Comparator’s Record Trading Raises Eyebrows

NEWPORT BEACH — Shares of Comparator Systems Corp. gyrated wildly Tuesday as flurries of industry skepticism swirled around the company, whose stock had risen more than thirtyfold while setting trading volume records in recent days.

The stock of the Newport Beach-based company, a money-losing maker of fingerprint identification systems, on Tuesday set its third trading record in as many days on the Nasdaq stock market.

Trading of Comparator shares soared past the 177-million mark, easily surpassing records set by the company on Friday and Monday. The price of the company’s stock fluctuated wildly throughout the day, rising as high as $1.875 before settling at 87.5 cents per share, down 12.5 cents. The stock had opened Friday at 6 cents a share.

Traders and market officials said there appeared to be no evidence of market manipulation behind the torrid trading and rapid run-up.

Comparator executives have explained the heavy activity by saying that the market appears to be anticipating an important new fingerprint technology that the company has been developing for eight years.

But Comparator’s history has been littered with ambitious claims, and industry experts said the tiny company with 29 employees would be an unlikely source of a breakthrough development.

“I don’t know what their announcement is, but I would be surprised if they came out with a startling piece of information,” said Peter Higgins, who formerly managed the fingerprint lab for the FBI and now works as an industry consultant in Washington. “It’s just hard for me to believe they’ve kept something quiet for eight years and that it could be a significant breakthrough.”

In any case, the bizarre market activity has brought a crush of media attention to Comparator, a company that has spent much of its life struggling to survive, but now finds itself with a market capitalization of nearly half a billion dollars.

The trading has also made millionaires out of dozens of investors.

Nasdaq officials would not say whether Comparator is being investigated, but they acknowledged that such extraordinary trading volume and price fluctuations generally prompt automatic investigations. They also urged investors to approach Comparator with caution.

“Investors should always look carefully at the fundamentals of a company,” said Marc Beauchamp, a spokesman for Nasdaq. “That’s especially true when it comes to volatile, low-priced securities.”

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Comparator’s tremendous run-up started last Friday, when the company’s stock shot up from 6 cents per share to 28 cents, with more than 121 million shares changing hands. That was followed Monday with a surge to $1 per share on trading of more than 151 million shares.

The previous volume record was 69 million shares, set by Intel Corp. on Jan. 17. Nasdaq officials were quick to point out that Intel was trading for about $50 per share that day, which makes comparisons with Comparator “like comparing a Little League batting average with Ken Griffey Jr.,” Beauchamp said.

The huge trading volume also reflects the fact that Comparator has more than 610 million shares outstanding--more than even Microsoft Corp.--because of some unusual compensation practices.

The company went public in 1979, raising $800,000 in an offering underwritten by Blinder Robinson, a defunct Denver brokerage once derisively called “Blind’em and Rob’em.” Since then, Comparator has doled out millions of shares to executives when the company couldn’t afford salaries, and has issued millions more to settle debts, pay for acquisitions and raise research funds.

Many of those selling in recent days have been investors and market makers--brokers who trade the company’s stock--who had picked up Comparator shares for pennies.

“We have been buying Comparator for the last five years for five or six cents per share,” said B.J. Gallison, president of La Jolla Capital Financial Corp. in San Diego. “Just today we probably sold 4 million shares higher than a dollar. We have made dozens of our clients millionaires over the last few days.”

Others said the consecutive days of record trading have been an exciting, but entirely irrational, experience.

“It was a feeding frenzy and it was foolish,” said Stephen Wien, senior partner at Wien Securities Corp. in New Jersey. Wien said he has seen no evidence that the stock was being manipulated. “It’s not as if there’s any brokerage firm recommending it, or any penny stock house of ill repute pushing it,” he said.

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The company’s executives said they still don’t completely understand the phenomenon.

“It’s unbelievable,” said Richard Floegel, president of Comparator. “We’re getting about 800 calls a day from brokers to shareholders who want to know what’s happening.”

The only development within the company, he said, is the planned release of a new fingerprint identification technology at the CardTech/SecurTech Exhibition in Atlanta, next Tuesday through Thursday. The new system, called ID-2, replaces an earlier version the company unveiled in the early 1980s, and will be aimed at commercial markets.

Experts said the industry is poised for a rapid expansion from existing law enforcement applications to commercial markets. Credit card companies, in particular, have been eyeing the technology for years.

But analysts said Comparator is an unlikely candidate to lead that charge, given the similar ambitions of other companies--including NEC, Lockheed Martin and Printrak International--that have longer track records, greater research budgets and huge government contracts around the globe.

Comparator said its new system will be priced between $2,500 and $3,000, which analysts said is still not cheap enough for broad commercial use.

“The real stumbling block has been price of the piece of equipment that would go into every cash register, every restaurant and every store,” Higgins said. “When it gets to $100 [for a system], then I think you’re going to see it expand.”

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Comparator, which posted a loss of $1.85 million on sales of $90,161 last year, has a history of raising false hopes.

In 1982, the company announced a $3-million sale of its fingerprint machines to Nigeria and several other African countries, but the sales never materialized.

In 1990, Comparator said it had formed a joint venture that would provide the company with $5 million to $10 million to bring its ID-2 to market by 1991. In fact, the company later said there was no such financing, and the release of ID-2 was obviously postponed.

But the company insists that this time is different, and the proof will soon be evident.

“You can come to Atlanta and see it,” Floegel said. “It’s there. I’m betting my career on it.”

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Wild Ride

Comparator Systems’ stock price fluctuated widely Tuesday as trading volume reached more than 177 million shares. The hourly trend:

Time / Price

Open: $1.78

10:30: $1.56

11:30: $1.50

12:30: $1.50

1:30: $1.38

2:30: $0.59

3:30: $0.72

Close: $0.88

Source: $Bloomberg Business News