The Santa Fe New Mexican from Santa Fe, New Mexico • 9

Santa Fe. N.M., S.i.mi.iy, O. i IS, 1988 THE NF.W MEXICAN A-9 Jerry Kuhlman Dont jump into blind pool with eyes closed Securities administrators recommend caution By BOB QUICK The New Mexican Staff which oversees all blind pool offerings. The biggest problem states Hedging investments on election have in; dealing with blind pools is that they are permitted by the SEC," Cook said. Disclosure1 is a problem.

The information in a prospectus doesn't help an investor make an informed decision. I suggest there's an extreme lack of -disclosure." An SEC staffer, Mary Beach, had a different view. (The major problem is that blind pool companies are not complying with SEC regulations," Beach said. "Promoters are totally ignoring them. They (the regulations) do no good if they're not complied with." In 1987, the SEC filed charges against 32 companies involved in allegedly illegal blind-pool operations.

Beach said. Another problem is with the public. No ever reads the prospectuses," Beach said, explaining that a thorough reading of the information about a pool should -be enough to warn some investors away. We see some blind pools in which the promoters say they are going to pay themselves $1,000 per month and spend just 20 hours a month with the company," said panelist Irving Hafo, a Denver attorney. doing very, very well, but the public doesn't make much money at all." To remedy some ofhSXbuses of blind pools, Lavigne offered these suggestions: Make all blind pool promoters put up at least $50,000 of their own money before they look for investors or companies.

Now, some blind pools start off with $10,000 or even less. limit the amount of insider stock. It's ludicrous that they can have as much as 50 percent of the stock," Lavigne said. Put the stock held by promoters and Small-business owners also have to be careful because the merged with a blind pool can leave promoters with a majority of stock in the newly formed company. "Business owners may lose control of their own companies," Vargon said.

Blind pools do have their however. One was jWnelist Michael Lavigne, a Seattle attorney whose office works with blind-pool promoters. The owners of small companies seek to merge with blind pools or blank checks because the shells are public companies with stock available on the over-the-counter market. Merging with a shell company is a much cheaper way of going public than meeting the Securities and Exchange Commission requirements for an initial- public offering, Lavigne explained. "Blind pools, if properly curbed, can help to overcome the.

problem of raising capital," Lavigne said. In recent years, get-rich-quick promoters have come up with so many blind pools proposals, however, that state and federal regulators have found it difficulPto deal with them, the panelists agreed. In Idaho, for example, there were just 16 blind pools registered in 1983, but by 1986, 456 were on the books.Klein said. We were overwhelmed by them," said Sherwood Cook, Deputy Secretary of State of the. Nevada Securities Commission.

His state finally put a damp on blind pools by requiring blind pool promoters to find a Wayne Klein held up the blue stock, certificate for. his audience of security administrators and, a rueful smile, waved it at them. bought this stock in 1972, and company was known'as Sailfish, he said. They were. bringing fish front Washington 1 Idaho and marketing it Later they changed 1 their name and bought an oil well.

The last -thing I heard they were in southern California -developing a computer program handicap horses And the share of Its, worth nothing," Klein said. Klein, chief of the Idaho Securities Bureau, was moderating a panel on blank-check and blind-pool companies during the recent annual meeting, of the North American Securities Administrators Association held in Santa Fe. The terms blind pool and "blank check refer to shell corporations formed by- promoters specifically to, merge with operating companies. Until they do pools and blank checks have no assets other than promoters' funds. The twO differ in that the promoters of a blank-check company do not have to indicate the kind of business, they will merge with, while a blind pool's promoters must be rjore specific about the area of business they plan to move info.

With liis stock certificate. Klein was demonstrating the dangers of investing in such shell companies," which can be just about anything their promoters want and sometimes end up as nothing at all. Fraud," inherently fraudulent," blind faith," and ethereal equities," are some of the terms applied to blind pools and blank checks, Klein said. They act as blank. checks for promoters and are almost always bad investment," said a June 27 Forbes magazine article called Scam HotSpots." (Although some blind pools may be frauds, there are exceptions.

See the accompanying story on a legitimate Btm, Los Alamos Diagnostics, which merged with a Colorado blind pool earlier this year.) Blind polls are especially popular in the Western states pf Nevada, Idaho. Utah, Colorado and Washington. The five people on the securities association's panel, all experts in the field and most critical of blank checks and blind pools, were from those states. No one from New Mexico was on the panel, but Michael Vargon, 'deputy director of the state Securities Division, was in the audience, undoubtedly thanking his luck that New Mexico apparently doesnt have the problem other states do. "We don't have flood of blind pools in New Mexico, mainly because' of our merit standards, Vargon said during a later telephone interview.

Our standards have a -little more substance than those of the Securities and Exchange Commission. We have to know what's going on." New Mexico standards are stringent because blind pools often result in financial disaster for both investors and the small businesses that blind pools buy into, Vargon explained. Investors who put their money in blind pools are lured in after a merger, as stock prices start to climb. But the fun often doesn't last long. Once the stock's price has moved upward, promoters often dump their shares at a proFit, leaving unsuspecting stock holders with nothing but worthless stock certificates.

company before they issue any stock. Cook investors in escrow until the merged compa- said. But even those measures aren't enough, and the panelists were critical of the SEC, ny has reached a certain performance level. If the company doesn't perform, they never get the stock back, Lavigne said. company public owns 20 percent, and blind-pool insiders just 9 percent.

Since the merger with the blind pool, LADA stock has moved to between 5 or 6 cents a share -after coming out at 2 cents, Lonergan said. By exercising its warrants, which allow the company to buy stock at prices below market value, LADA has raised about $467,000 in capital so far and expects to raise another $140,000 shortly, Lonergan said. Lopergan dubs the merger a success that with a blind pool, Lonergan said. One is that the operating company the blind pool merges with must have substance. Often, blind pools merge with companies in the formative stages, resulting in a loss of control and any assets the small-business owners may have put up.

"Unless a blind pool merges with a. good company, you don't have anything, Lonergan said. It's also important that the promoters of the blind pool stay with the merged company. In many cases, promoters only stick around The company now employs about 30 people and.expects million in sales in 1988, Lonerjgan said. A blind pool consists of a group of investors who form a shell company with the purpose of merging with an operating company.

The blind pool is publicly traded, usually as an over-the-counter stock. After the merger with the operating company, the new company is a public company. Small-company owners say it is less expensive to go public by merging with a blind pool than going through the Securities and Exchange Commission requirements for an initial public offerings. But many state and federal regulators say investors and small-business owners are often victimized by unscrupulous blind pool pro-moters. (See accompanying story) From a small company's standpoint, there are two key factors in a successful merger By BOB QUICK The New Mexican Staff John LOnergan has heard all of the horror stories about Mind pools, and he agrjees with most of them.

Ninety percent of the time, the promoters of blind pools are selling schlock and looking to make a quick buck," Lopergan said. Only the insiders in blind pools make any money. But there are exceptions to fraudulent blind pools, Lonergan said. His own company, Los Alamos Diagnostics, merged with a Colorado blind pool earlier this year and has been the better for it, he said. We happened onto a good investor group, and we have a good company," Lonergan said.

Los Alamos Diagnostics, which Lonergan launched in 1985, manufactures and markets bioluminescence-based instruments and reagents that are used to detect bacteria. long to drive the price of the stock up, then has saved his company a lot of money and dump it, leaving investors and the small trouMe. companies with nothing. The costs of going public through a regular public offering would have been $150,000, he- Things have worked differently for LADA, he said. Most importantly, 71 percent of the merged company's stock is dwned by Lonergan and other LADA officers and employees.

The said, while the blind pool merger cost $50,000. The merger was substantially faster because LADA did not have to meet SEC requirements. Who do you think is better for the economy and the stock market the Democrats or the Republicans? Expert disagree, but historical Statistics indicate that, on balance, things haye been better when a Democrat has occupied the White House. Agree or not, no matter who wins-this years election, you can fine-tune your investment portfolio so that ypu will come out ahead. After examining both candidates' views on key issues and prescriptions for the nation's problems, I offer the following assessments and suggestions to help youplan your investment strategy for the next four (or eight) years.

IF DUKAKIS WINS: Michael' Dukakis deficit-cutting plans center on reducing farm subsides and defense'spending, particularly for Star Wars; dosing tax loopholes; declaring a tax amnesty to encourage ion-payers to pay up; and making some money-saving changes in Medicare, His other top priorities include housing, the drug problem, national 1 health insurance, college Financing and teacher training. Whether he will seek tax increases remains an open question. i Further down the road, among the changes you probably can expect from a Dukakis administration are: tighter government regula-. tion, especially in the Fields of antitrust and the environment; joint government-business programs to create jobs and stimulate regional economic development; a greater foreign policy emphasis 6n multilateralism and burden sharing; an energy policy aimed at reducing dependence on foreign oil and increasing the use of clean fuels; and tougher sanctions on South Therefore, given Dukakis' goals, two stock groups to avoid are defense and health-insurance companies, Industries that probably would do well are health care, pollution control and education. Specific stocks our analysts think could turn out to be astute buys -jnclude: tax preparer Block; textbook publisher Houghton Mifflin; National Education a national vocational-training company; and Waste Management, a leading pollutibn-control company.

IF BUSH WINS: Bush apparently would try to continue Reagan's less govern- mentlow tax program. His strategy for deficit-reduction is based on keeping spending growth at the level of inflation while getting revenues to grow faster. However, aside from increasing user fees and closing some military bases, it is. unclear where the increased reve- nues would come from. Among Bush's key priorites are stable defense spending, improving education and the welfare system, and a long-term health plan based on health maintenance organizations (HMOs).

Other areas of empha-. sis for Bush are: defense research; greater toughness with the Soviet Union; an energy policy to help domestic producers; and private-sector approaches to solving a host of nationiri problems. Based on the probable Bush approach, there are several kinds of companies that should prosper multiline insurers, domestically oriented oil companies and some defense contractors. Our analysts have zeroed in on the following stocks: Rown Companies, an oil and gas driller; three insurance companies, Aetna Life Casualty, C1GNAk and Travelers; and a defense elec- tronics maker, E-Systems. And because Bush, like Dukakis, favors -education, Hpughton-Mifflin, and National Education would still look good.

Finally, if the capital-gains tax rate does come down, growth stocks would get a big boost. broad-based packages of growth stocks would make sense. Energy costs curb inflation ing signs that the economy was not in danger of Overheating. Those worries earlier in the year- had prompted the Federal Reserve, in ah inflation-fighting move, to tighten credit conditions and push interest rates higher. The good news is that inflation and interest rates have peaked and should decline in.

coming -months, said Richard Rahn, chief economist of the U.S. Chamber of Commerce. "The bad news is not all that bad. The economy is slowing, but only slightly." 1 Other economists agreed, some said they The Associated Press WASHINGTON Food tosts, showing further effects from the drought, accelerated sharply in September, but a big drop in energy costs kept this overall rise in wholesale prices at a moderate 0.4 percent, the government reported Friday. The price report brought smiles at the White House, where the Reagan administration claimed- it showed inflation was not heating up.

But some private economists expressed worries about what could happen if world oil prices suddenly rebound. The September increase represented a drop from an were worried that the underlying inflation rate, after August increase of 0.6 percent. For the first nine removing the volatile food and energy categories, months, wholesale prices have been rising at a rate of jumpej by 0.6 percent in September, double the rate of increase in August. Some economists suggested that the central bank is likely to wait until after the Nov. 8 presidential election and then resume pushing interest rates higher in a further effort to dampen cohsumer demand.

1 The big dampening effect on prices last month came from a 3.3 percent drop in energy costs. the biggest decline since January. All fuel categories showed decreases. Gasoline'costs fell 3.3 percent, natural gas dropped 2.5 percent and home heating oil declined by 4.6 percent. The price declines reflected the current battle among oil-producing nations over production quotas.

4.3 percent. Presidential spokesman Marlin Fitzwater said the inflation report showed a clear downward trend" indicating inflation was under control. The government also reported Friday that retail sales fell for -the secopd straight month in September, declining 0.4 percent because of weakness in auto sales. In another sign that the economy was slowing, the Federal Reserve said the operating rate for America's factories, mines and utilities was unchanged in September, the first month industrial production has failed to increase since last February. In the view of many economists the sluggish reports on retail sales and industrial production were encourag- Smibk UADtplalLtbtr Federal bank board outlines Texas bailout failures in Texas have been and the abuse of the states Channel 2 founder buys back building By BOB QUICK The New Mexican Staff One of the original members of the partnership that started Channel 2 in 1977 has repurchased the Santa Fe television station's building.

"I plan to make some renovations in the building, John Pollon said, adding that the building then would be leased out to tenants. Pollon declined to reveal the sale price. The sale of KNMZ-TVs headquar-- ters comes about a month after the -station announced it plans to move i)s main office and production studio to Albuquerque. A smaller Santa Fe satellite studio and office, building is under construction on Calle Nava, between Columbia Street and Calle Anaya, just off St. Francis Drive, said Liz Wilson, KNMZ's Santa Fe manager.

The new building should be ready for occupancy in about 90 days, she Channel 2's building, located at 2009 S. Pacheco cost $2.7 million when it was built in 1983 by New Mexico Media, the partnership that founded KNMZ-TV, then known as KSAF. Pollon and another investor, C.L Brown put up the building, then leased it to the television station, Pollon Mexico Media sold the station and the building that housed it in 1985 to Channel Two Associates. which could not make a profit on the station and filed under the bankruptcy statutes on Aug. 5, 1987.

Pollon, a retired Los Angeles businessman, said he was a guarantor of the mortgage, which was held by Commercial Federal Savings and Loan Association of Omaha. Neb. "I paid off the mortgage." Pollon said. The building is free and dear. Negotiations are under way to turn the building, which KNMZ will vacate around the first of the year, into a multitenant office building, said Tom Lowe, a leasing agent.

We have a number of prospects" for new tenants, Lpwe said, declining to mention any by KNMZ is now owned by Coronado Communications, a company formed by Las Vegas, television-station owners Janet and Jim Rogers and other investors. has spurred new debate in Congress on how to restore the industry to health. The bank board has not acknowledged that it needs more money, but nearly all private analysts say its insurance fund will have to be bailed out, very possibly with taxpayer funds. So far, all of the fnoney used in rescues has come from fees charged the industry. Legislation creating a blue-ribbon commission to study the problem and recommend a solution early next year is expected to pass Congress before it adjourns next government aid in the latest package is coming in the form of a $303 million.

10-year promissory note and an additional $1 billion in various kinds of guarantees against loss on the failed institutions' bad loans. Regulators said the $1.3 billion was the present value" of the assistance, meaning that over time more could be paid out. The Associated Press WASHINGTON Federal regulators on Friday pledged $1.3 billion to rescue 11 insolvent regulatory system savings associations in Texas, selling them to a cable television company. -The Federal Home Loan Bank Board said the Adam Corporation Group of Bryant, -Texas, a cable television station operator owned by Don A. Adam, is investing $65 million now and an additional $15 million by the end of 1990 to acquire the 1 1 institutions.

are being merged' under the name of Olney Savings and Loan Association. All deposits, even those over the insurance limit of $100,000, are transferring, the bank board said. So far this year, regulators have closed or merged 135 insolvent nationwide, 53 of them in Texas and Oklahoma. Those states were hard hit by the collapse of oil prices in 1986 and a subsequent break in zeal estate prices. Many of the blamed on fraud Rep.

Doug published next Operations of all linked in varying At the end of federal criminal failed institutions institutions, Barnard by an aide. The Adam rescue bringing total the state to $15.3 The accelerating forced mergers regulates the Barnard. said a study to be week by his House Government subcommittee shows that three-quarters insolvencies appear to be degrees to misconduct. June, there were 7,350 pending investigations involving 357 and thousands of open said in a statement released Corp. transaction is the mnth-largest package in.

Texas since May, federal assistance to institutions in billion. pace I of closings and by the bank board, which nation's 3.000 thrift institutions. Jerry Kuhlman is a financial consultant with Shearson Lehman Hutton in Santa Fe. Attic insulation can put lid on rising utility bills ridge vents and half soffit vents. If there isn't a vapor barrier under the insulation, you should double that recommend- ed amount of vent area.

There is new, inexpensive, perforated film material available oh rolls that can significantly Increase the effectiveness of your attic insulation and cut your heating and cooling biHs. It is made of thin polyethylene plastic that is laid over the attic insulation. This film blocks air currents that can dip. into and flow through the insulation- evenly if It has been blown around by breezes. Also, make sure the vents In the roof overhang aren't blocked by insulation.

Adequate attic ventilation is very important in the winter to reduce moisture buildup in the insulation. Excess moisture reduces the Insulation value and may cause structural damage to the lumber. You should have about one square foot of attic vent area for each 300 square feet of attic floor area. Half should be Question: My utility bills are way too high, and I was wondering if there was anything that I can do to increase the effectiveness of my attic insulation? O-N. Answer: Effective attic Insulation Is one Of the most important factors In reducing your utility bills, both summer and winter.

Typically, energy loss through the attic accounts for about 40 percent of your utility bills. There are several simple do-it-yourself Improvements you can do to greatly increase its effectiveness. First, it's a Cut your utility bills good idea to go up into your attic and check the insulation each falL Look at the underside of your roof for any signs of leaks and check the Insulation for moisture damage. If you have blown-iii insulation, spread it out.