Las Vegas Sun

March 28, 2024

Stratosphere stock is still trading

People will buy anything.

Ask used car salesmen, anyone who's ever held a yard sale, or brokers familiar with Stratosphere Corp. stock.

The Stratosphere, bankrupt since January 1997, has all but been taken over by billionaire financier Carl Icahn. When Icahn's ascension becomes official, most likely early next week, all existing Stratosphere stock will be canceled. Its owners will get nothing.

Yet the stock continues to trade, dropping 1 cent Thursday to close at 7 cents. Oddly, it's not trending down. The stock traded at 6 cents earlier this week.

It's volume is respectable: 173,100 shares changed hands Tuesday, 71,000 Thursday. Last Friday, volume reached almost 400,000 shares. And it has traded in the same range since mid-May, when it dropped from the 12 1/2 cent range. It even traded above 25 cents for a few days in February.

Icahn took control of Stratosphere by his now signature method of buying up a majority of the company's public debt, and then using his position as largest creditor to push through a reorganization plan that transfers all equity from stockholders to creditors. He used a similar technique to gain control of Arizona Charlie's hotel-casino on Decatur Blvd.

Anyone doubting the ultimate cancellation of Stratosphere stock should take a look at the quarterly earnings report the company filed with the Securities and Exchange Commission earlier this month:

"Upon (Icahn's plan) becoming effective, all existing equity interests (including common stock, options and warrants) will be canceled and the holders of such equity interests will receive nothing."

This is no surprise. The company's SEC filings have reported as much since Icahn's reorganization plan was filed with U.S. Bankruptcy Court in Las Vegas late last year.

Why the stock continues to trade is anybody's guess.

Don't ask Dan Delmonte, a trader with Herzog Heine Geduld Inc., outside of New York, which continues to make a market in the stock.

"I don't know," said Delmonte, when asked why people continue to buy and sell a stock that has no value.

Delmonte said he has been trading Stratosphere stock for several weeks, since a broker who used to trade it for his firm retired. He said he doesn't know anything about the company.

Ditto for a trader who identified himself only as Tony, at the firm William Frankel, in New York.

"That's out of my league," Tony said, while conceding that his firm also makes a market in the stock.

Several other Stratosphere market makers, including Troster Singer, Wiens Securities Corp., Sharpe Capital and Knight Securities, declined comment.

"I can't think of any reason why anybody is buying the stock," said Tom Lettero, Stratosphere's chief financial officer.

Lettero could only speculate that the stock's volume is being driven by speculators gambling on minute changes in its price. Icahn has received necessary court and regulatory approvals to run Stratosphere. His newly-appointed chief executive, Dan Cassela, is in place, running the resort. The company will submit final documents cancelling the old stock to the bankruptcy court next week, said Lettero.

Stratosphere itself has no way of knowing who is trading its stock, Lettero said. However, it's not unusual in bankruptcy cases for penny stock speculators to continue gambling on minute price fluctuations right up to the end, he said. In fact, Lettero added, there's no reason people who want to trade the stock can't trade it after it's cancelled.

While the firms buying and selling the stock were mum on their reasons, several brokers no longer involved were glad to speculate why Stratosphere is still trading.

Wayne Bieniasz, branch manager of Wedbush Morgan Securities Inc., said some people most likely trade Stratosphere to sell the stock short. In short selling, an investor makes a profit if a stock declines.

Short selling only works if there are people who make a market in the stock, said Bieniasz. Market makers are brokers who maintain a firm bid and offer price for a stock. Short selling can backfire on the speculator if the stock increases in value.

Local brokers speculated investors and brokers making a market in Stratosphere stock are gambling that something in the company's reorganization plan will change.

"It's probably trading because the judge has not yet approved the plan of reorganization," said Dave Ehlers, chairman of Las Vegas Investment Advisors. "And so until he officially approves the plan of reorganization ... crazy people will trade the stock. They hope that somehow when (the plan is) approved, there will be something left for the common equity."

"There are speculators out there who will buy and sell," said John Futrell, vice president at Sunpoint Securities Inc.

The market knows the stock is to be cancelled, Futrell explained. "However, that has yet to happen."

Most local brokers won't touch the stock.

"Nobody I know wants to do anything with it," said Futrell.

"I would be very suspect of why someone would be trading this," said another area broker, who spoke under condition of anonymity.

Nor does Kevin Roddy, lead attorney in a shareholder lawsuit against Stratosphere and former owner Grand Casinos, know anyone trading the stock.

"There are people willing to buy or sell anything, no matter how worthless," said Roddy.

The stock trades on the over-the-counter bulletin board (OTC-BB) exchange, an area of small stocks -- often called penny stocks -- that is mostly unregulated.

"Nasdaq has no relationship with the companies," said Scott Peterson, a Nasdaq spokesman.

Virtually any broker who wants to make a market in a stock can file to trade it on the OTC-BB, Peterson said. Unlike the main Nasdaq exchange, there are no minimum financial requirements or disclosure requirements for OTC-BB trading.

John Heine, a spokesman for the Securities and Exchange Commission, said the Commission's only requirement is that the stock's true value be disclosed in company filings -- such as the Stratosphere's recent quarterly earnings filing.

If a broker is pushing the stock without disclosing its true value, that broker might face some liability, officials said. Barring that, the brokers are considered middle-men, doing their clients' bidding.

"As long as there's a buyer and a seller, there's a market," said Heine. "It's a question of economics and not securities law."

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