Wednesday, January 12, 2005
TASER International Inc., which disclosed on Jan. 7 (post here) that it was the subject of an informal SEC inquiry into its public disclosures regarding the safety of its security products and possible revenue recognition problems, issued an open letter on Jan. 11 to its shareholders to address concerns about the company, whose stock has dropped approximately 45% since the investigation disclosure. The letter addresses, among other things, concerns about insiders selling shares ahead of the bad news:
[W]e have received questions indicating there is confusion on the issue of insider stock sales in the fourth quarter. Phil Smith, our Chairman who retired from day to day duties on December 31, 2004 sold the majority of his TASER stock as part of his retirement transition. Tom Smith and Rick Smith, co-founders of the company and whom currently serve as President and CEO, also sold a portion of their position in order to diversify their holdings. During the fourth quarter of 2004, Tom and Rick sold an average of 22% of their position in TASER including both their stock and vested and unvested options. We still retain a significant position in TASER International, which at year-end comprised a significant majority of our personal assets. Hence, we feel that the rumors about us "bailing out" are not fair, nor accurate. We have pointed out previously that the Smith family along with one other investor provided all of the startup capital to TASER International prior to its public offering, and we have held this investment for up to eleven years. We have historically sold stock and have been straight-forward with our investors that insiders would continue to diversify through continuing stock sales in the future.
Selling of this magnitude, when coupled with the uncertainty of an ongoing SEC investigation, can lead to the quick demise of a company if any more bad news leaks out, such as a criminal investigation by a U.S. Attorney's Office. Watch your portfolios. (ph)