05.28.09

Pegasus Wireless destroyed by executives, not short sellers

Posted in All Categories at 2:12 pm by Michael Goode

See Gary Weiss’ blog for the full story. The gist is that the executives allegedly printed up millions of (unregistered and thus illegal to sell) shares that they gave to acquantinces who then sold the shares on the open market and funneled the proceeds back to the executives. Meanwhile, the executives blamed naked short sellers for the failures to deliver that their selling of unregistered shares created. Idiots at Forbes believed them.

From the SEC complaint (pdf):

Pegasus shares reached a high of$18.69 per share in May 2006, briefly giving Pegasus a market capitalization of approximately $1.42 billion. Knabb promoted Pegasus through word of mouth, as well as unique promotional events such as an appearance at a major sporting event and a concert by a world-renowned musician.

The stock, however, began a steady decline after that, in apparent response to press articles questioning Pegasus’ valuation and reports that Knabb and [ex-CFO Stephen] Durland had headed other microcap companies whose stock rose and crashed in short periods of time.

Later in the complaint:

. . . Having received millions of Pegasus shares directly from Pegasus or indirectly through conduits, Speer, Wilson, Jones, and Aero-Marine proceeded to dump the shares and remit the bulk ofthe proceeds to Knabb. During the Commission’s investigation, Speer, Wilson, Jones, and Aero-Marine’s supposed manager declined to testify about the transactions or activities relating to Pegasus, asserting their Fifth Amendment privilege against self-incrimination.

Between June 2005 and September 2006, Jones sold at least 978,235 shares to
individual investors, including unaccredited investors, in the Myrtle Beach, South Carolina area, often through face-to-face meetings. Knabb often participated in the selling efforts, accompanying Jones in the face-to.:.face meetings and touting Pegasus’ prospects. From the proceeds of these directly to investors, Jones wired to Knabb at least $2.2 million between January 2005 and September 2006. Investors who acquired Jones’ shares sometimes wrote checks directly to Knabb.

Disclosure: No position in Pegasus (if it still exists) and no connection to anyone mentioned.

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