A misguided activist at DT Interpreting

This would be an appropriate April Fools post, but unfortunately this post isn't a joke, it's real.  Usually the appearance of a catalyst is good for a stock, unfortunately in this case it's just confusing.  There are so many strange things about this investment that I'm not even sure where to begin, I'll start with a little background.

The company is named Deaf Talk, but does business as DT Interpreting.  They're located in Carnegie, Pennsylvania, which is about eight miles from where I'm typing this.  I've driven past their location a number of times.  For me there's an added intangible element to knowing about the physical location of a company.  In DT Interpreting's case I know they are in a sketchy part of town that was hard hit by steel mill closures and a flood in 2004.  This is all to say the company isn't soaking shareholders by renting out glamorous digs in a ritzy part of town, management appears somewhat frugal, at least in their choice of location.

The company went public in 2010 after being privately held for 12 years.  They became a public company utilizing a reverse merger wherein the company merged with an empty shell company that had a ticker symbol.  The company doesn't file statements with the SEC, they trade on the pink sheets and volume is light.

The company itself is interesting, they started out as an interpretive service for individuals with hearing problems.  The company would have calls sent to them where an interpreter listens and signs into a camera.  The deaf individual watches a video of the DT Interpretive interpreter to understand what was discussed.  I couldn't figure out from their website if there is two way interaction via video camera.  The company has 400 installations of their technology and has branched into other interpretive ventures.  They provide translation services for documents as well as general translation for a number of languages.

The company is small, earning just $2.5m in revenue last year and $2.3m in revenue the year before.  Their earnings have grown dramatically, they earned $65,000 in 2011 and $141,000 in 2012.  The increase in earnings were due to a decrease in ASL and interpretive service expenses.  The financial statements can be found on their website, or at this link, they will be uploaded to unlistedstocks.net soon too.  I have never seen such detailed statements for a public company; this level of detail is common for a private company, but never a public company.  For instance they note that they spent $141.67 for subscriptions and dues, the magazines in the lobby perhaps.  They also spent $38.47 on repairs, it doesn't mention the type, but whatever was fixed came cheap.  The company even reports the penny they earned in interest on their bank account.

The company isn't trading at a jaw dropping valuation, they trade at 5.85x book value and 13x net income.  Granted for their growth this might be cheap, but it isn't the typical low P/E, or low P/B multiple seen with many unlisted stocks.

Enough with the background, let's get straight to the interesting part of this story.  A reader sent me an email mentioning that he saw that a 13-D was filed for the company last week.  The 13-D is extremely strange, first the filer mentions that his purpose is to buy the company outright.  He then details that he plans on increasing revenue by entering into partnerships with "symbiotic companies of equal or greater gravitas."

The filing then goes onto state that the investor intends to announce a buyback of all of the company's shares at substantially higher prices.  To top things off the filer owns 450,000 shares, which is a $10,000 position that he claims is 5% of the company's shares.  The problem is he made a small mistake, the 8m shares he lists is only the company's public float, the company actually has 42,552,700 shares outstanding, meaning this guy only owns 1.06% of the company.

I did some Googling on the filer and he appears to be an 86 year old who lives in a nice apartment east of the city.  The reader who alerted me to this situation tried to contact him, but his phone number is disconnected.  The filing has a name and address to receive notices which is different from the filing person.  The notice name and address is associated with someone who according to LinkedIn owns a small investment banking partnership that I couldn't find any information on (outside of his LinkedIn page).

It doesn't make sense to me why this person is filing a 13D for an unlisted company in the first place.  If a company isn't SEC filing my understanding was they were viewed no differently than a private company.  In a private company if ownership changes the exact changes aren't announced to the world, that's they the company is private.  Often management likes to take companies dark so they can have the same level of secrecy.  In this case it's nice that the aspiring acquirer announced their intentions to the world.  My concern is will they follow through?  I can imagine a number of scenarios here.  The first is I can imagine an older gentleman looking at these overly detailed financials and ranting "They paid $205,000 on phones last year, my phone from Verizon is $45 a month, those idiot managers…"  The second scenario is one where this is an older man who's investments and affairs are being taken care of by a broker or a family member, and the family member is orchestrating this whole thing.  It's impossible to know given that the investor's phone number is disconnected, if he is being scammed there's no way to contact him.

Even if the investor isn't getting scammed this is pretty poor strategy to announce to any and all investors that he intends to purchase shares at a significantly higher price very soon.  My guess is if he entered in his significantly higher order with a broker he would probably get a fill from all the investors who are tired of owning this stock.

For the brave souls that think this thing might be real this is an opportunity to front run a massive tender.  After some digging I'm questioning what's actually going on here, and I doubt there will be a massive tender or a buyout.  I'm actually concerned enough that this is an older man getting scammed that I'm thinking about writing a letter and mailing it across town asking about this whole situation.

Talk to Nate

Disclosure: No position

5 comments:

  1. I think the old guy is getting scammed. My first thought when reading this post was that someone was trying to get a pump n dump started.

    Check out this link from the Allegheny Times on May 1, 2004. A Kevin Maloney of Fayette City was charged with theft by deception, writing bad checks, and conspiracy to commit theft. I obviously have no idea if it's the same Kevin Maloney mentioned in the filing though.

    http://news.google.com/newspapers?nid=2004&dat=20040501&id=MboiAAAAIBAJ&sjid=T7UFAAAAIBAJ&pg=1562,351192

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    1. Kevin,

      Thanks for this, the address in the paper matches what's in the filing. I'm going to write the man a letter explaining the situation. I will probably also contact the SEC or the local Fayette City police. I guess it's good that this bubbled up, I might be able to help this guy avoid further losses, it's convenient that this is all local, a former boss lives in Fayette City and he has numerous connections with the local authorities down there, so I have some solid contacts if I need them.

      Thanks again for this, it's very troubling. Hopefully something good will come from this.

      Nate

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    2. Nate,

      Please keep us posted on what happens. I hope the old man appreciates your help. I'm impressed that you're taking the time & effort to help him, as I think most people would just shake their head and move on.

      On a somewhat unrelated note, it's kind of scary what google can do. I just searched for "Kevin Maloney" and "Fayette" and a 3-line blurb in a newspaper from 9 years ago pops up.

      Kevin

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    3. Got to agree with Kevin - you are a stand-up guy, Nate.

      Is this the same Kevin P. Maloney of Mortgage Bankers Holding Corp / National Institute Companies of America?

      There was an SEC pump-and-dump civil suit against various people related to those companies: http://www.sec.gov/litigation/litreleases/lr18882.htm

      Mr Maloney is not mentioned therein, and I am not suggeseting that he committed any wrongdoing...

      Assuming it is the same guy, here is a brief bio from a proxy statement (http://www.sec.gov/Archives/edgar/data/1096858/000095012800001411/j8504001def14a.txt):

      KEVIN P. MALONEY, AGE 42, PRESIDENT, CHIEF EXECUTIVE OFFICER AND SECRETARY
      NATIONAL INSTITUTE COMPANIES OF AMERICA

      - Bachelors degree from the University of Pittsburgh with Advance Studies from
      the Wharton School of the University of Pennsylvania, Aresty Institute of
      Executive Education and The London School of Economics.

      - The Senior Managing Director/Founder of Asset Protection Trust Company, Inc.
      one of the leading marketing companies in the United States of foreign situs
      trust and founder of Insurance Marketing Group, L.L.C.

      - Investment Banker for Spencer Trask Securities, Inc. While at Spencer Trask
      his responsibilities included leverage buyouts, mergers and acquisitions and
      restructuring of both public and private companies.

      - Registered Merchant Banker under the General Obligation Law of Switzerland and
      the United Kingdom. He worked throughout the European community and the Middle
      East and through significant contacts in the European banking community he
      developed offers to his clients in excess of one billion dollars.

      - Structured one of eight licensed currency exchange houses in the United Arab
      Emirates.

      - Was chosen by the Federal Islamic Republic of Comoros, among others, to
      develop their credit worthiness in the Western Capital Markets, as well as,
      lead the efforts to restore the infrastructure to the country with regards to
      utilities, medical care, education, public housing, the fishing industry and
      tourism.

      - Investment Banker with Balis and Zorn Securities, Inc., an asset management
      Company where he marketed asset management services and products, as well as
      analyzed and formed strategies for the acquisitions of public and private
      companies for high net worth, high profile clients.

      - Nutmeg Securities, Inc., where he trained and specialized in initial public
      offerings.

      - Senior Advisor and Negotiator in the purchase/sale of an existing National
      Football League and Major League Baseball franchise.

      - Began his career in his family's business for which he remains a financial
      advisor.



      Jonathan

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    4. I would also suggest trying the regional SEC office and the state Attorney General office. Would be great if the local police have contacts with anyone who does financial crimes at the state or fed level.

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