My Thoughts On Vringo Insider Stock Sales

Oct. 06, 2012 4:47 PM ETXSPA10 Comments
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Contributor Since 2012

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 decision making.

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.

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