Did Sagent Technology Pull the Old "Pump and Dump"?
Sagent Technology, a provider of what they refer to as "Real-time e-Business
Intelligence Solutions", has been hit with a class action complaint for
violation of the Securities Exchange Act of 1934. According to allegations
in the complaint, company officers misrepresented Sagent's 1999 and 2000
sales prospects to give them time to sell over $8 million of their own
stock. The officers sold their stock at prices as high as $27.875, but
after the true revenue projections were revealed, the stock dropped as
low as $7-7/32, a decline of more than 70%. Both the Vice President of
Sales and the Chief Financial Officer resigned after they received their
$6 million in proceeds.
addition, it is alleged that Sagent made the misstatements to give them
time to renew their credit line, slated to expire in early 2000, because
Sagent could not fund its operations from cash generated by business operations
(the company was posting substantial losses). Sagent allegedly made statements
that it would achieve Q1 results of $17.4 million in revenue and an EPS
of $.04. In reality, they were suffering losses in both revenue and EPS
addition, Sagent made claims to being on the brink of closing their largest
software deal ever (with yuSave). In reality, the requirements of this
purported contract, which included embedding Sagent's technology in an
OEM product, would have had to be completed in a two-week period in order
to recognize the $3 million in revenue in the quarter stated by management.
Sagent later blamed this misstatement on the fact that their public accountants
did not allow that the contract qualified for revenue recognition in the
compound matters, the defendants have recently announced that Q3 revenue
and EPS will fall "terribly short" of projections. To make things worse,
in December 1999 Sagent acquired the data-cleansing vendor Qualitative
Marketing Software by issuing approximately 2.5 million shares of Sagent
common stock to the shareholders of QMSoft. There is no word as to whether
the former QMSoft shareholders are planning legal action, but it is hard
to imagine that they are not investigating their options.
Lufkin, and Jenrette Securities Corporation (DLJJ) is also named as a
defendant since it was the lead underwriter of the April 14, 1999 IPO,
and a marketmaker subsequent to the IPO.
This development will give competing vendors plenty of FUD (Fear, Uncertainty,
and Doubt) to use with prospective customers. It is difficult to believe
that a company evaluating business intelligence software would be willing
to take a risk on Sagent at this time. Sagent's only hope is that customers
will be willing to sit back and wait to see how Sagent responds to the
allegations and how this whole class action suit plays out.
the suit can be settled in such a way as to not completely offset the
technical value of Sagent's analytical and data cleansing technologies,
TEC predicts that Sagent will be acquired by one of its competitors (80%
We do not recommend purchasing Sagent's e-Business Solution at this time.
Their stock is currently trading at less than $3 per share, and they are
obviously undercapitalized. If a competitor purchases the company, there
is no way to know what will happen to the existing Sagent products. The
possibilities are continuance of development (unlikely), "stabilization",
which means the new owner will support customers with the existing releases
but will completely halt R&D, or a strong effort by the acquiring company
to convince the customer to switch over to its own product(s).