Bears Slam OCZ After Fraud Allegation

| About: OCZ Technology (OCZ)
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By David Russell
"OCZ has misrepresented its SSD growth and has financial irregularities that are nearly impossible to reconcile," a short seller at Copperfield Research wrote, referring to solid-state drives. The report also alleged CEO Ryan Petersen has failed to disclose a criminal background involving charges of theft, drug violations, and forgery.

Bonnie Mott, OCZ Technology Group's (NASDAQ:OCZ) manager of investor relations, didn't immediately return a call from optionMONSTER seeking comment. The author of the Copperfield report disclosed a short position in the stock but doesn't appear to have provided further information. Copperfield doesn't have a web site.

The shares had traded up more than 8 percent early in the session but dropped as soon as the story appeared on Seeking Alpha [Ed. note: actually on the Instablog platform]. They're now down 24 percent to $7.33 in early afternoon trading. Volume spiked to 12.6 million shares, 14 times greater than average.

Activity was even more furious in the options, as almost 43,000 contracts trading versus its daily average of 1,828. Traders aggressively purchased the May 7.50 puts, driving premiums from $0.20 to $1.80. More than 6,500 contracts changed hands, but volume was below open interest because investors had recently sold the same options betting that OCZ would hold its ground.

Investors have also been selling the September 10 calls first for about $1, but the price edged lower and is now around $0.60. Another big trade was the December 7.50/10 collar, which entailed the sale of 3,500 calls at the higher strike and the purchase of an equal number of puts at the lower strike. That strategy will simulate a short position in the name.

OCZ rose more than fivefold between August and earlier this month amid surging demand for its solid-state hard drives. Today's report by Copperfield alleged that the company is relying on dubious overseas clients rather than established companies in the United States