Who Were the Real Hit Men?

Liz Moyer, of Forbes, began an article about a certain wireless equipment manufacturer in October 2006 with these words, "There's a hit out on Pegasus Wireless."

The rest of the story consisted mostly of a re-hashing of the complaints of Pegasus' chief executive that a dramatic fall-off in the price of the company's stock that summer and fall was the result of a cabal of naked short sellers spreading vicious rumors rather than from any defect of management.

Buried deep into Moyer's story (paragraph fourteen) is the possibility that "Pegasus is just a poor investment" creating the appearance of growth through acquisitions rather than through sales, because the touted new products, Moyer acknowledged, "haven't hit the shelves yet."

Moyer was aptly admonished by Seth Jayson of Motley Fool at the time. His bottom line: "There are plenty of good reasons for Pegasus' huge fall, and unless Knabb can deliver something other than gimmicks and PR, Pegasus will be no phoenix."

Pegasus filed for chapter 11 protection in January 2008. That petition was dismissed in October. Pegasus then re-filed for bankruptcy protection in November, and the court againt dismissed the filing in April 2009. The court also barred any further chapter 11 filings for two years.

Late last month the SEC filed a lawsuit against Pegasus, Knapp, and an associate, Stephen Durland, the company CFO. Its complaint alleges in essence that the company was not the victim of incompetence. Nor was it the victim of (external) hit. The stock price plummeted as a result of fraud. As to hitmen, those were the silhouettes of Knapp and Durland in the Book Depository window.

Unbeknowst to investors, at the very time Moyer was writing sympathetically about the company, Knapp and Durland secretly controlled hundreds of millions of the company shares, falsely claiming they owned only minimal amounts. They dumped these shares into the market, making millions for themselves and of course driving down the price.

And Moyer gets to eat some crow. Hmmmm Yummy.