WASHINGTON INVESTING

Strange things have been happening to Cel-Sci Corp., a little Vienna biotech research company that is working on several promising new drugs. First an attorney in Argentina put out a press release saying a client on the Caribbean isle of Tortola was offering to buy Cel-Sci for $7.75 a share -- when the stock was selling for $2 a share on the American Stock Exchange.

Then an "investment opinion" from England hit the Internet, predicting that Cel-Sci stock could top $105 a share within a year.

Cel-Sci stock jumped 50 percent -- to $3 a share -- after the Aug. 18 offer from Argentina and leapfrogged past $3.75 after the Aug. 27 "strong buy" from Britain.

Now the stock is trading at about $2 a share, closing Friday at $2.68 3/4. Nothing has come of the Tortola takeover talk, and nobody can find the British firm that issued the $105-a-share prediction.

The phone number on the press release issued in London by Gateway Capital Partners turns out to be an answering service in the little English market town of King's Lynn, Norfolk, about 100 miles north of London.

"This is no longer their phone number," said James Little, who manages the answering service. In a transatlantic telephone interview Friday, Little said he stopped forwarding calls for the company because "they booked themselves and then they didn't pay their bill."

"They're in Panama," Little said. "At least they sent me a fax from there."

While he hasn't heard from his one-time customer, Little said he has been interviewed by Scotland Yard.

Geert Kersten, chief executive of Cel-Sci, said: "I've never had any contact with Gateway Capital."

As for the Tortola takeover offer, Kersten said, "We told them to show us the money." Cel-Sci still is waiting to see it.

Kersten, who was unable to get the Argentine attorney on the phone, said Cel-Sci sent a fax saying it would consider the offer if shown evidence the purported buyer could come up with $124 million to pay for the stock. The attorney, whose phone went unanswered last week, responded with another press release reiterating the bid, but has not given Cel-Sci any financial information to authenticate the offer.

Kersten said any decision to sell shares would be made by the company's board, but he is not interested in selling the 5.8 percent of the company he controls through stock, options and warrants. "Our data is so good right now that I'd be stupid to sell at $7.75."

"Do I know if it's real?" said Kersten, a lawyer by training. "It's so crazy maybe it is real. . . . Any day these guys could be filing tender offer documents. Then suddenly what doesn't seem real, could become real."

The American Stock Exchange says it is investigating both developments. The Securities and Exchange Commission, as is its policy, won't comment. If the commission's enforcement division isn't on the case, SEC Chairman Arthur Levitt needs some new watchdogs.

Despite obvious questions about the veracity of the buyout bid and the British "buy" recommendation, almost 8.5 million Cel-Sci shares changed hands during 10 tumultuous days of trading.

Somebody made some money in that frenzy, but it's impossible to calculate how much. Most of the volume occurred when the stock was selling for $2.50 to $3.50 a share, Kersten said. In that case, it's hard to imagine anybody could have netted more than a couple million bucks from inflating the stock price.

That's a puny score, even for a penny stock manipulation, but putting out a phony press release is a low-budget caper. It cost the people in King's Lynn -- or Panama or wherever -- less than $1,000 to distribute the announcement via the Business Wire, based on that service's standard charges.

As usual in this age of online investing, the Internet played a big role in the Cel-Sci stock spike. Cel-Sci shares have a regular following on three online investment sites frequented by folks who like to play with penny stocks -- Yahoo.com, SiliconInvestor.com and Raging Bull.com.

When the two mysterious press releases hit the World Wide Web, witless -- or perhaps witting -- participants encouraged the stampede.

From the message traffic on the three sites, it's clear that some of the participants are day traders whose game is to buy stocks when the price jumps and dump them as soon as they make 50 cents or $1 a share. Traders' efforts to talk up the stock are so transparent that it's amazing anyone would take them seriously.

The Yahoo bulletin board for Cel-Sci is so frequently flooded with phony information that "Impostor Alert" messages appear often. One of the more reliable regulars signs on under the screen name "savvywageslave1." Every so often there are messages signed "savvywageslavel." If somebody squints at the screen enough to see there's an "L" instead of a "1," alarms go off.

But even when people aren't posing as someone else, the information on Yahoo is about as believable as a Ouija board.

Consider: The prediction that Cel-Sci stock would rise to $105 a share from $2 was issued by Gateway Capital Partners Inc. The "Inc." was the first tip-off. As Yahoo posters pointed out, that's an Americanism. British companies hardly ever are "incorporated."

The absurdity of the "price target" was another clue. "You don't set a target price of $105, that's not credible," Kersten said.

Nor is the one-year time frame. Cel-Sci is studying several drugs to treat malaria, allergies, herpes, AIDS and cancer. The most promising, an anti-cancer compound called "multikine," is in the second phase of government-mandated three-phase trials. "Everything right now looks very good," Kersten said. The Phase 2 trials, however, aren't over yet, and those trials will be followed by Phase 3. "By the time you put it all together it may be two or three years."

The smart people posting messages on the Yahoo Cel-Sci investor bulletin board pointed that out, as did participants in a more serious discussion of the company's research at a separate Cel-Sci "club" on Yahoo.

Many of the comments on Yahoo are -- if not outright dishonest -- at least downright dumb. For example, a hunt for Gateway Capital Partners using Yahoo's Internet search engines didn't turn up any firm on the other side of the Atlantic.

But search engines are dumb. Many of them don't recognize the order of words in a phrase, as long as all three words are together.

Instead of Gateway Capital Partners, Web searches yielded Capital Gateway Partners, which happens to be in Bethesda. Since Bethesda is the home of the National Institutes of Health, incubator of medical entrepreneurs, the Yahoo lemmings proclaimed this somehow validated their delusions.

Searching a little deeper, someone found -- and posted for all the other Internet naifs to see -- that Capital Gateway Partners is a corporate affiliate of Hines Interests, the Houston real estate empire. Since Gerald Hines is a certified zillionaire, once taken to tooling around Texas in a Ferrari, some of the Yahoos still wanted to believe. Or at least they wanted other people to believe they believed.

Any investor who loses money because of such transparent Internet nonsense gets what he deserves, but the phony investment recommendation slipped onto the Net from offshore raises far more troubling issues. Stock manipulation is rarely prosecuted as a criminal offense and extradition doesn't apply to civil cases. The most effective weapon for market regulators probably will be to freeze any U.S. accounts that are involved -- if they can find them.

Since this appears to be a penny ante caper, there may not be much of an investigation. Independent counsel David Barrett spent upwards of more than $9 million to investigate former Housing and Urban Development secretary Henry Cisneros on a misdemeanor charge that carried a $10,000 fine, but the SEC doesn't have such unlimited resources. And stock market games worse than this are being played on the Internet all the time.

IT'S A MYSTERY

Shares of Cel-Sci Corp. of Vienna have spiked twice because of inexplicable announcements from overseas that triggered an investigation by the American Stock Exchange. A prediction that Cel-Sci stock could jump to $105 from $2 was traced to an answering service in a small city in England. A mysterious $7.75-a-share buyout offer came from a lawyer in Argentina.

* Aug. 27: A previously unheard of "investment firm" issues a report from London predicting the stock could hit $105 a share.

* Sept. 16: $2.68 3/4

SOURCE: Bloomberg News

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