by Christopher Gulka

Companies typically love to get press coverage to build public awareness and potentially increase stock prices. However, if the press is based on a scandal, watch out. Nothing gets more attention in the news than corporations misbehavin’, and unfortunately, if the scandal itself does not kill the company, the bad press will.

Over the past few years there have been many scandals reported, and many of those companies have subsequently disappeared, such as WorldCom and Enron. These com­panies were once seen as invincible giants, but eventually succumbed to their unscrupulous practices. All that was left was criminal charges and investors shaking their heads.

However, some companies have an ama­zing ability to rise above a scandal, and in some cases, they turn out to be even better than before. Like the old saying goes, “What does not kill you, makes you stronger.”

For instance, there have been scandalous allegations of misuse and diversion of Hollinger funds by former CEO Conrad Black.With misstated financials, Nortel fell from grace and stock prices went from $100 per share to pennies. Both companies, though, with their new management and boards, now run more efficiently for the benefit of the shareholders.

Closer to home we had the 3D television scam that took down Calgary-based VisualLabs. The company has since restructured into Petrofalcon, a California-based oil and gas company with properties in Venezuala. Questerre Energy, went into creditor pro­tection, restructured, and now trades at $0.80. Moreover, there is Black Pool Exploration, which announced Conrad Black’s arrival to its board, during all the press of the scandals. The TSX Venture Exchange forced Mr. Black to resign from the board, but the company itself has not seemed to suffer with its stock trading higher than before the announcement. The following companies have also gone through their fair share of scandals, but are still trading stronger than ever.

PROPRIETARY INDUSTRIES INC. (PPI: TSX $0.67) is a Calgary-based merchant bank that manages a portfolio of financial, natural resource and real estate interests. Proprietary has survived an Alberta Securities Commission investigation over materially misstated financial statements, a cease-trade order, a TSX trading suspension, a number of lawsuits, and a takeover bid. During this time, the company significantly restructured its management, board, and investments and began trading again. With all this behind it, the company has $24 million of current assets, $15 million of which is cash, to continue to expand.

CANADIAN SUPERIOR ENERGY INC. (SNG: TSX $2.60) is a Calgary-based oil and gas exploration and production company with operations in western Canada. It has recently settled two class-action lawsuits, one in Canada and one in the US, which were the result of allegations of misleading financial reporting. The settlement was covered by insurance and was reached with no admission of liability. With this mess out of the way, and a recent $11-million financing completed, Canadian Superior seems to have shaken off the potential scandal and is showing good operating results for its shareholders.

ZI CORP. (ZIC: TSX $3.30) develops software designed to enhance the usability of mobile and consumer electronic devices. Zi has been in the middle of much news about an institutional fund that did not report its significant company ownership. The SEC investigation on the fund and its manager created scandal for the company, through no fault of it own. Beyond this, the press has picked up stories about insiders selling millions of dollars of stock in the company, which never looks good to the public. Yet, the company is strong as ever, with significant new contracts and products.

Christopher Gulka. CA, CFA is an avid investor, sometime day trader and painstaking researcher. As a financial writer, Gulka has proven his knack for identifying undervalued firms. He also publishes The StockManager,

an investment newsletter.

Prairie Trader is an independent overview and assessment of Alberta-based companies in the public markets that have great investment potential. The author declares that he

has no investment or business interest in any of the recommended companies described herein. Alberta Venture assumes no responsibility for the accuracy of any stock recommendations. You can reach Gulka at prairietrader@albertaventure.com or send letters about this column to feedback@albertaventure.com.