Thursday, March 03, 2011

A Question for John Thaler About Green Mountain Coffee Roaster Call Options

Updated

To John Thaler:

Nice bet!  According to an SEC filing, sometime before December 16, 2010, your fund JAT Capital Management purchased 25,000 call options in Green Mountain Coffee Roasters (NASDAQ: GMCR) giving it the right to purchase 2.5 million shares at certain strike price. See below:
As of December 16, 2010, each of Capital Management and Mr. Thaler may be deemed to be the beneficial owner of 6,602,008 Shares.  This amount consists of 4,102,008 Shares held for the account of the Master Fund and 2,500,000 Shares which the Reporting Persons are entitled to receive upon exercise of options held for the account of the Master Fund. [Emphasis added.]
Those options are quite a large bet for a fund with only $1.2 billion in assets.

Here’s my question

Did you purchase those call options on Friday, November 19, 2010?

Why I am asking the question

I’ve written a series of investigative blog posts, about possible securities law violations by Green Mountain Coffee Roasters (NASDAQ: GMCR), which is currently under an informal SEC inquiry into its accounting practices.

After the stock market closed on Friday, November 19, 2010, Green Mountain Coffee disclosed that it was going to restate its financial reports due to certain account errors. In addition, the company announced that its own internal investigation found no misconduct by the company,

On the following Monday morning, at 8:21 AM Eastern on November 22, 2010 before the stock market opened, StreetInsider.com reported:
Janney Montgomery Scott reiterated their Buy rating and raised their fair value estimates on Green Mountain Coffee (Nasdaq: GMCR) from $40 to $50 following the restatement of financial results on Friday.
The firm said, "We believe the results of GMCR's internal investigation should sufficiently remove the key near-term overhang on the stock and expect the stock to be up meaningfully on this news." [Emphasis added.]
Barron’s reported that:
Cannacord Genuity Analyst Scot Van Winkle expects that the company's internal investigation will put the matter to rest, writing "we can be 99.99% confident that the SEC response will simply be inaction."
"In our view, the accounting issues are over." [Emphasis added.]
That day, Green Mountain shares climbed $5.52 to close at $35.78 per share, an 18.4% single day gain.

On December 9, 2010, Herb Greenberg broke some disturbing news about call options trading on the afternoon before Green Mountain released its November 19, 2010 8-K report claiming it found no misconduct by the company. Appearing on CNBC's Fast Money, Greenberg asked "Who knew what when?" According to Herb:
If you look at the call activity in this company, the in-the-money call activity in this company, it was negligible, negligible, negligible in the days leading up to that November 19 announcement, when they said they... got their clean bill of health from their internal auditors. On the 19th, they pop, from 18,000 to 74,000... and much of the activity... was at the end of the day.
Closing comment

I am not suggesting that you did anything wrong, I am just curious about the circumstances that led you to buy 25,000 call options in Green Mountain Coffee Roasters. Business Insider reports that JAT Capital was subpoenaed as part of the government's insider trading probe. I will post your response in full here.

Respectfully,

Sam E. Antar

Recommended reading:

February 11, 2011: Dag Blog -"Crazy Eddie" Fraudster Sam Antar To Return To Crime - Thanks to Darrell Issa & Anti-Regulation Republicans by William K. Wolfrum

Disclosure

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped my cousin Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes in cold-blood for fun and profit, and simply because I could.

If it weren't for the heroic efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals. Often, I refer cases to them. I teach about white-collar crime for professional organizations, businesses, and colleges and universities.

Recently, I exposed GAAP violations by Overstock.com which caused the company to restate its financial reports for the third time in three years. The SEC is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

I do not own any Green Mountain Coffee Roasters or Overstock.com securities long or short. My investigations of these companies are a freebie for securities regulators to get me into heaven, though I doubt I will ever get there. My past sins are unforgivable.

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