Skip to main content

Lawsuit Filed Against ZAGG Alleges It Concealed Stock Pledges

Last Thursday, a lawsuit seeking class action status was filed against ZAGG (NASDAQ: ZAGG) Incorporated, certain members of its board of directors, and certain officers of the company. It alleges that they violated federal securities laws by improperly concealing certain stock pledges made by ZAGG’s former CEO and Chairman Robert J. Pedersen. Other law firms who specialize in bringing class action lawsuits have announced that they are contemplating filing complaints against ZAGG. (Download the complaint here).

ZAGG makes protective coverings for Apple's (NASDAQ: AAPL) iPhone and iPad and other devices. Big-box retailers such as Best Buy (NYSE: BBY) and Walmart (NYSE: WMT) carry ZAGG's product.


On Friday August 17, 2012 ZAGG issued a press release saying that its co-founder Robert Pedersen resigned from his posts as CEO and Chairman. It did not mention any reason for his resignation. Later that day, Robert Pedersen was interviewed by the Salt Lake Tribune and it reported that “Pedersen said he resigned in order to focus on his family, his church and a family foundation.” In addition, Pedersen filed a Form 4 report with the Securities and Exchange Commission. It disclosed that he sold about 515,000 shares at an average price of $8.2214 per share to “meet margin calls” on August 14, just three days before he resigned. Pedersen’s sale of stock to meet a margin call was not mentioned in either the ZAGG press release or interview with the Salt Lake Tribune.

On Monday, August 20, 2012, my blog asked “if the timing of his sale of stock had anything to do with his resignation.” In addition, I pointed out that on December 21, 2011, Pedersen sold 345,200 shares at an average price of $7.5248 per share "to meet an immediate financial obligation." His Form 4 filing did not mention any margin call even though a margin call is an immediate financial obligation. I suspected that Pedersen’s December 2011 sale of stock was also due to a margin call and asked for an explanation in my blog. Furthermore, I reported that a proxy report filed by ZAGG on April 27, 2012 did not mention any pledges of stock by Pedersen. Public companies are required to disclose stock pledges by insiders in proxy reports. Separately, I contacted the Securities and Exchange Commission and asked them to look into this matter.

On Tuesday August 28, 2012, ZAGG held a conference call with investors. ZAGG President and Interim CEO Randy Hales finally admitted that Pedersen’s resignation was related to his margin calls. In addition, Hales admitted that Pedersen had a margin call in December 2011 as I had suspected:

…departure was entirely related to the margin calls situation that started last December and unfortunately surfaced again two weeks ago.

On that same day, Robert Pedersen filed a Form 4 report disclosing that on August 24 he sold another 1,250,061 shares and received $8.626 million in gross proceeds to satisfy all of his remaining margin obligations. Despite the margin call issue that led to Pedersen's resignation, ZAGG plans to hire him for one year as an executive consultant.

After the conference call, I asked, "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?"

Class action lawsuit

Robert Pedersen
The class action lawsuit alleges that ZAGG, certain members of its Board of Directors, and certain officers knew that Pedersen had undisclosed stock pledges and margin calls going back to December 2011, but covered them up. According to the complaint:

3. Unbeknownst to the Company's shareholders, a "margin call situation" involving Robert G. Pedersen... began in December 2011, whereby Pedersen borrowed substantial amounts of monies, putting up his Zagg shares as collateral. Although Defendant Pedersen ultimately resigned his post as the Company's Chief Executive Officer ("CEO') due to the "margin call situation," investors were not informed that Defendant Pedersen had pledged his stock until after his resignation over eight months later.

4. On December 21, 2011, Defendant Pedersen sold nearly $2.6 million worth of Zagg stock. However, at that time, shareholders were only informed that Pedersen sold the stock to "meet an immediate financial obligation." In truth, the December 23 stock sale was made to meet a margin call. Moreover, further undisclosed to investors, Pedersen had more than a million additional shares posted as collateral, which were subject to margin calls. Realizing that Pederson had recklessly put his CEO position at risk at the expense of investors, the Company began a succession plan beginning in December 2011 to remove Pedersen as CEO, and to appoint Hales as his successor. This accession plan was purposely hid from investors.

Furthermore, the complaint alleges that the defendant’s violated federal securities law by not disclosing Pedersen's stock pledges in the April 27, 2012 proxy report (paragraph 6). In addition, it alleges that former CEO Robert Pedersen and current CFO Brandon O’Brien signed "materially false and/or misleading" Sarbanes-Oxley certifications (paragraph 34 to 40).

According to the Salt Lake Tribune:

Jeff Jones, attorney for Zagg, said Friday that "the claims are without any factual or legal basis, and the company will defend them very vigorously."

ZAGG will probably try to get the complaint dismissed. If the lawsuit survives a motion to dismiss, its officers and directors could face potentially embarrassing pre-trial deposition testimony. Defending a class action lawsuit can be a very costly affair. Even if ZAGG has a current directors and officers' liability insurance policy, it could face more costly coverage in the future. If such litigation moves forward, it could take up a lot of management's attention that could be better used to run the business. I personally believe that if ZAGG and Pedersen had been more transparent about the stock pledges early on, they could have saved themselves a lot of trouble.

Written by:

Sam E. Antar


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. More recently, I've helped the AICPA Fraud Task Force develop better methods for detecting fraud. I do not want or seek forgiveness from my victims for my vicious crimes. My past sins are unforgivable.

I do not own any ZAGG securities long or short.


Popular Posts

Did a Clever SEC Bait Goldman Sachs into Compounding Its Legal Problems With the "Kiss of Death" Message?

Updated: At 3:48 AM ET 04/20/2010 on bottom

The Kiss of Death

In filing its lawsuit against Goldman Sachs (NYSE: GS) on a Friday, the Securities and Exchange Commission sent what I call the "kiss of death" message to the embattled company. In other words, the SEC wanted to stick it to Goldman Sachs and Fabrice Tourre, the Executive Director of Goldman Sachs International, who is also a defendant in the complaint. While the SEC as a practice does inform target companies and individuals of an impending enforcement action, it does not always tell them exactly when such an action will be filed.

Apparently, the SEC filed its lawsuit without giving Goldman Sachs the heads up that it was planning to file it that day. Business Insider observed that Goldman Sachs was clearly unprepared to respond to the complaint as news of the lawsuit dominated the headlines all day. Goldman issued a short denial around noon and issued an extensive denial late in the afternoon, after most people had … CEO Patrick Byrne Sleeps With a Gun

In numerous blog posts in the past, and in widespread media coverage, evidence has accumulated for years that CEO (NASDAQ: OSTK) Patrick Byrne has shown signs of being mentally unbalanced and paranoid.

Byrne has blamed his company's financial woes on an unnamed "Sith Lord." He hired paid goons to stalk his real and imagined adversaries and to write lengthy conspiracy theories on the Internet. Byrne has close ties with Bo Gritz. The Anti-Defamation League lists Bo Gritz as a far-right extremist with “extensive connections to both white supremacists and anti-government groups and leaders.”

Patrick Byrne's infamous temper tantrums when he doesn’t get want he wants are well documented too. He made obscene and misogynistic comments to a female reporter. He suggested that she gave “blowjobs” to Goldman Sachs traders. He suggested that a male reporter “Sucks It Likes He’s Paying the Rent.” An independent research analyst was told that “You deserve to be whippe…

Nature's Sunshine Products, Willbros Group, Cal Dive International, and BSQUARE Violate S.E.C. Rules on Calculating EBITDA

Nature’s Sunshine Products (NASDAQ: NATR), Willbros Group (NYSE: WG), Cal Dive International (NYSE: DVR), and BSQUARE (NASDAQ: BSQR) have recently issued earnings reports which include a calculation of EBITDA (earnings before interest, taxes, depreciation, and amortization) that apparently does not comply with Securities and Exchange Commission interpretations for Regulation G governing such non-GAAP financial measures. In each case, their erroneous EBITDA calculations have enabled them to significantly distort their financial performance by erroneously reporting a positive EBITDA, when they should have reported a negative EBITDA in the latest quarter.

How EBITDA is supposed to be calculated under Regulation G

According to the S.E.C. Compliance & Disclosure Interpretations, EBITDA is defined under Regulation G as net income (not operating income) before net interest, taxes, depreciation, and amortization. See below:

Question 103.01Question: Exchange Act Release No. 47226 describes E…

InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme

In this blog post, I will provide evidence of what I believe is a stock market manipulation scheme involving InterOil (NYSE: IOC), John Thomas Financial, and Clarion Finanz AG. I believe that InterOil with the assistance of Clarion Finanz concealed John Thomas Financial’s involvement in helping it raise $95 million through a private placement of convertible debt securities.

Clarion Finanz acted as a buffer between InterOil and John Thomas Financial to help InterOil hide John Thomas Financial's role in raising funds. Afterwards, InterOil filed false and misleading reports with the Securities and Exchange Commission in an effort to conceal John Thomas Financial’s role in helping the company raise $95 million in convertible debt.

Carl Caserta, who in 1991 was barred by the Securities and Exchange Commission from “association with any broker, dealer, or investment advisor” played a role in helping InterOil use John Thomas Financial to obtain funds from investors. InterOil, John Thoma…

Class Action Complaint against Amedisys uses Sarbanes-Oxley Act Corporate Governance Provisions to Battle Alleged Corporate Malfeasance

Updated at bottom of article

Last week, Pomerantz Haudek Grossman & Gross LLP filed a class action lawsuit against Amedisys (NASDAQ: AMED) charging the company, its CEO William F. Borne and its CFO Dale E. Redman with securities fraud.  In the next few days, Bernstein Liebhard LLP and Finkelstein Thompson LLP filed similar class action lawsuits against the company. The lawsuits allege that Amedisys abused Medicare's reimbursement system for at-home therapy care based on a compelling analysis of company revenues in an April 27 Wall Street Journal article.

In addition, the lawsuits innovatively utilize a provision under Section 406 of the Sarbanes-Oxley Act 2002 which provides a back-door way for investors to force ethical corporate governance and sue public companies for malfeasance. That provision requires Senior Financial Officers, such as the CEO and CFO of public companies, to abide by a strict code of ethics which broadly defines corporate malfeasance and effectively makes…