By Parke Shall
Today's news regarding MGT (NYSEMKT:MGT) seems to further the narrative for shorts and bears that caution may want to be exercised with the company. It's important to also note, however, that these SEC subpoenas can sometimes lead to nothing, as they recently did in the case of Anavex (NASDAQ:AVXL). We're staying away from MGT, but here's our best balanced look at what this could mean and what the procedure is for the company and the SEC from here.
The company disclosed this morning in a press release that it was subpoenaed by the Securities and Exchange Commission,
MGT Capital Investments, Inc. announced today that on September 15, 2016, it received a subpoena from the Securities and Exchange Commission requesting certain information from the Company. MGT has no indication or reason to believe that the Company is or will be the subject of any enforcement proceedings. The Company is fully cooperating to comply with the SEC's request.
The company also stated that there does not seem to be an enforcement action proceeding taking place, and there are a couple things of note that we wanted to point out.
First, subpoena power is generally a little bit more of an aggressive pull for information than the SEC makes on a routine basis. If the SEC has general questions about a filing or the company's business, it is more likely to send a comment letter which the company responds to and, once both parties are satisfied, it is filed and upload it to EDGAR.
The fact that a subpoena was used in this case leads us to believe that the next step could potentially be a Wells Notice . A Wells Notice is usually an indication that an enforcement action or a complaint may be filed, so it is important for investors on both sides of the company to keep one eye out for this. The subpoena process is likely a lengthy one, and we do not think that any additional news will come over the next few months. It is probably going to take the company a significant amount of time simply to comply with the subpoena and provide the documents necessary for review. At that point, the SEC needs to undertake a full review of the information it receives and make a decision as to whether not it wants to move forward with any type of enforcement action.
This entire process could take six months or it could take a year or more. One thing is for sure, we are not expecting a resolution to this at any point soon and it could continue to weigh significantly on the stock going forward.
We have written several times in the past about MGT, trying to look at both sides of the story with this hotly debated stock. One issue of note that we felt necessary to point out was that the company would be experiencing a fair amount of dilution heading forward not only as a result of acquisitions of the company was making, but also as a result of selling stock to fund its operations. Dilution in a company such as MGT needs to be offset by aggressive growth in order to fill out a valuation. MGT investors obviously think that John McAfee is the man to get that done. Regardless, the stock has been a hotbed for debate, mainly because of some critical questions that have been raise on both sides of the aisle.
While there doesn't seem to be an additional marked positive or negative to the company's PR (despite the fact that a subpoena itself is quite the negative generally), we have to note that the subpoena could put pressure on the stock for some time to come, especially because the equity is based upon a valuation that the company has yet to show indications of filling in. The issues may resolve themselves without any action, or there may be an enforcement proceeding that takes place. It is simply too early to speculate and in situations like this, we don't like to be involved in the stock either short or long. We'll avoid MGT for now.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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