To hear the meeting with the SEC, use one of the two links:
Windows Medial Player: http://www.connectlive.com/events/secopenmeetings/sec-021306-archive.asx
Real Player: http://www.connectlive.com/events/secopenmeetings/sec-021306-archive.ram
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I listened to a remarkable exchange today. The exchange was not the body of the Rodney Young hearing with the SEC. No, in that part of the hearing, I already was passingly familiar with all of the issues. Rodney detailed the pattern of market maker illegal failing to deliver that characterized the trading in his stock, documented the complaints to the SEC and the pleas to come to the assistance of the company when facing blatant manipulation, chronicled the history of abuse that took it from a double digit stock to a penny stock in a matter of a few months.
No, the remarkable part was the question from the SEC commissioner, a Ms. Glassman, the only question leveled by her, really, which was:
“My Understanding is that companies generally use earnings from operations to pay for costs related to filing the registration statements”
Huh?
Development stage companies don’t have that option, as their product isn’t being sold yet. Their currency is their stock. They raise money by borrowing money using their equity as collateral, or sell equity to fund their R&D and operations.
Now, the inference was obvious: You weren’t a real company, thus had no business being listed.
The reason this was noteworthy was because it followed Rod explaining, in detail, how the company was crushed by illegal stock manipulation that the SEC had allowed to occur. Which Ms. Glassman apparently missed, or wasn’t interested in.
Ms. Glassman, who likely has never run a business in her life, nor started one, probably isn’t aware that a lot of companies have a period where they are in the development side of the curve. Thus, she probably doesn’t appreciate the distinction between a development stage company and one that has revenues.
Given that she is one of the commissioners who is chartered with policing the markets, I felt that it would be wise if she had the faintest inkling as to what she was talking about. In that spirit, I have designed a primer for the SEC commissioners to use when considering complex business issues, featuring the intrepid signing gorilla Koko:
Koko have 10 apples. Koko love apples. Tasty apples good, yum yum yum.
Koko want to make apple pies. Koko think can sell pies for more than apples. Farmer always saying, “I love those apple pies!”
So Koko start a pie company.
Koko take her apple basket and put by the table. Make the pie crust. Yummy crust.
Koko then slice up apples. But two are mealy. Bad apples ruin that bunch for pie. So now Koko need more apples.
Hen come along and say, “Hey Koko, go pick apples, I’ll watch these.”
Koko know Hen sneaky, always trying to trick her out of apples.
But Koko need more apples. So she agree. “Watch apples, Hen, Koko be back quick.”
While Koko off picking more apples, Hen steals all Koko’s apples and sells them to Mr. Fox, the landlord, who is supposed to protect the farm, and who also loves apples. Hen sneaky. Bad hen.
Koko come back with 3 apples to find Hen gone, apples gone, pie company in shambles.
“What am I to do?” cries Koko.
Farmer come, see Koko, ask Koko what is wrong. Koko know she in trouble now, because every day she supposed to give Farmer 10 apples, so he can give them to Mr. Fox.
“Hen stole all my apples, Farmer!”
Farmer say, don’t worry Koko, we explain to Mr. Fox, and he will understand, punish Hen, get your apples back. So they go see Mr. Fox.
Mr. Fox is just finishing up the apples he bought for pennies from Hen. “What is the problem, Farmer, Koko?”
“Hen steal all my apples, and I was going to make a pie, and now no pie, no apples, and no Hen.”
Mr. Fox smile an evil smile. “Well, Koko, that is sad, but where are the 10 apples you and Farmer owe me today?”
Koko look down and see apple seeds and peels all around Mr. Fox’s feet.
“Mr. Fox, Koko no have apples, you ate my apples that Hen stole from me!”
Mr. Fox burp apple. “Koko, I am under the impression that successful apple pie companies pay their daily apple quota from their surplus of apples – why don’t you have any apples to pay me with?”
Farmer steps in. “Because Hen stole them.”
Mr. Fox says, “I see. So you have no apples. I’m afraid I am going to have to throw you off my land, then, as no apples, no land. So sorry.”
Koko can’t believe it. “But Hen steal my apples. You ate my apples! This isn’t fair!”
Mr. Fox smile. “I make the rules. Hen is a valuable participant. You have no apples. Shame on you for not having apples – what a lazy dirty monkey.”
Now, the moral of the story is simple – if you are going to let miscreants rob your startup companies blind, cutting off their access to vital resources, you can’t pretend you didn’t know about it (especially if there are hundreds of complaints) and then chastise the companies. It isn’t fair, or good, and it is akin to robbery.
Apparently that is the business some folks at the SEC believe that they are in. I was actually stunned by that question, as it told me all I needed to know as to the acumen of the commissioner.
Now, I’m not arguing that Rod’s company should or should not be de-listed. I’m not saying that the company is good, or bad, or anywhere in between. As with OSTK, I don’t much think it matters. What matters to me is whether the SEC understands that the law is supposed to be applied evenly, for all companies – and if it failed to take action against those that Rod claims robbed his company blind, how can it then ask questions like the one the commissioner asked? It is akin to a cop watching thieves steal the gas out of a car, and then coming over and demanding that the owner move the vehicle or be cited.
And I found it more than a little shocking. As should you.