It is a story that could not be more illuminating: the carefully considered, complex tale of the troubled finances of Sedona Corp., a software firm that claims it was crippled by an elaborate stock fraud orchestrated by a major backer and aided by crooked New York brokers.


It is a story with as many twists and turns as any major scam, and one with a fresh news peg: a new civil lawsuit filed earlier this month by the SEC alleging that three brokers from Refco Inc. — the New York brokerage which suddenly went belly-up last fall amid allegations that its former CEO hid $430 million in losses — helped the leaders of Rhino Advisors, a major funder of Sedona, to manipulate Sedona’s stock.


It is a story, in other words, eminently worthy of the impressive, lucid treatment it received in the course of 1,600 words from a major newspaper this Sunday.


Yet that newspaper was not the Wall Street Journal or the New York Times, but the Philadelphia Inquirer.


In the wake of the SEC’s lawsuit April 4, no newspaper had taken a comprehensive look at the story behind Sedona’s financial troubles — until Inquirer reporter Todd Mason did in a story entitled “Masterminding a firm’s demise?: SEC wants to know if backers made money by trying to kill it.”


Mason explained that soon after Sedona chief executive Marco Emrich enthusiastically took up his duties in 1999, Emrich found himself engaged in a “baffling struggle” to keep the company afloat. “Sedona stock fell in price after the company secured financing in 2000, and it kept sinking despite what company officials presented as encouraging developments,” such as IBM’s decision to sell Sedona’s software, and its later designation of the company as an “Advanced IBM Partner.”


“Sedona says it was forced to lay off 62 of its 77 employees, as clients, partners and investors pulled back, questioning the company’s ability to survive,” Mason reported. To save money, Sedona moved from an office park in the Philadelphia suburb of King of Prussia to a nearby industrial park — and, at its low point, could not pay its employees for nine weeks.


“Sedona’s board began an investigation that plumbed the dark side of Wall Street,” Mason reported. “Mastering an arcane language of PIPEs, death-spiral convertibles, and naked shorts, directors came to believe their financial backers were betting on Sedona’s demise.”


Mason’s story (supplemented by a helpful timeline) goes on to explain the intricacies of that demise, as a once-promising company, bolstered in 2000 by two major agreements to provide millions in financing, was reduced into a perennially money-losing operation whose stock closed yesterday worth 27 cents a share.


Mason does an excellent job laying out the convoluted narrative, which implicates four companies in Sedona’s takedown, according to the SEC; in its own lawsuit, Sedona names a fifth company as a defendant. Using some choice excerpts from the SEC’s latest lawsuit, the story also details the actions of some of the shadowy characters involved, such as Rhino principal Andreas Badian — the brother of Rhino president Thomas Badian, who has since evaded a federal arrest warrant and fled to Austria. Andreas Badian, Mason wrote, “directed Refco broker Jeffrey Graham to ‘clobber’ Sedona stock in March 2001 as a second set of conversion rights were coming due”:


Graham and two other Refco brokers, Jacob Spinner and Mottes Drillman, accounted for 40 percent of Sedona’s trading volume that month, according to the SEC, selling 843,000 shares short despite Rhino’s pledge to the contrary. …


Sedona’s price had fallen that month to 75 cents from $1.43 when Badian told Graham on March 23 in a recorded call: “Keep waling away; this is very good,” according to the SEC.


The Inquirer’s piece was greatly aided by Sedona’s local roots, but this is a story that every major outlet should be on. Yet in the three weeks since the SEC lawsuit targeted Refco in Sedona’s downfall, the Refco-Sedona connection has only fallen into a media black hole.


Forbes, BusinessWeek and CNNMoney.com have not carried a Refco-Sedona story during that time, nor have any of the major broadcast and cable news networks. Among major papers, the Atlanta Journal-Constitution stands out for the one-paragraph summary of the lawsuit it ran in its daily business briefing April 5.


And the Wall Street Journal, which has carried a number of other stories on Refco this month, has seen fit to run just two Refco-Sedona items in its coverage: a three-paragraph posting on its law blog and a cursory three-paragraph news article (subscription required), both on April 5.

Edward B. Colby was a writer at CJR Daily.