An attempt to revive a classic line of injection molded toys has been derailed by the arrests of six executives and investors for alleged stock fraud at Marx Toys & Entertainment Corp.
Freehold, N.J.-based Marx produces collectible action figures and play sets at a plant in Sebring, Ohio. The toys are replicas of classic toys made by Louis Marx & Co., a firm that once dominated the American toy market. Marx's claims to fame included introducing the yo-yo in 1928 and both the Big Wheel and Rock 'Em Sock 'Em Robots in the mid-1960s. The company also was known for its Johnny West line of Western-theme action figures in the 1960s and '70s.
Marx Chief Executive Officer Robert LoMonaco and three business associates were cited Oct. 2 by the Securities and Exchange Commission for allegedly working to inflate the company's stock artifically. The penny stock trades over the counter.
LoMonaco allegedly paid a kickback to Scott Halperin, former CEO of Marx predecessor Steroscape.com Inc., for enlisting Rubin Investment Group Inc. of Los Angeles in the scheme. When Marx issued 8 million new shares of stock Aug. 29, 6.8 million of those shares went to RIG. RIG President Daniel Rubin and employee Andrew Saska also are named in the Oct. 2 SEC complaint.
According to his Web site, Rubin is a frequent investor in small-cap firms. He has appeared as a financial commentator on Fox News and CNN.
LoMonaco and the others allegedly then profited by as much as $6 million when the per-share price of Marx stock doubled Sept. 18 to 14 cents. Trading volume in Marx stock nearly tripled, from 2.3 million shares to 6.6 million that day. The stock closed Oct. 7 at 9 cents per share.
All four were arrested and charged Oct. 2 with conspiracy to commit securities fraud, but are free on bond, according to a U.S. District Court spokeswoman in New York. No court dates have been set.
The timing of the arrests is somewhat remarkable, in that they come less than a month after former Marx CEO Steven Wise and stock promoter Larry Vindman were arrested on similar charges.
Wise resigned Sept. 10 as Marx CEO and was replaced by LoMonaco, who had been a director. Five days earlier, Wise had been cited by the SEC for allegedly engaging in ``fraudulent and manipulative practices to inflate artificially the demand for, and the share price of, [Marx] common stock.''
Vindman of Marlboro, N.J., also was cited in the Sept. 5 complaint. Wise and Vindman are accused of paying a kickback of 100,000 Marx shares to two employees of a New York-registered stockbroker. The employees received the Marx stock in exchange for allegedly soliciting their brokerage clients to buy and hold shares of Marx stock at inflated prices.
Wise and Vindman both were arrested Sept. 5 and are free on bond. Their next court appearance is set for early November, the court spokeswoman said.
Wise owns or controls almost 60 percent of MRXT stock, according to the SEC release. In a Sept. 11 news release, Wise denied the allegations and said he intends to ``vigorously defend the action'' brought against him. He could not be reached for comment.
Marx stock was valued at 10 cents per share July 1. It rose to a peak of 37 cents per share Aug. 15 before dropping back to 22 cents Sept. 4, the day before the SEC complaint was filed.
The stock's daily trading volume was erratic during the period reviewed by the SEC. Volume topped 1 million shares 15 times between July 16 and Aug. 21, including a single-day volume Aug. 18 of more than 9 million shares - more than one-third of Marx's total common stock. By comparison, daily trading volume never topped the 750,000 mark in the first six months of the year.
Marx lost almost $775,000 in the first half of 2003 as sales dropped 60 percent to less than $64,000. In a financial filing, officials cited reduction in consumer spending and a restructuring of its product line as reasons for the poor performance. Officials also pointed out in the filing that Marx's negative net worth of $1.5 million ``raises substantial doubt about the company's ability to continue as an ongoing concern.''
In August, Marx received a $1 million investment from Kimberly Investment Corp. of North Brunswick, N.J. Michael Shalit, a Kimberly Investment general partner, also is listed as majority partner in Michael Marx LLC, a joint venture that Shalit formed with Stereoscape.com in 2002.
Shalit said by phone that Michael Marx LLC is a distributor of Marx products, but added that he is not involved in day-to-day operations. Shalit referred all other questions to Marx CEO LoMonaco, who could not be reached for comment.
Stereoscape.com, a supplier of home entertainment equipment, bought the company's assets in 2000 and changed its name to Marx Toys & Entertainment Corp. in February of this year.
In a Sept. 8 news release, Marx officials said that Ceriph Financial Group Inc. of East Brunswick, N.J., was ``looking after the financial aspects of Marx Toys.'' A Ceriph spokesman disputed the release, saying Marx is not a client of his firm, although the two sides have been in contact.