The Gilder Effect Ignites a Surge in LanOptics - TheStreet

The Gilder Effect Ignites a Surge in LanOptics

But it rose earlier this week, too, raising questions of who knew and when.
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LanOptics

(LNOP)

, an obscure Israeli firewall-technology company, jumped $7.06, or 32.5%, to $28.75 Thursday after a positive mention in the

Gilder Technology Report

, the monthly newsletter penned by futurist George Gilder.

Despite the massive leap in volume accompanying the rally -- LanOptics traded at some 78 times average daily volume -- Thursday's action didn't come as a huge surprise. After all, stocks often see a bounce when they get a Gilder mention, and that bounce gets amplified if, as in this case, the company is thinly traded and weakly capitalized -- $185 million after Thursday's rally. (Gilder doesn't disclose whether he or his staff has positions in any of the companies he mentions, only that they "may hold positions in some or all of the stocks mentioned.")

The real news, however, is not what happened today, but what happened yesterday. And the day before. LanOptics has been flying all week, jumping a total of 30% Tuesday and Wednesday on volume like it's never seen before. Blame the rumors surrounding the Gilder letter.

Message in a Bottle

"It's not a mystery at all," says Richard Vigilante, who co-authored the report with Gilder. "The newsletter is only part of our service -- we have this Web site in which we have a very active discussion of emerging technologies."

Gilder uses the discussion section of the site, says Vigilante, to help shape his ideas. And because the companies Gilder mentions often get a bounce when they get added to "the list," people try to figure out, from the discussion, what new names there might be. This time, they simply figured right.

Rallying
The Gilder effect stirs LanOptics

Source: BigCharts

"You could just tell by the discussion on the board that people were guessing that LanOptics would be on," Vigilante posits.

True, there was a lot of discussion on Gilder's site about LanOptics. But much of it came after the LanOptics stock had popped. Yesterday, for example, there was only one post mentioning LanOptics before 12:40 p.m. EDT. The stock had already rallied about 20% on the day, and was done moving up. Tuesday, there were seven posts mentioning LanOptics, but only one of them came before 11:30 a.m. By that time, the stock had risen about 20% and was done rallying for the day.

Going Fishing

To some, that smells a little fishy -- like maybe someone managed to get a hold of the letter before anyone else. "I'm sure that it gets leaked to a few people," reckons one hedge fund trader.

Even stranger, late yesterday Gilder offered up the following post on

EZchip

, a LanOptics unit:

"I am not negative about EZchip. I think it is one of the most impressive chip designs I have encountered. But it will not see silicon until next summer and is in an extremely competitive market. I know very little about LanOptics except that it is the Israeli company that owns most of EZchip."

A bizarre post -- one that made it seem like EZchip wouldn't get included in the newsletter today (it was released at 10 a.m. EDT) and, perhaps, prompted some selling of LanOptics at the open. One poster on the Gilder site wrote:

"Hey GG, in your most recent posts you suggested that 'you didn't know much about LNOP other than it owns 70% of EZ-Chip.' Which surely kept many from jumping in before the issue came out, or perhaps sold based on that comment. Why make such a negatively perceived comment at all if you're adding it to the list? (Obviously, I sold because of the comment.)"

Seems like a really good question.