eUniverse signed deal with controversial stock broker. (Wall Street West).

IT seems like only yesterday when eUniverse Inc. was the toast of Wall Street -- and for good reason. Here was an e-company that actually posted profits. But lately the stock has been sinking, to about $5 a share from a recent high of $8.50.

The first sign of trouble was the collapse of a merger with another e-advertiser, Marina del Rey-based L90 Inc., in March. The deal was called off after L90 disclosed a Securities and Exchange Commission investigation into whether it inflated its revenues.

Then, in early April, the SEC revealed in federal court that former Los Angeles stockbroker Rafi Kahn, who was banned from the industry in May 2001, was being investigated for manipulating the prices of four stocks. One of them was e-Universe; Kahn's lawyer has denied any wrongdoing.

Now, in a bit of a shocker, eUniverse chairman and chief executive Brad Greenspan has told the Business Journal that he actually hired Kahn. "About a year-and-a-half ago, we signed a consulting deal with Aura Private Ltd., a company in which Kahn was a principal," said Greenspan. "He was to set up a road trip with institutional investors."

The decision to hire Aura came before Kahn was banned. Greenspan said he disclosed the deal in one of eUniverse's filings with the SEC. He didn't go into detail about his relationship with Kahn.

The SEC alleged in federal court that Kahn issued "buy" recommendations on eUniverse and several other stocks in exchange for warrants issued to a Pakistani firm owned by his brother-in-law.

The SEC also said that Kahn received eUniverse warrants valued at just under $500,000. Such payments are legal, but only when fully disclosed -- and even then it's a questionable tactic, although some would argue all of Wall Street turned shades of gray in the late 1990s.

Greenspan said he knew Kahn was controversial, but defended his decision to hire him. "If he was so controversial, why did he have relationships with so many institutional investors? And nobody else wanted to get our story out."

Greenspan said eUniverse has never taken large sums of money from the investing public, like companies that did IPOs during better times. "They jammed stock down the throats of investors with analyst hype," he said. "We went public through a reverse merger, and no active member of management has ever sold a share of our stock."

Contributing columnist Benjamin Mark Cole writes about the local investment community. He can be reached at [e-mail].