Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
What the Press Release Won't Say by Neil A. Martin
Summary: Barron's has learned that iMergent (IIG) CEO Donald L. Danks told select investors that FQ3 earnings will be about $0.60/share - more than 50% higher than the $0.39-0.41 estimate of the one analyst who follows the company - and that revenue will be around $50 million vs. $26 million. Confronted about the lack of fair disclosure, Danks denied having spoken with any outsiders, despite Barron's having heard a tape recording of an alleged conversation. Analyst Michael E. Shonstrom advised a client in an Apr. 24 email that his previous FQ3 estimates were 'conservative' based on discussions with management, yet failed to disclose his change of heart in an Apr. 30 research note. In February Shonstrum and Danks appeared on CNBC deriding shorts for ganging up on the stock. Shorts were 60% of the 12.4 million share float as of March 15, and have since suffered $50 million in paper losses. Illinois is suing iMergent to stop it from selling its e-commerce software in the state, alleging it misled workshop participants about the ease of its software and availability of tech support (it runs over 1,000 seminars a year and charges about $5,000 plus monthly fees for those who sign up); the company calls the charges 'unwarranted.' Florida is pursuing an 'active investigation' of the company, investigations are underway in Oregon and Maryland, and it has already been taken to court in at least four other states. This week Utah wants to designate iMergent a "business opportunity" provider, which would force all kinds of disclosure; Danks says he will fight the designation. Investor Mark Cuban says "it's not a question of if it collapses, but when," though he's no longer short the stock. The company reports Monday.