Tampa Bay Times from St. Petersburg, Florida • 85

ST. PETERSBURG TIMES SUNDAY, OCTOBER 3 1 1 982 1 3D Dondo robound fromoolloff MARY TOWN i ml It A 1 l. FWMnhwt Tim WiAVM Tfcrf Entertainment Systems Inc. headquarters was in this building at 6468 iFifth Ave. St.

Petersburg. NEW YORK Most sectors of the bond market recovered from a selloff Monday to post modsst gains on the week, reflecting i consensus that the Federal Reserve will take a "necessary" suing move after the election. Henry Kaufman, chief economist at Salomon Brothers, said "another reduction in the discount rate is both necessary and likely within the next several weeks," since previous easing by the Fed "has failed to yield significant signs of improvement" in the economy. Consequently, he said, the authorities, "who manifestly have been following an interest rate target will soon lower that target to encourage Monday's selloff came amid a drop of over 36 points in the Dow Jones Industrial Average in response to the Federal Reserve's failure to lower the discount rate from the current 9H percent "There was no rhyme or reason for what dealers did Monday," William Lents, president of Sentry Securities municipal bond firm, said. "But the Street now realizes the Fed must do something, and knows it has been foolish in trying to time the move." THE TREASURY announced a quarterly refunding package of $13-billion, including this week's auction of $6-bilUon of three-year notes, $4-billion of 10-year notes and the $3-billion of 30-year bonds to be auctioned Nov.

9. Dealers expect the refunding to go well, since the issues pffer greater opportunity for price appreciation than those outstanding. Dealers can take orders on a when-issued basis for the offerings. Salomon Brothers said the government market showed price improvements of about points, with 20-year bonds posting the largest gains. The 14's of Nov.

2011, which will be joined this week by the first 30-year bond since early this year, closed at 12614 up from last week's close of 124 Vi. Most money market rates were slightly higher. Spreads between one-month Treasury bills and other rates continue to narrow. Federal funds remained in the 9V4 percent area. IN THE CORPORATE market, active seasoned issues gained more than one point Most new issue yield es Mooro from 14-0 an extravagant price," said Bokaen, whose firm never dealt in the stock.

John Milling, a Lyndhurst, N.J. securities lawyer who worked for ESI, agreed that the stock likely wasn't worth $9 a share. "It was probably overpriced," Milling said. "The company was ballyhooed in a number of publications. There was a good deal of coverage and the stock went up." SEC investigators in San Francisco who looked into ESI declined to say whether their review of market activities in the company'! stock has been completed.

No charges have been filed in the unusual i escalation of the stock price in late 1980. The money raised in the stock sale, supplemented with borrowed funds, al-! lowed ESI to purchase pay television com- "luniat in AlhlimiAwina Omftha Mmnhia timates were lowered 13-63 basis points, bringing most to two year lows. This week's calendar is $338-million. During October $6-billion in corporate issues were sold, the largest 7- To 31-Day Certificate Account ($20,000 minimum) 8.75 APR (Rates good through Nov. 1, 1982; this is an annual rate and is subject to change at renewal) Good Yield Short Term Flexible Choose Your Maturity Safe! monthly volume in over two years.

Municipal prices rose modestly as active seasoned revenue issues gained point In contrast, new issue yield scales for general obligation bonds were unchanged to 30 basis points higher. Richard Benson, an economist at Chase, said the "pressure suppressing municipal bond prices remains the oppressive levels of dealer inventory and the forward supply." This week's calendar remains heavy at with currently scheduled for the next four weeks. A record was sold in October. v. Dorfmon from 14-D 2V2-Year Certificate ($500 minimum) 9.95 APR (Rates good through Nov.

8, 1982; Good Yield Fixed Rate Low Minimum Safe between November 1881 and February of this year. ESI, which in December 1981 named Lindsey board chairman, president and secretary-treasurer, wrote checks, totaling to Lindsey or companies he controlled. For his actual payout of $482,000 the difference between checks Lindsey wrote and what the SEC found he took back Lindsey received 2-million shares of ESI stock. His agreement with ESI required him to invest in loans and stock purchases and he was to receive another 4-million shares for subsequent investments totaling $2-million in March and June of this year. LINDSEY, REACHED in hia San Mateo office last week, declined to comment directly on the SEC charges, saying the court prohibits him from talking about it He did say, however, that ESI was in deep financial and legal difficulty before he 1 became involved.

Creditors, including the Bank of Florida, were demanding payments, he said. Because of its existing trouble, the circuitous route his investments in the company took writing checks to the company and taking most of it right back was not unusual, he said. "When investing in a troubled company that is under severe pressure from creditors, it is critically important that new investments or loans not be exposed to being grabbed by creditors," he said. Lindsey, as board chairman and chief executive at ESI early this year, reported to the SEC that he had in fact made his investment The SEC, in its complaint against him, charged that he defrauded ESI and falsified that report Lindsey took control of ESI in December 1981. The SEC complaint charges that he immediately began stalling the company's auditors, which delayed reports on finances required of all publicly owned firms.

In January, creditors were hounding the company for payment of debts and on Feb. 19, ESI temporarily suspended pay-television activities and laid off most of its 100 employees, the SEC said. ON MARCH 22 of this year, Lindsey and Paolini resigned from ESI and the next day Lindsey altered the earlier financing agreement he made with the company to eliminate references to the additional $2-million investment the SEC charged. "The final things that needed to be done had been done," Lindsey said, explaining his resignation. "Certain losing activities had been eliminated." Those losing activities were the only business the company had, providing pay television programing to subscribers.

Lindsey said the company was losing money in the four cities in which it had major operations. Bank of Florida's Winner puts the primary blame for the company's failure on Lindsey. "The company was losing money but it was salvageable before Lindsey," he said. But he said Paolini and the other insiders aren't blameless. "The management of the company made the decision to go with Lindsey and to go public," he said.

In September, the San Francisco office of the SEC charged Lindsey, Kushnick and several companies they owned or controlled, including ESI, with nine counts of securities law violations. THE TWO CALIFORNIANS and Paolini, acting again as president of ESI, signed consent decrees in which they admit no guilt but agree not to break the securities laws. Lindsey told the San Mateo Timet and Newt Leader he considered the consent decree "a victory," although the court took trusteeship of his business records and told him to stop doing business as he had in the past Meanwhile, Lindsey said he has not given up on ESI. HI still holds 2-million shares of its stock and, while no longer managing the company, he hopes it can find something to recoup his investment, which he described as "well up into six digits, possibly seven." Tampa's Casper, who said he rejected an offer of one cent a share for his stock, hasn't given up either. "ESI as such may not be viable but some different.

business may be brought into the corporate shell," he said. "I haven't lost anything until I sell." 3-Year Certificate ($500 minimum) w. up and Baltimore in late 1980 and begin to generate more revenue. The systems leased channels from Federal Communications Commission licensees in the cities to beam movies to subscribers. "IT TRIED TO expand too fast," said Harold Winner, a senior vice president of Bank of Florida in St Petersburg.

Bank iof Florida made loans of more than Si-million to ESI and has taken possession of the company's assets in an attempt to recover its money. The bank had personal guarantees from some insiders, including Casper, for about one-half of the loan but to declare the remainder a loss. Anything gained from the asset sale will reduce that loss. (The writeoff is being absorbed in the 'current year's earnings. Last year, Bank of Florida posted net income of $769,000.) Winner said the assets include video "equipment, subscriber contracts in the four cities and, if it can be worked out, the tax 'benefits built up in the company's three-year history of losing money.

Selling the tax losses likely will require forcing what's left i of ESI into bankruptcy court, Winner said. The company's bold acquisitions of going concerns in the four cities devoured. most of its money. Trying to sell the service required even more. The annual report on "file at the SEC says that it cost $200 in equipment, marketing and installation ex-; pense to connect a new subscriber's television set.

But the company charged less, hoping to recoup the shortage over time through the monthly subscription fees. IT WASN'T ENOUGH and Paolini, who could not be reached despite repeated attempts, began looking for new sources of capital. He found the money he needed in San Mateo, where a certified 'public accountant, A. Larry Lindsey, and his attorney partner, Alan E. Kushnick, ran a host of venture capital businesses.

In November 1981, Paolini and Lindsey, through a company Lindsey formed called Athena Group agreed on a financing plan, according to a complaint prepared by the San Francisco office of the SEC. Athena Group would loan ESI $500,000 and invest $3-million by June 30, 1982 in exchange for 70 percent ownership in the Company, the SEC charged in its complaint against the Califomians and ESI. Casper, of Tampa, said Paolini struck the deal and presented it to other major shareholders as the company's last hope. "It was a case of survival," Casper recalled last week in a telephone interview. I.

Lindsey, Kushnick and companies they Controlled began selling tax sheltered investments in 1979, the SEC said in its complaint By Dec. 31 of last year, they had collected from 445 persons for research and development companies they controlled, telling investors they could deduct twice their investment from taxable income. THE SEC CHARGED that the tax shelters were unregistered securities sold fraudulently. The investors' money, which was to be deposited in bank trust accounts, nded up in Lindsey's personal bank account, the SEC said. It was that money that Lindsey used to make the loans and investments in ESI, the SEC said.

Lindsey's company, Athena Group, received money from Lindsey's personal account and wrote checks to ESI totaling market is struck by its first 10 percent or 100-point correction. Though basically a technician, Zweig points to the prospects of still lower interest rates as the chief reason for his continuing bullish sentiment "The economy's horrible and the Federal Reserve has to loosen further," he says. Zweig observes that Fed chief Paul Volcker spilled the beans a few weeks back when he publicly stated that people should forget about the Fed's money supply targets (a reference to the allotment of credit in a defined range). VOLCKER IS NO longer fighting inflation, but a declining economy, and that's bullish, Zweig says. He figures the prime rate (the rate at which banks lend to their best customers) has the potential to drop'to 8 percent by early '83; it was around 12 percent at press time.

Asked to name his six favorite stocks, Zweig chose Coleco Industries, Piedmont Aviation, Bairnco, People Express, Elscint and Computer Data Systems. I know you're panting to hear about the "Doghouse Fund." Well, it's a concoction of 10 companies put together by a savvy Wall Streeter. The common ingredient '83 earnings won't be particularly good. If not down, profits could be up a bit. But in any event, they'll be sharply below previously high levels.

In addition, there's no guarantee of an '84 recovery; you may just have to wait till '85. If you're about to say not for me think again. On Oct. 11, the creator of the "fund," Ray DeVoe, the investment strategist at Legg Mason Wood Walker, put out the list of the 10 companies with a warning to clients about their lackluster earnings prospects. And he dubbed the list the "Doghouse Fund." SO WHAT HAPPENED? Over the next two weeks, the market dropped a bit But in the very same period, every one of those supposed "dogs" ran up in price averaging a whopping 21 percent gain.

Here're the names (plus their two-week price gains): Avon Products, 8 percent; Caterpillar Tractor, 14 percent; Chase Manhattan, 22 percent; Datapoint, 57 percent; Halliburton, 27 percent; Pittston, 25 percent; Schlumberger, 22 percent; Standard Oil of Indiana, 11 percent; U.S. Steel, 17 percent and Xerox, 11 percent. DeVoe is especially negative on Xerox and U.S. Steel. He feels Xerox's impending acquisition of Crum Forster, a large insurance company, is a clear admission by the kingpin of the copiers that its major business is no longer competitive.

And in the case of U.S. Steel, he points to among other things the substantial earnings dilution (15 percent on a per-share basis) from its acquisition of Marathon Oil. DeVoe's view of the sharp price advance of the "Doghouse "These companies, based on their '83 prospects, are overpriced and make no sense as investments at this time. And at some point, the earnings will have to justify the stock prices." DEVOE DIDN'T spell it out but bis message is obvious: If the earnings dont come through, watch out Question: Is the performance of the "Doghouse Fund" documenting a rousing new bull market (with total disregard to company fundamentals)? Or are we witnessing another outburst of investor lunacy? Your guess is as good as mine; maybe we ought to check with the waves. 8.472 APR for 3 Vi -Year variable Rate Account (Rates good through Nov.

30, 1 982) 11.00 APR for 3 V2 -to 5-Year Fixed Rate Account (Rates good through Nov. 1 1 982) 11.25 APR for 5- to 10-Year Fixed Rate Account (Rates good through Nov. 1,1982) Good Yield Choose Fixed Or Variable Rate Make Additional Deposits iunng rirst lear Longer fixed-Kate Maturities Available aie! fonfltaf1tv dtaroflfrgB omiralNto cub iiniilItoMilfliwnrrlKUiirirr Financo from 14-D mTsren form llforfK offfiire interest in Golden West Broadcasters for $225-million. The major steelmakers and the United Steelworkers agreed to put a cost-of-living wage boost due Monday into an escrow fund pending renegotiation of the industrywide wage contract. International Paper followed the lead of Kimberly Clark in cutting newsprint prices.

American Telephone Telegraph Corp. announced it will begin selling telephones in Sears, Roebuck stores. Government officials said they had a $20-million white elephant on their hands in the Federal pavilion at this year's world's fair at Knoxville. And young Ronald Reagan, the President's son, and other dancers who had been laid off by the Joffrey Ballet were called back to work by the ballet company. said the total cost of the Tylenol recall would be $100-million.

Revere Copper Brass Co. filed for protection under Chapter 11 of the Bankruptcy Act because of losses in its primary aluminum business. Asarco, the mining company which has a big stake in Revere, took a reserve against possible consequences of the Revere bankruptcy and thus ran Asarco's overall third quarter loss up to Cadillac Fairview, the Canadian realty investment firm, defaulted on an $84-million mortgage and forfeited a $21-miIlion down Eayment on a building in Manhattan. The uilding reverts to Citibank. Northwest Energy agreed to buy the gas business of Cities Service Corp.

for $530-million and Signal Cos. said it would sell its 49.9 percent1 13 percent, Phillips Pete 32 percent, Boeing 26 percent Texaco profit was down 48 percent i Gulf Oil was down 54 percent and Xerox earnings off 29 percent Mobil was off 36 percent and Sun Oil down 28 percent But Amerada Hess and Ashland Oil had good gains. Merrill Lynch, the country's biggest securities brokerage house, tripled its third quarter earnings. JOHNSON A JOHNSON, the pharmaceutical house, said it would take a $50-million writedown against third quarter profit because of losses on the Tylenol deaths. Meanwhile, Chicago authorities said they were getting closer to finding the killer of the seven who took the cyanide-laced Tylenol capsules.

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