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Who Left the Seat Up?

I did my best to warn investors. Honestly, I did. But b2bstores.com snuck onto the Nasdaq anyway. For those of you who don't know, I moonlight as an IPO analyst for a handful of financial media publications, and I wrote about this wannabe B2B stinker when it first hit the IPO docket. If you're not up to speed on this one, I encourage you to stop and surf on over to read a brief but entertaining rundown by yours truly.

Now it looks like the goofs behind this shell game are laughing all the way to the bank. Believe me, I've seen my share of shady IPOs trying to tap the new issues, but this start-up walks a fine line between immoral and illegal behavior. The sibling of Enviro-Clean has brought its penny stock shenanigans to the big show, and the SEC ought to get off their duffs and take a closer look at this one.

B2bstores.com was cooked up by Richard Kandel as a shameless get-rich-quick scheme just on the coattails of B2B mania. He ran Enviro-Clean of America, a de-listed penny stock that sold urinal deodorizers, before he created b2bstores out of thin air and filed to take the dog public just three months later.

In a bold conflict of interest, he conveniently juggled duel roles as CEO of Enviro-Clean while serving as chairman of b2bstores. Both companies were in the exact same business, but one ready-made newcomer had clean books and the other could barely afford to pay the light bills.

The Ponzi scheme worked like this. Create a bevy of phony-baloney billings by parent company Enviro-Clean that b2bstores would have to repay once it came into some IPO cash. Execs would pay themselves lavish salaries and so-long rags, hello riches. After a few stalled attempts to take the company public, b2bstores quietly slipped on over to the Nasdaq the day after Valentines day.

Look at b2bstores' latest quarterly filing. It's a made-for-TV comedy sketch. $4,192 in revenue for its latest quarter, on losses of $1.7 million. Four thousand dollars!? That's $1,397 a month. I know a few lemonade stands that make more money; but last time I checked the docket, there weren't any fresh squeezed firms filing to go public.

But that didn't keep execs from drawing 250k in salaries and 90k in travel and entertainment costs. I can just picture Richard Kandel playing a round of eighteen, joking with his new caddy about how he'd struck Net gold off some poor Joe's life savings.

Blame also falls on Gaines, Berland who served as master of ceremonies on the offering. This firm couldn't resist the temptation to stuff its wallet with the lucrative underwriting fees collected from the IPO. They were full party to the plan of dumping worthless stock onto unsuspecting retail investors, and they ought to be ashamed.

To see what I mean, look no further than the fine print on this deal. Insiders are typically held to a 180-day lock-up expiration. In this case, Gaines imposed a longer restriction on insiders to the tune of one year. You only see that to cover someone's behind when the offering in question is riskier than a hot potato or a scam. Take your pick.

A Zero Hero

It looks like a few people behind the scenes already saw the handwriting on the wall and left the burning building before things start to turn ugly. Last week, board members John Higgins, William Strauss, and Philip Ellett pushed past one another to get out the door. But Richard Kandel likes the view just fine.

So when a reader of mine solicited an opinion on b2bstores' latest news that it's retained an investment banker to explore strategic alternatives for the company, double speak for putting oneself on the auction block, I laced up the gloves again. Let me break it to you like this.

On March 14 of this year, just thirty days after b