A Wall Street analyst, in response to questions about the criminal history of Campus Crest Communities CEO Ted Rollins, said investors would be very concerned about such revelations.
Paula Poskon, a senior research analyst at Robert W. Baird and Co., made the remarks a few weeks back in an interview with Legal Schnauzer. Events in the investment world since then indicate Poskon knew exactly what she was talking about.
Investors, it seems, do care deeply about ugly events in a CEO's background. Ryan Petersen resigned on September 17 as CEO of OCZ Technology, a Silicon Valley company that is a leader in solid-state storage technology. Petersen founded OCZ, and the company is on the leading edge of a computing transition from hard drives to solid-state drives (SSDs). But that did not prevent his unceremonious exit after the market learned of unsavory events in his past--and his failure to disclose them.
How did these events come to light? The answer to that question speaks to the growing power of the non-traditional press.
A story broke in April 2011 on seekingalpha.com that Petersen and the company's underwriters had failed to disclose information about the CEO's criminal record. The story specifically broke with Copperfield Research, a contributor at the Seeking Alpha site, and then made its way into the mainstream business press.
A little more than a year later, Ryan Petersen is out as CEO.
What is Copperfield Research? It's a pseudonym for a research team that focuses on publicly traded equities. The researchers publish under anonymous status because of concerns about retaliation from corporate management. The names behind Copperfield Research might not be known, but their work obviously carries weight.
A number of factors might have played into Ryan Petersen's resignation at OCZ Technology. Press reports indicate the company had made a number of business missteps, but the downward slide seemed to start with Copperfield Research's reporting.
Revelations about the CEO's criminal history almost certainly helped stunt the company's performance and put a cloud over its future. Bloomberg produced a story titled "OCZ Technology Plunges After Reports of CEO's Criminal Record."
What was Petersen hiding in his personal closet? From the Copperfield Research report:
OCZ and the underwriters did not disclose material background information on the CEO's criminal record. While we are sympathetic to mistakes made in the past, we believe the importance of the CEO's credibility is essential given the extreme reliance investors and analysts have placed on his story. A national criminal records search shows the CEO was arrested and/or charged in various Courts for: Grand Theft, Forgery, Unlawful Entry Motor Vehicle, Theft-1, Drug Violations, and Traffic in Stolen Property.
Gulp! I can't imagine why investors would be concerned about all of that.
What do we learn from this story? For one, Seeking Alpha now is a powerful force in business journalism. According to Nielsen Analytics, Seeking Alpha has the leading audience of any financial Web site--including Bloomberg, CNN Money, and The Wall Street Journal.
Two, we learn that investors become displeased when they learn that details about a CEO's criminal record have been kept from them. From the Bloomberg article about OCZ's stock plunge:
OCZ Technology Group Inc. (OCZ), the maker of solid-state disk drives, plunged for a second day in Nasdaq trading following a report that the company didn’t disclose its chief executive officer’s criminal record.
The shares of the San Jose, California-based company fell 74 cents, or 9 percent, to $7.49 as of 4 p.m. New York time, after dropping 14 percent yesterday. . . .
“The criminal record makes investors nervous,” said Aaron Rakers, an analyst at Stifel Nicolaus and Co. “There were people out there that were not fully aware of the aspects of the deal and that put pressure on the stock.” Rakers has a “buy” rating on the shares.
What does this mean for Ted Rollins and Campus Crest Communities? It's hard to say, but our guess is that Ryan Petersen would still be CEO of OCZ Technology if Copperfield Research had not done its homework-- and Seeking Alpha had never existed. Here is a video report on the Ryan Petersen story from Cory Johnson of Bloomberg: