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I am an active husband, father, lawyer (more than 24 years, how time flies), and investor. I believe in contrarian investing, i.e., going where the crowd isn't. I believe that successful investing, like successful living, requires equal parts listening and evaluating, followed by independent... More
  • My Thoughts On Vringo Insider Stock Sales 10 comments
    Oct 6, 2012 4:47 PM | about stocks: FH

    A few of you have asked my thoughts about the Vringo insider stock sales that occurred yesterday. Basically, does this worry me? Well, the answer is no, and here's why.

    1. Sales are Preplanned and Nondiscretionary. On 8/31/12, Vringo filed a Form 8-K with the SEC, disclosing that Vringo's execs, except for Don Stout and H. Van Sinclair, had been released from their lockup agreements, but in an orderly way. In lieu of the lockup agreements, the Vringo execs have established a pre-arranged trading schedule, that allows them to exercise limited quantities of warrants and sell limited quantities of resulting stock, at various escalating price levels (i.e., as the stock price hits certain PPS benchmarks) between $4.25 and $30. Here's the language in the 8/31/12 Form 8-K:

    "The trading plans are designed to align the interests of directors and officers with the Company's investors by allowing them to monetize a portion of their equity positions when the market prices of the Company's common stock are between $4.25 and $30.00 per share, in a systematic, nondiscretionary manner with the goal of minimal market impact, and compliance with federal securities laws and regulations adopted by the Securities and Exchange Commission."

    Did you see the word "nondiscretionary" in there? These sales are preplanned, and they are not discretionary, but lockstep at specified share prices.

    Here is a Nasdaq link to the 8/31/12 Form 8-K.

    2. These Guys Deserve To Get Paid Too. The warrants that the Vringo execs are exercising are compensation to them. When they received the warrants, they were basically a promise of future compensation, in return for work they were doing back then (and are still doing now). I am at a baseball game this weekend. They are working.

    I am glad the Vringo execs' nondiscretionary stock sales kicked in, because it means our stock went up. The insider transactions reported yesterday would not have kicked in for them if the stock had not hit the specified benchmarks.

    3. Vringo Execs Want What You Want. I don't think the Vringo execs got into this company in order to have the chance to get out at $4.25 per share. If hitting that benchmark allowed them to sell an allocated portion of stock so they could have a bit of cash breathing room themselves (I don't know their situations, but I imagine they are like a lot of us, but maybe at a different level, i.e., extra cash always comes in handy).

    I don't know what PPS they are looking for. But it looks from their Form 8-K filing that they have to hold on to some of their stock until it hits $30. It sounds to me like their interests are in fact aligned with ours. If this hits, will they make out better than we do? Sure. Did they do more than we did? Sure. In fact, they conceived and created this crazy carnival ride that we are all enjoying so much.

    So in short, I am not worried about these types of sales. In fact, I am glad that the Vringo execs are going into Tuesday's settlement conference with some personal money in their accounts, so they can bargain from a position of financial strength not only on the Company's balance sheet (remember that's what the $45 million did), but also their own.



    Disclosure: I am long VRNG.

    Stocks: FH
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Comments (10)
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  • cj22reyn
    , contributor
    Comments (6) | Send Message
    Thanks Steve, Been following VRNG for a while and your recent articles really make me feel better about my position. The timing of your articles have been really helpful because of how quick you write them as the information comes out. Thanks and cant wait for next week!
    7 Oct 2012, 12:56 AM Reply Like
  • surfnspy
    , contributor
    Comments (406) | Send Message
    Liked the carnival ride analogy. It's crazy alright!
    7 Oct 2012, 02:24 AM Reply Like
  • marpha
    , contributor
    Comments (562) | Send Message
    Someone asked me about this over on my Instablog. Simply cutting and pasting that comment over here, Steve.




    The only distinction I would make relative to Steve's conclusion is the price and the percentage of holdings that are part of the planned sales. I was shocked, frankly, at how much and how early. I believe the price and the percentage involved in the initial sales point to a divergence between management's valuation analysis and risk assessment and that of the general market. I am particularly concerned about the COO, Berger's, plan. He is, arguably, in the best position given his background (he came over from a small investment bank that has been involved with the I/P Engine/Vringo deal) to make valuation assessments. In fact, I understand his former employer (Maxim Group, the small investment bank) raised it's target to $10 at the same time he was liquidating 28% of his current holdings and the company was placing a common stock sale at a 40% discount to the current market price.


    So, while I agree with Steve that the insider sales were planned (obviously) and that the options and warrants were compensatory, I believe the valuation divergence between the insider plan price/percentage and external price/risk assessment is a cause for concern. I also believe that the relationship between Berger and Maxim and the timing of his sales versus the timing of the Maxim price target change should raise eyebrows amongst intelligent and experienced investors.
    16 Oct 2012, 11:28 AM Reply Like
  • SteveKimLaw
    , contributor
    Comments (458) | Send Message
    Author’s reply » Thanks for the comment, Marpha. I enjoy reading your POV.
    16 Oct 2012, 12:01 PM Reply Like
  • stockhawk
    , contributor
    Comments (272) | Send Message
    Steve: I have thought both ways on the insider sales, pro and con. If there is lots of institutional demand for the shares, which it seems there is, then no problem. It's just that so often when insiders sell we think they know something we don't. To be perfectly honest, I bought in at 1.77 a share, sold for 100% gain and bought in again and am up again. So who am I to question, but still... .Anyway mgmt seems very good, which is very important to me and I still believe.. Thanks for you're insights as always.
    16 Oct 2012, 11:31 AM Reply Like
  • hbaskerville
    , contributor
    Comments (49) | Send Message
    Google's CEO sold almost $16MM worth of stock before the trial.
    17 Oct 2012, 12:10 PM Reply Like
  • marpha
    , contributor
    Comments (562) | Send Message
    Lol. And that is what % of Larry's total holdings...?
    17 Oct 2012, 12:39 PM Reply Like
  • hbaskerville
    , contributor
    Comments (49) | Send Message
    I don't know, but I am sure it is substantial. My point was that insider sales don't necessarily mean anything.
    17 Oct 2012, 12:56 PM Reply Like
  • marpha
    , contributor
    Comments (562) | Send Message
    Indeed. And sometimes they do. The trick, I suppose, is figuring out when they don't mean something and when they do and what that might be. I'll stop because I am now boring myself. However, in the case of Vringo when the #1 guy in charge of Vringo's capital markets strategy thinks $4 is a fair price for more than 25% of his holdings, that probably means something--at least to me. Call me crazy!


    Whose valuation analysis are you going to believe--folks like Altucher who can't even seem to get the number of shares right or an insider who has basically telegraphed his valuation assessment by his own actions?


    Again, call me crazy!


    Over and out.
    17 Oct 2012, 01:07 PM Reply Like
  • milachka
    , contributor
    Comments (22) | Send Message
    Shouldn't you include Berger's indirect holdings of 1,800,000 shares when you're calculating the percentage of his position he sold? According to me he only sold about 10%.
    19 Nov 2012, 05:29 AM Reply Like
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