocks in which various Lancer group funds had lately held shares. The majority of them proved to be worthless “pink sheet” stocks – the sub-basement of the over-the-counter market – with offering prices of fractions of a penny per share.

This was the reality that lurked behind Lauer’s operation when he showed up on King Finagle’s doorstep, offering to make an investment in Nephros.

And there were other facts that could also have been uncovered easily enough, had the Perelman group been curious regarding the sources of Lauer’s money.

For starters, SEC filings show that at least seven of Lauer’s investments involved penny-stock companies backed by a legendary Wall Street swindler and ex-con named Abraham Salaman. A search of recent news stories would have revealed that in March of 2000, Salaman was arrested, along with several organized crime figures in New York, and charged with a $60 million penny stock swindle.

NOR was Salaman the only shady fellow with whom Lauer was involved. One of the Lancer Fund holdings is a pink-sheets company called Neurocorp Inc., in which Salaman was a founding investor back in 1994. One of the early investors in Neurocorp, along with Salaman, was a money man named Jay Botchman, who bailed out by selling his stake to Lauer. Botchman himself was, in turn, a recent business partner of a man named John Peter Galanis, who by then was doing time in federal prison for a series of savings-and-loan swindles in the 1980s. Botchman also appears in court testimony as a financial backer of a mob-infested carpet cleaning company named ZZZZ Best Inc.

Botchman’s name has now surfaced, once again, in connection with Lauer and the Lancer funds – this time as a result of his controlling 40.3 percent stake in a sub-prime lender named Credit Store Inc. Lauer and the Lancer group are the company’s second-largest shareholders, with a collective 23.7 percent stake.

A late 1999 SEC filing shows the Galanis family was involved as well, at least for a time: An individual named Derek Galanis was listed as company president until early 2000, when his name simply disappeared from SEC filings. Forbes magazine subsequently identified Derek as John Peter Galanis’s son. In October 2001, Derek Galanis and his brother Jason were arrested by federal agents and charged with involvement in an alleged drug smuggling ring out of Kosovo. Both have pleaded not guilty.

Want more? Then let’s turn to something called Automotive Performance Group Inc. SEC filings show that, as of late 1998, the Lancer group was the company’s second-largest shareholder. The company’s largest shareholder – with a controlling 77.5 percent of the company’s stock – was one Andrew L. Evans. An earlier and close friend of Microsoft Corp. co-founder Bill Gates, who is the godfather to three Evans children, Evans also turns out to be an ex-con who spent six months in prison in the mid-1980s for swindling a Seattle bank out of $500,000 on a loan application.

AND that’s not all the Finagle King was unwittingly buying into. In February 2002, the Lancer Offshore Fund’s two directors resigned for “business reasons,” and were replaced by two new men. One replacement is a fellow named John W. Bendall Jr., who heads a penny-stock investment firm named Hermitage Capital Corp. Hermitage is a major investor in a variety of Lancer deals, including Automotive Performance, which hasn’t traded in a year and is currently in the pink sheets at one cent per share. The other new director, Richard Geist, is described in various press releases as the president of the Institute of Psychology of Investing. But he is also a penny-stock promoter who publishes a newsletter entitled “Richard Geist’s Strategic Investing.”

It would be interesting to hear what the above-mentioned individuals have to say about all this. But Geist, Bendall and Lauer all declined requests for interviews on the matter. At week’s end Lauer’s office faxed me a copy of a two-page letter he had distributed to his investors following our September story, dismissing the column as mere “negative press.”

THE King of All Finagles would doubtless like to hear some plain speaking on the matter as well. That’s because scarcely had Lauer met with various of the King’s finaglettes last August and agreed to a $3 million stock-and-warrants investment in Nephros Inc., than he ponied up only the first $1.5 million and promptly welshed on the other half. A top finaglette in the Sun King’s court says the reason Lauer offered was that Lancer was being hit with redemptions and that he didn’t have the money.

Hmm. A “billion bucks” fund that can’t cut a check for a mere $1.5 million? Sounds rather finaglish to me – which is apparently how it struck His Highness as well. In a Nephros Inc. registration statement filed with the SEC on Dec. 23 is a plain English warning of what awaits any mortal so bold as to finagle the King: “If we are not able to resolve this matter in a manner that is satisfactory to us, then we intend to pursue vigorously all available legal remedies against Lancer Offshore, Inc.”

Fair warning for the folks at the Lancer group, to be sure. But what about for everyone else? How many more such problems must develop before regulators realize that offshore hedge funds simply can no longer go unregulated?

To be granted access to the capital markets of America, these funds need to answer some basic questions – like who’s behind them, what they’re investing in, who’s auditing them, and where one can go to inspect their financial accounts. Only when the disinfecting sunlight of full disclosure is turned on this industry will its odor begin to go away.



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