Thursday, March 24, 2011

Is Michelle Stacy a shrewd insider, a psychic or just plain lucky?

In my last blog post I asked the following question about Green Mountain Coffee Roasters (NASDAQ: GMCR) Keurig Division President Michelle Stacy:
Is Michelle Stacy a shrewd insider, a psychic or just plain lucky? Perhaps the people who designed and administer her purported 10b5-1 trading plan are geniuses?
On February 14, 2011, Green Mountain Coffee stock opened for trading at $42.14 per share. At 11:00 AM Reuters reported:
Green Mountain Coffee Roasters Inc's (GMCR.O) shares fell as much as 4 percent after Starbucks Corp (SBUX.O) said it plans to announce a new product for the single-cup coffee market, a move that could threaten Green Mountain's dominance in the fast-growing sector.
The stock price of Green Mountain shares dropped to a low of $41.53 per share in intra-day trading.

At around 3:25 PM (Eastern) that afternoon, Green Mountain Coffee shares spiked up from just under $42 per share to $45 per share. See the Bloomberg chart below (times posted on chart are Central time):

Click on image to enlarge.

At around 3:34 PM (Eastern) that afternoon, Reuters citing an unnamed source reported:
Starbucks Corp (SBUX.O) and Green Mountain Coffee Roasters (GMCR.O) are in partnership negotiations, a source close to the talks told Reuters on Monday, sending Green Mountain shares surging.
On that same day, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $45.13 per share through her 10b5-1 trading plan. Green Mountain Coffee's shares did not trade above $45 per share until after 3:25 PM (Eastern) according to the above chart. Green Mountain Coffee shares closed at $46.35 per share.

On February 15, 2010, the market value of Green Mountain Coffee stock closed at $43.53 per share, a drop of $2.82 per share from the previous day's closing price of $46.35 per share.

Timing of Michelle Stacy’s other stock sales

On August 13, 2010, Michelle Stacy exercised 30,000 options at $6.20 per share and simultaneously sold those shares at $30.95 per share.

On September 13, 2010, exercised 5,000 options at $6.20 per share and simultaneously sold those shares at $35.20 per share.

On September 20, 2010, Green Mountain Coffee claimed that it was notified by the Securities and Exchange Commission (SEC) of an informal inquiry concerning its “revenue recognition practices and the Company’s relationship with one of its fulfillment vendors.” However, the company did not disclose news of the SEC inquiry to investors until seven days later.

On September 21, 2010, Michelle Stacy exercised 4,375 options at $6.20 per shares and simultaneously sold her shares at $37 per share. In addition, Stacy exercised another 625 options at $9.14 per share and simultaneously sold those shares at $37 per share.

After the market closed on September 28, 2010, Green Mountain Coffee finally disclosed news of the SEC inquiry to investors. In addition, the company disclosed that it discovered an "immaterial accounting error" involving its K-Cup margin percentages which resulted in a $7.6 million cumulative overstatement of pre-tax income in financial reports issued from 2007 to June 26, 2010. A significant amount of those accounting errors came from the Keurig segment which is headed by Michelle Stacy.

On September 29, 2010, the next trading day, Green Mountain Coffee stock dropped $5.95 per share to close at $31.06 per share as investors reacted to news of the SEC inquiry, a 16.1% drop in market value that day.

By October 11, 2010, the market value of Green Mountain Coffee’s shares dropped to $26.87 per share, far below the price per share that Stacy sold her stock on August 13 ($30.95), September 13 ($35.20), and September 21, 2010 ($37.00).

On October 21, 2010, I raised questions about the timing of Michelle Stacy's stock sales.

On October 28, 2010, Stacy belatedly filed amended Form 4 reports and claimed she established a Rule 10b5-1 trading plan on August 13, 2010. A Rule 10b5-1 trading plan provides certain safe harbors which help executives defend against potential allegations of illegal insider-trading by removing their discretion to decide when their stock is bought or sold. She amended certain SEC Form 4 filings for her stock sales on September 13 and September 21 to reflect her 10b5-1 trading plan. However, her sale of 30,000 shares on August 13 was not pursuant to a 10b5-1 trading plan. According to Stacy's amended SEC filings, her 10b5-1 trading plan only covered future stock transactions.

On November 5, 2010, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $35 per share.

On February 7, 2011, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $40.00 per share. In addition, she exercised another 5,561 options at $9.14 per share and simultaneously sold those shares at $40 per share.

On Thursday, March 10, 2011, Green Mountain announced a “strategic relationship” with Starbucks. In reaction to the news, the market value of Green Mountain Coffee common stock rose $21.07 per share to close at $61.71 per share, or a 46% increase from the prior day’s closing price. That same day, Michelle Stacy exercised 9,375 options at $6.20 per share and simultaneously sold them at $55.54 per share, $11.90 per share higher than the previous day's closing price per share.

Other Green Mountain insiders were not as fortunate as Michelle Stacy. MarketWatch reported:
Green Mountain insiders miss big option gain
Options priced after Green Mountain stock jumps 41% in single day
SAN FRANCISCO (MarketWatch) —March 10 was options day for insiders at Green Mountain Coffee Roasters. Too bad it was the day the stock hit a record high and the options are presently worthless.
Their latest batch of stock options were priced Thursday as Green Mountain(GMCR 58.86, -2.85, -4.62%)  shares ran up 41% on news the company had struck a deal for Starbucks (SBUX 36.56, -1.41, -3.71%)  to make coffee for its Keurig single-cup coffee brewers. Read Starbucks, Green Mountain brew K-Cup deal.
According to filings Friday afternoon with the Securities and Exchange Commission, eight directors were each granted 2,300 stock options at Thursday’s closing price of $61.71 a share — a record high on a split-adjusted basis. The previous day the stock had closed at $43.64.
From August 13, 2010 to March 10, 2011, Michelle Stacy made a gross profit of $2.689 million from exercising options and selling shares.



In the quarter ended December 25, 2010, Green Mountain Coffee's Keurig segment reported a $1.955 million loss before taxes.

Class-action lawsuit

The amended class-action complaint alleges that Green Mountain Coffee knew that the SEC was poking around as early May 2010 or three months before Michelle Stacy claims she adopted a 10b5-1 trading plan. See paragraphs 68, 69, 103, and 104). If a corporate executive already has nonpublic knowledge of certain adverse events such as undisclosed weaknesses in internal controls, accounting errors, or an SEC inquiry, a 10b5-1 plan cannot provide a safe harbor against illegal insider trading allegations.

Final comment

Every corporate insider should seek out who designed and administers Michelle Stacy's 10b5-1 trading plan and hopefully, they can be as lucky as she is. In any case, Stacy's got great timing!

Written by,

Sam E. Antar

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 as an independent whistleblower. 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.

Monday, March 14, 2011

Green Mountain Coffee Roasters: The Foul Aroma of Michelle Stacy's Stock Sales

On Thursday, March 10, 2011, Green Mountain Coffee Roasters (NASDAQ: GMCR) announced a “strategic relationship” with Starbucks (NASDAQ: SBUX). On that same day, Green Mountain Coffee granted stock options to certain insiders at its “Board of Directors meeting simultaneously following the Company’s Annual Meeting of Shareholders.” On Friday, MarketWatch reported:
Green Mountain insiders miss big option gain
Options priced after Green Mountain stock jumps 41% in single day
SAN FRANCISCO (MarketWatch) —March 10 was options day for insiders at Green Mountain Coffee Roasters. Too bad it was the day the stock hit a record high and the options are presently worthless.
Their latest batch of stock options were priced Thursday as Green Mountain(GMCR 58.86, -2.85, -4.62%)  shares ran up 41% on news the company had struck a deal for Starbucks (SBUX 36.56, -1.41, -3.71%)  to make coffee for its Keurig single-cup coffee brewers. Read Starbucks, Green Mountain brew K-Cup deal.
According to filings Friday afternoon with the Securities and Exchange Commission, eight directors were each granted 2,300 stock options at Thursday’s closing price of $61.71 a share — a record high on a split-adjusted basis. The previous day the stock had closed at $43.64.
Were all of Green Mountain Coffee’s insiders as unfortunate as the MarketWatch story implies? The answer is no. One insider, Michelle Stacy who is President of Green Mountain Coffee's Keurig Division seems to have made out like a bandit. She exercised 9,375 options at $6.20 per share and simultaneously sold them at $55.54 per share. Stacey sold her stock at $11.90 per share higher than the previous day's closing price. Sometimes I wonder, is Michelle Stacy a shrewd insider, a psychic, or just plain lucky?

Timing of Michelle Stacy’s stock sales

On August 13, 2010, Michelle Stacy exercised 30,000 options at $6.20 per share and simultaneously sold those shares at $30.95 per share. On September 13, 2010, exercised 5,000 options at $6.20 per share and simultaneously sold those shares at $35.20 per share. Seven days later, on September 20, 2010, Green Mountain Coffee claimed that it was notified by the Securities and Exchange Commission (SEC) of an informal inquiry concerning its “revenue recognition practices and the Company’s relationship with one of its fulfillment vendors.” However, the company did not disclose news of the SEC inquiry to investors until seven days later.

On September 21, 2010, Michelle Stacy exercised 4,375 options at $6.20 per shares and simultaneously sold her shares at $37 per share. In addition, Stacy exercised another 625 options at $9.14 per share and simultaneously sold those shares at $37 per share. Seven days later, after the market closed on September 28, 2010, Green Mountain Coffee finally disclosed news of the SEC inquiry to investors. In addition, the company disclosed that it discovered an "immaterial accounting error" involving its K-Cup margin percentages which resulted in a $7.6 million cumulative overstatement of pre-tax income in financial reports issued from 2007 to June 26, 2010.

Maybe seven is a lucky number for Michelle Stacy? On September 13, she sold 5,000 shares seven days before Green Mountain Coffee claims it received notice of an SEC on September 20. On September 21, she sold another 5,000 shares seven days before Green Mountain Coffee disclosed news of the SEC inquiry to investors on September 28. That same day, Green Mountain Coffee reported that it overstated pre-tax income by $7.6 million dollars.

On September 29, 2010, the next trading day, Green Mountain Coffee stock dropped $5.95 per share to close at $31.06 per share as investors reacted to news of the SEC inquiry, a 16.1% drop in market value that day. By October 11, 2011, the market value of Green Mountain Coffee’s shares dropped to $26.87 per share, far below the price per share that Stacy sold her stock on August 13 ($30.95), September 13 ($35.20), and September 21, 2010 ($37.00).

In a blog post dated October 21, 2010, I expressed my concern about the possibility of illegal insider trading by Michelle Stacy based on the timing of her stock sales. Seven days later, on October 28, 2010, Stacy belatedly filed amended Form 4 reports and claimed she established a Rule 10b5-1 trading plan on August 13, 2010. A Rule 10b5-1 trading plan provides certain safe harbors which help executives defend against potential allegations of illegal insider-trading by removing their discretion to decide when their stock is bought or sold. She amended certain SEC Form 4 filings for her stock sales on September 13 and September 21 to reflect her 10b5-1 trading plan. However, her sale of 30,000 shares on August 13 was not pursuant to a 10b5-1 trading plan. According to Stacy's amended SEC filings, her 10b5-1 trading plan only covered future stock transactions.

Eventually, Green Mountain Coffee’s stock price recovered from its low point of $26.87 per share on October 11, 2010 to close at $34.63 per share on November 5, 2010. On that same day, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $35 per share.

On February 7, 2011, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $40.00 per share. In addition, she exercised another 5,561 options at $9.14 per share and simultaneously sold those shares at $40 per share.

Seven days later, on February 14, 2011, Green Mountain Coffee stock opened for trading at $42.14 per share. At 11:00 AM Reuters reported:
Green Mountain Coffee Roasters Inc's (GMCR.O) shares fell as much as 4 percent after Starbucks Corp (SBUX.O) said it plans to announce a new product for the single-cup coffee market, a move that could threaten Green Mountain's dominance in the fast-growing sector.
The stock price of Green Mountain shares dropped to a low of $41.53 per share in intra-day trading.

Later that day, at around 3:34 PM, Reuters citing an unnamed source reported:
Starbucks Corp (SBUX.O) and Green Mountain Coffee Roasters (GMCR.O) are in partnership negotiations, a source close to the talks told Reuters on Monday, sending Green Mountain shares surging.
The Wall Street Journal reported:
Unusually fast movement – up or down 10% in less than five minutes – leads to a five-minute trading pause. This trading break is one of the fixes implemented after the Flash Crash last spring. In the case of Green Mountain, its shares shot to 47.88 from 41.81 – a 14% move in about five minutes.
[Snip]
Reuters reported in the afternoon that the two coffee companies are chatting about a possible partnership, which might have triggered a big enough stampede to get shorts covering positions in earnest.
On that same day, Michelle Stacy exercised 10,000 options at $6.20 per share and simultaneously sold her shares at $45.13 per share.

On February 15, 2011, the Associated Press reported:
Shares of Green Mountain Coffee Roasters Inc. slumped in early trading after coffee chain giant Starbucks Corp. announced a single-cup coffee deal with a rival company.
Market speculation that coffee chain giant Starbucks Corp. would soon announce a partnership with Green Mountain had jacked up the single-serve brewer maker's shares -- the stock jumped $2.89, or 6.7 percent, to $46.35 Monday and have risen about 48 percent in the past three months.
On February 15, 2010, the market value of Green Mountain Coffee stock eventually closed at $43.53 per share, a drop of $2.82 per share from the previous day's closing price of $46.35 per share. On the previous day, Michelle Stacy sold 10,000 Green Mountain Coffee shares at $45.13 share.

On Wednesday, March 9, 2011, Green Mountain Coffee shares closed at $43.64 per share. On Thursday, March 10, 2011, Green Mountain announced a “strategic relationship” with Starbucks. In reaction to the news, the market value of Green Mountain Coffee common stock rose $21.07 per share to close at $61.71 per share, or a 46% increase from the prior day’s closing price. That same day, Michelle Stacy exercised 9,375 options at $6.20 per share and simultaneously sold them at $55.54 per share, $11.90 per share higher than the previous day's closing price per share.

Class-action litigation alleges illegal insider trading

Is Michelle Stacy a shrewd insider, a psychic or just plain lucky? Perhaps the people who designed and administer her purported 10b5-1 trading plan are geniuses? Lawyers representing plaintiffs in a class-action lawsuit against Green Mountain Coffee don’t think so. They are alleging that Michelle Stacy and certain other insiders engaged in illegal insider trading.

According to amended class-action complaint (download here):
68. Moreover, although the September 28, 2010 Form 8-K indicates that, "[o]n September 20, 2010, the staff of the SEC's Division of Enforcement informed the Company that it was conducting an inquiry and made a request for a voluntary production of documents and information," the above-noted former employee has stated that by no later than the first week of May 2010, he/she was contacted by Company employees who asked if he/she had been had been the whistleblower in an SEC investigation of GMCR.
69. Accordingly, Company employees contacted the confidential witness concerning an SEC investigation five months prior to the issuance of the September 28, 2010 Form 8-K, which disclosed that the SEC informed the Company that it was conducting an inquiry and made a request for a voluntary production of documents and information on September 20, 2010. 
In other words, the amended class-action complaint alleges that Green Mountain Coffee knew that the SEC was poking around as early May 2010 or three months before Michelle Stacy claims she adopted a 10b5-1 trading plan. If a corporate executive already has nonpublic knowledge of certain adverse events such as undisclosed weaknesses in internal controls, accounting errors, or an SEC inquiry, a 10b5-1 plan cannot provide a safe harbor against illegal insider trading allegations.

The amended class-action complaint took issue with the timing of Michelle Stacy‘s stock sales and the timing of her 10b5-1 trading plan:
103. Prior to these sales, there had not been significant insider trading activity since June 2009. Not only did both division presidents sell the majority of their shares, but Stacy did so the day after the SEC's information request and one week before GMCR made the SEC inquiry public.
104. Even worse, in October 2010, Stacy amended her Form 4s for the August and September sales, claiming that she forgot to include in the original Form 4s that the sales were made pursuant to a Rule 10b5-1 trading plan adopted on August 13, 2010. Not only did the Company fail to inform the SEC of the plan on the day it was adopted, but it failed to disclose the plan when Stacy's Form 4 for the $928,500 sale was filed a mere four days after its adoption.
Michelle Stacy did not amend her Form 4 for her August 13 exercise and simultaneous sale of 30,000 shares of stock. She adopted her 10b5-1 trading plan that same day to cover her future sales of stock. That error in the class-action amended complaint aside, Michelle Stacy has a lot of explaining to do. A significant amount of Green Mountain Coffee's accounting errors which caused it to restate its financial reports resulted from material weaknesses in internal controls over financial reporting in the Keurig division headed by her. What did she know about financial reporting problems on August 13, 2010? If she knew nothing, was she incompetent or dumb?

Written by,

Sam E. Antar

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 as an independent whistleblower. 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.

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.