From: alzheimer@juno.com (Ronald Raygun Remailer)
Date: Fri, 6 Dec 1996 15:14:10 -0800 (PST)
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New York Times: Thursday, December 5, 1996
 
Stock Hyped On Internet Resumes Trading
 
By LESLIE EATON
 
Peter Usinger was incensed. The Rochester business consultant was using
the

Internet, as he often does, to check up on a little company he had bought
stock in called Omnigene Diagnostics Inc. 
 
But when Usinger reached the company's site on the World Wide Web, he
did not find the usual information about its patented test to diagnose
gum
disease. Instead, he read that the company was in default on the license
agreement that lets it use the patent -- the company's main asset.
 
Usinger fired off an angry electronic message to the Web site manager,
who
had put up the information. Usinger correctly suspected the site manager
was
embroiled in a dispute with the company. ``If you are not able to
substantiate
your claims and we have to take a financial loss,'' Usinger wrote, ``we
will
notify our lawyers.'' 
 
The manager, Robert Gibson, shot back his own e-mail, with enough details
to convince Usinger. And that was the beginning of the end of a
high-technology hype that had turned Omnigene Diagnostics stock from a
dud into a high flyer almost overnight. Within two weeks, the Securities
and
Exchange Commission halted trading in the stock and announced its action
on America Online, the agency's first such use of an electronic bulletin
board.
 
With the expiration Wednesday night of the trading suspension, the
cyberspace drama resumes Thursday. If the stock follows the usual
pattern, it
could well fall back to earth with a thud. 
 
The Omnigene Diagnostics story shows the effects Internet technology is
having, for good and bad, on investors and investing. Reams of
information
are available -- but truthfulness and accuracy can be almost impossible
to
judge. Amateur investors find their way to obscure securities and mingle
online with both stock promoters trying to drive prices up and
short-sellers
trying to drive prices down.
 
But the tale also illustrates the changes occurring in the still young
world of
Internet investing. Securities regulators are becoming more aggressive
about
online stock fraud; at the same time, individual investors like Usinger
are
becoming warier and starting to use the power of the Internet to protect
themselves. 
 
``A lot has changed -- dramatically -- in the last six months,'' said
John 
Stark,
a lawyer for the SEC who specializes in Internet fraud. ``There was a
real
culture of trust and benevolence; now people are becoming more
skeptical.'' 
 
And not a moment too soon. Online investing is growing by leaps and
bounds; with that growth has come a corresponding rise in scams,
including
manipulation of small stocks with few shares outstanding. ``It's a growth
industry,'' said William McLucas, the director of enforcement for the
SEC. 
 
Regulators are investigating several suspected ``pump and dumps,'' in
which
the Internet is used to stir up investor enthusiasm and inflate prices.
The
perpetrators, who usually own shares they acquired for little or no
money,
sell them into the rising market. When the scam falls apart, legitimate
investors are left holding the worthless shares. 
 
To be sure, such schemes have flourished for decades without the
Internet.
And the Omnigene Diagnostics story includes some traditional elements of
stock hype, including the use of a radio talk-show host, who was paid
with
stock to promote the company. 
 
But the Internet was integral to the rise and fall of Omnigene
Diagnostics,
which is based in West Palm Beach, Fla. The stock was touted on
electronic
bulletin boards; clues about the company's problems first appeared on its
site
on the World Wide Web; the details were fleshed out using e-mail, which
was also employed to alert regulators, and the company's management took
to the Net to defend itself before the SEC stepped in online. 
 
When Omnigene Diagnostics first showed up on Internet bulletin boards in

early October, virtually identical messages praising the company appeared
on
different boards, signed with different names. These messages said the
company had no competition, had already racked up sales of $400,000,
would have revenues of more than $2 million next year and had only
450,000
tradeable shares. Urging readers to call the company's 800 number for
more
information, the messages concluded, ``This could be your stock buy of
the
year ... Take a look NOW.'' 
 
By then, the share price of Omnigene Diagnostics, known as ``Oh My God''
because of its ticker symbol of OMGD, had already jumped from $1, where
it traded over the counter -- very occasionally -- in July, to about $4.
But as
the Internet messages flew, so did the price, topping $6.50 by
mid-November. 
 
Even early on there were voices of caution. ``Oh no, not another FL
company,'' wrote someone on America Online's Investor Network. ``I have
heard that a lot of scams originate out of Florida.'' Other writers noted
that
the company did not seem to have filed documents with the SEC, and was
not traded on an exchange. 
 
But naysayers were quickly shouted down by writers who accused them of
trying to profit from a drop in the stock price. The boosters hinted of a
deal
with Procter & Gamble, and cheered each day's rising price with lines
like,
``I'm going to ride this train to the gold mine. Toooot!! TOOOOT!!'' 
 
Meanwhile, the Internet was helping to bring together two men with a
rather
different view of Omnigene Diagnostics: Robert Gibson, a computer
programmer in Florida, and Peter Mahler, president of the company's
former
parent, Omnigene Inc. of Cambridge, Mass. 
 
With sales at its diagnostics unit declining, Omnigene Inc. sold the unit
in May
1995 to the American Biodental Corporation, of Boca Raton, Fla., which
makes dental implants. Though its testing operations continued in
Cambridge,
Omnigene Diagnostics was to be run from Florida. 
 
But almost from the beginning, things went wrong, Mahler said. Omnigene
Diagnostics quickly fell behind on its rent and royalty payments to its
former
parent. Most of its staff quit, and Mahler's company went to court to
evict its
one-time subsidiary. Though the company dropped the suit after receiving
a
payment, Omnigene Diagnostics still owes it money, Mahler said. 
 
Even worse, people were confusing Omnigene Inc. with Omnigene
Diagnostics and its troubles; another spinoff, Omnigene Bioproducts,
mistakenly had its credit shut off, Mahler said, adding, ``It's an awful
situation.'' 
 
But the final straw for Mahler may have been Omnigene Diagnostics' Web
site, which had the address www.omnigene.com. 
 
The site was operated by Gibson, the computer programmer, whose main
business includes running Web sites for legal process servers. Last year,
at an
Office Depot store in West Palm Beach, Gibson bumped into an old
acquaintance, Dominic Scacci, and eventually agreed to do some
programming for businesses Scacci was involved with, which included
Omnigene Diagnostics. In fact, Gibson said, he ended up sharing an office
with Scacci, who used his phones, computers and copier. 
 
But like Mahler, to whom he had spoken about Omnigene Diagnostics'
computer system, Gibson said he was having trouble getting paid. The
company did not seem to be doing nearly as much business as Scacci said.
And earlier this fall, Gibson began to have suspicions about what Scacci
was
up to. 
 
``The company was always short of money, and suddenly Dominic drives up
in a new car,'' Gibson recalled. He also found a list, left in his
computer by
Scacci, that indicated the company had been issuing hundreds of thousands
of free shares to Scacci's other companies, his friends and family,
Gibson

said. ``It started to smell,'' he said, so he called the SEC. 
 
Shares also went to Jerome Wenger, host of ``The Next Superstock,'' a
program that is heard on radio stations around the country, including
WEVD
in New York. In an interview, Wenger said that he received the stock for
serving as a consultant to bring the company to investors' attention, and
that
he discloses such arrangements to his listeners. 
 
On Oct. 31, Mahler sent an e-mail to Gibson complaining that the Web
site's
address infringed on his trademark and saying that unless the site was
removed immediately, ``legal action will result.'' 
 
Instead, on Nov. 3, Gibson changed the first page of the site to the
message
that so irked Usinger, the Rochester investor. (Gibson also took his
equipment out of the office he had shared with Scacci.) 
 
Which brings the story back to the angry e-mail sent by Usinger, who had
bought several hundred shares of Omnigene Diagnostics in October. 
 
After Gibson replied to his message, Usinger said, ``all the little
tricks you 
see in shells and scams started surfacing like little bubbles.'' So he
decided to
send some information to the SEC's online complaint division. He also
decided to sell his stock, at a nice profit. 
 
As Usinger and a few other investors began posting their information on
the
bulletin boards, a free-for-all broke out in cyberspace. Some people
scolded
Usinger for trying to make people panic and sell their shares, and bulls
and
bears got into online shouting matches. 
 
Messages signed by Scacci appeared, saying that Gibson owed him money
and had encoded the company's computer data. ``He demanded $10,000 to
give us the key,'' read one such message posted on Nov. 7 on a bulletin
board on the Silicon Investor Web site. ``I refused. This is when he
decided
to proceed to send falsehoods out over the Internet.'' 
 
As for the default on the patent license, a message on America Online
signed
Scacci6733 said that Omnigene Diagnostics ``owns the patent purchased
from Omnigene Inc. It's as simple as that.'' 
 
But there were a number of things Scacci did not tell people in his
messages.
A former stockbroker with a history of regulatory run-ins, Scacci has
filed for
personal bankruptcy protection twice, according to regulatory records. 
 
Scacci was the agent for something called the Austria International Fund,
which was based in the Bahamas, according to documents filed with the SEC
by American Biodental. These filings say that it was really the fund, not
American Biodental, that spent $189,000 to buy Omnigene Diagnostics. 
 
Omnigene Diagnostics was spun off in January, shortly before American
Biodental filed for bankruptcy protection. But American Biodental's
shareholders never received any OMGD shares, said Ingo Kozak, a director
of American Biodental, which has changed its name to Biolok International
Inc. 
 
Scacci said in a brief interview last week that, on the advice of his
lawyers,
he could not answer questions about the Omnigene situation. But he said
his
previous regulatory difficulties were basically problems with
record-keeping.
And he denied being the agent for the Austria International Fund. 
 
On Nov. 20, the SEC said it was suspending trading in Omnigene
Diagnostics' shares for 10 business days, the maximum allowed. The
reason:
questions about the company's ``alleged ownership and other rights as to
certain patents and trademarks, ODI's sales, past and projected, ODI's
operations and facilities, and the number of freely traded shares.'' 
 
The SEC posted a notice of the halt on America Online's bulletin board
because ``it looks like one of the vehicles people were using to
disseminate a
substantial amount of hype'' about the company, said McLucas, the
enforcement chief, adding that he expects the agency to make similar
electronic announcements in the future. 
 
Whether the SEC will go after anyone it believes has hyped the stock
electronically is unknown; the commission never comments on current
investigations. 
 
The company's fate will become clearer Thursday, when trading can resume
-- which will occur only if brokerage firms are confident they have
enough
information to make bids on the stock. In the past, stocks in which
trading
has been suspended have tended to plunge when it resumes. 
 
Gibson is still unhappy about his run-in with Omnigene Diagnostics and
the
investors who excoriated him online. But, he said, ``the good news is
that this
stuff can come to the surface quicker because of the open lines of
communication'' that the Internet allows. 
 
As for Usinger, he said that his Omnigene experiences have made him a
more
cautious investor. And that despite the abuse he received from some
online
critics, he does not regret having shared his discoveries about the
company
with his fellow Internet investors, some of whom also got their money out
before trading was halted. 
 
``I thought everyone should know this,'' he said. ``It's the difference
between
having something more before Christmas and having nothing.'' 

  
New York Times: Thursday, December 5, 1996
 
Mastercard's "Smart Card" Builds Support 
 
By SAUL HANSELL 
 
Seven financial giants, including Wells Fargo, Chase Manhattan and Dean
Witter, Discover, have agreed to market the Mondex electronic-cash
product in the United States. 
 
The Mondex ``smart card,'' which was developed in Britain, is a plastic
card
containing a computer chip that can be used to make purchases in vending
machines, via pay telephones and over the Internet. Customers can
transfer
money onto and off the card at an automated teller machine or by using a
specially equipped telephone. 
 
The backing ensures that Mondex will be one of the leading systems in the
country as the market for smart cards evolves. 
 
Last month Mastercard International bought 51 percent of the
international
arm of Mondex, which will sell franchises in various regions. 
 
The seven companies plan to announce Thursday that they will form a
company to offer Mondex in the United States. Wells Fargo & Co. will own
30 percent of Mondex USA, Chase will own 20 percent, and 10 percent
stakes will each be owned by Dean Witter, AT&T, First Chicago NBD,
Michigan National Bank and Mastercard. 
 
This group will license the right to issue Mondex cards to other
financial
companies. 
 
The card will get its major introduction in the United States in New York
City as part of a test by Chase and the Citibank unit of Citicorp. That
test,
which will involve 50,000 consumers and 500 merchants, was to have
introduced another smart-card system, Mastercard Cash. 
 
But when Mastercard bought Mondex, it abandoned that system, and Chase
will have to modify its systems to use Mondex.
 
``We were moving along at a real good pace and expected to deliver
Mastercard Cash, as promised, in the first quarter,'' said Ronald Braco,
senior vice president of Chase. ``But we felt it would be foolish to go
forward. Chase is not in the business of having our customers test
technology
that has no future.'' 
 
In the New York test, Citibank will use the Visa Cash smart-card system
by
Visa International. A primary goal of the test is to develop terminals
for
merchants to use that will be able to accept both the Visa and the Mondex
cards. 
 
Unlike Visa Cash and other smart-card programs, Mondex allows people to
transfer money between their cards, allowing a parent to put money on a
child's card, for example. The transfers use a $100 calculating device
called
an electronic wallet. 
 
The owners of Mondex will conduct several tests in the next year. Plans
call
for introducing the product more widely in 1998. 
 
Initial tests of smart cards -- such as the high-profile introduction
Visa Cash
had at the Atlanta Olympics -- have shown that the technology is
effective
but that consumer demand is tepid. 
 
``The technology works well, but the consumer proposition has not been a
grand-slam home run,'' said Janet Crane, president of Mondex USA. ``Cash
works fine, and getting people to replace something they are quite happy
with
is very hard.'' Ms. Crane said that additional smart-card applications,
such as
shopping on the Internet, and frequent-buyer rewards at fast-food
restaurants
would help spur Mondex's acceptance. 
 
Still, it is unclear who will be willing to bear the costs of introducing
expensive new technology. Merchants have to buy new terminals that now
cost about
$500. 
 
The cards themselves cost $10 each wholesale. And Mondex USA will
charge banks that issue the cards 25 cents each time money is transferred
to
Mondex cards. The banks, in turn, are expected to pass this fee and their
own costs to customers.
 
The inclusion of Dean Witter puts that company in the unusual role of
cooperating with Mastercard, which has stringent rules against linking
its
brand with rival credit-card marketers like Discover. 
 
Shawn Healy, a Mastercard spokesman, said that unlike credit cards,
Mondex was meant to be an ``open system.'' 
 
Dean Witter's main interest is in offering merchants the ability to
accept
Mondex cards. The company has not decided yet whether to add a chip that
can store Mondex cash on its Discover cards or to offer Mondex as a
separate product.
 
 
 
American Banker: Thursday, December 5, 1996
 
Wells, Chase Take Lead Stakes As Seven Invest in Mondex
USA 
 
By JEFFREY KUTLER
 
Wells Fargo & Co. and Chase Manhattan Corp. head a group of seven U.S.
companies making equity investments in the Mondex smart card system. 
 
Wells and Chase -- through subsidiaries Wells Fargo Bank and Texas
Commerce Bank -- have acquired 30% and 20%, respectively, of Mondex
USA, the global payment organization's U.S. franchise. 
 
They will be joined by five 10% owners in a formal announcement today of
the launching of Mondex USA. It will be based in San Francisco, with
Wells
Fargo executive Janet Hartung Crane as president and chief executive
officer.
 
"We have an impressive group of well-capitalized players who are making
very significant, long-term commitments," Ms. Crane said in an interview
Wednesday. 
 
She said her unit would begin in earnest to staff up in January -- it has
heretofore relied on about 15 Wells people led by Ms. Crane and executive
vice president Dudley Nigg - to "propel Mondex in the United States." 
 
Along with Wells and Texas Commerce, two other national banks --
subsidiaries of First Chicago NBD Corp. and Michigan National Corp. --
got approval this week from the Office of the Comptroller of the Currency
to
participate in Mondex USA. 
 
Also owning 10% each will be three nonbanks that did not require OCC
clearance: Dean Witter, Discover & Co.; AT&T Corp.'s Universal Card
Services unit; and MasterCard International Inc. 
 
Only Wells and AT&T were previously listed as Mondex owners. They and
Natwest Group, the London banking company that developed Mondex,
were the first equity participants in Mondex USA and were among the 17
"global founders" of the Mondex International umbrella organization
incorporated in July. 
 
Wells and AT&T "sold down" their interests to accommodate the five
additional partners, Ms. Crane said. And Natwest Group completely sold
what was designed to be a temporary, minority stake. 
 
Meanwhile, Mondex International is in a state of flux, awaiting
MasterCard's
purchase of a 51% interest, leaving the U.S. company, Mondex UK, and
other regional entities with pieces of the remaining 49%. 
 
The U.S. owners did not disclose the value of their equity stakes. It has
been
publicly acknowledged only that the original capitalization of Mondex USA
was 30 million British pounds, or about $50 million. 
 
That is likely to be a fraction of the marketing and development
expenditures
required to realize Mondex's vision of "global electronic cash." 
 
"This is something that is definitely not going to be a smashing success
in one
year," Ms. Crane said. 
 
But given Mondex's blue-chip backing and the owners' desire to sign
others
as card issuers, merchant-acquirers, and licensees, Ms. Crane said she
has
every reason to be confident. 
 
As evidence that momentum is already building, she cited growing trials
in
Britain and Canada, the rapid sign-up of 12,000 cardholders for a test in
Hong Kong, and commitments from technology vendors like Verifone Inc. to
create the necessary infrastructure. 
 
Infrastructure-building and pilot testing are the Mondex USA priorities
for
1997, the CEO said. Wells has 800 employees using the chip cards at 22
merchants; AT&T just launched a 200-employee test in Jacksonville, Fla.,
and is planning to handle "virtual" transactions via the Internet and
intranets.
 
 The last will demonstrate Mondex's ability to operate in both the
physical and
virtual worlds, which Ms. Crane said gives Mondex a unique advantage. 
 
An eagerly awaited New York City trial -- the first attempt by MasterCard
and Visa to prove their competing technologies can "interoperate" -- has
been put off from the first to the fourth quarter next year, in part to
let
MasterCard implement the Mondex system. 
 
Each of the Mondex USA owners has a seat on the board of directors, with
Mr. Nigg of Wells as chairman. Ms. Crane, who joined Wells a year ago
from MasterCard, is also a director as well as Mondex International vice
chairman.
 
The others are Walter Korchin, senior vice president and general counsel
of
AT&T Universal Card Services; Ronald Braco, senior vice president at
Chase; William Simmons, executive vice president of Novus, the Dean
Witter merchant services unit; Bruce Nyberg, senior vice president, First
Chicago NBD; Alan Heuer, MasterCard's U.S. region president; and
Michael King, senior vice president of alternative delivery at Michigan
National. 
 
Michigan National's parent, National Australia Bank, is a Mondex global
founder. 
 
Mondex USA actually consists of two Delaware-incorporated entities: a
services company headed by Ms. Hartung and a lower-profile originating
company charged with monetary operations and risk management issues.
Wells Fargo vice president Jim Rudd is president of the latter.