May 8, 2002 started out rather poorly for Pinnacle Business Management (Pink Sheets: PCBM). Then it got worse.
At 9:30 am on May 8th, the Securities and Exchange Commission suspended trading in Pinnacle securities citing concerns about:
the accuracy of assertions made by PCBM, and by others, in Commission filings and in documents sent to and statements made to investors concerning among other things, a planned spin-off by PCBM of a subsidiary in May 2002, the initial price at which the subsidiary will trade after the spin-off has been completed, and the conditions bearing on the subsidiary's chances of achieving an American Stock Exchange listing.
See Update: Pinnacle Business Management - R.I.P.?
Pinnacle’s problems continued to mount later in the day on May 8th,when the SEC announced that it had filed a civil fraud action in federal district court in Tampa, Florida against the Company, its Chief Executive Officer, Jeffrey Turino, and its Chief Operating Officer, Vincent LoCastro.
Pinnacle, a Nevada corporation, was removed from the OTC Bulletin Board in December 2000 and now trades on the Pink Sheets. The Company ceased to file required reports with the SEC in August 2001. Its last filing was a Form 10-Q financial report for the June 30, 2001 quarter. That report indicated that Pinnacle had issued approximately 638 million shares of common stock. According to Pinnacle’s transfer agent, however, the Company now has issued almost 2 billion shares of stock, nearly tripling the number of shares outstanding, and substantially diluting public shareholders.
The SEC’s lawsuit charges that Pinnacle, and the two officers, are responsible for issuing a false and misleading April 2, 2002 press release concerning plans to spin-off Pinnacle’s “All Pro Group” subsidiary. The “All Pro Group,” which constitutes virtually all of Pinnacle’s business, operates a used car dealership, a Daewoo dealership and a wireless telephone sales office in Western Pennsylvania.
The April 2nd press release claimed that Pinnacle planned to give its shareholders a “dividend” consisting of one share of the new “All Pro” entity for every 50 shares of Pinnacle stock that they owned on May 31, 2002. Pinnacle maintained that it would then seek to list the new “All Pro” entity on the American Stock Exchange (AMEX) at an initial trading price of $4 per share.
With Pinnacle stock trading at about 7/10ths of a cent per share, this would suggest that an investment of 35 cents (to purchase 50 shares of Pinnacle stock) would translate into one share of All Pro trading at $4 on the AMEX. That sort of extraordinary return certainly suggested that the Company was attempting to encourage investors to buy Pinnacle common stock prior to the May 31st deadline.
The SEC says that Pinnacle lacked any reasonable basis for stating that All Pro shares would trade at $4; that Pinnacle misquoted an AMEX floor broker named Roy Lerman to convey the misleading and false impression that Mr. Lerman endorsed the Company’s claims; and that Pinnacle overstated the likelihood that All Pro would obtain an AMEX listing.
The SEC also pointed out that, given the nearly two billion shares of Pinnacle stock that are currently outstanding, a $4 per share price would give All Pro an initial market cap value of around $160 million. That value, according to the SEC, is baseless, considering the fact that Pinnacle purchased All Pro from LoCastro in December 2000 for about $8 million, and there has been no evidence of significant growth since that time.
As we indicated in our April 9th article, the hypothetical initial market cap number could be even higher; Pinnacle has yet to disclose how many shares of All Pro are to be issued to LoCastro and other Pinnacle officers. According to the April 2nd press release, LoCastro and his wife were to receive an unspecified number of shares in the new entity in consideration for deferring principal payments on a $6 million promissory note that Pinnacle issued to purchase All Pro from Lo Castro.
The SEC complaint echoes another theme of our earlier article. That is, Pinnacle’s April 2nd press release failed to inform investors that All Pro does not meet the AMEX’s initial listing requirements.
The SEC action seeks to permanently enjoin Pinnacle, Turino and LoCastro from violation of the federal securities laws. It also seeks civil penalties and an order barring Lo Castro and Turino from serving as officers or directors of any public company.
For more on Pinnacle, the All Pro spin-off, and Pinnacle’s other pending plans (including a proposed merger between Pinnacle’s subsidiary Corbel Holdings, Inc. and 3 E International Corp. (Pink Sheets: TEIL)) see our recent series of articles: 3 E International Corp. Part I – Lighter Than Air; 3 E International Corp. Part II – Falling From The Pinnacle; 3 E International Corp. Part III – From All Pro To All That Dough; and Update: 3 E International Corp. and Pinnacle Business Management, Inc. – Less Than Meets The Eye.
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