There are tall tales. And there are short tales. Then there is the tale of TEIL short sellers. Which may be nothing more than a tall tale in the end.
When we first reported on 3 E International Corp. (Pink Sheets: TEIL) on February 22, 2002, the Company’s stock was rising on rumors of a reverse-merger with a private Nevada corporation called Corbel Holdings, Inc. Corbel claimed to be a real estate development company, but there was no indication that it had developed anything – aside from its interest in acquiring 3 E. See 3 E International Corp., Part I – Lighter Than Air; Part II, Falling From the Pinnacle; and Part III, From All Pro To All That Dough.
There has been no significant news about either Corbel or 3 E - in recent months. Has the merger moved forward? That’s hard to tell since 3 E does not file any public reports or financial statements. There have, however, been grumblings lately from promoters who seem intent on creating a market for 3 E stock.
That’s where those tales come in - tall and short. An online promoter called “SkyMarket Direct” has named 3 E as a “Hot Stock Pick,” and is predicting that 3 E stock could reach $100 a share. That seems somewhat ambitious. 3 E now trades at 30 cents a share, on virtually no volume.
What could compel such a brazen projection? SkyMarket has a theory, based upon the hypothetical outstanding short position for Corbel shares. This one’s an old tale. As we recounted in our February 22, 2002 article, Corbel started out as a wholly-owned subsidiary of Pinnacle Business Management, Inc. (Pink Sheets: PCMB). In early 2002, Pinnacle announced that it was spinning off Corbel, and would give Pinnacle shareholders one share of Corbel stock for each 100 shares of Pinnacle that they owned as of the record date. For more details, see 3 E International, Part I – Lighter Than Air.
According to Pinnacle, problems surfaced when brokerage firms submitted requests for almost 10 million Corbel shares. With 457 million shares of Pinnacle outstanding, requests for Corbel stock should have totaled 4.5 million shares. Pinnacle – and many of its supporters on Internet message boards - concluded that the differential had been caused by a large illegal short position.
It is unclear whether Pinnacle ever issued those 10 million shares. Confusion, however, continued to prevail. On January 16, 2002, just days before the 3 E reverse-merger was announced, Corbel announced that all of its outstanding shares had been cancelled. Shareholders were directed to return their stock to the Corbel transfer agent. Who owns Corbel shares today? That remains unclear.
Which brings us to the SkyMarket Direct recommendation. SkyMarket speculates that, once the merger of Corbel and 3 E is completed, 3 E will be “grandfathered” into the existing short position for Corbel shares. That assumes, of course, that there is a short position in Corbel. Based upon the January 16th announcement, it is unclear whether any shares of Corbel have been issued to the purported holders of those 10 million Pinnacle shares.
SkyMarket is full of assumptions. It goes on to suggest that the supposed holders of those 10 million Corbel shares (which may or may not ever have been issued) will now expect to exchange them for 10 million shares of 3 E. Since the transfer agent will not have sufficient 3 E shares to deliver, SkyMarket speculates that brokers and market-makers will be forced to buy 3 E stock in the open market in order to deliver them to angry customers looking to trade in their Corbel stock. With only 100,000 3 E shares available in the public float, this would – again, according to SkyDirect – drive the price of 3 E stock skyward toward that $100 figure.
Nice theory, but where are the facts? There is no independent evidence that any short position exists for Corbel stock – or that there was a short position for Pinnacle shares in the first place. If there were requests for 10 million Corbel shares, what did Pinnacle do? To whom did it issue Corbel stock – there were only 4.5 million shares to be distributed? Since Corbel was a private company, Pinnacle was in a position to proceed with, or defer, the spin-off until the issue was resolved. If it was not resolved, how could they ever have proceeded with the distribution?
In fact, it is not clear whether new Corbel shares were issued after the January 2002 recall, or if so, who received them. As we pointed out in an earlier article, Pinnacle shareholders were only going to receive a minority interest in Corbel as a result of the spin-off. How many other shares were to be issued, and to whom? Are there 4 million shares outstanding, or 400 million? Pick a number. With no public filings, your guess is as good as ours – or SkyMarket’s. As best we can determine, that information never has been made public. And without it, all of the Sky Direct number calculations go out the window – even assuming that a short position existed - whether for Pinnacle, Corbel or 3 E.
There are other significant flaws with SkyDirect’s short tale. On January 31, 2002, 3 E said that it planned to issue approximately 10 million shares in connection with the merger – only 4.5 million of which would go to the former Pinnacle shareholders who had received their interest in Corbel as a result of the stock spin-off. That meant the transfer agent first would have to identify the Corbel shareholders who were entitled receive those 4.5 million 3 E shares.
Would any responsible company – or its attorneys – agree to conclude a merger before the short position issue was resolved? Is there any credible scenario under which 3 E would agree to assume responsibility for the mess that purportedly existed? Particularly where, at the end of the day, they get to acquire a company like Corbel, with no assets, no business history, and no revenues.
Since 3 E has not issued any public statements – and does not file public reports – there is no way of knowing whether the reverse-merger is even proceeding. Has it been derailed by problems at Pinnacle? On May, 8, 2002, the Securities and Exchange Commission suspended trading of Pinnacle shares, citing concerns over statements that Pinnacle had been making about plans to spin-off yet another subsidiary. That same day, the SEC charged Pinnacle and several of its executive officers with securities fraud.
There have been other problems that suggest Pinnacle and its proponents have not always been forthright in their public statements. On February 25, 2002, the SEC sued promoter Mark E. Rice, charging that he had carried out a scheme to “pump and dump” Pinnacle shares by sending out millions of fraudulent “spam” e-mail messages.
Then there is this. The SkyMarket report suggests that readers contact www.cobeonline.com for information. We did, and received this message: “Site No Longer Available.”
Therein lies a tale or two.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com