The Securities and Exchange Commission yesterday suspended trading for 10 days in the stock of Houston based International Systems and Control Corp.
The commission said that "numerous apparent wash sale transactions may have occurred recently" in ISC's common stock, which is traded on the American Stock Exchange.
In a wash sale, stock is traded back and forth between two accounts to create the impression of great activity in the stock. But, in fact, the trades involve no change in the beneficial ownership of the shares.
The alleged wash sales in ISC have been going on for about six weeks. The price of the stock has climbed during that period, but Wednesday, on the eve of the suspension, ISC closed at $26.25, down from this year's high of nearly $30.
What has the SEC concerned is that ISC's stock has been under attack by short sellers for nearly two years. They borrow stock to sell in anticipation that the price of the shares will drop and they will be able to "buy in" at a low price.
Only about 700,000 shares of ISC common stock are being actively traded and more than 200,000 shares are sold short.
This has led to speculation that the recent rash of wash sales was made to "squeeze" the short sellers. A squeeze takes place when the price of the stock is driven up and the short sellers may find that the owners of the borrowed shares want them back.
With so few shares available for the shorts to buy, they many have to pay premiums to cover themselves. Thus, they are squeezed.
In Houston, ISC said: "The SEC action today does not concern the company or any of its officials."
In other corporation developments, Lockheed Aircraft Corp. said in its annual report that a federal grand jury is "investingating foreign payments and related activities."
the grand jury, which reportedly is covened here, is probing Lockheed as well as several other companies, Lockheed said.
Lockheed said it is furnishing documents to the Federal Trade Commission as well as the grand jury "Employees and former employees of the company have been subpoenaed to testify before the grand jury," Lockheed told stockholders.
Tenneco, Inc., a Houston-based conglomerate, reported yesterday that the SEC is conducting "an informal inquiry into matters related to Tenneco's shipbuilding activities."
The SEC reportedly is looking at Tenneco's claim that it expects to get $222 million of a total of $894 million in ship contract claims filed at the end of 1976 by Newport News Shipbuilding Co., a Tenneco subsidiary.
The SEC refused to comment on the probe.