Why Is Hollywood Entertainment Letting Insiders Buy Before Its Window Opens?

Whatever the reason, a press release about management's desire to buy stock is highly unusual.
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There's no other way to say it: What a strange press release

Hollywood Entertainment

(HLYW)

put out Thursday. The headline said it all: "Hollywood Senior Management Permitted to Purchase Stock." Companies usually don't put out press releases touting management's desire to buy stock, and those that do, including

Oakley

(OO)

,

CHS Electronics

(HS)

and

Tel-Save

(TALK)

, have seen the ploy backfire. (Those stocks, as well as the companies' fortunes, went the other way.)

Hollywood's announcement, however, had a slightly different if not more eyebrow-raising twist: The company said (and I'm paraphrasing here) that its stock had been hammered so hard (down 41% in 10 weeks) that its management had requested, and was granted, permission to buy the stock before Hollywood's formal window had opened. (Hollywood wouldn't disclose when its blackout period after the close of the quarter ends.) But to accommodate its execs, the company felt compelled to tell the world that it is "highly confident" earnings per share will meet analysts' estimates for the first quarter. The company declined to elaborate, saying that it will make a more definitive announcement later this month.

Won't critics say that's a tad too promotional? "They'll be able to say that until they see somebody buying," says CEO Mark Wattles, who owns 25% of Hollywood's stock. He says the stock "is being purchased by significant members of management" who wouldn't have been able to do so unless the company made its first-quarter disclosure. He adds that most Hollywood execs have their wealth tied up in the company's stock.

Maybe so, but blackout periods for buying and selling stock by insiders are there for a reason, and it's highly unusual for them to be altered, even just once. Most companies abide by the windows and let the purchases seep into the market, without fanfare, as they're filed with the

Securities and Exchange Commission

. Shining the spotlight on purchases is often viewed as a form of grandstanding, to help drum up interest in the stock. And in this case it apparently worked: By the close of trading Thursday, Hollywood rose 1 1/4, or 6.7%, to 19 7/8.

Hollywood clearly is worried about the recent direction of the stock. The company's execs recently returned from a week in New York pleading their case to investors possibly in an effort to take their eyes off something else: a lawsuit, filed by

Fox Entertainment

(FOX) - Get Report

, alleging that Hollywood hid more than $5 million it owed Fox from the sale and rental of Fox videos. Hollywood has denied all wrongdoing.

Rentrak

(RENT)

has also sued the company alleging that it underreported sales. (Hollywood has said the Rentrak suit is "frivolous.") Sounds like the makings of a good script.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg writes a monthly column for Fortune and provides commentary for CNBC. As originally published, this story contained an error. Please see

Corrections and Clarifications.