MYSTERIOUS VOICES, INFLATED STOCK PRICES AND SHADOWY FIGURES

Imagine getting spam over the phone. If you can, then you have an idea of what people heard last summer when they hit the play buttons on their answering machines or listened to their voice mail messages. A caller named Jill, who apparently had misdialed, left messages encouraging a person named Mark to buy stock in Vancouver, British Columbia, Yap International, a small voice-over-IP company. According to court documents filed by the Securities and Exchange Commission, Jill claimed in her message that Yap's stock (OTC: YPIL) — which was then worth 68¢ — was going to skyrocket to $6 or $7 dollars per share.

The messages had their intended effect, increasing the trading volume and share price of Yap's common stock. During the alleged voice mail scheme, the price and trading volume of Yap's common stock — which had traded at 68¢ per share with a trading volume of 7,380 shares on August 27, 2004 — spiked to a high of $1 per share with a trading volume of 302,814 shares on September 1, 2004, an increase in market capitalization of approximately $10 million, according to court documents.

The SEC contends that the messages were broadcast by David Whittemore, who allegedly used auto-dialing equipment to place hundreds of thousands of calls nationwide, leaving pre-recorded messages promoting the stocks of Yap International and another firm, Triton American Energy Corp. The court documents allege that Whittemore was involved in a “pump-and-dump” scheme: The messages were entirely fictitious and designed to artificially inflate (or pump) the trading volumes and share prices of the touted companies so that the people in on the scheme could profit by selling (or dumping) shares of the stocks at the fraudulently inflated prices. On August 13, 2004, David Whittemore's firm, Whittemore Management Inc., was paid 210,000 shares of Yap's stock in advance by an unknown party.

So, who paid Whittemore? So far, none of the executives at Yap International — which was recently renamed Nomad International (OTC: NDIN) — have been named, according to SEC officials. The investigation is currently ongoing, but the SEC won't divulge any details.

“Historically, with microcap companies, when there was manipulation, the company was automatically involved,” said John Stark, chief of the Office of Internet Enforcement for the SEC. “Once the Internet came along, you had third parties with the ability to move a stock price without the cooperation from the issuer, so it doesn't mean that the issuer was or wasn't involved.”

Yap Chairman Jan Olivier declined to comment on whether or not Yap executives were involved with David Whittemore's activities. But if Yap was indeed the unsuspecting victim of a voice mail pump-and-dump scam, then it's possible that it had double misfortune: The company also was the victim of an e-mail spam effort to promote its stock this spring. Between April 2 and May 4 of this year, I received at least 36 messages touting Yap's stock. On May 19, I received 10 messages promoting Nomad International's stock within a three-hour period.

Executives at Nomad International recently posted this message on its Web site: “We have been made aware of an unauthorized spam campaign that has surfaced, and we sincerely apologize for the inconvenience that this might have caused. Rest assured, these e-mails are not sent, approved or condoned by Nomad International.”

The stock of Nomad International, nee Yap, is listed on the Pink Sheets, a daily listing of bid and ask prices for over-the-counter stocks not included in the daily NASDAQ over-the-counter listings. Information regarding Pink Sheet companies is typically very hard to find.

“Most Pink Sheet companies are slim in terms of information, and there's not much in terms of audited financial information,” said the SEC's Stark. “Sometimes it's one person and a cell phone running out of someone's garage or living room. That's what makes them so speculative.”

While it is indeed difficult to find much information about Yap from independent sources, the company puts out press releases regularly. On September 13, 2004, Yap appointed Joseph Weaver, 52, to the advisory board. On September 27, 2004, Yap tapped Weaver to become the president and chief operating officer of the company.

Weaver's biography in the press release states that he graduated from Widner University with two degrees, a bachelor of science degree and a bachelor of arts degree. No Widner University exists in the U.S., and the alumni office at Widener University in Delaware reported that nobody by the name of Joseph Weaver ever even took a class there, much less graduated with two degrees. Joseph Weaver did not return calls made to him at Yap's Vancouver office.

Weaver's biography also claims that he has 27 years of senior level management experience in the telecommunications and technology sectors: “Mr. Weaver has worked for industry leaders as well as many leading edge companies in the telecommunication and technology sectors that include Bell Laboratories, AT&T, UC Hub, TGEC, DCI, LaTel, Packet-Switch and TeleHub Communications Corp.,” his bio states.

For a man who has worked in the industry for many years, not many people seem to remember Weaver. In fact, Bell Laboratories went through its employment files and found no record of a Joseph Weaver born in the early 1950s ever having worked there, although if he worked as a consultant for Bell Labs, it wouldn't show up on permanent employee records.

The other companies for which Weaver worked are smaller companies, many of which seem to no longer exist. For instance, PacketSwitch.com — if it is indeed the PacketSwitch for which Weaver worked — went out of business in 2002 because the CEO, Steven Allan Ristau, was convicted of bilking at least 900 investors out of more than $4 million by selling them technology that never existed. The company falsely claimed to be developing a wireless Internet technology to broadcast movies over the Internet. Ristau was sentenced to 11 years in state prison.

One person who remembers Weaver is Don Sledge, the former CEO of TeleHub Communications. “I think Jody did some international business development for us,” Sledge said, reached by phone at his home in Alamo, Calif. “I think I remember him, but I'm not sure.” Sledge did not care to elaborate further and did not care to look up Weaver's photo on Yap's Web site to jog his memory. Instead, Sledge rushed off the phone.

On October 25, 2004, Yap International announced that it signed a letter of intent to acquire TiVox Systems Corp., a New York-based company. Yap said that TiVox had developed a complete line of VoIP products, the Nomad line. Nomad Dial, one product in the line, was a next-generation VoIP device that enabled subscribers to place calls to virtually anywhere in the world using just their touch-tone household phones and a standard dial-up Internet connection. With the Nomad Dial, Yap said that no computer or high-speed Internet connection was required to use its VoIP service.

With this technology under its belt, Yap announced on December 17, 2004, that it had signed a contract with Representationes Gorbea, S.A. (RGSA) as the company's distributor for VoIP products and services in Central and South America.

“RGSA has entered into an exclusive contractual agreement with the second-largest carrier in the region for 200,000 VoIP units to be deployed throughout Guatemala in 2005,” stated the press release. “The contract represents in excess of $52,000,000 USD, and Yap International expects that its products will comprise the largest share of the order.”

At the beginning of December, Yap's stock price stood at about 20¢. But then, toward the middle of December (around the time of the RGSA announcement), it rose to about 50¢. Scant information exists about either RGSA or TiVox. There is no Web site for RGSA, and the only mentions of the company in both Google and Lexis Nexis database searches are in conjunction with Yap press releases. A company called Tivox Systems Inc., located in Port Ewan, N.Y., is registered with New York State's Division of Corporations. However, there is no listed telephone number for Tivox in Port Ewan, and the company does not have a Web site.

On March 21, Yap announced that RGSA would conduct final interoperability testing of the Nomad VoIP customer premise equipment beginning the week of April 5.

“Upon completion of these interoperability tests Yap International expects to see revenues in the next 90 days,” stated Joseph Weaver in the press release. “We have the very real opportunity to grow three times the amount of paying customers that AT&T CallVantage service garnered in its first year and a similar amount to Vonage in its first year, without spending in excess of a hundred million dollars in advertising or having the telecommunication giant's (AT&T) brand name recognition. In fact, our marketing expense to date has relied entirely upon decades of relationships in the international telecommunications arena and, of course, a better mouse trap.”

If Yap investors expected to see the company post large revenue increases on the heels of the deal with RGSA, they were disappointed on April 18, when the company announced that it had failed to reach a definitive agreement to acquire the technology assets of TiVox Systems.

“In addition, due to the timing and contractual obligations of Representatives Gorbea, S.A. and the inability of Yap International and TiVox Systems Inc. to reach a definitive agreement, Representatives Gorbea, S.A. will no longer exclusively represent Yap International in Central and South America,” stated a company press release. The stock, which had been trading at about 14¢ per share before April 18, fell to about 10¢ per share after the announcement.

On April 18, Yap executives also claimed they had identified another unnamed VoIP technology provider with seven VoIP ATA devices that Yap intended to market and sell under the Nomad product name. On April 20, Yap announced that it would change its name to Nomad International.

By May 17, shares of Nomad International traded at 6¢ per share — a far cry from the $1 per share price of last August. Two days later, a new wave of e-mail spam touting Nomad International's stock flooded in-boxes.

Low-priced stocks that trade in low volumes such as Nomad's are called microcap, or penny, stocks. These stocks are ripe for pump-and-dump scams because reliable information is typically scarce when it comes to microcap companies, which makes it easier for unscrupulous people to spread false information to artificially inflate penny stock prices. Many microcap companies do not file financial reports with the SEC, so investors find it difficult to get good information about a company's management, products, services and finances.

Smaller companies — those with less than $10 million in assets — generally are not required to file reports with the SEC. Many of those companies, however, do need to file some forms with the SEC, such as a hard copy of something called an offering circular under a rule known as Regulation A. Many smaller companies raising less than $1 million must file a Form D, which is a brief notice including the names and addresses of owners and stock promoters.

Neither Yap nor Nomad International has filed an offering circular or a Form D. Filing rules are complex, and there are some exemptions for companies based on foreign shores. Since Nomad is located in Vancouver, it's not clear whether or not the company needs to file any forms with the SEC in order to sell securities in the U.S.

Still, the SEC offers this investor warning on its Web site: “The difference between investing in companies that register with the SEC and those that don't is like the difference between driving on a clear sunny day and driving at night without your headlights.” Investors who sink money into small, thinly traded companies that aren't widely known, just by following online newsletters or Internet bulletin boards, open themselves up to serious potential losses, the SEC warns.

Just ask the investors who ponied up 68¢ per share for Yap International last summer, based solely on a voice mail message. They know a thing or two about losses.

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Rachael King is a Pittsburgh-based freelance writer who specializes in business and technology.