The American Stock Exchange’s (“AMEX”) failure to delist Hemispherx Biopharma, Inc. (“HEB”)(Price: $3.92), a criminally organized AMEX listed company, led to a congressional investigation. On December 20, 2001 the findings of the AMEX investigation were released to the public. The investigation found that the AMEX used its discretionary authority to override its listing guidelines more often than was appropriate and deferred the delisting of companies for “excessive” time periods. The investigation concluded that ongoing concerns about the weakness in AMEX operations and the potentially negative impact of exchange practices on public confidence warrant continued monitoring of the AMEX listing program. Congress’ decision to investigate the AMEX and the investigation’s damaging findings fully support Asensio & Company, Inc.’s (“Asensio”) public assertions that the AMEX failed to protect the investing public from the HEB stock fraud. In fact, certain AMEX leaders were integrally involved in the HEB fraud.
On October 23, 1998 the AMEX sent Asensio a letter. (###35.gif::Exhibit 1: AMEX letter###) The letter, which requested information about Asensio’s short selling of AMEX-listed HEB stock, was part of a broad AMEX inquiry into all short selling activity in HEB stock. In fact, on September 23, 1998 the AMEX had issued an Information Circular memorandum to its members and member organizations reminding them of their need to comply with short selling rules. It was not a general reminder for all AMEX stocks but specifically for HEB. (###37.gif::Exhibit 2: AMEX memorandum###) In fact, the AMEX issued the memorandum the day after HEB wrote a series of letters to the AMEX making unsubstantiated and ludicrous claims of illegal short selling in its stock. (See Exhibits ###38.gif::12###, ###40.gif::13###and ###41.gif::14###) This and the fact that HEB was at best a very questionable company (Exhibit 3: Hemispherx Story) made the memorandum notable.
On September 22, 1998, the day before the AMEX issued the Information Circular memorandum, Asensio had published a short sell recommendation on HEB stock based on its belief that HEB was nothing more than an overblown 30-year-old medical scam. (Exhibit 4: HEB report) The report raised serious questions about HEB’s compliance with AMEX listing requirements. By October of 1998, transactions involving HEB stock and payments by HEB to stock promoters had become the subject of at least six federal criminal indictments and numerous New York State indictments. As a result, by the time the AMEX began to question HEB’s short sellers it was already known that HEB and its officers had a long history of questionable dealings. (Exhibit 5: “Hemispherx officers tied to other manipulated stocks.”) Yet the AMEX failed to de-list HEB and elected to continue its HEB short selling investigation for over two years and failed to find a single borrowing or trading violation. The U.S. Securities and Exchange Commission (“SEC”) also conducted its own inquiry into HEB’s stock trading. On April 1, 1999, after a seven-month inquiry, the SEC issued a formal fraud investigation order against HEB and its supporters. (###42.gif::Exhibit 6: SEC order###) There is no outward sign that the SEC found any validity in the AMEX’s inquiry into HEB short selling. Furthermore the SEC did not issue a formal order against any HEB short seller.
The AMEX’s questionable inquiry into HEB short selling has now been shown to be futile and counter to the best interests of the investing public. As shown below at least four influential leaders of the AMEX were involved with the HEB stock scam. In fact, HEB privately issued 4.3 million shares (over 25% of the company) to certain undisclosed individuals shortly before the AMEX agreed to list HEB. The AMEX failed to de-list HEB, which as of this writing still trades on the AMEX, and sanction those influential members who were improperly involved with HEB. This unusual series of events has led to a congressional investigation of the AMEX. On October 30, 2000 U.S. Congressman, and Ranking Member of the Committee on Energy and Commerce, John D. Dingell wrote to the U.S. General Accounting Office (“GAO”) requesting an examination of the AMEX. (###44.gif::Exhibit 7: Dingell letter to the GAO###) On November 13, 2000 Rep. Dingell requested that the GAO include HEB and a possible attempt to defraud Russell index mutual funds in the investigation. (###46.gif::Exhibit 41: Dingell letter to the GAO###.) The GAO wrote Rep. Dingell a letter on July 31, 2001 confirming its commitment to the AMEX investigation. (###48.gif::Exhibit 42: GAO commitment letter###.)
HEB has become one of America’s most publicized fraudulent penny-stock promotions. To summarize, the Food and Drug Administration (“FDA”) has rejected HEB’s safety and efficacy claims and charged HEB with making illegal medical claims. The SEC is currently investigating HEB and its leaders for fraud. HEB has failed to disclose material adverse governmental findings, including that the European equivalent of the FDA denied approval of its medical claims in 1999. (Exhibit 8: “Ampligen and its clinical trials found flawed and useless.”) HEB has issued false releases and has compensated others who issued corroborating releases. Federal and state prosecutors have criminally indicted at least six individuals involved in the Hemispherx stock fraud and four have already been convicted. HEB actually made cash and stock payments to one of the indicted parties without disclosure. The indictment notes that HEB received no services for the payments. (###49.gif::Exhibit 9: Drescher Indictment release###) Hemispherx also has ties to another convicted felon. (Exhibit 10: “Hemispherx Announces Deal with Convicted Former-NCI Researcher.”)
William A. Carter was HEB’s leader when HEB made payments and executed transactions that are the subject of federal and New York state criminal indictments. Over the past 25 years, Carter has been charged with hiring a private investigator and secretly filming a medical graduate student, been accused by a hospital and his own staff of improperly conducting medical experiments, was fired by that hospital, sued the hospital and made charges against his co-workers, been fired by HEB, accused of unethical and illegal behavior by HEB itself, sued HEB, accused of extortion by an AIDS patient, sued the AIDS patient, accused of scientific fraud by E.I. Dupont, sued Dupont, and is currently under investigation for fraud by the SEC. Carter has been a subject of at least two congressional investigations of fraud, including the current Congressional investigation of the AMEX.
HEB’s story that it possesses a valuable drug has enabled insiders to sell HEB stock they received for nothing or next to nothing to the public with as little disclosure as possible. In total HEB insiders have been allowed to sell 16.7 million shares to the public at over-inflated prices. (###51.gif::Exhibit 11: Analysis of HEB stock issuance###)
HEB’s questionable background raises serious concerns about the AMEX’s motives and intentions for investigating HEB short sellers. First, what prompted the inquiry and the expeditious handling of the inquiry? Second, what led the AMEX to commit its scarce regulatory resources to investigate HEB’s short sellers? Why not investigate HEB and its promoters who were suspected of stealing money from the investing public? On September 21 and 22, 1998 HEB wrote three letters to the AMEX. One letter alleged knowledge of private trading information about Quick & Reilly’s HEB short selling and claimed the short selling was illegal. (###38.gif::Exhibit 12: HEB’s first letter to the AMEX###) Another accused six more firms of short selling HEB illegally. (###40.gif::Exhibit 13: HEB’s second letter to the AMEX###) In a third letter, HEB claimed that LXE, a division of Spear Leeds, was illegally selling HEB stock short and was a front for Asensio. (###41.gif::Exhibit 14: HEB’s third letter to the AMEX###) Asensio has no relationship with LXE, has never had any relationship with LXE and has never been accused by a legitimate regulatory body of short selling any stock illegally. These letters indicate that HEB prompted the AMEX’s short seller inquiry. HEB’s letters contained unsubstantiated and inappropriate claims. Yet for some reason, after HEB wrote the letters, the AMEX elected to quickly draft and circulate the September 23, 1998 memorandum. (###37.gif::Exhibit 2: AMEX memorandum###) What gave HEB, a low-grade fraudulently promoted penny stock, its apparent influence over the AMEX?
Richard Syron was President of the AMEX from April 1994 to June 1999. On October 12, 1998, Asensio first advised Syron of the HEB stock fraud on the AMEX. (###52.gif::Exhibit 15: Asensio’s first letter to Syron###) Syron had cause to take note of Asensio’s letter. By that time Hemispherx had been implicated in two criminal indictments, and Asensio had already warned Syron of another AMEX scam in March 1998, before it crashed in June 1998 costing investors hundreds of millions of dollars in losses. On November 9, 1998 Asensio wrote Syron concerning his failure to regulate HEB and his earlier regulatory failure with another AMEX stock fraud. (###53.gif::Exhibit 16: Asensio’s second letter to Syron###.) Asensio never received a response from Syron. At the time, Asensio did not know that Syron had a material conflict of interest that could have impacted his decision concerning HEB and its short sellers.
George and John Hatsopoulos are brothers. They helped Syron get work and were involved in the HEB stock scam. Prior to being appointed President of the AMEX, Syron was President of the Federal Reserve Bank of Boston. George Hatsopoulos was chairman of the Boston Fed when according to a Boston Herald article dated October 3, 1997 he played a lead role in getting Syron his Fed position. Syron was President of the AMEX while John Hatsopoulos was a member of the Board of Governors of the AMEX. George Hatsopoulos is the founder of Thermo-Electron Corp. (“TMO”), which is an AMEX listed company that at one time had 21 publicly traded subsidiaries listed on the AMEX. In June 1999, when the AMEX was facing public scrutiny, Syron resigned from his position at the AMEX and became the President and CEO of TMO. The Hatsopoulos brothers had influence at the AMEX and over Syron whom they helped get three jobs. Through their Thermo-Electron investment activity the Hatsopoulos brothers also held a large interest in HEB stock. In fact, they are among those insiders who obtained their HEB interest privately and were allowed to sell their shares publicly. (###54.gif::Exhibit 17: pages 23 & 24 of the HEB Prospectus dated February 25, 1998###)
Apparently, the Hatsopoulos brothers’ were active in HEB long after the SEC issued the fraud order. In July 2000 John Hatsopoulos organized and promoted a private equity investment partnership called The GlenRose Partnership, L.P. (###56.gif::Exhibit 18: cover and page A3 from GlenRose Memorandum###.) GlenRose benefited from the HEB stock fraud. John Hatsopoulos used his profitable HEB trading to promote GlenRose. On October 12, 2000 Asensio wrote John Hatsopoulos an unanswered letter about his investment activities in HEB. (###58.gif::Exhibit 19: the letter to J. Hatsopoulos###.) The Hatsopoulos brothers were not the only individuals with influence over AMEX regulatory decisions involved with the HEB fraud.
Joseph Giamanco was a partner of an AMEX trading firm. In 1991 Giamanco was a member of an AMEX blue ribbon panel and an AMEX “floor official” in charge of AMEX rules floor compliance. In January of 1977 the AMEX sanctioned Giamanco for reporting fictitious trades. In April of 1977 the SEC found that the AMEX’s sanction of Giamanco was too light and Giamanco was charged with fraud and suspended by the SEC. (###59.gif::Exhibit 21: Giamanco article abstracts###.) In August of 1977 a Federal District Judge upheld the SEC’s charges against Giamanco. Arthur Levitt, Jr. became Chairman of the AMEX in October of 1977. (###61.gif::Exhibit 22: New York Times story###.) Later Mr. Levitt would become Chairman of the SEC and was head of the SEC when the AMEX failed to de-list HEB. Giamanco was the AMEX floor specialist for both HEB and TMO’s 21 AMEX listed subsidiaries.
Giamanco’s ties to the Hatsopoulos brothers were not limited to his AMEX and TMO positions. His interest in HEB may have exceeded 500,000 shares. J. Hatsopoulos’ son was a managing director of KSH Investment Group, Inc. when it participated in three private placements with Giamanco. Andrew Evans, a convicted felon who served six months in a federal prison for misappropriating bank funds, led one of those private placements. HEB’s IPO prospectus shows that Giamanco owned 250,000 shares, which he obtained privately in transactions organized by the now-convicted criminal stock promoters who took HEB public. In fact, Giamanco was one of 17 individuals who got free options to buy HEB stock at $0.50 before HEB’s fraudulent IPO. (###63.gif::Exhibit 20: page 90 of the HEB IPO Prospectus###.) As a result, he was one of the organizers of the scam that later became the HEB AMEX stock fraud.
The AMEX’s failure to de-list HEB has led to an investigation of AMEX’s listing requirements. On September 12, 2000 Asensio wrote SEC Chairman Levitt about the involvement of AMEX’s leaders in HEB. (###64.gif::Exhibit 23: Asensio’s letter to Levitt###.) On September 14, 2000 Asensio sent a letter to members of the Committees of the U.S. Senate and the House of Representatives that oversaw the SEC. The letter addressed a breakdown of securities regulation at the AMEX. (###66.gif::Exhibit 24: Asensio’s letter to Congressional Subcommittees###.) On September 18, 2000 Rep. Dingell sent a letter addressed to the SEC, the AMEX, and David Walker, Comptroller General of the GAO. (###68.gif::Exhibit 25: letter from Rep. Dingell to the GAO###.) Rep. Dingell requested the GAO conduct an audit of the AMEX listing department and provide him information on “(1) AMEX’s screening procedures for assessing the reputations of the management and stockholders of companies seeking a listing and (2) the extent to which AMEX ensures that companies approved for listing meet all criteria required for such approval.” Also on September 18, Rep. Dingell wrote a separate letter to the SEC’s Levitt referring to our September 14, 2000 letter to Congress and requested information concerning the AMEX’s failure to regulate HEB and the SEC’s failure to regulate the AMEX. (###70.gif::Exhibit 26: Dingell letter to Levitt###.) On October 30, 2000 Dingell wrote the GAO giving it further directives concerning the AMEX investigation. (###44.gif::Exhibit 7: Dingell’s letter to the GAO###.)
HEB’s prospectus dated February 25, 1998 shows TMO and Giamanco owned shares of HEB. The prospectus also shows that Richard Maser and Joseph C. Roselle owned shares of HEB. (###71.gif::Exhibit 27: pages 23 & 24 of the HEB Prospectus###.) The prospectus does not disclose any relationship between Maser and Roselle and Giamanco. Subsequent to Congressman Dingell’s request that the GAO examine the AMEX, the AMEX found that “Giamanco had undisclosed financial interests, through profit sharing and/or compensation arrangements, in a number of accounts under the names of two different individuals, which he had not reported to the Exchange. These accounts were personal brokerage accounts of his two friends, Richard Maser and Joseph C. Roselle.” (###72.gif::Exhibit 28: the AMEX’s Statement of Charges###.)
On April 26, 1999, Syron is quoted defending Giamanco in a Business Week article. (###74.gif::Exhibit 29: the Business Week article###.) Business Week quoted Syron as stating “there is nothing wrong with specialists’ participating in often lucrative private placements by companies in which they later become specialists.” On March 16, 2001, after Syron resigned, and facing congressional scrutiny, the AMEX announced that it had placed a censure, a $150,000 fine and a permanent bar on Giamanco. (###76.gif::Exhibit 30: the AMEX press release###.)
On October 20, 2000 in response to Rep. Dingell’s letter, Chairman Levitt forwarded a memorandum written by Annette Nazareth and Lori Richards, Directors at the SEC. (###77.gif::Exhibit 31: the SEC’s letter, including memorandum###.) The memorandum confirmed that 29 of the 86 companies listed on the AMEX between January 1 and August 31, 2000 did not even satisfy the AMEX’s own minimum quantitative listing requirements. This letter is in stark contrast to the one the AMEX wrote Rep. Dingell on October 20, 2000. (###79.gif::Exhibit 32: the AMEX’s letter###.) After reading these responses Asensio wrote two letters on November 2, 2000, one to David Levine of the SEC and one to Rep. Dingell. Asensio illustrated to Mr. Levine how eight newly listed AMEX companies may have been manipulated to defraud Russell Index mutual funds. (###81.gif::Exhibit 33: the letter to Levine###.) Asensio expressed concern to Rep. Dingell that the SEC’s response did not address the AMEX’s failure to comply with its own qualitative listing requirements and, its most egregious regulatory failure, to protect investors by de-listing stock frauds after they are exposed. (###83.gif::Exhibit 34: the letter to Rep. Dingell###.)
The Committee on Financial Services now oversees the SEC. However, Rep. Dingell oversaw the ongoing GAO investigation of the AMEX. On July 30, 2001, U.S. Congressman and member of the Committee on Financial Services, Charles A. Gonzalez wrote the SEC requesting an update of the SEC’s investigation of HEB. (###85.gif::Exhibit 35: Rep. Gonzalez’s letter to the SEC###.) On September 6, 2001, almost three years after the initial seven-month inquiry of HEB began, the SEC responded to Rep. Gonzalez with a terse letter thanking him for his interest and adding, “the Commission cannot comment on pending investigations.” (###86.gif::Exhibit 36: Chairman Pitt’s letter to Rep. Gonzalez###.) During these three years the AMEX failed to regulate a stock scam that its leaders used to make a profit, a scam that is ongoing as of this writing. On September 26, 2001 the SEC confirmed that the HEB fraud investigation was open. (###87.gif::Exhibit 37: SEC’s letter to Asensio###.) On October 31, 2001 Rep. Dingell advised Asensio that the HEB case was still active and that HEB’s fraud investigation status has affected the GAO study. (###88.gif::Exhibit 43: Dingell letter to Asensio###.) Rep. Dingell stated that he would not have the GAO withhold its otherwise completed report for some uncertain time while the SEC completes its investigation.
Asensio’s involvement with the AMEX leaders’ HEB dealings was unnecessary for short selling a rudimentary penny-stock scam. Asensio was a public HEB short seller and the only investment firm that published research on the HEB scam. Asensio’s HEB opinion formed part of the basis of an article in Business Week. As such Asensio was a target of the AMEX’s illegitimate HEB short selling campaign. Asensio believed it was necessary to conduct its own investigation, which produced the findings disclosed in this report that make the AMEX’s short seller inquiries questionable. In fact, the AMEX’s investigation of Asensio is part of the ongoing Congressional inquiry. (###90.gif::Exhibit 38: Maloney’s letter to the SEC###.)
The letter from the AMEX to Asensio in October 1998 represents the initiation of an investigation of Asensio, which lasted over 2 years. Asensio believes the investigation resulted from its reporting on the AMEX’s regulatory failures and the resulting congressional investigation. On October 20, 2000, Asensio signed a Letter of Acceptance, Waiver and Consent (“AWC”) with the NASD Regulation, Inc. (“NASDR”). On October 26, 2000 Asensio submitted a Statement of Corrective Action and Mitigation Statements to the NASDR. (###91.gif::Exhibit 39: Asensio’s Statement of corrective action & mitigation statements###.) The AWC contains alleged violations by Asensio of certain hyper-technical NASD regulations concerning short selling, trade reporting, advertising and supervision requirements. Asensio agreed to sign the AWC as part of a settlement with the NASDR “without admitting or denying the alleged violations.” Asensio’s execution of the AWC culminated the 24-month investigation by the NASD/AMEX.
On October 20, 2000 after signing the AWC, Asensio released a statement. (###93.gif::Exhibit 40: “Asensio responds to settlement of alleged violations of technical NASD compliance rules###.) Among other things, Asensio stated that it agreed to settle a series of alleged non-consumer, non-trading related rule violations without admitting that any of the violations actually occurred. Asensio has never been bought-in on any short sale nor did the NASD/AMEX inquiry find a single short sell where Asensio failed to borrow any shares or executed any short sale on a down tick. Asensio & Company and its employees have never received a single customer complaint in the firm’s entire history nor have any of Asensio’s employees ever received a customer complaint in their entire careers.
HEB is being investigated for fraud by the Securities and Exchange Commission. William A. Carter (“Carter”) was HEB’s leader when HEB made payments and executed transactions that are the subject of at least 6 federal criminal indictments and other New York state indictments. Over the past 25 years, Carter has been accused of unethical and illegal behavior by HEB itself, of extortion by an AIDS patient who he then sued, of scientific fraud by E.I. Dupont who he then sued, of improper medical work by a hospital and his own medical research staff who he then sued. Specifically, Carter was found by the hospital to have improperly hired a private investigator and to have secretly filmed a medical graduate student. He was accused of improperly conducting medical experiments funded by grants by the same hospital. After being given one year to find a new job Carter was finally fired by the hospital. Carter then sued the hospital and made charges against his co-workers including the graduate student. The European Medical Evaluation Authority (“EMEA”) denied HEB’s only request for Ampligen marketing authorization in its 30 year history. The EMEA found that HEB’s Ampligen research offered “no real pharmaceutical development”. The EMEA also found that the results of HEB’s Ampligen research “are not useful for efficacy assessment” and that “the Ampligen safety profile is poorly documented”. HEB’s entire stock value is based on its public promotion of the commercial value of Ampligen that is based on questionable out-dated studies.
Asensio & Company, Inc. is actively engaged in short selling and advises its clients on securities it believes are overvalued. A complete documented history of Asensio’s published work with short-selling transactions, and the firm’s definition of gross overvaluation, is available on the Internet at www.asensio.com. Short selling involves a risk not associated with the purchase of stock including, but not limited to, unlimited loss and stock borrowing risks. John Wiley & Sons, Inc. has published a book about Asensio & Company’s short selling titled “Sold Short: Uncovering Deception in the Markets.” The book can be ordered on the Internet at www.asensio.com and www.wallstreetbabylon.com, or www.amazon.com. Additional information is available upon request.