Today saw the unveiling of the REFR's latest PR shenanigan. It wasn't released by REFR, of course. They seem a little antsy about anything remotely of substance being released under their corporate name. No, as per their usual MO of late, they are promoting through a surrogate, in this case one Steve Belmonte, of Hospitality Solutions, LLC, and apparently only for purposes of promoting SPD, Hotel Technologies (no Inc., LLC or any other corporate designation).
Mr. Belmonte has developed what he calls the Grad-U-Wake Timer. Not to be confused with the Graduwake brand of alarm clock radio by General Electric. Not to worry about trademark issues, of course, since there will only be confusion if Mr. Belmonte's invention goes on to become an actual for-sale product.
The idea behind the Grad-U-Wake timer is that it will incrementally change the light transmittance of a hotel window equipped (naturally) with SPD, steadily letting in more and more sunlight so as to gently wake the room occupant. Much nicer than one of those wake-up calls, don't you think? Of course, it's not going to be of much use if one needs to rise before dawn, but hey, nothing is perfect.
But the real problem lies in the properties of the SPD film itself, along with the small issue that when you get right down to it, the sun is one really bright sucker.
SPD, in its darkest formulation is rated, so they say, to block 98.5% of incoming light. That certainly sounds good, until you run the math. Even towards its low end sunlight measures about 32000 lux. 1.5% of that, the amount SPD lets through even in its darkest phase, comes to about 480 lux, which is comparable to the light in a reading library. Not exactly ideal conditions for sleeping in, if your window happens to be facing east!
And that's to say nothing of the privacy issues. Sure, it's no big deal if you're on the 20th floor, but if you happen to be in a ground level room, you'll probably note that, for all its light-block properties, SPD does not become opaque under any circumstances. The upshot being that if you have a light on in your room at night, an SPD window will not do much little to protect your privacy.
Promoters of SPD technology continuously make the claim that windows equipped with SPD will make curtains, shades and blinds obsolete. I personally tend to doubt Levolor is quaking in their boots over SPD.
Thursday, March 24, 2005
Suckers Only
Today's quote from the message boards:
Of course a number of inconvenient questions arise:
The usual answers to these are:
"The longs have private discussions lists that unlike this joke of a message board are truly useful. That's where all the action is."It's a frequently-made claim on the REFR boards, that the shareholders have this private club where they discuss the "really good stuff" with respect to REFR. And if you truly give yourself over to REFR, maybe one day you'll be blessed with the password to the private club. Or something like that anyway.
Of course a number of inconvenient questions arise:
- If the information is so bullish for REFR, why keep it private?
- It you guys are in possession of material nonpublic information, doesn't that constitute a Reg. FD violation?
- What's so great about information that caused you to buy at twice today's prices, anyway?
The usual answers to these are:
- "Because sharing it with the shorts will only help the shorts." Which makes no sense, because if the information is good and sound, what will the shorts be able to do about it? An alternative response: "Because it's more fun to string you along." Whatever.
- Either "The info isn't really nonpublic -- you just have to know where to look" (much like with this blog), or "The info comes from the licensees, which aren't public companies, and therefore not subject to Reg. FD".
- "Shut up. Who pays you to spend so much time asking these questions anyway?". Or sometimes, if they're in a good enough mood, "It won't matter what I paid for it because it's going to be worth hundreds of dollars a share anyhow."
Wednesday, March 23, 2005
Pump up the Volume
Today's promoter quote for the dissection table:
"up almost 8% on less than 4K traded? Took 40K to take it down that much"
The implication being that it is taking much more effort to move REFR down than it does to move it up.
The thing is, despite the attractive logic of that point of view, anyone with experience in the market will tell you that that is completely bass-ackwards. Why is that?
Think of it in these terms. Higher volume on downtrends means that the sellers are more enthusiastic with their selling, than the buyers are with their buying.
The divergence comes from one's perspective about what the motivation of the selling is. Now, normally, one would tend to think that the motivation of a sale is straightforward: the price one can get for the stock is higher than the seller believes the stock is worth.
Ah, but things are never that easy in the world of the Type 3 investor. From the Type 3 perspective, the notion that anyone could believes the current price is worth selling at is absurd. Why? Because they themselves paid much more for the stock! Remember that a Type 3 investor is allergic to admitting being wrong. Therefore if REFR was a buy at, say, $10, it cannot possibly be a sell under $6. The fact that the price remains over 400 times revenues (not earnings), or any other numerical argument that REFR is not worth anywhere near its present market capitalization, means nothing to them.
So why, you ask Mr. Type 3, is there selling at this level. Why, manipulation, of course! Refer back to my post on the task facing our four hedge fund investors, and then turn it on its head. Portray it instead as the shorts being on a very long-term project of escaping a large short position by selling to attract other selling, then buying back into the decline, and you have the perspective of the Type 3 investor in a nutshell.
So what's wrong with that, you might well ask. Aren't the arguments symmetrical? Well, no, not quite. For one thing, it's a lot easier to talk someone into buying on a rally than into selling on a decline. This is because there's a little of the Type 3 investor in most everyone. Buying, especially adding to a position, is an reaffirmation that one is right. Selling at a loss is a confession to having been wrong. Who wants to be the pessimistic seller, when you can be the optimistic buyer?
Another big assymetricality comes in what the industry refers to as the "uptick rule". This rule, a holdover from the 1929 crash, essentially states that you can't drive a stock's price down with short selling. The precise mechanics of the rule vary from market to market, but the gist of it is that if a stock last traded at $5.45, you can't fill a short sell order at $5.40.
So how is downward manipulation supposed to work, then? This is where things start to get a bit silly. The idea is, that the short sellers hold a substantial number of shares long, in accounts seperate from their short positions. (For a time, the promoters even referred to these as "illegal long accounts", as if there was such an animal.) They then dump these shares on the market, to improve the value of their short position. Simple, huh?
This is why the promoters get all excited about uptrends coming on lower volumes than the downtrends. From their point of view, the shorts expended 40,000 of their shares in driving the price down yesterday, but were only able to buy 4,000 of them back before the price got back to where it was before. At this rate, the theory goes, the shorts will quickly run out of shares to dump in such a manner, and there will be nothing left to keep the stock down ever again.
Multiple years of fruitless waiting for the shorts to "run out of shares", never seems to dissuade the touters of this theory of the markets.
And all the while they play right into the hands of the real players in the market of REFR, who are selling, not buying, large positions, and happily scooping up the money of the marks just as fast as it can be laid out.
Welcome to Looking-Glass Land, Alice.
"up almost 8% on less than 4K traded? Took 40K to take it down that much"
The implication being that it is taking much more effort to move REFR down than it does to move it up.
The thing is, despite the attractive logic of that point of view, anyone with experience in the market will tell you that that is completely bass-ackwards. Why is that?
Think of it in these terms. Higher volume on downtrends means that the sellers are more enthusiastic with their selling, than the buyers are with their buying.
The divergence comes from one's perspective about what the motivation of the selling is. Now, normally, one would tend to think that the motivation of a sale is straightforward: the price one can get for the stock is higher than the seller believes the stock is worth.
Ah, but things are never that easy in the world of the Type 3 investor. From the Type 3 perspective, the notion that anyone could believes the current price is worth selling at is absurd. Why? Because they themselves paid much more for the stock! Remember that a Type 3 investor is allergic to admitting being wrong. Therefore if REFR was a buy at, say, $10, it cannot possibly be a sell under $6. The fact that the price remains over 400 times revenues (not earnings), or any other numerical argument that REFR is not worth anywhere near its present market capitalization, means nothing to them.
So why, you ask Mr. Type 3, is there selling at this level. Why, manipulation, of course! Refer back to my post on the task facing our four hedge fund investors, and then turn it on its head. Portray it instead as the shorts being on a very long-term project of escaping a large short position by selling to attract other selling, then buying back into the decline, and you have the perspective of the Type 3 investor in a nutshell.
So what's wrong with that, you might well ask. Aren't the arguments symmetrical? Well, no, not quite. For one thing, it's a lot easier to talk someone into buying on a rally than into selling on a decline. This is because there's a little of the Type 3 investor in most everyone. Buying, especially adding to a position, is an reaffirmation that one is right. Selling at a loss is a confession to having been wrong. Who wants to be the pessimistic seller, when you can be the optimistic buyer?
Another big assymetricality comes in what the industry refers to as the "uptick rule". This rule, a holdover from the 1929 crash, essentially states that you can't drive a stock's price down with short selling. The precise mechanics of the rule vary from market to market, but the gist of it is that if a stock last traded at $5.45, you can't fill a short sell order at $5.40.
So how is downward manipulation supposed to work, then? This is where things start to get a bit silly. The idea is, that the short sellers hold a substantial number of shares long, in accounts seperate from their short positions. (For a time, the promoters even referred to these as "illegal long accounts", as if there was such an animal.) They then dump these shares on the market, to improve the value of their short position. Simple, huh?
This is why the promoters get all excited about uptrends coming on lower volumes than the downtrends. From their point of view, the shorts expended 40,000 of their shares in driving the price down yesterday, but were only able to buy 4,000 of them back before the price got back to where it was before. At this rate, the theory goes, the shorts will quickly run out of shares to dump in such a manner, and there will be nothing left to keep the stock down ever again.
Multiple years of fruitless waiting for the shorts to "run out of shares", never seems to dissuade the touters of this theory of the markets.
And all the while they play right into the hands of the real players in the market of REFR, who are selling, not buying, large positions, and happily scooping up the money of the marks just as fast as it can be laid out.
Welcome to Looking-Glass Land, Alice.
Tuesday, March 22, 2005
Recommend if you think this is silly
This is another example of the type of silliness you see on the Yahoo boards a lot:
While it's nice to see the shareholders support their company and hoping that those who bet against them fail, these kinds of "polls" are just abject silliness. So you have 35 accounts (representing at most 35 people -- who can say how many accounts some of these jokers have?) in the whole world rooting for REFR. La dee da. Yet for some reason some of these people take them seriously. In fact, one day a couple of weeks ago, the Yahoo message boards were having glitches (which continue to this day). In this case, recommendations were appearing and disappearing somewhat randomly from messages. This post was typical of the reaction:
Oh, and the punch line:
Sigh.
| | |
| Reco this post if you by: aa11000000 Long-Term Sentiment: Strong Buy | 03/22/05 06:55 am Msg: 194911 of 194925 |
Support RFI's licensees,SPD tech,it's management, the complete and total destruction of the shorts & the scum bashers that post here day and night. | |
While it's nice to see the shareholders support their company and hoping that those who bet against them fail, these kinds of "polls" are just abject silliness. So you have 35 accounts (representing at most 35 people -- who can say how many accounts some of these jokers have?) in the whole world rooting for REFR. La dee da. Yet for some reason some of these people take them seriously. In fact, one day a couple of weeks ago, the Yahoo message boards were having glitches (which continue to this day). In this case, recommendations were appearing and disappearing somewhat randomly from messages. This post was typical of the reaction:
| RFI in Perspective -- Glitch by: petrichgetrich Long-Term Sentiment: Strong Buy | 03/07/05 07:29 am Msg: 194327 of 194926 |
Yesterday, when I looked, my "RFI in Perspective" post had 15 recommendations. Now it has none. Either Yahoo has had a glitch or some desperate short has figured out how to play with the Recs. column -- most likely the latter. | |
Oh, and the punch line:
Recommend this post if you agree. |
Sigh.
Up and down
The day-to-day movement of the share price of REFR is for the most part not worth obsessing over. In a stock that trades with as little volume as REFR does, with as little institutional involvement as REFR has, there is a very small signal-to-noise ratio in REFR's trading. One not-particularly-wealthy person could easily have the power to move the stock 5% or more in the short term, if they chose to. Don't even get me started on the dweebs that go into trade-by-trade analyses. Those are the same people that try to find patterns in the spins of roulette wheels at casinos.
But there has been a definite overall pattern to recent trading. It has a simple and quite easy-to-explain cause, and that makes the efforts, particularly among the promoters, to portray it as something other than what it clearly is, all the more amusing.
As I referenced earlier, there are four unnamed hedge funds who agreed to buy an aggregate of 1,000,000 shares of REFR at $5.00 apiece, at the time about a 17% discount to market. Since then, the price dropped quickly to $5.00, steadily rose to $6.50, and is now in a steady downtrend towards $5.00.
For the answer to what is going on, I refer you to the classic book "Reminiscences of a Stock Operator", authored pseudonymously by Edward Lefevre. In one chapter, the book's author tells a story of a group of investors with a large position in the stock of a company that they know to be in trouble, and wanted to be able to disburse their holdings without depressing the market for too terribly -- in other words, to get as much as they can for their shares. This, it seems clear, is quite analogous to the situation REFR's four hedge funds face.
What they did was to alternate back in forth in buying and selling shares of the stock, hoping to attract outside buyers on the upswings of the stock, so that they can sell more shares on the downswings as they had to buy to cause the upswings. In that manner, they would maintain a price range for their shares, while slowly but steadily reducing their stake. This same model for exiting a large, otherwise unmarketable position has been followed ever since, and it is clearly being followed again by our four hedge funds.
But of course, that would imply that the hedge funds wish to exit their positions in REFR, and if it is your desire to promote REFR, there is no way you can allow that to become prevailing wisdom! So what do the promoters do? They same thing they always do when in doubt -- blame everything on the shorts.
The shorts, they say, were covering in a panic, to explain the rise from $5.00 to $6.50. And now that the price is in decline, they reverse themselves and say that the shorts are in full control, "walking down" the price. Quite the manic-depressives, the shorts of these promoters' imaginations!
To listen to the promoters consistently over the years, the shorts have sold enough shares -- without ever managing to buy a single one from the infinitely loyal shareholder base -- to cover the total shares outstanding five times over. Where these shares supposedly keep coming from, and where they go after being sold to bring down the share price, is a subject of much hand-waving and changing of the subject.
At any rate, the funds have about a year to work their way out of their positions, before REFR has to sell more shares to keep the company running. Presumably, then, we'll see a steady cycle of back-and-forth between $5.00 and somewhere in the sixes, until such time as the company needs to raise more funds, or one of the funds decides they've sold enough that they can simply dump the rest at whatever price, or one of the funds goes broke and has to liquidate (always a risk in the hedge fund world), or some other outside influence comes into play, whether for good or ill from the company's perspective.
But whatever happens, of course, it will all be the shorts' fault.
But there has been a definite overall pattern to recent trading. It has a simple and quite easy-to-explain cause, and that makes the efforts, particularly among the promoters, to portray it as something other than what it clearly is, all the more amusing.
As I referenced earlier, there are four unnamed hedge funds who agreed to buy an aggregate of 1,000,000 shares of REFR at $5.00 apiece, at the time about a 17% discount to market. Since then, the price dropped quickly to $5.00, steadily rose to $6.50, and is now in a steady downtrend towards $5.00.
For the answer to what is going on, I refer you to the classic book "Reminiscences of a Stock Operator", authored pseudonymously by Edward Lefevre. In one chapter, the book's author tells a story of a group of investors with a large position in the stock of a company that they know to be in trouble, and wanted to be able to disburse their holdings without depressing the market for too terribly -- in other words, to get as much as they can for their shares. This, it seems clear, is quite analogous to the situation REFR's four hedge funds face.
What they did was to alternate back in forth in buying and selling shares of the stock, hoping to attract outside buyers on the upswings of the stock, so that they can sell more shares on the downswings as they had to buy to cause the upswings. In that manner, they would maintain a price range for their shares, while slowly but steadily reducing their stake. This same model for exiting a large, otherwise unmarketable position has been followed ever since, and it is clearly being followed again by our four hedge funds.
But of course, that would imply that the hedge funds wish to exit their positions in REFR, and if it is your desire to promote REFR, there is no way you can allow that to become prevailing wisdom! So what do the promoters do? They same thing they always do when in doubt -- blame everything on the shorts.
The shorts, they say, were covering in a panic, to explain the rise from $5.00 to $6.50. And now that the price is in decline, they reverse themselves and say that the shorts are in full control, "walking down" the price. Quite the manic-depressives, the shorts of these promoters' imaginations!
To listen to the promoters consistently over the years, the shorts have sold enough shares -- without ever managing to buy a single one from the infinitely loyal shareholder base -- to cover the total shares outstanding five times over. Where these shares supposedly keep coming from, and where they go after being sold to bring down the share price, is a subject of much hand-waving and changing of the subject.
At any rate, the funds have about a year to work their way out of their positions, before REFR has to sell more shares to keep the company running. Presumably, then, we'll see a steady cycle of back-and-forth between $5.00 and somewhere in the sixes, until such time as the company needs to raise more funds, or one of the funds decides they've sold enough that they can simply dump the rest at whatever price, or one of the funds goes broke and has to liquidate (always a risk in the hedge fund world), or some other outside influence comes into play, whether for good or ill from the company's perspective.
But whatever happens, of course, it will all be the shorts' fault.
Monday, March 21, 2005
Technically correct
An exchange today on the Yahoo board highlights a major aspect of the REFR "style" of being in the "right".
A critic complained, in part:
Of course, while focusing on the inaccurate statement, the promoter deftly sidesteps the actual issue, which was that Joe Harary delivering a monologue running nearly an hour does not meet standard investor expectations as to what a corporate conference call is supposed to be. The promoter was right, but he didn't exactly prove the critic wrong, either.
Indeed, the promoter, in extracting his technical definition, chose to overlook the very next paragraph, which says, in part:
A critic complained, in part:
"Calling that monologue a conference call was an insult to shareholders. Announcing it in a press release as a conference call was a lie. There is no such thing as a conference of one."To which a promoter replied with a dictionary definition of "conference call":
Conference CallTechnically, the promoter is correct. There is no inherent promise of interactivity in a conference call. All a conference call technically requires is participants in three or more locations, including the central point.
An event in which investors can call into a special phone number and hear the management of their company comment on the financial results of the recently completed quarter.
Of course, while focusing on the inaccurate statement, the promoter deftly sidesteps the actual issue, which was that Joe Harary delivering a monologue running nearly an hour does not meet standard investor expectations as to what a corporate conference call is supposed to be. The promoter was right, but he didn't exactly prove the critic wrong, either.
Indeed, the promoter, in extracting his technical definition, chose to overlook the very next paragraph, which says, in part:
"Most publicly held companies hold four conference calls per year."Clearly, REFR, for whom this was the first such call in two years, is not like"most publicly held companies".
Holding out hope
In my last two posts, I described how the company's management has no particular incentive to make REFR into a profitable corporation, and how the board of directors is effectively a puppet of management. Given this knowledge, what sane investor would have anything to do with such a company?
In my experience, there are basically three types of investors in REFR. First, you have Type 1 (I'm numbering arbitrarily here), the true victims, unaware, largely elderly folk, who trust brokers and money managers with their wealth, only to have them unscrupulously place them in such horrid investments as REFR. They are unlikely to be aware of REFR, and even if they somehow hear the story, they have no particular reason to think it has anything to do with them. Their story is a tragedy, and unfortunately one about which there is very little else to say. Regulation of brokers and money managers is pathetic and we are miles away from reform on that front.
Then you have Type 2, the run of the mill suckers. They see SPD demonstrated, and they say, wow, I gotta get me a piece of that. It's a mistake that investors make all the time, and probably every one of us has done something like that at some point, but it's a mistake all the same. Being "wowed" by the SPD demonstration, by the way, is nothing to be ashamed of, even in long-term retrospect. The little demonstration panel, roughly one foot square including a thick border in which the wiring is kept, works quite well and is quite an impressive sight. Indeed, for all we know, that might be what led Robert Saxe to acquire the patents for SPD and incorporate Research Frontiers to begin with.
But, inevitably, the investor reaches a state of disappointment, when it becomes clear that their expectations with respect to REFR and SPD are not being met. At this point, a lot of different things can happen, depending the psychology of the specific investor. Some will shrug and say, oh well, and walk away. A handful of others will get angry at management for having led them on, and become sharply critical of the company. (This is not the path I treaded with REFR, though I have met a number of people who did.)
Others, sadly, will continue to hang on. They'll accept management's constant alibi that they only thing they were guilty of is too much optimism. They blame themselves for having set expectations too high, or they decide that management deserves another chance. Or maybe they put past failures out of their mind as irrelevant, after all, that's the past, and they're investing in the future! Welcome to the world of the Type 3 investor in REFR.
Type 3 is the type that you see on the message boards, staunchly defending (usually in the sense of "the best defense is a good offense") the company and everything it has ever done, and, if something is so ridiculous as to be indefensible in retrospect, dismiss it out of hand as some ancient relic with no bearing on the present day.
It gets to a point where their rationalization of every single foible of managment becomes so comical, that one begins to question, are these real investors in the company, or are they plants, shills if you will, there to egg on potential Type 3 investors and encourage them to believe exactly what REFR would like them to believe.
It would be truly comical if the entire board full of REFR bulls were all shilling to each other and no legitimate buyers were actually listening to them, but the evidence indicates that there are at least some genuine longs caught up in the bizarre web of hype surrounding REFR. Who is who, is much harder to determine, however.
Type 3 investors in REFR, whether genuine or simulated, generally have one common trait, and that is an inability to admit being wrong. About anything. They will rationalize just about anything to escape the conclusion that they made a mistake. And if cornered, they change the subject, frequently to the motivations of the person asking the question to begin with. Indeed, when this blog is eventually "discovered" by someone from this group, their first reaction will almost certainly be to question my motivation for saying all the things I am saying. They will do this because they will not be able attack the substance of what I am saying in a meaningful way.
So that gives a full reckoning of the players in this tragedy: a management clique looking out only for itself, a board that is a puppet of management, and a shareholder base consisting of the ignorant and the ego-blinded. And all around this motley group, a number of spectators, alternating between grieving the overall tragedy and guffawing at the pratfalls of those involved.
Welcome to my box seat. Enjoy the view. There's a lot more to see.
In my experience, there are basically three types of investors in REFR. First, you have Type 1 (I'm numbering arbitrarily here), the true victims, unaware, largely elderly folk, who trust brokers and money managers with their wealth, only to have them unscrupulously place them in such horrid investments as REFR. They are unlikely to be aware of REFR, and even if they somehow hear the story, they have no particular reason to think it has anything to do with them. Their story is a tragedy, and unfortunately one about which there is very little else to say. Regulation of brokers and money managers is pathetic and we are miles away from reform on that front.
Then you have Type 2, the run of the mill suckers. They see SPD demonstrated, and they say, wow, I gotta get me a piece of that. It's a mistake that investors make all the time, and probably every one of us has done something like that at some point, but it's a mistake all the same. Being "wowed" by the SPD demonstration, by the way, is nothing to be ashamed of, even in long-term retrospect. The little demonstration panel, roughly one foot square including a thick border in which the wiring is kept, works quite well and is quite an impressive sight. Indeed, for all we know, that might be what led Robert Saxe to acquire the patents for SPD and incorporate Research Frontiers to begin with.
But, inevitably, the investor reaches a state of disappointment, when it becomes clear that their expectations with respect to REFR and SPD are not being met. At this point, a lot of different things can happen, depending the psychology of the specific investor. Some will shrug and say, oh well, and walk away. A handful of others will get angry at management for having led them on, and become sharply critical of the company. (This is not the path I treaded with REFR, though I have met a number of people who did.)
Others, sadly, will continue to hang on. They'll accept management's constant alibi that they only thing they were guilty of is too much optimism. They blame themselves for having set expectations too high, or they decide that management deserves another chance. Or maybe they put past failures out of their mind as irrelevant, after all, that's the past, and they're investing in the future! Welcome to the world of the Type 3 investor in REFR.
Type 3 is the type that you see on the message boards, staunchly defending (usually in the sense of "the best defense is a good offense") the company and everything it has ever done, and, if something is so ridiculous as to be indefensible in retrospect, dismiss it out of hand as some ancient relic with no bearing on the present day.
It gets to a point where their rationalization of every single foible of managment becomes so comical, that one begins to question, are these real investors in the company, or are they plants, shills if you will, there to egg on potential Type 3 investors and encourage them to believe exactly what REFR would like them to believe.
It would be truly comical if the entire board full of REFR bulls were all shilling to each other and no legitimate buyers were actually listening to them, but the evidence indicates that there are at least some genuine longs caught up in the bizarre web of hype surrounding REFR. Who is who, is much harder to determine, however.
Type 3 investors in REFR, whether genuine or simulated, generally have one common trait, and that is an inability to admit being wrong. About anything. They will rationalize just about anything to escape the conclusion that they made a mistake. And if cornered, they change the subject, frequently to the motivations of the person asking the question to begin with. Indeed, when this blog is eventually "discovered" by someone from this group, their first reaction will almost certainly be to question my motivation for saying all the things I am saying. They will do this because they will not be able attack the substance of what I am saying in a meaningful way.
So that gives a full reckoning of the players in this tragedy: a management clique looking out only for itself, a board that is a puppet of management, and a shareholder base consisting of the ignorant and the ego-blinded. And all around this motley group, a number of spectators, alternating between grieving the overall tragedy and guffawing at the pratfalls of those involved.
Welcome to my box seat. Enjoy the view. There's a lot more to see.
Sunday, March 20, 2005
The stiffs of the board
Traditionally, a board of directors is supposed to watch out for the interests of the shareholders, and make certain that the business is being properly run. So why, in REFR's case, does its board of directors sit complacently by as the company racks up its 39th consecutive year of unprofitability?
The answer lies in the makeup of the board. REFR's board has just five members: Robert Budin, Joe Harary, Victor Keen, Dr. Albert Malvino, and chairman Robert Saxe.
Right away we see a huge problem in terms of conflict of interest. 40% of the board, including the chairman, is made up of the two people who benefit the most from the status quo! That is certainly no way to get things on the right track for the investors.
And what of the other three members of the board? Robert Budin, we know relatively little of. Among other things, he is the chairman of the audit committee (which has no other known members). His role appears to be primarily interfacing with the outside auditor (KPMG) and ensure that the quarterly and annual reports are, if nothing else, technically accurate. REFR's reported results are dismal enough for it to be presumable that there are no accounting irregularities going on, so Mr. Budin's role in the company is generally not considered controversial.
Victor Keen is another matter, as he is on the REFR payroll with the title of Corporate Secretary. His presence on the board means that a majority of the board are direct company insiders. This state of affairs is widely considered a red flag, as far as corporate governance is concerned.
Finally, the last and quite possibly flashiest member of the board, Dr. Al Malvino. A sufficient biography of this person would (and most likely will) cover several posts. For one thing, he maintains a website containing a lot of his personal views, including one page devoted to the science behind SPD.
But far beyond being knowledgeable about the science of the technology, for several years, prior to joining the board of directors, he was a tireless advocate of investment in REFR. He is known to have posted on the Yahoo! REFR board until the alias George_Soros99, and would frequently post lengthy treatises explaining in excrutiating detail every aspect of REFR and ultimately reach the conclusion of that REFR was simply a miraculously great investment that would enrich anyone wise enough to agree with him.
Links to sample posts by Malvino:
The "PRO-CON" series:
#1 #2 #3 #4 (after 94 "pro"s, Malvino finally gets around to the "con"s, which in this iteration number three.)
#5 #6 (the "neutrals")
The "Fact or Fiction" series:
#1 #2 #3 #4 #5 #6 #7 #8 #9 #10 #11 #12 #13 #14 #15
Needless to say, Dr. Malvino can hardly be considered "independent", either. If nothing else, he has a huge ego stake in being proven right all along, and making radical changes to the company would be tantamount to an admission that all of the above was just twaddle. (Not that this can't, in many cases, be done quite thoroughly by now. More topics for more future posts!)
So we have a management with no incentive not to fail, and a board of directors with little to no interest in holding their feet to the fire. Why would any shareholder put up with this state of affairs? That's coming up...
The answer lies in the makeup of the board. REFR's board has just five members: Robert Budin, Joe Harary, Victor Keen, Dr. Albert Malvino, and chairman Robert Saxe.
Right away we see a huge problem in terms of conflict of interest. 40% of the board, including the chairman, is made up of the two people who benefit the most from the status quo! That is certainly no way to get things on the right track for the investors.
And what of the other three members of the board? Robert Budin, we know relatively little of. Among other things, he is the chairman of the audit committee (which has no other known members). His role appears to be primarily interfacing with the outside auditor (KPMG) and ensure that the quarterly and annual reports are, if nothing else, technically accurate. REFR's reported results are dismal enough for it to be presumable that there are no accounting irregularities going on, so Mr. Budin's role in the company is generally not considered controversial.
Victor Keen is another matter, as he is on the REFR payroll with the title of Corporate Secretary. His presence on the board means that a majority of the board are direct company insiders. This state of affairs is widely considered a red flag, as far as corporate governance is concerned.
Finally, the last and quite possibly flashiest member of the board, Dr. Al Malvino. A sufficient biography of this person would (and most likely will) cover several posts. For one thing, he maintains a website containing a lot of his personal views, including one page devoted to the science behind SPD.
But far beyond being knowledgeable about the science of the technology, for several years, prior to joining the board of directors, he was a tireless advocate of investment in REFR. He is known to have posted on the Yahoo! REFR board until the alias George_Soros99, and would frequently post lengthy treatises explaining in excrutiating detail every aspect of REFR and ultimately reach the conclusion of that REFR was simply a miraculously great investment that would enrich anyone wise enough to agree with him.
Links to sample posts by Malvino:
The "PRO-CON" series:
#1 #2 #3 #4 (after 94 "pro"s, Malvino finally gets around to the "con"s, which in this iteration number three.)
#5 #6 (the "neutrals")
The "Fact or Fiction" series:
#1 #2 #3 #4 #5 #6 #7 #8 #9 #10 #11 #12 #13 #14 #15
Needless to say, Dr. Malvino can hardly be considered "independent", either. If nothing else, he has a huge ego stake in being proven right all along, and making radical changes to the company would be tantamount to an admission that all of the above was just twaddle. (Not that this can't, in many cases, be done quite thoroughly by now. More topics for more future posts!)
So we have a management with no incentive not to fail, and a board of directors with little to no interest in holding their feet to the fire. Why would any shareholder put up with this state of affairs? That's coming up...
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