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Originally published July 28, 2012 at 8:02 PM | Page modified July 28, 2012 at 9:29 PM

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Tacoma stock's promoter sued by SEC for 'scalping'; did union vote lead to layoffs?

The self-declared investment guru who drove the stock of tiny Cascadia Investments to wild heights has been sued by the SEC for allegedly misleading his followers in an unusual pump-and-dump scheme. Also, warehouse workers in Auburn charge they're getting laid off because they voted to unionize.

By Rami Grunbaum, deputy business editor, and Seattle Times staff

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The Securities and Exchange Commission has sued the self-declared investment guru who drove up the stock of a tiny Tacoma company with claims he and his disciples were creating a "short squeeze" that would force major market players to pay exorbitantly for the shares.

While Jerry S. Williams instructed his flock on an Internet message board and in costly seminars to buy and hold the stock of Cascadia Investments until it cornered the market, he himself was "scalping" — secretly unloading tens of millions of shares, the SEC charged in a federal civil suit filed July 20 in New Haven, Conn.

As reported here in February 2010, Cascadia shares soared more than a hundredfold from two-tenths of a cent in mid-2009 despite no sign of success in the company's purported switch from real-estate investments to Internet games.

At its peak of 72 cents in March 2010, Cascadia's market capitalization was about $150 million even though its quarterly revenues were just a few thousand dollars and its Central Tacoma headquarters was a shabby one-room office. (It's unrelated to Cascadia Investment, the Bill Gates company.)

The stock's steep climb was orchestrated by Williams and his Monk's Den investment chat room, according to the SEC suit. Williams "reaped unlawful profits" of more than $2 million through what was essentially a pump-and-dump scheme, selling at least 24 million Cascadia shares while making false and misleading statements to "a large group of followers," says the suit.

An attorney for Williams, Ted Margolis of Norris McLaughlin & Marcus in New Jersey, said his client denies any wrongdoing.

"He is a victim in the events surrounding the SEC investigation," Margolis said in an email. "Mr. Williams has, in fact, lost just about everything he has had financially."

Williams, 45, and currently a resident of Mesa, Ariz., propounded his "Float Lock Down" strategy online and in so-called Monkinars — investment seminars costing up to $1,500 per person that he held across the U.S. as well as in Japan, Germany and Barbados.

His spiel was a sharp departure from the usual penny-stock touts that claim a company has great promise.

Rather, he claimed that brokerage firms such as E-Trade held large "naked short" positions in Cascadia, meaning they'd sold shares they didn't actually own, in hopes of profiting when the stock declined and the shares they had to deliver could be acquired more cheaply.

Williams told his adherents that if they accumulated all the freely trading shares, the stock would skyrocket as those market-makers were forced to buy at any price to cover their short positions. That would happen without regard to the company's actual business prospects, Monk's Den followers believed.

He falsely claimed that he had successfully done this before with two stocks, "forcing a short squeeze that in a few weeks took their share prices from pennies to $4.40 and $7.50, respectively, earning the team vast sums of money," according to the suit.

Williams also hired unnamed people to promote Cascadia, the SEC alleges. Some posed as independent investors on chat boards, while some professional penny-stock promoters touted the stock in newsletters. One was paid with 1.5 million Cascadia shares, says the suit.

These efforts succeeded in igniting a speculative fever: In March 2010 alone, according to the suit, one Internet chat room devoted to Cascadia stock racked up 38,310 messages from 738 participants.

Williams got his large inventory of Cascadia shares after being hired by Cascadia's CEO to promote the stock. The CEO, who is not identified in the SEC suit, is Nazir Maherali; in a February 2010 interview with The Seattle Times, Maherali denied any contact with promoters and said he did not know why the stock was going up.

The agency ordered a halt in trading of Cascadia shares in June 2011 as part of a crackdown on penny stocks and their promoters.

The suit also alleges Williams followed the same pattern of promoting and scalping with another penny-stock company, Green Oasis Environmental. In that case, he went a step further, according to the SEC: He formed a fund through which Japanese investors could participate in the "float lock down." And as his purchases of Green Oasis stock for the fund drove up the price, he sold his personal shares for a profit of several hundred thousand dollars.

The SEC seeks a judgment forcing Williams to surrender his profits, plus interest and penalties; an injunction forbidding any future securities violations; and an order barring him from any involvement in offering or promoting penny stocks.

Union vote

led to layoffs,

workers allege

Ninety-seven employees will be out of work when Universal Lumpers of Washington shuts down the Auburn operation where they unload Safeway's 18-wheeler trucks, and some say what cost them their jobs is not the loss of the Safeway contract but their vote to form a union.

"My only suspicion is that Universal Lumpers is pulling out before they have to settle out a contract with us," said Jeramy Satterthwaite, one of those workers, who are known as lumpers.

The company, whose corporate parent is based in Aurora, Colo., said July 19 it would end work at the Safeway warehouse on Sept. 24. The announcement came a month after employees voted, 46 to 4, to unionize, Satterthwaite said.

Sylvia Mares, a Universal Lumpers vice president, said the move "has nothing to do with the union whatsoever."

"We are closing our business in Auburn because we have been terminated by Safeway," she said.

Pedro Olguin, union organizer for Teamsters Local 117, filed a complaint against the company with the National Labor Relations Board on June 19, claiming in part that Universal Lumper managers held a "captive audience meeting just prior to the election and threatened bargaining-unit employees that if they vote in favor of the union, Safeway would cancel or terminate the contract of the lumping service."

Mares wouldn't comment on the complaint, citing "pending legal matters." Nor would she say whether the company has a unionized workforce at any of its 11 other U.S. locations.

Lumpers have watched their wages drop to $11 to $12 an hour from $20 to $25 over the past five years, Olguin said.

"Because these lumping companies compete against each other, they underbid each other, there has been a quick spiral to the bottom," Olguin said.

Some lumpers at the Auburn warehouse make a base rate less than minimum wage, Satterthwaite said. They get paid a piecework rate on top of that.

Mares said the company's pay "is above par" and meets all legal requirements.

Safeway did not respond to repeated questions about when and why it terminated the contract in Auburn. Safeway's 11 other contracts with Universal Lumpers remain active, said the latter company's human-resources manager, Rebecca Fairchild.

Teamsters Local 117 plans to negotiate with Universal Lumpers directly and Safeway indirectly, Olguin said. It aims to get the laid-off employees positions with the company replacing Universal Lumpers or to get them fair severance packages, he said. It will also continue to press for unionizing workers in the lumping industry.

"This is definitely going to be an ongoing battle," Olguin said.

— Johanna Somers, jsomers@seattletimes.com

Comments? Send them

to Rami Grunbaum:

rgrunbaum@seattletimes.com

or 206-464-8541.

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