Jul
21
Editor’s Note: In its response, Zagg insists that everything is acceptably disclosed because Harmer and Pedersen are one step removed from brothers-in-law. This begs the question of why didn’t they just disclose “Our chief executive’s sister is married to our audit chair’s brother?”
As a work of public relations, this is high art. As a signifier of corporate candor, it is less than satisfying. I have edited the copy in several places to reflect Zagg’s interpretation.
The money given the company Harmer had a stake in for the development of the ZaggBox was not initially a loan as originally reported, but was later accounted for as a “Note Recievable.” The change has been noted.
ZAGG never fails to reward persistent investigation.
The latest treasure to be pulled from the cellphone shield maker’s murky depths is an absolute stunner. Lorence Harmer, the recently departed chairman of the audit committee, has familial ties to chief executive Robert Pedersen. To whit: Pedersen’s sister Michelle married Lorence’s brother Howard.
For three years, this was apparently considered an immaterial issue to Zagg’s management.
So in Zagg’s 2010 Proxy, in Harmer’s biographical description, None appears in the “Family Relationships” line. Exactly how this decision was arrived at is unclear; the primary reason for disclosure regulations are situations like this. The meaning of the section is longstanding and plain as day: Is there any familial relationship by blood or marriage between yourself and another senior executive or board member? It is inconceivable that Harmer, whose description notes that he is fluent in Mandarin and holds multiple college degrees, could not comprehend that a relationship that many term “brother-in-law” qualifies under this standard.
[There’s yet another Harmer at Zagg, albeit in a smaller role. This was not the first time that Lorence Harmer worked with the Pedersen's, having directed the Asian operations of a company that Pedersen's father, Robert Sr., ran called Intec-Innovative Technologies.]
It is equally absurd to argue that CEO Pedersen and chief financial officer Brandon O’Brien, the two men who appear to control all aspects of Zagg’s operations, did not understand the meaning of the standard, nor that it was highly material and that all serious publicly traded companies would disclose the relationship.
In other words, it took a group effort to let a lie that big stand.
The record between Harmer and Zagg is part comedy, part tragedy and entirely problematic.
Recall: He got the company to front money for the development of some Rube Goldberg type thing called the ZaggBox that won’t see the light of day any time soon and cost them $4 million. He failed to disclose that he owned 25% of the ZaggBox maker and eventually signed a promissory note to pay back the whole thing, but collateralized it with properties that were heavily in hock and which, at any rate, had dropped in value. When he quit, as Citron Research’s Andrew Left noted, Zagg chose not to disclose it for four months.
Regardless, the role of audit chair is the last line of shareholder defense in ensuring a company uses best accounting practices. The Pedersen and Harmer coverup inverted that, turning the position into a profitable for Harmer and making it likely that his interests were placed before shareholders.
The only question, of course, is how on earth any prudent investor could trust a single word from Pedersen’s mouth again. The issue of integrity is a settled matter. A company, after all, that intentionally allows its shareholders to vote on provably false information so a familial relationship between board members can be hidden is assuredly open to many other things even less welcome.
To that end, a brief listen to CEO Pedersen’s response to a question posed to him about the Harmer collateral yesterday during a conference call–Ladenburg Thalmann, one of the more established underwriters of dubious companies on Wall Street, sponsored the call-is illustrative. Within the context of the familial coverup, it takes a fair amount of faith to believe Pedersen’s rambling assertions (around the 21 minute mark) that Zagg’s lawyers are poring over the collateral to see if it is adequate are true.
Pedersen’s dismissal of his critics on the call as liars is too cute by half.
Citron Research’s Left and Joseph Ramelli of Worthless Pennies might be wrong on some claims or overstate others–and investors have pushed the stock higher in spite of their attacks, causing them plenty of headaches–but they document what they assert and their economic agenda is clear.
The only deceit to be seen here is Pedersen’s and it’s not at all clear what his agenda is.
Zagg’s PR spokeswoman sent this note in response to FI.com questions about the matter.
Just wanted to post a trackback, since this article was referenced in a new post:
http://davianletter.com/blog/2011/12/13/zagg-and-looming-liquidity-crisis