Shares of Merge Technologies (MRGE) plummeted Monday after the Milwaukee-based medical software company announced the negative conclusions of an internal audit and a major management shakeout, including the resignation of its CEO and CFO.In recent trading on this holiday-shortened session, the stock was down $5.01, or 40.7%. to $7.30. More than 5.7 million shares have been traded as of 12:25 p.m. EDT, approximately 10 times its daily average for the past three months. In a press release, the company said that some of its financial statements "should no longer be relied upon due to material errors,
The stock is a "hedge fund stock," Sackler adds, making a delisting more likely. No mutual funds own a significant amount of shares, and only mutual funds, not hedge funds, are forced to sell when a stock gets delisted. In this particular scenario, hedge funds can hold onto the name, although "some of the hedge funds are bailing out this morning," Sackler says. "It's a lot of knee-jerk selling. We bought a tiny back today and if it's lower, we'll continue to do that." While some had feared fraud, Sackler and others continue to argue that the accounting problems were only technical and minor, mainly due to how revenues were booked or recognized. "The restatements are what they are," he says. "But if you have contracts that are signed and cash coming in, how you account that is important, but at the end of the day, what matters is the cash coming in." Meanwhile, it's a bumpy road for some of the major investors. On June 7, Silver Point Capital, a hedge fund and private equity firm, disclosed a 5.28% in the company with 1.15 million shares. The stock then was trading at $12.60. In less than a month, the hedge fund lost $5.7 million on this position, assuming it did not sell within the last month. Calls to Bob O'Shea, co-founder of Silver Point, were not returned.