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Today, Optibase (OBAS), a company that deals with advanced digital video solutions, announced a “change” in it’s investment policy. It will decrease its holdings in structured notes, after taking a loss. It had invested about $10million, about 40% of all its cash, in a structured note that they have since sold at a loss of over $300,000.

In today’s announcement, it didn’t specify the principal amount but said that as of July 30, the loss would have been over $900,000. It appears to me that it invested in some kind of range accrual structured note, where, as long as the Libor rate was within a specific range, it earned high rates of interest, but once the range was breached, there was nothing. It obviously did this when rates were still low, and then as rates rose, it got nailed.

My question is where is the corporate oversight? How was the company able to manage its cash position in such a speculative manner? Where was the Board of Directors?

If you investigate the company, you will find that the Chairman of the Board also happens to be CEO. I am not naive enough to think that Optibase is the only company with this arrangement, but clearly there is a conflict of interest with this structure. If Optibase wants to turn into an investment company, and take more risk with its cash, that’s its choice, but how about a little transparency for investors?

It’s a shame that this has happened because the company has been executing their core business model well. For the first half of ‘07, revenues totaled $12.2 million, compared with $8.3 million for the first half ‘06. The net loss for the period was $1.6 million, compared to a net loss of $2.4 million.

Maybe the fact that it is stepping up to the plate and taking responsibility for the loss will mean the end to this practice. Let’s hope Optibase stays on the cutting edge of broadband streaming solutions, and leaves the investing to professionals.

Disclosure: The author’s fund has no position in OBAS as of August 10, 2007.

OBAS 1-yr chart:

OBAS 1-yr chart

Source: Optibase Suffers Losses After Poor Investment Choices