To all - WSJ article about Terayon conf. call disrupted by imposters.
April 20, 2000
Conference-Call Incident
Puts Terayon on Defensive
By AARON ELSTEIN
THE WALL STREET JOURNAL INTERACTIVE EDITION
Terayon Communication Systems has seen its stock plunge in the wake of a
conference call that exposed a danger companies face in opening up the lines to
individuals.
Some well-known Internet message-board
posters posing as brokerage analysts turned
the call into a fiasco, peppering Terayon Chief
Executive Zaki Rakib with combative questions
based on issues that have been the focus of
online stock-chat forums.
It was the first discussion with analysts the Santa Clara, Calif., modem-maker
had opened to the public. The U.S. Securities and Exchange Commission
frowns on conference calls open only to analysts and has been pushing
companies to grant access to all investors. The SEC is concerned that the
exclusionary practice is unfair because it allows professionals and their clients
access to market-moving information ahead of other investors.
But some companies and critics of this effort have said that public participation
may lead to problems, such as the one that has Terayon officials thinking hard
about granting ordinary individuals access to calls. The Terayon conference
call took place after the market closed April 11. It began ordinarily enough.
Company executives discussed earnings results, then they invited questions
from listeners. That's when things went awry.
Several callers, falsely identifying themselves as brokerage analysts at Lehman
Brothers and Chase H&Q, and using obscene names, began to question Mr.
Rakib. The pranksters, acknowledged short sellers, had publicized their intent
to disrupt the call. Short sellers are investors who hope to profit from bets that
the price of a particular stock will fall.
While analysts ordinarily ask tough questions during conference calls, the ones
from the pranksters were extraordinary. They weren't the usual demands for
an explanation of why business was sluggish or specific plans for improving
performance. The questioners focused on damning issues, true or not,
highlighted on message boards. Posing as analysts from well-respected firms
also may have raised the pranksters' credence.
One of the callers demanded an explanation about a letter from CableLabs, an
industry research consortium, that said Terayon was making "misleading
statements" when the company suggested on its Web site that a product it is
developing had been embraced as the industry standard.
The letter had been posted on a Web site called InsideTruth
(http://206.229.94.15), which is run by Anthony Elgindy and a person who
goes by the name of Steve Pluvia, both well-known participants on the
stock-chat site Silicon Investor (http://www.siliconinvestor.com/). Mr. Pluvia
acknowledges that he and "several associates" took part in the conference call,
and he says he sold the stock short before the call.
In response to the question, Terayon's Mr. Rakib said the letter was "part of a
series of correspondence" between the company and the consortium, and the
caller was "misinterpreting" its meaning. "You don't have all the information,"
he snapped at the critic. "You don't have the slightest idea." When another
caller later asked if Terayon sold a modem similar to one manufactured by
TurboNet Communications, a unit of Lotus Pacific, Piscataway, N.J., Mr.
Rakib acknowledged that TurboNet did indeed make a "key component" for
one of Terayon's modems.
Analysts said management's evasiveness during the conference call affected
Terayon's stock price, which fell 26% to 119 3/4 the day of the call and
dropped to as low as 56 midday Tuesday -- about two-thirds below its price of
162 3/4 the day before the call.
Anton Wahlman, an analyst at Warburg Dillon Read who covers the company,
criticized Terayon officials in a report for their "lack of candor in addressing a
very normal and straightforward" relationship with TurboNet. He said
management's performance during the call "may hurt the market's confidence"
in Terayon's stock. Jeffrey Lipton, an analyst at Chase H&Q, agreed. "There's
no question, the call hurt," he said.
On Tuesday, Terayon said that "in response to questions that have been
raised," it decided to post correspondence on its Web site between the
company and CableLabs. The stock has since recovered some from its low,
and was quoted Thursday afternoon at 87 5/8, up 6 3/4, on the Nasdaq Stock
Market.
The fiasco underscores the risks companies face when they make their
executives available to investors on conference calls.
Open-forum calls with analysts such as these usually are held around
earnings-reporting season, or when companies have other important
announcements. They can be a useful way for investors to get crucial
information they couldn't learn by simply reading press releases.
As part of the SEC's campaign to bar companies from disclosing information
to selected parties before telling the general public, agency chairman Arthur
Levitt last December strongly urged companies to open their conference calls
to all investors.
Many have heeded the call. According to the National Investor Relations
Institute, 82% of 225 companies surveyed in February gave individuals access
to their conference calls, up from just 29% two years earlier.
Louis Thompson, president of the Vienna, Va., trade group, says the best way
for companies to avoid the difficulties experienced by Terayon officials is to
avoid taking questions during conference calls.
"Opening up your conference call doesn't mean you have to take questions," he
says, adding that his group endorses making "listen-only" calls, which means
that investors, analysts, and other participants can't ask questions.
But institutional investors say there's not much point to conference calls if they
can't talk to management. "The question-and-answer period is the most helpful
part of a conference call," says Scott Edgar, research director at SIFE Trust
Fund, a Walnut Creek, Calif., mutual fund. "Just listening to management isn't
any more informative than reading a press release."
While the SEC encourages companies to open calls, it doesn't have any advice
on how companies should conduct them, or what to do if the callers turn
nasty. "We have nothing more to say about that than we do about how
companies should handle annual meetings, when shareholders have been
known to speak up," says John Heine, an agency spokesman.
Terayon spokesman John Hamburger said the company will reconsider its
decision to open its calls to the public. "We had an open call in this case, but
we don't usually do that," he says. "You may see a change next time in how we
do things."
Ultimately, ordinary investors may suffer if other companies decide that
opening conference calls to the public isn't worth the risk.
Write to Aaron Elstein at aaron.elstein@wsj.com
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