Hi Jeff and All---I was curious about "Mr. Carlo Cannell"....so looked him up on our beloved MetaCrawler....... VERY interesting ....there are two sites worth noting (July 1996, and Oct 1996)....Maybe this would give some background to his comments..... hummmmmmmmmmm ...
herring.com
KLP Note: This is in Red Herring Oct 1996----
Pinnacle vs. Cannell
I write concerning your editor Jonathan Burke's article
entitled "Carlo's Way". That article collects and
repeats a series of misleading, and in some cases
outright false, statements about Pinnacle Micro, Inc.
("Pinnacle"). It not only republishes misleading
statements about Pinnacle by Mr. Carlo Cannell but
also contains inaccuracies not attributed to Mr.
Cannell.
As your article recognizes in its lead sentences, Mr.
Cannell has an apparent bias because he is a short
seller and has a financial interest in depressing
Pinnacle's stock. This should have made Mr. Burke
and your publication especially careful about repeating
statements without checking them and about using
innuendo to present a negative image.
It appears you made no attempt to verify facts,
present a balanced picture or correct the misleading
implications of outdated information which was
presented. The only contact we are aware of from
The Red Herring about the article was a call to verify
the spelling of the company's name. Since you knew
how to contact the company, you could have asked
for clarification or verification of information. There
was available current public information which
contradicts or puts into proper perspective the
information which you publish. By not using it, your
article fell well below the minimum standards of
responsible journalism.
The law provides remedies to Pinnacle against
defamation by your publication or promulgation of
misleading statements which manipulate, or assist in
manipulation of, our stock price to aid a speculator.
By touting the investors in Mr. Cannell's fund, and
describing Mr. Cannell as "providing a thorough
explanation" for shorting the Pinnacle stock, you
appear to endorse Mr. Cannell's position. Reputable
publications and journalists are careful to protect
themselves through fact checking, obtaining responsive
comments and presenting a complete picture. Please
explain why you felt it was not necessary to include
more current and complete information when
repeating old comments.
Misleading and Out of Context Information
Your article describes Pinnacle as "flirting with
disaster" and cites as a "warning sign" the "fact" that
there were "five CFOs in five quarters." Your article
suggests this is a recent trend. Rather, Kevin Lehnert
was acting CFO from January 1995 to June 24, 1996
when Roger Hay, formerly with Titan Corporation,
joined Pinnacle as CFO. These facts lend no support
to the turmoil which your article suggests.
This misleading picture is compounded by the
implication that two SEC investigations of Pinnacle
were improperly disclosed. As the public record
shows, one of these investigations is over two years
old and is resolved except with respect to a single
individual, and both investigations were disclosed.
Neither reflects adversely on the company's current
management.
Compounding the incomplete picture, your article
quotes "anecdotal evidence" to question the quality of
Pinnacle's products. This "evidence" supposedly
comes from a visit by a "large disk drive company"
that sent a "team of engineers" to Pinnacle and gave
negative feedback. There is no mention of what
product, if any, was reviewed or what the feedback
was. To set the record straight, no "large hard disk
company" visited our research and development or
manufacturing facilities in the last twelve months.
While the devoting almost half a column to attacking
Pinnacle's Apex product, your article completely
ignores the fact that Pinnacle's award winning Vertex
2.6 GB optical drive (which uses the Apex
technology) is shipping in quantity and that Pinnacle
has a significant backlog of orders for Apex units.
The article is also misleading about Pinnacle's financial
condition. It implies that the lack of "consistent
financial management" has led to severe cash flow
problems and default on a loan payment to Bank of
America. If you had read Pinnacle's press releases
and public disclosures, you would have known this
statement was inaccurate. There was no default on a
loan payment to Bank of America, and the offshore
securities placement, which has provided Pinnacle
working capital flexibility, should have been treated as
a positive step rather than with the negative spin
contained in your article.
False Statements
In addition to falsely stating there was a loan payment
default, you quote Mr. Cannell as attributing "this
mess" to "nepotistic management," and describe
Pinnacle as operated by the Blums, a husband, wife
and son team without any engineering background.
Mr. William Blum, the founder and former President
of Pinnacle, not only has a degree in engineering but a
career of over 20 years as an engineer-sales in the
high technology industry with Hewlett Packard. This
fact is well known from Pinnacle's prior public filings
and industry publications about Pinnacle. Describing
the Blums as a "husband, wife and son team" ignores
the fact that Mrs. Blum has not had a management
role in the company since it went public in 1993. Any
checking of the company's prior public filings would
have revealed this, and the falsehood is unexplainable.
If you were going to focus on management, you could
have included the well-publicized transition to a new
management team which took place this spring. While
I appreciate the oblique reference to myself as a
"credible new CEO" and your reference to our
"experienced Chairman," Daryl White, this
late-in-the-game approach does very little to correct
the misleading implications of describing the company
as having "nepotistic management."
Your article falsely accuses Pinnacle of having
"concealed" a downward spiral with the help of
Prudential Securities. This is a serious
accusation--concealment of a "downward spiral"
would be a significant violation of securities laws--and
is absolutely unsupported by evidence. There is no
basis for suggesting an agreement or plot between
Pinnacle and Prudential to conceal negative
information and, in fact, the negative information which
you describe was promptly and thoroughly disclosed
by Pinnacle. We know you did not contact anyone at
Pinnacle before publishing these false statements and
are unaware of any contact with Prudential which
would support your allegations.
Demand For Retraction
Pinnacle demands an immediate retraction, correction
of false and misleading statements, and a formal
apology from The Red Herring. In my view, your
article borders on, or aids and abets, a manipulation of
the secondary market for Pinnacle's stock and
borders on being a deceptive device within the
meaning of Section 15 of the Securities Exchange Act
of 1934.
The Real Picture
Pinnacle has a new, dedicated and enthusiastic team
of professional managers who had nothing to do with
the problems of the past. In particular, adding Ken
Campbell from Connor has strengthened the R&D
and manufacturing teams, as Vertex shipments
confirm. Our problems are not totally solved, even
with the recent financing, but we are making good
progress.
Conclusion
If you choose to write further articles about Pinnacle,
we expect that you will be more balanced and
professional in your approach. If you publish
outdated, negative information, you should also
include more recent information about product
shipments, improvement in cash flow positions,
changes in management and other positive
developments.
Lawrence Goelman
CEO, Pinnacle Micro
Editor's reply
The Herring regrets any errors that may have
been published.
*****
herring.com
CARLO'S WAY
Out in the sticks of defense
technology and another default in
Orange County.
By Jonathan Burke
The Red Herring magazine
July 1996
Carlo Cannell is a specialist in neglected equities and
short-selling. For the last 5 years, he has managed a
hedge fund, through Cannell Capital Management,
which has appreciated 42% on average despite strong
short-selling. Investors include Robertson Stephens'
Paul Stephens and Gruber and McBaine's Jon
Gruber. He recently signed on to co-manage a second
fund to be launched shortly which focuses on defense
industry investments. While he is reluctant to discuss
his shorts (55% of them are in technology), Mr.
Cannell provides a thorough explanation for his
continuing short of Pinnacle Micro (PNCL), an Irvine,
California manufacturer of magnetic-optical storage
systems. He started shorting at $25, it sells around $7,
and he expects it to keep going down until the
company evaporates. "This sick dog is dying," he
concludes.
KLP NOTE: There is more to this article.... |
