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Mamma.com Loses Another Friend

Matthew Goldstein

Mama mia!

Internet search engine Mamma.com(MAMA Quote) is looking for a new auditor following a dispute over an internal investigation into the company's possible ties to a stock promoter.

The Montreal-based company, which bills itself as the "mother of all search engines," said Tuesday that PricewaterhouseCoopers had withdrawn as its auditor. The company and the Big Four accounting firm were "unable to reach an agreement on the terms of the audit engagement," according to a press release.

The dispute with PWC means Mamma's filing of its final financial statements for 2004 will be delayed. Mamma said it is in the process of interviewing new auditors.

The dispute with PWC began several weeks ago after The Globe and Mail, a Toronto newspaper, reported the Securities and Exchange Commission was looking into possible ties between Mamma.com and Irving Kott, a Montreal stock promoter who pleaded guilty last year in a U.S. securities fraud investigation.

The company began an internal investigation into the news report. In a release, it said it takes "those claims very seriously." PWC said it could not complete the audit until the investigation was over.

Kott, 73, was sentenced to five years' probation and paid a $1 million fine. Federal prosecutors in Los Angeles charged Kott with concealing his ownership interest in a previous management team that ran J.B. Oxford(JBOH Quote), the oft-sanctioned discount brokerage.

The news about Kott's possible ties to Mamma came nine months after the company disclosed that the SEC had begun an informal investigation into "the intense trading activity'' in Mamma's shares early last year.

The SEC inquiry came at a time of frenzied trading in shares of Mamma, which drove the price of the stock up 337% to about $14 a share. In one day in early March, the stock jumped 155%, with some 60 million shares changing hands. Before the surge in Mamma's stock price, the average number of shares traded each day was no more than 100,000.

At the time, many dismissed the SEC inquiry as a routine event. Last year dozens of so-called low-float stocks, companies with just a few million shares available for trading, were driven to new heights by daytraders and momentum players. Throughout the year, momentum traders flitted from one obscure stock to another, feasting on the volatility created by their low share count.

Indeed, at one point, even Dallas Mavericks owner Mark Cuban got in the low-float action, buying a 6.3% stake, or 400,000 shares of Mamma, back on March 4. But in July, Cuban cashed out, selling his entire position when the stock was trading around $11. Cuban's sale coincided with the end of Mamma's frenzied run. Ever since, the stock has been dropping back to the midsingle digits.

Shares of Mamma were trading around $5.74 when trading halted for the midday announcement about the accounting change. They've since reopened and were recently down $1.83, or 29%, to $4.45.

Company CFO Daniel Bertrand declined to comment on the auditor announcement or the SEC investigation.