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Without financing, regulatory approval or any convincing means of support, quixotic offers to buy US Airways Group Inc. and Trans World Airlines by the mysterious Emil Bernard evaporate under scrutiny. But each time, as the public impact of Bernard’s bid fades, questions have lingered about how regulators pursue phony bids and how easily those bids — with a push from the media — can manipulate markets. Bernard has not been accused of wrongdoing in his bid for Arlington, Va.-based US Airways. But there’s no doubt his bid has affected the airline’s stock. In the first day of trading after launching his bid Aug. 5, US Airways shares, which usually trade at a volume of 440,000 shares a day, jumped 5 percent in value as 1.5 million shares changed hands. On Aug. 9, the day after Bernard issued a release saying he was raising his offer, US Airways jumped 3 percent in morning trading before falling back. US Airways stock traded as high as $19.10 a share in the week after Bernard made his bid, more than 13 percent higher than its close of $16.88 before the bid. John Nester, a spokesman for the U.S. Securities and Exchange Commission, would not comment on whether Bernard was the target of an investigation. But when pressed as to how Bernard, armed with so little backing, could avoid SEC scrutiny, Nester said, “We weigh speed with due process.” Suspect bids are prevalent, but outright hoaxes are difficult to prosecute and often go unpunished. There are at least 61 cases on file in connection with fraud and tender offers when a search was done at the SEC. In most cases, regulators have either ordered the bidders to stop, issued a warning or simply not acted. Of the industries hardest hit by hoax bids, airlines seem to be a favorite. So it’s no surprise that Bernard, and the questions surrounding his company, New York-based Global Airlines Corp., remind regulators of a 1989 incident, in which an unknown New Yorker made a $4.9 billion bid for Pan American Corp. and Northwest Airlines Corp. The case, with details nearly identical to recent airline offers, is a good example of how regulators handle such cases. As one former SEC official explained: “It’s not like this is a new game. Once you’ve been around this a while, you see the same old stuff.” In May of that year, a self-proclaimed “self-made financier” by the name of Michael Stern faxed a press release to several media outlets. Stern claimed his company, Trans Global Holdings Inc., was making a $4.9 billion bid for Northwest and Pan Am and was “in the final stages” of securing between $450 million and $650 million in financing. In the press release, he promised to build 300 airplanes beginning in 1994. The total transaction had a value of $26.9 billion. The announcement on May 23 that year led to a halt in trading of both Pan Am and Northwest stock on the New York Stock Exchange and to a widely distributed story by Reuters. SEC investigators found that Stern had no financing and had not pursued any. In settling the Stern case, a federal judge approved an agreement in which Stern did not admit to any wrongdoing, but was ordered not to violate the securities law regarding “false and misleading statements.” If he violated the agreement, Stern could be found in contempt of the order and face jail time, regulators said. Former SEC officials say Stern got off lightly. A sweeping change in U.S. securities law in 1990 allowed the courts to levy hefty fines against convicted hoaxers, something that didn’t exist when the Stern case was brought. “For some reason the airline industry attracts these nut jobs,” said Sean O’Shea, a former securities fraud prosecutor with the U.S. Attorney’s office in Brooklyn, N.Y. “I don’t know if it’s the glamour, or the perceived glamour, but the laws are flexible and these cases can be prosecuted.” Asked why the SEC took nearly two years to settle with Stern, former officials said the case failed to meet the standards for the court to issue an “emergency injunction.” That’s mainly because Stern was not profiting from movements in the airlines’ stock. SEC officials familiar with the Stern case see obvious parallels with Bernard’s bid so far. Stern said he represented several investors, but would not detail his bid or its financing. Investigators revealed that Stern “did not have any commitments or even expressions of interest from any investors to provide any equity toward a transaction.” “I don’t know how bona fide this man’s offer is,” said John Sturc, a former SEC attorney now at Gibson Dunn & Crutcher. “But the securities law requires these people have to have a bona fide offer and there are penalties if they don’t.” Copyright (c)2001 TDD, LLC. All rights reserved.

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