When a CEO of a public company wants to sell stock in his or her own company, there are several ways such a transaction can play out that will prevent shareholders from feeling like the building is burning down, and avoid damaging share price unnecessarily along the way.
Some companies will find a willing buyer to cross out the sale. Some CEOs will dribble their sale out over several days so it doesn’t affect the stock price too much. Some will announce ahead of time why the sale is happening – maybe they’re executing warrants with the cash, which would be a net positive, or dealing with a divorce or a tax problem or paying off a loan which, while not positive, is at least understandable.
What they don’t usually do is sell everything they can legally sell, amounting to nearly 10% of the float, in one fell swoop, right as the stock price is starting to drop hard off a suspiciously promotional looking high.
Because that gives the impression of a pump and dump.
CUV Ventures (CUV.V) CEO Steve Marshall did that last week, after his stock had risen from $0.08 in December, and $0.34 in early February, to $0.76 days later.
Steve Marshall has disposed of ownership and control of 11,995,500 common shares of CUV Ventures Corp. The subject shares represented approximately 9.2 per cent of all issued and outstanding common shares of the company as of Feb. 19, 2019, immediately following the transaction described herein, resulting in a corresponding decrease in the percentage of shares held by Mr. Marshall as a result of the transaction.
Immediately before the transaction described herein, Mr. Marshall held 21.55 million common shares of the company, representing approximately 16.55 per cent of the issued and outstanding common shares of the company.
Immediately following the transaction described herein, Mr. Marshall held 9,554,500 common shares, representing approximately 7.34 per cent of the issued and outstanding common shares of the company.
The march up had investors watching. The February slam up had them freaking out. And the corresponding drop had them in panic.
Marshall did all the right things in putting forth his early warning report and insider documentation, as one is supposed to when running (and selling) a pubco, though his timing was atrocious and, as one can see on the graph above, his Feb 19/20 sales brought about a precipitous drop in the stock.
Indeed, it’s hard to match the numbers in his documentation with the data behind the numbers traded publicly.
He claimed to have sold nearly 12m shares on February 19, at an average of $0.38, though the VWAP was $0.32. Another 1.5m the next day. That could be explained by a simple error in the filing so I’m not about to get all swept up in that for now, but it’s worth sticking a pin it for later and may need to be restated.
If one takes the cynical opinion, that this looks like a pump and dump, there’s no shortage of evidence that will back that claim. Similarly, those with faith in the CEO and the company suggest Marshall is simply an odd bird, who does things differently and will accept a slash in his share price in service of some greater plan we’re not aware of.
In my experience, the ‘person X is playing 4D chess’ explanation of such things rarely turns out to be true. Indeed, it’s often the most famous of last words.
So, despite CUV having been an Equity.Guru client for some time, despite having met Marshall several times and enjoying his pirate king persona, as he travels the world doing deals he has no business being able to pull off, I’ve planted my flag in the ‘I don’t like this, I think this is shitty behaviour, and I want answers’ camp.
And I did so publicly, on social media.
Marshall was not impressed. In a spirited emailed back and forth that went much of the weekend, a correspondence Marshall wants kept off the record, he told me he would make no comment about his personal trades, and that he was convinced the entire of Canada was going to be sat on its ass when what he has planned plays out.
Though specifics remain in short supply, and his exact words remain confidential, the gist of Marshall’s defense is that he doesn’t run his company like people might expect, or even want, so get over it.
Yes, tradition would dictate you let folks know why you’re about to dump 10% of the float of the company into a harsh down trend and, yes, one might look at the timing of his sale, and when information was subsequently released admitting that the company’s payment processing license application has been delayed, and make the case that insider trading had occurred.
Indeed, that’s my major concern.
And it’s not just my concern. Back channel talk suggests his board were taken by surprise by the move, and I’ve been reached out to by people around the company – including the CEO himself – who have requested I give them a chance to let the dust settle before I go charging into the breach with sword aloft.
Fair enough. But the clock is ticking. If Steve Marshall indeed has a grand plan, he’ll want to execute it within the tight timeframe he’s laid out. If all of those rowing his boat are rowing in the same direction as the captain, they’ll want to show that with some urgency. The stock has been rising the last few trading days, but it has a long way to go to get folks back above water, and the CEO is the only one who can make that happen.
At Equity.Guru, we have long told anyone who would listen that we hold our clients to a higher standard, and expect them to behave in a way that protects shareholder wealth, and that if they don’t, we’ll be the first ones to poke them in the chest for it.
CUV is no longer a client, but having told their story for some time, we remain committed to watching and reporting as necessary, to protect our readers who may have jumped in on the basis of our reporting. The hope is, we’re wrong about CUV and Marshall gets to do a victory lap at our expense. If that happens, so be it.
We will be fair. But we remain vigilant.
— Chris Parry
FULL DISCLOSURE: The author holds ‘in the money’ CUV warrants and would love the company share price to rise so he can eat steak. But he won’t execute those while the company is in flux, to remain aligned with shareholders during this time. CUV has previously been an Equity.Guru client.
Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.