ZAGG (ZAGG) Falls Victim to 'Margin Call' Drama

August 29, 2012 2:45 PM EDT
Since August 14th shares of Zagg (Nasdaq: ZAGG) have declined by 7 percent, and the reasons for the decline are fairly obvious. On August 17th, Robert Pedersen, the companies co-founder, CEO and Chairman, suddenly resigned. The resignation came 3 days after Pedersen sold 515k shares of company stock in order to meet a margin call.

In the August 17th filing announcing Pedersen's resignation, Zagg’s Board instituted a new policy that prohibited officers and directors from "engaging in short-term or speculative transactions involving publicly traded options, short sales, puts, and calls, hedging transactions and holding securities in a margin account". The new rules were obviously related to Pedersen and his recent margin call.

On Tuesday of this week, Zagg held a conference call explaining the sudden resignation, and based on the comments it is clear that the two events, the margin call and the resignation, are directly related. This isn't a huge surprise, although it does contradict statements Pedersen made in the press.

Apparently this wasn't the first time the former CEO's fell on hard times. In December of last year, reports say he sold 345k shares to meet a "financial obligation." Yesterday we learned that this too, was a margin call. And that's not the end of the story. Last Friday, Pedersen sold another 1.24 million shares to meet the remaining obligations from the same margin call.

Obviously, all the drama has cast a dark cloud over the stock, and it may take some time before investors find the courage jump back in. Occasional drama at a company is one thing, 9 months worth of it plays like a bad soap opera.

NOTE: Sam E. Antar recently discussed the situation at his blog White Collar Fraud.

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