What has Ives Health Company been saying since March 5th, the day the SEC suspended trading of the Company’s shares? Not much. Unless you count a press release Ives issued that same day saying the Company was “Suprised” (sic) at the SEC action.
Prior to the trading suspension, Ives had been much more talkative. In February, the Company issued a series of press releases proudly proclaiming that a product called “T-Factor®,” could reduce the progress of HIV. Ives Health claimed that the drug had been proven effective in a study conducted by one Dr. Robert Slayton-Bedeen, “along with the World Health Organization (WHO) in Jakarta and Bangkok.” (We looked at Ives in our article IVES HEALTH COMPANY, INC. – IVES WIDE SHUT).
In issuing the suspension, the SEC said it was concerned about the accuracy of statements the Company had been making to investors about ”T-Factor.” That might explain the Company’s ensuing silence these past two weeks.
The Bloom-ing Controversy
But while Ives has remained quiet, it has continued to garner unwelcome publicity. On the day trading was suspended, Bloomberg commentator, David Evans, raised disturbing concerns about the Company’s claims and the background of T-Factor developer, Slayton-Bedeen. According to the Evans article:WHO has denied any knowledge of the Slayton-Bedeen study;
Proctor & Gamble (P&G) has denied a claim by Ives that P&G was a partial sponsor of the study;
P&G has denied a claim by Ives that it formerly employed Slayton-Bedeen;
T-Factor inventor Robert Slayton-Bedeen filed for Chapter 7 bankruptcy in 1998;
Slayton-Bedeen has used several aliases and a number of different social security numbers;
Slayton Bedeen reported to the IRS that he was in the United States at the time he was purportedly conducting the study in Indonesia;
Ives Health fired Slayton-Bedeen in March 1999, saying it wanted to “distance” itself from the doctor after learning he had used several aliases and two social security numbers;
Neither the University of Oklahoma nor Case-Western Reserve have any record that Slayton-Bedeen ever attended either school – although Ives claims he holds advanced degrees from both institutions.
Investors shaken by the SEC suspension could not feel comforted by the shadow that the Evans story cast upon Slayton-Bedeen – and, as a result, on the validity of his claims.
As it turns out, there was more to come. On March 12th David Evans wrote that a former Chicago stockbroker named Wayne Schumacher had been hired to help promote Ives Health stock. Why should that be a cause for concern? Evans reported that Schumacher pleaded guilty to federal securities crimes in January 2000, after being accused of taking payoffs from a stock promoter for selling certain securities to his clients. Shortly after he was released from prison, Bloomberg says, Schumacher began to work for Ives – distributing press releases, including one on February 15th that said “T-Factor®” was now available on the Internet.
According to the Bloomberg story, Ives Health’s President, Keith Ives, claimed he was unaware of Schumacher’s criminal background when he hired him and his associate, Robert Pierce, to do public relations and web site design for the Company. Ives even issued 3 million share of stock to Pierce, apparently in connection with those services. It would appear that those were the 3 million shares that Ives registered for Pierce on a Form S-8 on January 18, 2001 (and re-registered on an S-8 filed March 2nd).
Even after learning of Schumacher’s history, Evans reports, Keith Ives remains “fine” with him. Which means that Ives remains comfortable having a working relationship with the Chicago stock promoter, but not with the doctor who developed the heralded “T-Factor®.”
The Price of Being Free
The Schumacher story did not pass without notice. In fact, to paraphrase Alice, it got “curiouser and curiouser.” On March 13th a company called Freespace Media issued a press release seeking “to clarify its working relationship with Ives Health.” Why did Freespace Media feel such a clarification was necessary? As it turns out, Freespace Media is Wayne Schumacher’s employer. The March 13th press release said that Freespace Media had been hired by Ives “on January 2, 2001 to develop a new corporate identity, new media kit, and an E-Commerce website for the Ives Health Company.” It explained that Schumacher, who worked for Freespace – not Ives - had been inadvertently listed as a “contact” on the Ives January 25th press release.What about those 3 million shares of stock? Freespace Media said that, because Ives was unable to pay its $150,000 fee in cash, a “Managing Member of Freespace Media” agreed to accept free-trading shares of Ives stock instead. The March 13th Freespace Media press release does not identify the “Managing Member of Freespace Media” who received Ives stock – but the press release does identify Robert Pierce as the “contact” for Freespace Media.
Why then did those S-8’s indicate that Pierce had given Ives Health a promissory note in payment for the shares? Why would Freespace pay for stock it had received in exchange for services? The Freespace press release said that Ives required Freespace to deliver the promissory note to “protect its investors.” What happened to that promissory note? How could it possibly have protected investors – and from what? Freespace didn’t say and Ives Health has offered no public explanation.
Freespace Media said that it was issuing the press release to address the “many misconceptions and inventions propagated by certain members of the public and the media lately.” Nevertheless, while Freespace Media states that it currently believes the allegations to be “unfounded,” it has suspended Schumacher “because we do not have enough information at this time.”
Suspended Animation
Ives Health investors are becoming all too familiar with the word “suspension.” And while the trading suspension ended on March 16th, the end of that period is not likely to afford any immediate comfort to those shareholders. We understand that some shareholders may take solace in the fact that the SEC stopped trading for “only” 10 days. Those individuals may be surprised to learn that federal securities laws do not contemplate longer suspensions; they provide that the SEC may suspend trading in any stock for up to ten trading days – and no longer.Suspensions may be imposed when the SEC believes it necessary to protect the public interest, as in those cases where the agency concludes that information provided by a company to the public may be inaccurate or inadequate. After the ten days have passed the suspension is over – but that does not mean that the company is out of the woods. The SEC may continue to investigate until it determines whether investors have been defrauded. The public will not know whether an investigation is continuing until the SEC announces an enforcement action.
Investors also should not assume that the end of a suspension signals an automatic and immediate resumption of trading. Over the Counter stocks – like those that trade on the OTC Bulletin Board or Pink Sheets - do not automatically resume trading once the suspension is lifted. Instead, brokers must first review information about the company and be satisfied that all financial data about the company is current and accurate in light of the questions raised by the SEC. Only then may they publish a quote for the company’s stock. So, even if the company files regular reports with the SEC and would otherwise qualify for listing on the OTC Bulletin Board, brokers may not begin to trade until these additional criteria are met.
Suffice it to say that brokers will be particularly diligent before jumping aboard a company bandwagon after the SEC has casts doubt upon the accuracy or completeness of that company’s public statements. As a result, when the smoke clears a market for the shares may not resume, or if it does, a stock formerly listed on the OTC Bulletin Board may find itself relegated to the Pink Sheets. And share prices may well be lower.
The 10 days are over – but the wait may go on for Ives shareholders.
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