Business interests not part of some reports, examination finds

07:43 AM CST on Tuesday, November 13, 2007

By BRENDAN M. CASE and MICHAEL GRABELL / The Dallas Morning News

 There's nothing necessarily wrong with business arrangements between companies and the analysts who cover them, as long as they are properly disclosed to potential investors, securities experts say.

 But in a number of cases, relations between MN1 and stocks it spotlighted were not disclosed, according to an examination of MN1's reports.

Spencer Barasch, attorney for MN1 president Joshua Lankford, declined to comment on specific transactions.

•Irving-based Sniffex Inc., now called Homeland Safety International Inc., was given a "speculative buy" rating by MN1's featured analyst in September 2006.

The report praised the potential of the company's explosives detection device "in the booming worldwide homeland security market."

But it did not note that the device had failed a U.S. Navy test or that Sniffex's former president has worked at MN1.

One of Sniffex's major shareholders was Interim Capital Corp., a company incorporated by Mr. Lankford and headed by his former business partner, Mark Lindberg.

In response to questions from The News, Mr. Lindberg's attorney said Interim sold its Sniffex shares before Sniffex went public. Mr. Lindberg said he had nothing to do with MN1 and declined to comment further.

Since MN1's report, Sniffex's shares have fallen from 24 cents a share to less than 2 cents.

•Global Beverage Solutions Inc. was the subject of a positive analyst report in November 2005 and March 2006.

Lankford Media Group produced ads for the drinks company and designed its Web site.

In addition, Mr. Lankford said in court documents that he agreed to pay a lawsuit judgment for Global.

In exchange, he received 1.3 million shares of the company's stock, worth about $1 million, for $174,000. (Global's new CEO disclosed in an October filing that the issuing of shares to settle legal claims violated Securities and Exchange Commission rules.)

To avoid the perception of a conflict of interest, Mr. Lankford said Mr. Lindberg was appointed to sell the shares.

After the first MN1 report, Global's stock rose steadily from 41 cents a share to more than $2 three months later.

Then, in a few days of heavy trading, it peaked and plummeted. The stock now sells for less than 2 cents a share.

•HealthSport Inc., which makes edible strips of film that contain nutritional supplements, got a positive report in February.

MN1 did disclose in the report that it held 635,000 shares in the company, worth $1.75 million.

It did not say, however, that one of Mr. Lankford's former employees sat on its board or that Lankford Media Group designed the company's Web site, produced commercials for it and did branding design.

And the company once was based out of Mr. Lindberg's Dallas office.

The MN1 report said the stock's price could triple, from $2.77 to $8.72.

Shares now fetch $1.20 apiece.