TRIALS AND TRIBULATIONS OF A
STOCK MARKET ANTICHRIST
JENNIFER WELLS -- TORONTO STAR
THIEFS (sic) and liars like you should be
in jail. I hape (sic) they nail your b---s up!''
It's not easy being Manuel
Asensio. Irate investors send the most intemperate e-mails (see above).
Irate companies shower him with lawsuits. Someone snapped his photo once at
Grand Central Station and he thought, what's that for? Identification reference
for a pending mob hit?
On the phone from his Manhattan office, as
the monied class screams out of New York for Independence Day, Asensio talks
about being reviled. That is what you get when you not only short stocks, as
Asensio does, but issue pungent news releases about the firms being shorted in
which the word ``fraud'' is liberally sprinkled.
Short selling. Most of its practitioners
prefer anonymity, which may explain why any reference to the practice requires a
To short a stock: to place a bet that a
company's share price is headed for a fall.
The technique: The investor borrows shares
in the targeted company and sells them on the market at today's price - let's
say 10 bucks a share. The investor goes to bed dreaming that the stock is due to
deflate thunderously. The stock falls to $5. The investor buys at that price to
replace the borrowed stock. Gross profit: 5 bucks a share.
Short selling is not easy and is certainly
not for the faint of heart: a rising stock price will quickly remind the
investor that her potential losses are limitless. To say nothing of the fact
that the practice is seen as anti-market, the stock market equivalent of the
For Asensio, the short selling ride has
been punishing. In the past four years Asensio and Co., Inc. has faced $1
billion (U.S.) in lawsuits launched in jurisdictions from California to South
Carolina. ``We had at one time more than 30 lawyers working for us,'' says
Asensio, who sounds fatigued just talking about it. Regulators from the American
Stock Exchange camped out in his office, combing his records. They stayed two
In 1998, Asensio retained bankruptcy
counsel, thinking maybe he couldn't survive the onslaught. He hasn't caved yet,
though it sounds as though he's wavering.
``It's emotionally draining. It's
physically draining,'' he says. ``But I still have the same desire . . . The
greatest feeling is starting at 8 a.m. and staying until midnight and at the end
of the day finding one piece of the puzzle, being one step closer to knowing
what's going on.''
What has been going on is all laid out in
Sold Short: Uncovering Deception in the Markets, written by Asensio with U.S.
journalist and entertainment writer Jack Barth. In the book, Asensio dissects a
raft of his successful shorts, from Crystallex International Corp. to Solv-Ex
Corp. to Turbodyne Technologies Inc. The names of many of the plays will be
familiar to Canadian investors.
Take Solv-Ex. In 1996, when Asensio issued
his first sell recommendation on the company, Solv-Ex was promoting the
extraction of bitumen from the Alberta tar sands. Asensio called Solv-Ex a
``terminal short,'' meaning he figured it was headed to zero.
Asensio questioned first the way money had
been pumped into the company, particularly through the London office of
powerbroker Morgan Grenfell. He then commenced an examination of whether the
company had inflated its extraction claims, and the profits it promised would
flow from its operations. He talked to on-the-ground workers; he conducted
The Solv-Ex promotion, he concluded, ``was
perhaps the greatest blizzard of way-over-the-top pumpery I have ever
A Morgan Grenfell analyst held a contrary
view: ``Solv-Ex, between now and the year 2008, will be the fastest-growing oil
company in the world.''
Well, guess what? In the fall of 1997,
Solv-Ex was delisted and headed into bankruptcy protection. A U.S. District
Court judge would subsequently conclude that the company had defrauded investors
through misleading press releases and shareholder letters.
The losses at Morgan Grenfell reached into
the hundreds of millions. Fund manager Peter Young, seen as a star in the London
investment community, lost his job but skirted jail time. As reported in The
Guardian, he walked out of court ``dressed in a cerise top, grey flecked skirt
and high-heeled shoes and carrying a purple shoulder bag, after showing no
emotion when he was dismissed under the 1964 Insanity Act.''
Okay, the Solv-Ex example was unusual. But
Asensio's right calls have been many, including his short call this spring that
telecom company Winstar Communications Inc. possessed ``no ability to repay or
refinance its debts and that Winstar is worth far less than the amount it
owes.'' Winstar filed for bankruptcy protection in April. It can get depressing.
``There's no real defence for investors except their own due diligence and their
own careful work,'' he says, not very helpfully.
He calls mutual funds a ``misappropriation
of capital'' with the dot-bomb fiasco as proof.
He recently appeared on a radio show with
Steve Forbes, who said the collapse of the dot-com market was no different from
investors' long-ago hyper-enthusiasm for railways and radios. ``The most
important thing that Steve Forbes fails to understand is that at least we were
left with railroads, with radio stations. We were left with assets in
Asensio is sounding weary. He still faces a
$400 million lawsuit from Hemispherx Biopharma Inc., after asserting that the
company's claims for a chronic fatigue drug are inflated. It couldn't have
helped that he walked up to Hemispherx president William Carter at a conference
and said: ``I'm Manuel Asensio. You belong in jail.''
``The idea that the truth can be suppressed
by the misuse of shareholder funds and the justice system disgusts me to no
end,'' he says in Sold Short.
Wrapping up a series of conversations,
Asensio says he ``has nothing to fear in trial,'' should the case advance that
far. Still he has tempered his tactics. He has started to eliminate the
``fraud'' word in reports, though he sprinkles it liberally in conversation.
``The acid test is we survived the onslaught,'' he says.
"I'm not crying.
We made our buck. We made an enormous amount of money.''