Securities Sleuth

Backdated Options Haunt Electronics for Imaging, Inc. (EFII) Investors

For yet another company the backdated options scandal doesn’t appear to be going away and has been negatively affected shareholder value. California-based Electronics for Imaging, Inc. (EFII) manufactures digital controllers, formal printers and inks, and commercial print management solutions worldwide. On January 30, 2007after the close of trading, the Company disclosed that it would delay the filing of its annual report for the year ended December 31, 2006 as a result of an investigation of possible improper stock option backdating.  The Company has not yet filed its quarterly report for the quarter ended October 31, 2006because of the investigation.

Thus far today EFII shares have declined approximately $2.16 per share or approximately 9% on heavier than usual volume. We are investigating this matter and It appears that investors who purchased EFII between January 31. 2006 and January 30, 2007, are affected. 

 

Thor Industries (THO) May Restate

No one likes to hear that a company in their portfolio may restate and that’s why the market has reacted negatively to Thor Industries, Inc. (THO).  The Company engages in the manufacture and sale of recreation vehicles, and small and mid-size buses in the United Statesand Canada. 

At the end of the trading day on January 29, 2007, the Company announced that it may need to restate its financial statements going back to 2004.  Specifically, the Company disclosed that both its audit committee and independent outside advisers are investigating a subsidiary’s inventory, accounts payable and cost of goods sold. Not surprisingly, the market has reacted very negatively to these disclosures. We are investigating this matter and it appears that investors who purchased THO between December 1, 2003 and January 29, 2007, are affected.

Tough weeks for Coast Financial Holdings (CFHI) Shareholders

The last two weeks have been very tough for Coast Financial Holdings, Inc. (CFHI) shareholders.  The Company operates as the holding company for Coast Bank of Florida that provides various consumer and commercial banking services to individuals and small to medium sized businesses in Manatee, Pinellas, and Sarasota counties in Florida.

The bad news started on January 19, 2007, after the close of the market, when the Company disclosed in an SEC filing that it had made $110 million in loans to 482 borrowers whose homes were being built by a single developer that had “ceased construction activities” and is experiencing “financial difficulty”.  The amount of the loans involved probably represent about 20% of the bank’s loan portfolio and the Company indicated that these circumstances are “reasonably likely to have a material adverse impact” on the bank’s loan portfolio” and the bank’s audit committee would be conducting a review.  This announcement resulted in a drop of approximately 25% the next trading day on heavier than usual volume. 

More bad news would follow. On January 22, 2007, CFHI shares declined an additional 28%, after the bank disclosed additional details about its loan program.  Finally, on January 24, 2007, the bank’s stock dropped another 14% after it announced the Board of Directors had engaged Sandler O'Neill & Partners, L.P. to advise on the financial aspects of the Company's review of its strategic options. We are currently investigating.

LECG Corporation (XPRT) May Need Their Own Expert

LECG Corporation (XPRT) and its wholly owned subsidiary, LECG, LLC provides expert services, including economic and financial analysis, expert testimony, litigation support, and strategic management consulting to a range of public and private enterprises.  Perhaps, after their January  25, 2007announcement regarding their preliminary estimates of Fourth Quarter and Full Year 2006 results the Company may need to use some of their financial expertise internally.  Specifically, the Company indicated that it would miss its previously reported guidance for the fourth quarter by approximately 40-48%.  More troubling the Company announced that it had “discovered errors in its previously issued 2005 annual and 2006 quarterly financial statements in connection with certain specific expert compensation model calculations.” 

We are investigating and it appears that investors who purchased stock from February 28, 2006 to January 25, 2007, are affected.

Trouble for Hornbeck (HOS) Shareholders

Hornbeck Offshore Services, Inc. (HOS) provides offshore supply vessels (OSV) for the offshore oil and gas industry primarily in the United States Gulf of Mexico and internationally.

It has been alleged that while the Louisiana-based Company painted a glowing future and sold $220 million in convertible senior notes, its future wasn’t really near that glowing.  When the true condition of the Company began to emerge its stock dropped precipitously.  Specifically, on January 10, 2007, Hornbeck lowered its 4Q:06 earnings guidance from between $0.72 to $0.77 per share to between $0.61 and $0.63 per share.  The Company attributed this guidance revision to, among other things, volatile market conditions for offshore supply vessels in the Gulf of Mexico, shipyard delays and unscheduled repairs, and increased operating costs. It stock dropped over 20% on this news.  We are investigating and it appears that investors who purchased HOS between November 1, 2006 and January 10, 2007, are affected.

Investigation of Commerce Bancorp (CBH)

Yesterday, January 16, 2006, before the opening on trading, Cherry Hill, New Jersey-based Commerce Bancorp, Inc. (CBH) disclosed, among other things, that  “Commerce has been advised that an investigation is being conducted by the Office of the Comptroller of the Currency, in conjunction with the Board of Governors of the Federal Reserve System. Commerce has further been advised that the scope of the investigation will include but not be limited to transactions with its officers, directors and related parties, including transactions involving bank premises. Commerce is fully cooperating with the OCC and the Federal Reserve with respect to the investigation.”

Not surprisingly, the market reacted very negatively to this news.

The reason for the investigation is troubling.  The Wall Street Journal reports that the investigation may relate to an unspecified number of operating leases for "land and bank premises" with entities in which the Company’s CEO is a partner.  In 2005, the company paid a total of about $1.9 million under the leases. Commerce has built bank branches on at least some of the land, according to past regulatory filings.

One has to wonder what the Board of Commerce Bancorp was thinking to permit such transactions. 

Monster Worldwide (MNST) and Backdated Options

The situation regarding backdated stock options at Monstor.com, the online job-listing service, unfortunately is typical of many companies who backdated their options dates to enrich highly compensated corporate insiders.

The most important item to bear in mind is that this practice wasn’t a one or two year “mistake.”   Instead, at Monster this improper practice happened for eight straight years – from 1997 to 2003. 

What was the General Counsel doing?  The General Counsel clearly wasn’t doing enough and he was fired in November 2006, one month after the CEO quit his job.

At Monster the backdating of options definitely hurt shareholders.  Last month Monster indicated that it recognized $339.6 million in charges after an internal investigation uncovered improper stock-option awards to employees between 1997 and 2003. Of course, those shareholders who perhaps were most negatively affected were the ones who purchased Monster.com in the months before the backdated options scandal was disclosed.  They purchased their stock at an artificially-inflated price.

   

Sunrise Senior Living (NYSE: SRZ) Investors Want an Independent Investigation

Some shareholders at the Virginia-based retirement home company are upset regarding the Company’s investigation of the possible backdating of stock options. One group that is taking action to improve corporate governance in this area is the SEIU Master Trust, a pension fund for Service Employees International Union.  In December 2006, reportedly the SEIU sent a letter to the Board questioning the composition of the special review committee investigating the matter.  Not surprisingly, the SEIU Master Trust wanted to ensure the investigation is “independent.”  It is hard to imagine that any other shareholders would disagree.

Sunrise Senior Living is under investigation for both the timing of its options grants and insider selling prior to its May 2006 announcement that it would restate its earnings.  Since that announcement its stock has declined over 20%.  It is very understandable why many shareholders are upset, particularly those who purchased prior to the May announcement when some insider were selling their shares.