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There's no question that Oxford brokers have recommended at least one speculative stock to their customers: Legacy Software. It's an obscure company in the Los Angeles area that develops edutainment software, and when it went public last May, JB Oxford arranged the deal. Edutainment is a promising area, but Legacy was in very poor financial shape. The tiny software developer had a record of losses, and its accountants said there was "a substantial doubt as to the company's ability to continue as a going concern." In plain English, Legacy was on the verge of bankruptcy.
Yet the deal was a major success for Legacy: the offer price of $6 a share gave the struggling software house a market capitalization of more than $14 million on a fully diluted basis. Perhaps the biggest winner was an obscure Monaco company called EBC Trust. Some months before the deal, EBC provided a loan to Legacy to keep it going, and is now one of the company's biggest single stockholders, with millions of dollars in paper profits.
Who's behind EBC? Legacy's prospectus states that EBC is owned by Monaco-based businessmen Michael Woolf and Richard MacLellan. TIME has learned that MacLellan is apparently no stranger to Irving Kott: the two men were co-defendants in a suit filed in California last year accusing them of having misappropriated shares of a Canadian company. (The suit was settled, and TIME has no evidence of wrongdoing by any of the defendants.)
Other co-defendants included Felix Oeri, Oxford's largest stockholder, and Financial Strategies International, a now defunct company that published a newsletter that often touted Kott-related stocks. (Oeri told TIME that he did not know he had been sued.) A former FSI employee, Ian Clay, worked for two Kott-connected boiler rooms in Europe. For the past two years, Clay has been working for JB Oxford.
It's likely that the most actively traded stock connected to Kott is not Legacy or even Hariston but JB Oxford Holdings. Trading volume has at times been extraordinarily high for a company of Oxford's size ($39.6 million in revenues last year); there were times last year when Oxford was one of the most actively traded stocks on nasdaq's Small-Cap market.
To date, JB Oxford has never seen fit to inform its shareholders of the key role Kott plays at the company. Although most of Oxford's customers and stockholders are in the dark, U.S. securities regulators have known for years that Kott is connected to JB Oxford. When regulators have looked into the matter, Oxford has assured them that Kott is nothing more than a consultant.
Long before arriving at JB Oxford, Kott ran other brokerage firms by operating through front men. Authorities weren't fooled. In his native Quebec, for instance, regulators yanked the license of one brokerage, L.J. Forget, citing Kott as the secret mastermind. Dutch authorities came to the same conclusion about First Commerce. Kott-related bucket shops have also been shut down in Britain and Luxembourg. In the U.S., by contrast, by calling himself a consultant, Kott has an ongoing license to work his stock-market alchemy.