Paging Firm’s Stock Spurt Called a Scam

NEW YORK — The Securities and Exchange Commission says it now knows why the stock of Santa Ana-based Southland Communication Inc. nearly doubled in price a few weeks ago despite the company’s dreadful performance: a massive stock market manipulation scheme by the firm’s president.

The SEC filed a civil lawsuit Monday in federal court in Manhattan, accusing Southland Communication President and Chief Executive Ahmad N. Bayaa, as well as Atlanta stock broker Shaw Tehrani and four others of artificially driving up the price of the company’s stock to $16.75 per share from $8.75 between March 13 and April 3. Southland Communication, which does business as National Paging, provides electronic paging services.

The remarkable run-up and exceptionally heavy trading volume puzzled stock analysts and traders because it coincided with reports that the company was in severe financial trouble. The bizarre activity led the SEC on April 3 to halt trading in the stock. It hasn’t been publicly traded since.

In the 28-page lawsuit, the SEC claims that Bayaa, Tehrani and other friends of Bayaa’s bought up large amounts of the thinly traded stock to thwart “short-sellers” who were attempting to profit from an expected drop in the stock’s price. They also hoped to keep the stock price up long enough that a private placement of additional stock and an acquisition of another paging company could be completed.

The suit charges that the swift, sharp price run-up was intended in part to punish short-sellers, who were then forced to cover their short positions at substantial losses. Short-sellers borrow stock and sell it, hoping the market price will go down. They can then return the stock by buying shares back at the lower price and pocketing the difference.

The suit charges that Bayaa and the other defendants opened numerous brokerage accounts around the country to make it appear that there was heavy demand for the stock. They also allegedly engaged in sham trades and ran up an unpaid bill of $11.6 million from buying thousands of shares on margin--that is, without immediately paying the full purchase price of the stock. Southland Communication’s stock was traded in the over-the-counter market.

The SEC asked that the six defendants be ordered to give up all profits from the allegedly illegal activity. The suit didn’t specify an amount. But Daniel R. Schnipper, senior special counsel in the SEC’s New York regional office, said it could total in the millions of dollars. The SEC also asks the court to freeze the personal assets of Bayaa and Tehrani, except for what the men need for essential living expenses and attorneys’ fees.

Schnipper refused to say if there is any parallel criminal investigation under way.

James J. Carroll III, a Los Angeles lawyer whose firm, Sheppard, Mullin, Richter and Hampton, represents both Southland Communication and Bayaa, said he hadn’t seen the SEC lawsuit and couldn’t comment on specific charges. But he said: “We were very surprised that Mr. Bayaa was named as a defendant. We don’t think he’s done anything wrong.”

Bayaa himself did not return a telephone call to his office.

Tehrani, a stock broker at B.C. Financial Corp. in Atlanta, also did not return a call to his office, as did a New York lawyer said to be representing him, Jeffrey Livingston.

The other defendants couldn’t immediately be located for comment. They are Francois Alhaj and Abdul Rahman Deeb, described as self-employed oil consultants; Ramzia Kriedly, described as co-owner of an oil company in Dubai, and Ziad Twal, who the suit says “appears to be” a financial adviser employed by Security Pacific Bank. David Garcia, a Security Pacific spokesman, said, “We have no employee by that name.”

The SEC charges that the scheme began at least as early as January, 1989, when Bayaa and Tehrani allegedly joined together in a plan to control the market price of Southland Communication’s stock. The suit charges that by the middle of last month, the two, through various accounts, came to control 89% of the company’s publicly traded stock.

The control enabled the firm to dramatically boost the stock price even though, the SEC says, the company “is in grave financial condition.” For its fiscal first quarter ended Jan. 31, the company reported a loss of $323,529 on revenue of $1.9 million, compared to a net loss of $258,975 on revenue of $1.4 million for the same period a year ago. The SEC suit noted that Southland Communication’s own first-quarter statement warned investors that “the company’s recurring losses from operations and working capital deficiency raise substantial doubts about (the company’s) ability to continue as a going concern.”

The suit charges that Bayaa had hoped to keep the stock price elevated long enough to complete a private placement of new stock that would have brought in $5 million in new capital and to complete the planned acquisition of another paging company, A+ Beepers of California.

The suit says that when Tehrani learned by phone on March 3 of an anonymous report recommending short sales of the company’s stock, he became so angry that he threw a telephone through his office window.