On Friday, August 17, 2012, ZAGG Inc. (NASDAQ: ZAGG) surprised investors and announced that its co-founder Robert G. Pedersen II resigned from his posts as CEO and Chairman of the company. The press release did not mention any reason for his resignation. The announcement was made after the stock market closed.
However, on that very same day after the market closed Robert Pedersen filed a Form 4 with the Securities and Exchange Commission. It disclosed that he sold 515,000 shares at an average price of $8.2214 per share on August 14, just three days before ZAGG announced that he resigned from the company. Pedersen sold 512,240 of those shares to "to meet margin calls" and 2,760 shares were sold separately. He collected $4.234 million in gross proceeds from his sales of stock and it appears that most of that amount was used to satisfy margin calls.
Back on December 21, 2011, Pedersen sold 345,200 shares at an average price of $7.5248 per share and received proceeds totaling $2.598 million "to meet an immediate financial obligation." No mention was made of any stock pledges at that time. I'd love to know the reason behind that "immediate financial obligation."
A proxy report filed by ZAGG on April 27, 2012 does not mention any pledges of stock by Pedersen. Public companies must disclose stock pledges by insiders in proxy reports.
It would be interesting to know exactly when Pedersen pledged (margined) his shares as collateral for his margin loan and if the timing of his sale of stock had anything to do with his resignation. Furthermore, did Pedersen know that he was going to resign when he sold his shares on August 14?
Sam E. Antar
This morning, after this blog post was originally published, ZAGG filed an 8-K report with the Securities and Exchange Commission disclosing it adopted a new policy prohibiting certain insiders from engaging in certain transactions including pledging their shares:
Policy regarding holding Company securities in Executive and Directors margin accounts
On August 16, 2012, the Board of Directors of the Registrant adopted a policy (the “Policy”) relating to short-term or speculative transactions in the Registrant’s securities by directors, officers, and 10% holders of the Registrant’s securities. Specifically, the policy states that such individuals are prohibited from engaging in short-term or speculative transactions involving the Registrant’s securities, such as publicly traded options, short sales, puts, and calls, hedging transactions and holding the Registrant’s securities in a margin account.
ZAGG's policy against margin loans was purportedly adopted two days after Pedersen sold his shares to satisfy a margin call and one day before it announced his resignation. The 8-K report made no reference to Pedersen's sale of stock to satisfy a margin call or disclose a reason for his resignation.
On November 7, 2018, ZAGG disclosed in its Q3 2018 10-Q report that:
The Company has reached an agreement with the Staff of the SEC to settle the previously disclosed investigation related to facts and circumstances surrounding former Chief Executive Officer Robert Pedersen’s pledge and subsequent sale of Company shares and the fact that such pledges and sales were not disclosed in the Company’s 2011 10-K filed on March 15, 2012, or 2012 Proxy filed on April 27, 2012. Without admitting or denying the allegations contained in the order, the Company has agreed to pay a civil penalty in the amount of $75 to the SEC and has consented to the entry of an order with respect to violations of Section 13(a) of the Exchange Act and Rule 13a-1 promulgated thereunder, which relate to disclosures in the annual report. The agreement remains subject to final approval by the Commission.Note: ZAGG reported its civil penalty in $000s. The civil penalty amounted to $75,000.
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 white-collar crime classes for various government entities, professional organizations, businesses, and colleges and universities. I do not want or seek forgiveness for my vicious crimes from my victims. My past sins are unforgivable.
I do not own any ZAGG securities long or short.