International Law

Bidz.com Doing a Pump and Dump?

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Sam Antar has an interesting discussion about Bidz's share repurchase program.

Why are Bidz.com (NASDAQ: BIDZ) insiders selling shares as the company is buying back shares, especially when management has claimed that the company's shares are undervalued?

Legendary investor Warren Buffett, CEO of Berkshire Hathaway (NYSE: BRKA), was once said:

Now, repurchases are all the rage, but are all too often made for an unstated and, in our view, ignoble reason: to pump or support the stock price... We will not repurchase shares unless we believe Berkshire stock is selling well below intrinsic value, conservatively calculated."

Note: Bold print and italics added by me.

Does Bidz.com's share repurchase program really build "intrinsic value" or is it a short-term ploy "to pump or support the stock price" as insiders sell their shares?"

Sam further writes:

"Lawrence Kong claimed that, "We believe our stock to be a strong investment opportunity....." Yet, most recently on September 3, 2008, Lawrence Kong sold 53,801 shares and pocketed gross proceeds of $239,764 or about $8.98 per share.

Kong and other Bidz.com insiders have unloaded about 480,000 shares so far this year, pocketing gross proceeds in excess of $5.2 million, while the company has been repurchasing its stock (Source: SEC Form 4 Reports)."

Read Sam's entire article on Bidz, it is very interesting.

Full post as published by Misleading Advertising Law on September 09, 2008 (boomark / email).