VeriSign Hits Vortex

For a company that built its reputation on trust and security, VeriSign's (VRSN - Cramer's Take - Stockpickr) near-term future is looking rather insecure.

Concerns about the company's fundamentals have surfaced in the past several weeks, and problems are snowballing: questions over stock-option practices and the departure of several board members; uncertainty with a major contract; and lackluster guidance for the September quarter have prompted negative commentary from analysts and a bumpy ride for the stock.

Shares have plummeted 15.5% since the company's second-quarter earnings report on July 20, and have tumbled 31.5% since the end of its first quarter. The stock closed at $17.40 on Monday.

"It's still not worth the risk with all of these unknowns that are still unfolding," says Albert Lin, an analyst with American Technology Research, who has a sell rating on the stock. "By the time you start going through all these questions, it's unnerving to a lot of investors." Lin's firm doesn't own shares or have a banking relationship with VeriSign.

Front and center among recent concerns has been the company's stock options-induced controversy. At the end of June, VeriSign received a grand jury subpoena from the U.S. attorney for the Northern District of California asking for documents relating to the company's stock-option grants. The Securities and Exchange Commission also requested documents from VeriSign on the matter. At the same time, the company said it already had launched its own internal investigation.

Then, last week, VeriSign filed an 8-K revealing that two of the three board members on its compensation committee resigned, including former Brocade (BRCD - Cramer's Take - Stockpickr) CEO Greg Reyes, who was charged with securities fraud on July 20 related to stock-options backdating at his company.

"The cloud he was under was not directly related to VeriSign's business," says VeriSign spokesman Brian O'Shaughnessy.