In the letter, Chapman Capital's Managing Member, Robert L. Chapman, Jr., suggested Lutnick unknowingly dedicated 50% of the caller period of Thursday's earnings conference call to short seller Justin Hughes of Philadelphia Financial. Chapman calls Hughes "linguistically confused", saying at no time did he inform Hughes that "both Nasdaq and GFI were preparing to make bids for 'your' Company imminently." Chapman said, "To the contrary, I advised Mr. Hughes (after hearing rumors of mounting losses in his large short position) that both GFI Group Inc. and Nasdaq Stock Market Inc., like eSpeed bidder Tullett Prebon Plc, had expressed explicitly their desires to find an economic means of acquiring eSpeed."
Chapman also responds to attacks from Lutnick who said his firm was carrying out a "pump and dump". Chapman said, "One thing that I do know is that our actions do not fit into the category of “pump and dump,” a description that might be ascribed to Mr. Lee Amaitis's December 12-15, 2003 sale of millions of dollars of Class A eSpeed shares at $23.14-24.10 apiece only weeks after you personally described eSpeed's 3Q2003 results as "incredibly strong" and expounded how "dramatic increases in volume and issuance positively impacting [eSpeed's] business from a very strong profitability standpoint."
Chapman said, "long-term holders" of eSpeed - those in the stock since the December 1999 IPO - have lost 60%.
A Copy of the Letter:
It was with continued awe and amazement that I listened to your command performance over today's conference call spinning eSpeed's 1Q2007 results. As this was a call under your favorite form of oversight (i.e., full and immediate control), I determined it futile to attempt to communicate with you via this forum. Instead, I viewed the hour as an opportunity to be entertained by you, particularly as you unknowingly dedicated 50% of the caller period to someone overseeing a large short position in eSpeed Class A shares, Mr. Justin Hughes of San Francisco's linguistically (and apparently geographically) confused Philadelphia Financial.
I label Mr. Hughes as “linguistically confused” out of compassion for a man whose high-turnover "career" includes a stint at now-defunct Robertson Stephens, less than a year at Jefferies & Co., a downtick to an analyst position at Hovde Capital LLC before finally landing at Philadelphia Partners. However, one cannot ignore Mr. Hughes' own "questionable" behavior today on the call. As he is well aware, at no time was he informed by me that "both Nasdaq and GFI were preparing to make bids for 'your' Company imminently." To the contrary, I advised Mr. Hughes (after hearing rumors of mounting losses in his large short position) that both GFI Group Inc. and Nasdaq Stock Market Inc., like eSpeed bidder Tullett Prebon Plc, had expressed explicitly their desires to find an economic means of acquiring eSpeed. If Mr. Hughes has not moved back into unemployment once again, he should contact you directly and ask, off-line, if either of those firms have an interest in buying "your Company." As I already possess the affirmative answer to this apparent conundrum, Mr. Hughes need not make such a call to Chapman Capital.
Regarding your own "improper and disingenuous" commentary, I think it is appropriate to make a few observations to supplement or correct the latest public record (at least the one according to Howard W. Lutnick). As did you, let's start with Chapman Capital. One thing that I do know is that our actions do not fit into the category of “pump and dump,” a description that might be ascribed to Mr. Lee Amaitis's December 12-15, 2003 sale of millions of dollars of Class A eSpeed shares at $23.14-24.10 apiece only weeks after you personally described eSpeed's 3Q2003 results as "incredibly strong" and expounded how "dramatic increases in volume and issuance positively impacting [eSpeed's] business from a very strong profitability standpoint." In reality, you leaned your weight into the core "pre-dump pump" when you forecasted 2004 net operating earnings to be in the range of 80-84c/share, only to miss that projection by some 35% by the time 2004's 55c/share "non-GAAP" net operating income was reported on March 1, 2005.
As your “questionable” and conveniently distracting “pump and dump” sideshow is worthy of precious little further ink, let me make this clear: you made that accusation this morning despite the facts that a) Chapman Capital (and its advised Funds) had made not a single share sale in the market in the weeks before or “in the 32-hour period beginning the morning of April 18th, the same day that Tullett announced its approach to us and Chapman Capital demanded the removal of all of eSpeed’s independent directors and again demanded the immediate auction of eSpeed; b) the entity whose actions caused the “inflation” (or pumping) of eSpeed’s common stock was Tullett Prebon Plc (via a $12/share acquisition proposal), and not Chapman Capital L.L.C.; c) Chapman Capital’s only Common Stock activity in the open market between our March 14, 2007 original Schedule 13D filing and this morning’s conference call was the April 24, 2007 purchase of eSpeed Class A shares (at $8.85/share) via Bank of America Securities; and d) the party most responsible for “dumping on” (vs. the “pumping” up of) eSpeed was Chapman Capital, which has issued not one nor two but three press releases highly critical of eSpeed’s management, runaway expense structure and resultant near un-profitability, corporate mis-governance and potential conflicts of interest with Cantor Fitzgerald L.P. I cannot imagine that anyone reading those three public testaments would come away feeling the author was “pumping up” the stock.
Furthermore, any hedging transactions entered into by Chapman Capital were entirely appropriate applications of widely accepted risk management policies employed by managers obeying their fiduciary duties to their shareholders/partners (foreign concept?), and were prudent in light of Tullett Prebon’s April 18, 2007 announcement that Cantor had “informed Tullett Prebon that Cantor is not interested in selling its controlling interest on the terms proposed.”
This morning, you described Chapman Capital’s actions as not being those “of a serious long-term holder” of eSpeed. Well, Howard, let’s now discuss how the actions of the longest-term holders of eSpeed have fared en route to today’s forecast for “non-GAAP net operating income [of] $0.00 per diluted share” for the current fiscal quarter. By definition, the “longest-term” holder of eSpeed is one who paid $22.00 per share in eSpeed’s December 1999 IPO. This lucky, longest-term holder’s allegiance to “Emperor Howard” has driven him to hold his eSpeed shares for the longest term possible - never selling. This kind chap finds himself still sipping his Howard-flavored Kool-Aid that induces hallucinations of a future day “when and if BGC’s business goes electronic,” allowing eSpeed to “receive 65% of the revenues over time for new products.” This fortunate fellow should be careful not to look too closely at the growth trajectory of these “new products,” for if he does so he will realize that sequential growth in this expensive pipe-dream now finds itself at just over 7%. Sadly, it would appear that “the actions of a long-term holder” are to lose nearly 60% of his investment in “your Company.”
From the shallow bottom of my heart, I pray for your buddies at “long-term holder” Downtown Associates that short-term eSpeed short seller Justin Hughes, for once, is not right.
Robert L. Chapman, Jr.
Chapman Capital L.L.C.