International Heritage investors wait out SEC trading halt
By DAVID RANII, Staff Writer
RALEIGH -- Investors in newly public International Heritage, the company that sells jewelry like Amway sells soap, are in for a tense two weeks while they await the expiration of the government order that suspended trading in the company's stock.
Securities law experts say there is no good way to predict how the market will react when trading in the stock of the Raleigh-based firm resumes at noon March 26. The price could remain at its lofty pre-suspension level -- or it could fall with a thud if investor confidence in the company has been shaken.
"At this point, it's fair to say, the Securities and Exchange Commission wants to make sure this frothy market is not all froth," Thomas Hazen, a law school faculty member at the University of North Carolina at Chapel Hill, said of the suspension.
Early Friday afternoon, the SEC halted an upward spiral of International Heritage shares by suspending trading for 10 business days. The stock was trading at $26.50 when the order took effect -- up $7 from Thursday's closing price of $19.50 and more than double Wednesday's close of $12.75.
At that price, International Heritage had a market capitalization -- the total value of its outstanding stock, including stock options -- of nearly $1 billion, definitely pricey for a sales company that last year had $107 million in revenue and operated in the red.
The SEC's suspension order cited "questions regarding the accuracy of statements concerning, among other things, the return investors could expect to receive on their investment, the regulatory background of the company and the background of its president."
Such suspensions are relatively rare for the nation's approximately 13,000 publicly traded companies. The SEC ordered 12 such suspensions last fiscal year and has issued 10 for the current fiscal year that began Oct. 1, said Jay Perlman of the SEC.
International Heritage has run afoul of regulators in the past. Last year, the state attorney general's office said it would move to shut down the company's operations unless it revised its sales policies. Without admitting any wrongdoing, the company subsequently agreed to alter sales practices to comply with the state's anti-pyramid law. The agreement applied only to the company's North Carolina operations and did not affect its business elsewhere.
Despite the questions of accuracy raised by the SEC order, legal experts said the action doesn't necessarily mean bad news for investors. It's possible that intense activity in the stock triggered the SEC's concerns and that the accuracy issues are relatively minor.
"The fact that the SEC has done this doesn't necessarily mean the stock price will crash," said Michael Bradley, who is on the faculty of Duke University's business school and law school. "You can't infer this is horrible news and disastrous for the stock."
One key to the stock's near-term fate is whether the market uncovers, or the company ends up disclosing under pressure from the SEC, any news that is disturbing to investors.
"Clearly, if some new information is uncovered or discovered by the market, volatility could follow," Bradley said.
That won't happen, said Stanley H. Van Etten, the company's president.
The company believes the SEC has "all the appropriate information," Van Etten said. "We have supplied, literally, boxes of information to the SEC. I can't imagine what we hadn't provided them."
Nevertheless, he added, the company will comb through its files looking for additional information that conceivably could be useful to the agency.
Van Etten attributed the suspension to a lack of information about the company among brokers, who were caught unaware by the recent merger that transformed a Nevada-based "corporate shell," Kara International, into International Heritage. Kara had no significant assets or liabilities, and one shareholder, David N. Nemelka of Utah, owned four million of its 4.5 million shares.
The stock began trading under the International Heritage name on Thursday.
Van Etten said International Heritage shareholders who owned stock before the merger won't be affected by any fluctuations in the stock for quite awhile. The more than 300 shareholders and stock-option holders who fall into that category have restricted shares in International Heritage that can't be sold for at least one year.
International Heritage posted a loss of $12.3 million on sales of $107.2 million in 1997, compared with a loss of $1.3 million on sales of $47.7 million in 1996. The company boasts of having 150,000 independent sales representatives throughout the United States and Canada.
Barry Ackel, a member of the company's board of directors and a major shareholder, said he was mystified by the SEC's suspension.
"I think this is America and a guy can spend his money any way he wants to," Ackel said in a telephone interview from his home in Alexandria, La.
David Ranii can be reached at 829-4877 or firstname.lastname@example.org