In regard to leaking information.
I am not suppose to post this but I hope Mr. Greenberg will understand
I am only posting his article for instructive purposes.
Herb on TheStreet: Why Selective Disclosure Is Such an Important Issue
By Herb Greenberg
Senior Columnist
Wimp-Out Wednesday:
*Selective disclosure: Yesterday's item on Tel-Save.com (TALK:Nasdaq), and
whether it engaged in selective disclosure, raises the question of just how
often companies leak critical info to analysts before releasing it to the
public. This just happens to be a case in which a company, for whatever
reason, appears to have been caught red-handed selectively disseminating
details of a revised Tel-Save/AOL (AOL:Nasdaq) deal hours before the two
companies issued a press release containing much of the same info.
Such selective disclosure -- if that's what did occur here -- gives
analysts and their clients an advantage over everybody else. It's as bad as
inviting select investors on a conference call. (And, heck, that happens
all the time.)
Tel-Save's stock was halted for much of the day prior to the actual
announcement, so it's unlikely that any Salomon Smith Barney clients
profited from the early access (that's not counting after-market, or in
this case before-market, trading). Still, the episode pulled back the
curtain on who said what when.
And this P.S.: Salomon Smith Barney, a longtime Tel-Save underwriter, says
is it not an adviser on this AOL/Tel-Save transaction.
While on the topic of selective disclosure: Yesterday's column said
selective disclosure is prohibited by securities rules. Onetime securities
attorney and one of this column's longtime sources Mike Prozen in
California writes:
I don't know that the securities "rules" strictly prohibit
selective disclosure. From the NASD perspective, selective
disclosure presumptively violates the duty of the company to keep
the market fully informed of its developments.
From a federal securities law perspective, I believe that it is
idiotic, not illegal. This is because mere possession of the
information is not an offense under the federal securities laws.
However, selective disclosure substantially increases the
likelihood of insider trading and potentially subjects the
disclosing party to liability if the recipient trades on
information.
If the recipient received the information from an investment
house through selective disclosure, the SEC gets really ticked
and is much more likely to do something about it.
*Internet insight (if yer not already sick of it): Why invest in a company
that is losing money? "Because eventually they'll be making money." Or so
says hedge fund manager Stuart Rudick, whose Mindful Partners in Mill
Valley, Calif., was ranked ninth through the third quarter of last year by
Managed Account Reports, with a 41% gain.
Rudick, who tends to keep a low profile, wouldn't disclose year-end numbers
other than to say they were higher than the first nine months. Like many of
this column's best sources, Rudick goes out of his way not to be quoted.
But when I asked, after he had mentioned in private conversation a number
of his favorite positions, he acquiesced.
His favorite group is the Internet, but not just the big names. As an early
investor in then-private Earthlink (ELNK:Nasdaq), Rudick believes he has a
window into a range of Internet-related companies, including those involved
in such wide- ranging areas as infrastructure, back-office management and
band-width management.
His favorites include Earthlink, which he would call a good value even at
current prices. He expects the company to start making money by the fourth
quarter of this year. Armed with strong cash flow, the company will
continue to build its market share, he says.
"The Internet industry is one where the name of the game is market share,
and you have to do what you can to buy and get market share as quickly as
possible," he says. "And you have to spend upfront to get market share in
numbers. It's an untraditional model that forgoes short-term profitability
for long-term profitability."
That's why he's a fan of profitless Netopia (NTPA:Nasdaq), whose two main
businesses are software to create a "virtual office" and a hardware
business that plays off the potential growth of DSL technology. Rudick
believes the DSL business is "the most exciting" part of Netopia, because
it is considered the leader in the home and small-office market.
Another fave: Profitless Didax, which operates Crosswalk.com, a portal for
the Christian community. Strong niche, and Rudick believes the company's
proprietary filtering tool, which filters out smut while doing searches,
could wind up being licensed to others.
Finally, even though its stock is in the mid 100s, Rudick likes Network
Solutions (NSOL:Nasdaq), which is profitable. This company currently has
the exclusive corner on registering Web sites. With the number of Web sites
expected to boom, Rudick thinks Network Solutions will be a key
beneficiary. The current cost of registering a site is $70 for the first
two years, with a $35 annual fee thereafter. "When competition comes,
prices will go up, not down," he says. His bottom line: It's a cash cow.
Key to all of Rudick's investments is management. Consider the case of
Onsale (ONSL:Nasdaq). "They missed an opportunity letting eBay
(EBAY:Nasdaq) and uBid (UBID:Nasdaq) come in and usurp them," he says.
"Management didn't create the brand." Which is why he's short Onsale.
*****
Herb Greenberg writes daily for TheStreet.com. In keeping with the
editorial policy of TSC, he does not own or short individual stocks. He
also does not invest in hedge funds or any other private investment
partnerships. Greenberg writes a monthly column for Fortune and provides
daily commentary for CNBC. |
