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Through the Looking Glass With ACLN

Editor's Note: Herb Greenberg's column runs exclusively on; this is a special free look at his column. For a free trial subscription to, click here. This article was published Dec. 20 on RealMoney. For more information on this article, read Dave Morrow's Editor's Desk

If you look closely at the SEC filings of ACLN (ASW), no stranger to readers of this column, you're bound to say one thing: Something doesn't add up. Belgium-based, Cyprus-incorporated ACLN, which is in the business of shipping new and used cars to Africa from Europe, is a story of inconsistencies, skimpy disclosure and a wide range of discrepancies.

Let's start with the case of the missing shares. (Remember that shares disappeared at AremisSoft, which is under investigation by the SEC and Justice Department for illegally selling stock, among other things.)

From the time ACLN went public, on June 26, 1998, until it filed an annual report with the SEC on June 29, 2000, as many as 2,265,221 shares held by entities controlled by Chairman Joseph Bisschops -- 29% of his total holdings -- vanished from the "principal and management shareholders" list in the company's SEC filings. The missing shares belong to four of Bisschops' entities, whose names also disappeared from the list: Pearlrose Holdings International, Scott Investments, Gilbert Management and Emerald Sea Marine.

Any sale of shares held by principal shareholders, at the very least, must be registered with the SEC in a Form 144 and Form 4. Form 144 shows the intent to sell and Form 4 shows the actual sale. Sales can also be part of a stock offering, but the shares in question were not involved in ACLN's only private offering.

Queries Aplenty

There also have been no 144s or Form 4s listing the sale of 2,265,221 shares. Where did the shares go? Why were there no disclosures about their whereabouts? Where's the money? Good questions. ACLN officials did not return my calls and emails over several days.

As it turns out, the only 144s filed by any of the missing entities were filed on three separate occasions by Pearlrose, which is identified in each as having no relationship to ACLN. That's peculiar because according to SEC filings, Pearlrose is controlled by ACLN Chairman Bisschops. The filings, which were made after Pearlrose disappeared from the company's formal documents, cover the sale of 198,683 presplit shares that had been transferred to Pearlrose from ACLN on June 25, 1998 -- one day before ACLN went public.

Oddly, though, filings show that the number of shares sold was more than had been registered. Adding to the intrigue, ACLN's SEC filings show that Pearlrose held a steady number of shares (adjusted for two splits) from six months prior to ACLN's IPO to the time Pearlrose's name -- and shares -- disappeared. Where did its shares go? Why didn't the share count change? Where's the money? Again, good questions.

That's only part of the story. There's a discrepancy over who owns the company's one ship, the Sea Atef. According to ACLN's SEC filings, the ship, formerly the M/V Emerald Bay, was "acquired" by ACLN for $6 million, and is written off at a rate of $1.8 million per year. As it turns out, the name used to be the Emerald Ray.

There's a problem with ACLN's claims that it owns the ship. A search of the ship registration Web site and documents provided by the Registry of Companies in Malta, where the Sea Atef is based, show the ship's owner is Sea Atef Shipping Co. Ltd. This company is joint-owned by someone named Merhi Ali Abou Merhi and D.C.C. Limited. Board members of Sea Atef Shipping include Bisschops.

What is Sea Atef Shipping and why is Bisschops on the board? Who is Merhi Ali Abou Merhi, and is Bisschops a part of D.C.C.? Shouldn't it be disclosed that Bisschops is on the board of another company? Why isn't ACLN named as the ship's owner?

If ACLN doesn't own the ship, then where did the $6 million it paid for the Sea Atef go? And if ACLN isn't the ship's owner, why does the company write off $1.8 million every year tied to the ship's ownership? Without proper disclosure, it's impossible for investors to ascertain whether the ownership of assets and the capitalization of assets are being done properly and at arms-length rates -- especially when the chairman apparently is involved in previously undisclosed companies doing business with ACLN.

Who Can You Believe?

Then there are the inconsistencies between what the company says in press releases and what it reports to the SEC. Examples:

  • In its 20-F the company said the Sea Atef had a period of "inactivity" because it "required significant engine repairs" during the third quarter of 2000. (Indeed, shipping records show it made only one, brief trip in the quarter.) Yet in its third-quarter 2000 earnings release, the company said the third quarter marked "our first full quarter with the company-owned vessel, Sea Atef, in operation and it achieved full utilization." How can you make one trip in three months and be fully operational?

  • ACLN's year-end press release for 2000 says the selling, general and administrative costs for the year were $4.9 million. But in the 20-F, the company said SG&A for the year was $5.2 million. Then again, if you total the SG&A costs in each of the first three quarters' 6-K filings and add in the SG&A number for the fourth quarter from the year-end press release, you get $4.9 million. Still with me?

  • ACLN pays MFT, a company run by Chairman Bisschops, for administrative services and office space. MFT also provides port services for ACLN. It's all fully disclosed, as are the fees ACLN pays MFT. Now for the bizarre part of the story: According to the 1999 20-F, ACLN paid MFT $2.9 million in 1999 and $2.4 million in 1998. In the year-later 20-F, with the same Cyprus auditors in place, ACLN said it paid MFT $5.4 million in 1999 and $4.5 million in 1998. Calling all forensic accountants in the house: How do you change numbers that were already reported -- and change them by that much?

  • The company isn't even consistent about the number of cars it has sold and delivered. After the end of the first quarter ACLN issued a press release saying it had sold 6,500 cars during the quarter. A few weeks later, when the first quarter was reported, the company said it sold $33 million worth of cars. Three months later, in the 6-K, the number of cars sold dropped to 5,523, but the amount of sales remained the same at $33 million. Stayed the same? On fewer sales?

  • During the third-quarter conference call, a money manager asked why there was an apparent 23% sequential drop in the number of cars sold. CEO Aldo Labiad explained that the ship holding the cars left port three days late, and instead of leaving the port at the end of the third quarter, it left at the beginning of the fourth quarter. That suggests the company counts cars sold as revenue when the ship leaves port. But according to ACLN's revenue recognition policy, revenue isn't recognized until a "shipment is completed," not started.

  • Who's in charge of the numbers? The company's Web site lists Alex de Ridder as CFO. But according to a 6-K filed Nov. 19 -- and prior filings -- the CFO is Christian Payne.

    Like I said, something sure doesn't add up.

    Don't even try to connect the dots.
    Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send any to Herb Greenberg . Greenberg also writes a monthly column for Fortune.

    Brian Harris and Mark Martinez assisted with the reporting of this column.

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