Small U.S. Stocks

Trading Halts Show Risks
Of Investing in Small Caps

By JOHN R. EMSHWILLER
Staff Reporter of THE WALL STREET JOURNAL

The Securities and Exchange Commission suspended trading of six stocks, in
another reminder of the risks associated with investing in small-company
stocks, particularly Internet-related issues.

The SEC said Friday's trading halts, which last until Feb. 11, were prompted
by questions over the accuracy and adequacy of public information about the
firms. All six issues traded on the so-called electronic bulletin board, a relatively
unregulated arena for small companies.

                      One company is USA Talks.com, a La Jolla,
                      Calif., marketer of Internet-based long-distance
                      phone service. Company filings with the SEC
                      show that USA Talks doesn't yet have revenue.

But the price of USA Talks' shares rose to more than $52 on Thursday from
about $3 in November, giving the firm a stock-market value of $1.5 billion
based on about 30 million shares outstanding.

The SEC said questions about USA Talks included "the status and extent" of
the firm's business operations. An SEC official declined to elaborate.

Allen J. Portnoy, the company's chairman and chief executive, said "we have
been extremely careful" in public statements about USA Talks' business affairs.
Company officials said the firm expects to start producing revenue from
long-distance customers this week

Marketing of the company's service is being done by TrendMark of Memphis,
Tenn. In September, USA Talks announced a still-pending agreement to
purchase TrendMark for about 2.75 million shares. In June, the Federal Trade
Commission announced a settlement with TrendMark of charges that the firm
had made "a host of unsubstantiated" claims about weight-loss products it was
selling.

TrendMark President William McCormack said his firm didn't admit
wrongdoing but agreed to refrain from certain alleged actions in order to settle
the FTC case. USA Talks' Mr. Portnoy said he is confident TrendMark isn't
making any misstatements in marketing his company's phone service.

To fund operations, USA Talks has sold $20 million of stock in recent months
in private transactions with individuals and institutions, Mr. Portnoy said. He
declined to identify the buyers or say how many shares were involved. He said
the shares haven't yet been registered with the SEC for public sale.

USA Talks has also issued stock or stock warrants covering over 1.5 million
shares to consultants as compensation for services, according to company SEC
filings. Of those, 15,500 went to a small video-production company headed by
Richard Langley, who is currently a defendant in a federal criminal stock-fraud
case in New York.

In an interview Friday, Mr. Langley denied any wrongdoing in that case. As for
USA Talks, Mr. Langley said his firm produced a promotional segment for use
on cable television. He said his company sold its USA Talks shares for about
$3 each.

USA Talks' Mr. Portnoy said he was unaware of Mr. Langley's New York
court case and knew him as just "a TV producer."

The other five firms whose stock trading was suspended are: Citron,
Electronic Transfer Associates, Invest Holdings Group, Smartek and
Polus. According to news releases from those firms, their businesses range
from Internet marketing to impotence products. Recent releases from all five list
the same Georgia phone number as a contact. The person answering that phone
declined to comment but said he would pass messages on to the companies.
None called back.

Like many bulletin-board companies, the five firms don't file financial reports
with the SEC.

Friday's Market Activity

Tech stocks overcame early weakness to push the Nasdaq Composite Index to
a second straight record. Small-capitalization stocks also rebounded.

                             The Nasdaq Composite finished with its
                             11th record so far this year, climbing
                             28.55, or 1.15%, to 2505.89. The
                             Russell 2000 tacked on 3.25, or 0.77%,
                             to 427.22. For the week, the Russell
                             advanced 4.78, or 1.13%, while the
                             Nasdaq rose 167.01, or 7.14%.

                             Tut Systems, a Pleasant Hill, Calif.,
                             maker of products that offer high-speed
                             data access over copper telephone wires,
                             priced at 18, then soared as high as 64
before settling at 57 1/2 .

Sterling Vision soared 5/8, or 21%, to 3 5/8 . The East Meadow, N.Y.,
optical retailer plans to launch an interactive Web site.

Shares of theglobe.com rose 6 1/8, or 10%, to 66 1/16. The co-chief
executive said in a CNBC interview last week that the New York Internet
company was considering joining with a larger company.

Security Dynamics Technologies shares fell 16% to 20 7/8 after the
Bedford, Mass., computer-security products company said it expects $5
million to $7 million in restructuring and other charges during the first quarter.

American HomePatient dropped 29/32, or 27%, to 2 1/2. The Brentwood,
Tenn., provider of home medical care warned that its fourth-quarter results
would be lower than expected.

Supreme International rose 1 5/8, or 11%, to 16. The Miami sportswear
manufacturer agreed to buy Perry Ellis International for $75 million.

Cytyc, a maker of preparation systems for medical testing, lost 4 3/8, or 19%,
to 19 1/8. The stock of the Boxborough, Mass., company was downgraded by
NationsBanc Montgomery Securities.

Checkers Drive-In Restaurants fell 3/32, or 18%, to 7/16; and Rally's
Hamburgers dropped 1/32 to 1, after the companies said they will merge in a
stock swap. The drive-though hamburger restaurant chains, which already
share management in Clearwater, Fla., plan to report losses for their fourth
quarters.

Small stocks declined in the morning as the technology rally seemed to run out
of steam, but then BancBoston Robertson Stephens provided a jolt when it
upgraded several semiconductor-equipment stocks. Leading the group was
Lam Research, which gained 6 1/16 to 38 3/8 . The Philadelphia Stock
Exchange Semiconductor Index rose 14.10, or 3.4%, to 420.58, helping boost
the turnaround in tech stocks.
 

-- Loren Fox