A small business in Spokane finds itself tangling with the SEC when its quest for investors goes awry.

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When federal securities regulators halted trading Jan. 28 in the shares of a tiny Spokane marketer of athletic bags, they called it the beginning of a drive to stop “pump-and-dump” stock manipulation before it happens.

But a lawyer for the company, Courtside Products, said speculators in the stock may have made as much as $4 million before the Securities and Exchange Commission made its move.

The events of the past 10 days have shocked Lola Emter, the 65-year-old CEO of Courtside. She said she was duped into the transaction that sent more than 18 million shares of her company to the loosely regulated Pink Sheets market for penny stocks.

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“I was very naive about going public,” she said.

The SEC suspended Courtside’s unregistered shares from trading out of concern speculators planned to manipulate the stock. “We believe we got in front of a potential ‘pump-and-dump’ scheme,” said John Reed Stark, chief of the SEC’s Internet enforcement office.


1) Touts for Courtside’s shares began appearing on the Internet in early October, driving the tiny company’s shares to 80 cents.

One of the promotional e-mails [PDF]

2) A new burst of promotional faxes and e-mails last month prompted complaints to the company and to the Securities and Exchange Commission.

A few of the complaints [PDF]

3) The SEC halted trading in Courtside shares on Jan. 28, saying it wanted to prevent market manipulation.

The SEC filing [PDF]

“Pump-and-dump” generally refers to an effort to inflate the price of a stock through hype and orchestrated trades, at which point the manipulators sell all their shares at an artificially high price.

Courtside was the first company nationwide to be suspended under a new SEC initiative to curb abuse of unregistered shares and stave off manipulation before it harms investors, Stark said.

Two other suspensions of companies on the Pink Sheets quickly followed: Commanche Properties on Jan. 31 and Mosaic Nutriceuticals on Feb. 2. Commanche, a Tucson, Ariz.-based entertainment producer, only began trading Jan. 19.

Stark said there may be more suspensions. “It’s an area of obvious concern,” he said.

The SEC said it acted after being alerted to spam e-mail touting the stock to the public. Trading records suggested the stock may have already been trading illegally.

Because shares of Courtside are unregistered — meaning the company hasn’t filed detailed financial information with the SEC — they are supposed to be sold only to sophisticated, “accredited” investors, such as financial institutions or wealthy individuals.

But widespread promotion of the stock on the Internet, in e-mails and faxes — beginning in October — points to selling outside that restricted group.

The stock shot to a high of 80 cents a share Oct. 25, according to Bloomberg data. At that price, Courtside — a company with four employees and $500,000 in revenue last year — had a market capitalization of $200 million, bigger than drugstore.com or Columbia Bancorp.

Courtside’s story provides a cautionary tale of how an unsophisticated small-business owner can be drawn into a tangle of problems by the promise of easy capital.

Emter, who once owned the Spokane Valley Antique Mall, said she has poured $750,000 into the athletic-bag company her son started in 1995 in the mall basement.

In May, her financial adviser, Keith Robertson, a former Spokane stockbroker, said he would look for capital from private investors to help the company grow, Emter said. “One day he called and said, ‘What about going public?’ ” Emter recalled.

She said she was leery of the paperwork involved, but that “he was telling me you didn’t have to do all that. You could use unregistered shares.”

Robertson connected her to Michael Paloma, whose Mesa, Ariz., company Pine Canyon Enterprises, put the deal together, Emter said. She was told she would receive a “guaranteed $250,000” and possibly as much as $1 million in exchange for Courtside being listed on the Pink Sheets, a thinly traded market for penny stocks and unregistered shares.

Pine Canyon would receive 7.5 percent of the company in exchange for taking it public and raising the promised capital, said Tolan Furusho, a Bellevue securities lawyer who now represents Emter.

“At first I said, ‘No,’ I’m not interested,” Emter said. “But the more I thought about it, the more I thought it might be good for us. It would make more people aware of us than they were before.”

The promise of a million dollars was tantalizing, too. “It was a big carrot dangling over our heads,” Emter said. “We decided to do it.”

Emter said she never met Paloma, though she spoke with him once on a conference call.

Neither Paloma nor Robertson returned calls seeking comment.

Courtside asked a Spokane lawyer to look over the transaction documents, Emter said. But when his proposed changes were rejected by Paloma, she decided to let the latter’s attorney handle the legal work.

Problems arose soon after the shares began trading in October. The promised capital failed to arrive, and when follow-up calls didn’t produce a check, “I got angry. Then the faxes [promoting the stock] went out, and I got very angry,” Emter said.

“Nobody seemed to want to take my calls,” she said. “The excuse was that he’s [Paloma] so busy. I suppose that’s true but I thought they owed me a response.”

Courtside’s eventual proceeds from the deal, $75,000, amounted to four-tenths of a cent per share. That money didn’t reach Emter until December, said Furusho.

According to Furusho, the company issued 18.75 million shares to Pine Canyon, which sold them to three Texas entities: S.S. Viking, Estrella Mountain Enterprises and Great Northern Equity. He didn’t have phone numbers for them, nor could directory searches find them.

Furusho and Emter don’t know what price the Texas entities paid for Courtside’s stock. However, when shares began trading Oct. 11, the opening price was 45 cents.

The stock price was propelled in the market by spam and faxes, but Emter said she didn’t know that until irate recipients sent angry responses to her.

Advise your investment counselors to delete our fax # because if we continue to receive garbage, we will take legal action,” wrote one person who received a fax touting Courtside stock in October.

Emter said she called those who complained to apologize.

After quickly rising to 80 cents, by Nov. 3 shares had fallen to 20 cents. The stock was at 4 cents a share when the SEC suspended it.

Based on the price movements and trading volume, Furusho said, he believes stock promoters may have made between $2 million and $4 million by trading shares in Courtside before the SEC intervened. “My clients were hoodwinked,” Furusho said.

The SEC said that based on trading information, it suspects there may have been even bigger manipulation planned for the future.

Indeed, a renewed fax and e-mail campaign touting the stock was under way in January, according to faxes and e-mails provided by Emter.

“I know we got in before the bulk [of the unregistered stock] was sold,” said the SEC’s Stark.

Furusho said Emter, who has not been accused of any wrongdoing, had no idea the stock would be traded and touted. “There was no way to foresee the spamming and perhaps the distribution of [restricted] shares,” Furusho said.

It is still unclear who orchestrated the promotional campaign. Furusho said he thinks the FBI would investigate that. He also said whoever runs the Texas entities that bought the shares from Paloma were likely to be questioned.

“It’s not too great a leap to think that the person who had the shares would be doing the spamming because they’re the only ones who would benefit from it,” Furusho said.

Courtside’s suspension ends tomorrow, but the stock may not resume trading.

According to the SEC, brokers can’t quote a Pink Sheet stock unless they have “confidence that [the] company’s financial statements are current and accurate.” Given Courtside hasn’t issued any public financial reports, that appears unlikely.

Attorney Furusho said he’s been in touch with Paloma’s lawyer about the money Courtside was expecting and is trying to “resolve it amicably.”

The company is still doing well, he added, though “right now, the focus is on clearing Courtside’s name with the SEC.”

“Lola would rather not have this headache, but I think the exposure has been good for them. Any publicity is good publicity, because people know they’ve done nothing wrong, and they have good products.”

Alwyn Scott: 206-464-3329 or ascott@seattletimes.com