Fonix Officials Sold 3 Mln Shares Before Nasdaq Halt (Repeat)
Fonix Officials Sold 3 Mln Shares Before Nasdaq Halt (Repeat)
(Repeats to add word in second paragraph.)
Salt Lake City, March 21 (Bloomberg) -- Fonix Corp.
executives sold three million shares in the months before the
Nasdaq Stock Market halted trading of the developer of speech-
recognition technology, according to filings to the Securities
and Exchange Commission.
The company's three top executives sold more than one
million shares on the same days, or shortly afterward, that the
unprofitable Salt Lake City-based company issued press releases
announcing a new sales team, strong product demand and sales
alliances.
None of the press releases mentioned that Fonix was sued in
December and again this month for defaulting on $5 million of
notes issued to pay for acquisitions. Nor did they mention that
Fonix told the SEC in its filings that those debts could
jeopardize the company's ability to remain ''a going concern.''
''A press release is misleading if it includes favorable
information and excludes unfavorable information that's also
available, particularly when insiders are selling at the same
time,'' said Alan Bromberg, a professor of securities law at
Southern Methodist University Law School.
On Friday, Nasdaq halted trading in Fonix and demanded more
information about recent developments at the company, which has
lost more than $93 million since it was founded in 1993. Nasdaq
said the trading halt will continue until its demand for
information is fully satisfied. Fonix last traded at 1 1/32. The
stock has fallen 82 percent in the last year.
Between Oct. 1 and March 3, Fonix issued two dozen press
releases, or an average of one a week. During that time, Chairman
Stephen Studdert, Chief Executive and President Thomas Murdock
and Executive Vice President Roger Dudley sold three million
shares owned by Studdert Cos., their private investment firm.
$3 Million in Sales
Studdert Cos. sold 1,314,150 shares in October, 200,000 in
November, 1,032,749 in January and 471,594 in February. The sales
raised more than $3 million.
None of the three executives were available for comment.
Studdert remains chairman after quitting as CEO last month.
In a release on Jan. 12, Fonix announced it hired a 19-
person direct sales and service team for its healthcare solutions
group. Its shares rose 2.5 percent that day, or 1/32 to 1 5/16.
Between Jan. 13 and 15, Studdert Cos. sold 245,249 shares for 1
5/32 to 1 1/4 each.
On Jan. 28, Fonix said in a press release it would slash
expenses by more than 30 percent, described product demand as
''strong'' and said Murdock replaced Studdert as CEO. The
company's stock rose 5/16, or 36 percent, to 1 3/16 that day, on
which Studdert Cos. sold 415,000 shares for between 7/8 and 1
7/8. It sold an additional 100,000 shares the next day.
Investors traded 5.3 million Fonix shares the day of the
announcement, 15 times the average volume over the prior 30 days.
The company, responding to the surge in trading, didn't mention
that almost 8 percent came from management selling.
Just the Facts
''We know of no event or circumstance which would have
prompted today's extraordinary trading volume,'' except for the
facts mentioned in the release, the company said in a second
press release that day.
On Feb. 3, Fonix shares soared 140 percent, or 1 13/32 to 2
13/32, after it announced its handwriting-recognition software
would be offered by Lucent Technologies Inc. to manufacturers. It
was a repeat of an announcement made in November at a trade show.
Fonix share trading amounted to 14.6 million shares that
day, the stock's most active session ever. Between Feb. 5 and 26,
Studdert Cos. sold 421,594 shares for between 1 5/8 and 1 3/4.
Fonix had revenue in the first nine months of 1998 of $2.7
million. Current liabilities exceeded current assets by $9.1
million on Sept. 30. Three months earlier, its balance sheet
reflected $2.3 million of working capital.
It made a series of acquisitions last year using $15.8
million in cash, $6.4 million of debt and 10.9 million shares.
On March 17, the company told the SEC, ''recently incurred
debt obligations could impair Fonix's ability to continue as a
going concern.''
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