Pacific Exchange Probing Trading in Organogenesis

Strange events Dec. 31 draw the exchange's inquiring eye.
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The

Pacific Exchange

has opened an investigation into the Dec. 31 trading in

Organogenesis

(ORG) - Get Report

, according to Morrison Shafroth, an exchange spokesman.

Last Thursday, 1998's last day of trading, Organogenesis shares slipped 3/4 to 10 1/4 in light volume on the P-Coast after trading on the

American Stock Exchange

had closed. After getting complaints from shareholders, the company complained about the trades and, unusually, the price was subsequently adjusted to 11.

It was not clear when the investigation was opened. The spokesman says the exchange routinely investigates unusual or noteworthy trades.

Tom Rosko, the specialist for

Wedbush Morgan

who made the trades and said Wednesday that they were legitimate trades, says he has not been contacted by the exchange about the investigation.

The following article was posted at 12:06 p.m. EST Wednesday.

Late Trades Expose Organogenesis' Thin Skin

There was funny business with trading in

Organogenesis

(ORG) - Get Report

at the end of the year. Again.

Organogenesis and the

Pacific Exchange

made the unusual announcement Tuesday afternoon that the exchange had corrected the Dec. 31 closing price of the stock to 11 from 10 1/4. Why?

It seems as if someone painted the tape in after-hours trading in Organogenesis, a Cambridge, Mass., maker of fake skin that's the subject of a bitter and longstanding battle between the shorts and the longs. (To make their yearly performance look better, investors sometimes do what's known as painting the tape, or making small trades in thinly traded stocks at the end of the trading day. Typically, these trades give a stock a boost. But this time, the stock traded down.)

Three trades in the stock took place on the Pacific Exchange after

American Stock Exchange

trading ended. The stock closed on the Amex at 11. The P-Coast trades, of 100 shares each, occurred at 11, 10 13/16 and 10 1/4. But come Monday, the trades were repriced at 11.

The specialist is baffled. Mistaken trades, such as when a specialist puts through a trade for 500 shares rather than 5,000, are routinely corrected. But in the Organogenesis case, the trades were mutually agreed upon. Tom Rosko, a specialist in San Francisco for

Wedbush Morgan

who made the trades, says someone offered to sell 10,000 shares at 11, but that no specialist would put up that much capital to buy that amount of stock going into a long weekend.

"In the past, we have been hung out to dry" in situations like these, Rosko says. "I'm not going to stand in front of it." The order size fell dramatically until the sellers and specialist agreed on the trade size and price.

But the agreement didn't stand for long. Rosko says, "I was approached by the exchange to change the price to 11. I saw no reason to change it because as far as I was concerned, it was a legitimate trade. The next morning, the prices of the trades were changed. But it wasn't me."

"When it goes the other way, we don't get a call from the customer" to move the price back down, he adds. Rosko also says that it isn't unusual for the stock to close half a point or three-quarters of a point above the closing Amex price. In those cases, however, the prices aren't adjusted.

Nor is it routine for the exchange to rescind the price of a trade, he says. "I've been doing this for a long time. It does happen, but it's certainly not a common occurrence."

Further, it's unusual for the either the exchange or the company to put out a press release announcing the price adjustment.

"If a company can just say it's not a real trade, that's ridiculous," says one short-seller in Organogenesis. "It goes to the heart of the matter. Is this game fair when a company can say, 'We don't like our low stock price; we'd like a higher price'?"

He adds, "The real reason is that hedge-fund managers in the stock are facing angry clients, and it's very important for them to get that three-quarters."

That appears to be what happened. Ever vigilant about maintaining its stock price, Organogenesis called the exchange to alert it to the unusual trades. A company spokeswoman says the company was responding to complaints from its shareholders. "We had noticed the different, unusual activity and brought it to the attention of the Pacific Exchange," says Carol Hausner, a spokeswoman for Organogenesis. "When we got calls from our shareholder community, we brought it to the attention of the surveillance people."

The P-Coast doesn't seem to know what happened. A spokesman who was the contact on its press release said Tuesday afternoon that he was under the impression that the trades were mistaken.

Organogenesis had a horrendous year, down more than 50% as sales of its fake skin,

Apligraf

, have been immensely disappointing.

It's funny, but Organogenesis wasn't as vigilant about correcting its price in 1997 when the same thing happened -- but in the opposite direction. On Dec. 31, 1997, Organogenesis' stock closed up 1/2 to 26 7/8 in the Pacific Exchange session that runs from 4:15 to 4:30. The stock had already run up dramatically in the last half-hour of regular trading.

The Pacific Exchange investigated that trade and another similar trade in

Columbia Laboratories

(COB)

. According to a person at the Pacific Exchange, the exchange referred the investigation to the Amex. Nothing has been heard about it since. The trades were not rescinded. An Amex spokesman says he can't comment on investigations into unusual stock activity.