Banking & Capital Markets

Little Drama In IPO Market

Only Petco to brave the market. Elsewhere: Disney reaffirms plan to separate audit and non-audit services. Plus: Dr. Noe's at it again.
John GoffFebruary 19, 2002

This week in capital markets doesn’t look nearly as interesting as last week in capital markets. Indeed, only one company — Petco Animal Supplies Inc. — is slated to go public over the next few days. Petco management, which reported company revenues of $1.2 billion in 2001, expects to raise around $275 million in the IPO.

A noteworthy event, particularly in this IPO-starved environment. Still, it’s not likely Petco’s IPO will offer up the same drama as the PayPal initial public offering, which finally came to market on Feb. 18. As you recall, we reported early last week that the online payment specialist had put its floatation on hold. The reason? Rival Internet payment company CertCo had filed an infringement lawsuit against PayPal, claiming PayPal’s system violates CertCo’s patent for a method for making payment and transactions in an electronic payment system.

As if that wasn’t enough, PayPal management also revealed that regulators in Louisiana had balked at the company’s request for a business license. Apparently, regulators in the bayou state said they were still trying to determine if PayPal’s service qualifies as an unauthorized banking service.

Tough stuff. Given those sorts of problems, you’d think the last thing managers at PayPal would want to do is sell shares on the open market. But after one push back on the launch date, PayPal management went ahead with the IPO last Thursday. Remarkably, the share price of PayPal common jumped over 50 percent on the opening day of trading — the highest bump up in opening day trading this year.

Even more remarkable: PayPal is the first E-commerce company to go public since outsourcer Loudcloud went public last March. And while that may indeed seem a long time between drinks, keep in mind that Loudcloud was the only Internet specialist to launch an IPO in all of 2001.

Disney Confirms Auditor Plan

At the opening of the Walt Disney Co.’s annual shareholder meeting today, company CEO Michael Eisner reiterated Disney’s new prohibition on hiring its auditor to provide consulting services. Disney first announced the plan in a conference call to analysts on Jan 31. “We’ve been very prudent in this area over the years, with close and active oversight by the Audit Committee,” Eisner told Disney shareholders gathered in Hartford, Connecticut. “But, in the current world, it’s become more important than ever to make sure that our shareholders — and the market as a whole — have full confidence in our financial reports, including the integrity of the auditing process.”

Ironically, Disney shareholders don’t seem to have full confidence in the plan to ensure that shareholders have full confidence in the company’s financial reports. A preliminary count of shareholder votes showed that about 648,000 were against the plan, with a little over 473,000 favoring it. Disney intends to go ahead with the policy — notwithstanding the final vote count.

That, of course, must thrill executives at current Disney auditor, PricewaterhouseCoopers. According to a Disney proxy, PwC took in $8.7 million in auditing fees from the Magic Kingdom in 2001. By contrast, the Big Five firm booked $32 million in non-audit fees from Disney.

The consultancy did get some good news out of Hartford on Tuesday, however. By a wide margin, Disney shareholders ratified a company resolution to keep Pwc on as independent accountant.

The Over-the-Hill Gang

In case you missed it: on Thursday, the Securities and Exchange Commission filed fraud charges against career swindler Clifford Goldstein — long known to law authorities as “Dr. Noe.” The SEC charged Dr. Noe with bilking at least 20 investors — including corporate investors — out of nearly $1.1 million in an elaborate fraud known as a prime bank scheme.

Dr. Noe, known to his friends as Cliff, is a 71-year-old high school dropout who’s managed to pull a string of multi-million dollar swindles since the 1970s. Dr. Noe has already served prison time for wire fraud, mail fraud and forgery. His brother, Paul Noe, 74, also has an extensive criminal record, including convictions and prison sentences for embezzlement, larceny and wire fraud.

This time around, the SEC complaint alleges that Goldstein, Noe and their companies sold wholly fictitious securities that they described as “stand-by letters of credit” sold by “top ten European banks.” According to the complaint, the prime bank schemes were promoted through in-person solicitations and over the Internet.

The SEC claims Dr. Noe and associates typically targeted managers working at cash-strapped companies in urgent need of financing, as well as sophisticated investors looking for high returns in short periods of time. In some instances, the defendants promised to double investors’ money in 13 weeks. Instead, the complaint charges, they pocketed the money for their own personal use.

In its complaint, the SEC alleges that the defendants violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Both Goldstein and Noe were alive when the two acts were passed. We just thought we’d mention it.

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