The Naked Short Fiction: Scammers Headed for Slammer?
Gary Weiss catches the headline for us today about Caps fave Pegasus Wireless. And he notes that while some folks out there were swallowing the warning, Forbes' Liz Moyer was instead swallowing a big dose of Jay Knabb, Patrick Byrne nonsense about naked shorts. This is a perfect example of the idiotic way that unthinking journalism not only helps investors lose their shorts -- but it is also a prime reason that the current SEC is wasting its time on garbage like naked shorting rules.
But we have to give the SEC the golf clap here, because despite the yammering about naked shorts in public (maybe just to get the crazies to shut up), they got to the bottom of Pegasus.
So what's up with these poor victims of naked shorting? Is the SEC finally taking those dastardly hedge funds and their corrupt journlists (remember, I was one of these hideous hired guns, reportedly named in an SEC subpeona after Patrick Byrne smeared me all over the internet, including on our own TMF boards)
Ironically, seems upon further reflection that the SEC has a bit of a problem with what CEO Jasper Knabb and CFO "Ferrari" Steve Durland were up to.
LR-21060May 27, 2009Pegasus Wireless Corporation, Jasper Knabb, and Stephen Durland
See also: SEC Complaint
IIRC, I sent them an entire dossier on these guys a while back, stuff that looked suspicious but was too hot for print -- not that they needed my help. (I have sent them similar dossiers on a few companies that looked like scams, so I'm not sure this was one of them. Don't quote me on it.) But I did hope they'd eventually come down on these two serial losers, and it looks like they have.
Pegasus, a maker of wireless networking equipment, was created by the two men out of a dormant shell company in 2005. Knabb and Durland touted a series of acquisitions through press releases, which pushed up share values and briefly gave the penny stock company a market capitalization of $1.4 billion, according to the SEC complaint filed in federal court in San Francisco.
The former executives said in SEC filings that Pegasus issued shares to pay off debt. They forged documents to hide that the debt was a fabrication and the shares were issued to relatives and entities that Knabb and Durland controlled, according to the complaint.
Knabb, a resident of Anchorage, Alaska, and Little River, South Carolina, and Durland, of West Palm Beach, Florida, together reaped more than $30 million from the sales from 2006 to 2008, the SEC said."
Of course, if you follow the Fool, you'd have gotten a pretty good whiff of the stench by stumbling onto the scribblings of one scrawny bald guy. I revealed much of the dirt on Knabb and Durland here. And I was not the only one warning people about the strands of scuzziness at Pegasus.
Anyone who invested in this junk company after reading any of these stories, frankly, probably deserved to get fleeced.