Late Tuesday afternoon August 28, 2012, ZAGG Inc. (NADAQ: ZAGG) held a conference call with investors in an effort explain the sudden resignation of its co-founder Robert Pedersen as its CEO and Chairman of the Board of Directors on August 17. However, the company's explanation of the reasons behind Pedersen's resignation raises more questions than it answers.
On Friday August 17, 2012 Robert Pedersen resigned from his posts as CEO and Chairman of ZAGG. The company’s press release did not mention any reason for his resignation. 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 his margin call.
ZAGG contradicts Pedersen's explanation of his resignation to Salt Lake Tribune
Originally, Pedersen told the Salt Lake Tribune that he resigned to spend more time with his family. He did not mention that his resignation was due to his selling stock three days earlier to meet a margin call:
Pedersen said he resigned in order to focus on his family, his church and a family foundation. But he also pointed to a 25 percent drop in the value of the company’s shares after its guidance for this year did not meet analyst’s expectations.
"Running a public company is different than running a private company," he said Friday evening in a telephone interview from Alaska where he was vacationing with family. "And running a $250 million company is different than running a company going from zero to $250 [million in annual revenue]."
During the conference call, ZAGG President and Interim CEO Randy Hales appears to have contradicted Pederson’s reason for resigning that he had given to the Salt Lake Tribune, saying it related to his sale of stock to satisfy a margin call:
In connection with Robert Pedersen's recently reported sales of ZAGG's shares as a result of a margin call, the ZAGG board in counsel with Robert made a mutual decision concerning Robert's ongoing role at ZAGG ...this decision upheld the board's priority to protecting shareholder value.
Why didn't Pedersen tell the Salt Lake Tribune that his resignation was a result of the margin call? Despite Pedersen's apparent lack of transparency, ZAGG is keeping him on as an executive consultant.
On August 24, 2012, Pedersen sold another 1,250,061 shares and received $8.626 million in gross proceeds to satisfy all of his remaining margin obligations.
Did ZAGG's proxy report improperly omit disclosure of Pedersen's stock pledges?
During today's conference call, ZAGG President and Interim CEO Randy Hales said that Robert Pedersen's:
…departure was entirely related to the margin calls situation that started last December and unfortunately surfaced again two weeks ago. [Emphasis added.]
Last week, this blog pointed out that:
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."
At that time, I suspected that Pedersen’s sale of stock to purportedly meet an “immediate financial obligation” was actually a sale of stock to meet a margin call. Now, it appears that Pedersen’s December 2011 sale of stock was to meet a margin call too. Why didn't Pedersen specify that his December 2011 sale of stock resulted from a margin call? If ZAGG had known that Pedersen had a margin call in December 2011, why didn’t it call on Pedersen to resign last December instead of last week?
Furthermore, I noted that:
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.
If Pedersen had stock pledges in December 2011 that were still outstanding in August 2012, why weren’t they disclosed in ZAGG’s April 2012 proxy report as required under S.E.C. rules?
Sam E. Antar
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.