Worthless Pennies'  Instablog

Back in September I wrote and article (seekingalpha.com/instablog/500579-worthl...) arguing that ZAGG was likely the target of an SEC Investigation that was undisclosed by the company. Over four months has passed and ZAGG has still neither confirmed or denied whether there is an ongoing SEC investigation.

I recently received another letter from the SEC which I believe will make it impossible for ZAGG to keep their head buried in the sand and force them to comment on just what is going on with them and the SEC. The letter says that records "related to any past or current SEC Investigation of ZAGG, Inc." will not be turned over to me because they have been "compiled for law enforcement purposes" and the disclosure may "interfere with enforcement activity." The full letter can be read here:

www.scribd.com/doc/124211776/ZAGG-SEC-FOIA

This letter removes any doubt about whether or not there is an ongoing SEC investigation into ZAGG. It also, in my opinion, makes it highly likely that the situation is much more serious than just a SEC investigation. This document is likely to force ZAGG's management to disclose what exactly is going on with the company and the SEC (if this isn't material, I don't know what is!). Until that time I will let the reader examine the facts and draw their own conclusion.

Disclosure: I am short ZAGG.

Back in June of this year I filed a Freedom of Information Act (FOIA) request with the SEC. The FOIA act allows citizens to request access to information from governmental agencies. I requested the following from the SEC:

I hereby request the following information from the SEC on ZAGG Inc. under the rights afforded to me by Congress in the Freedom of Information Act:
1) All information and/or case files on any historical investigation by the SEC of ZAGG Inc. or any of its senior officers or directors (both formal and informal).
2) All information and/or case files on any currently underway investigation by the SEC of ZAGG Inc. or any of its senior officers or directors (both formal and informal).

My request was accepted and assigned to an SEC employee in the FOIA department but I did not receive any reply. When several months had passed without a reply I started sending requests for a status update. After several requests I received the following reply:

records responsive to your request were subject to several confidential treatment requests. Until our negotiations with the confidential treatment submitters is complete, we cannot review or release of any of those records. Once our negotiations are complete we will be able to make a final determination concerning the records.

This is a very interesting and important response for several reasons. First off, if the records that are being referenced were not pertaining to an investigation by the SEC then they would not be "responsive" to my request. The vast majority of FOIA requests submitted to the SEC come back simply with a "no records" reply (7,866 out of 11,562 FOIA requests received that reply from the SEC in 2011). The second reason that the response was important and interesting can be found in this law firm's report on how to handle SEC investigations:

http://www2.americanbar.org/calendar/business-law-section-2011-spring-meeting/Meeting%20Materials/2149.pdf

In the report they recommend that companies that are the target of SEC investigations:
Remember to request confidential treatment under the Freedom of Information Act for documents that are produced to the SEC.

I encourage all shareholders and analysts following ZAGG to examine the information above and draw their own conclusions. In my opinion the facts are indeed pointing toward an ongoing investigation into ZAGG by the SEC. Caveat emptor!