Think Mr. Toad had a wild ride? It's nothing compared with the jaw-clenching gyrations suffered by investors in Imergent ( IIG), a Utah-based software and services company. In the last two years, the stock seesawed from $15 to $4, had a run-up to $35 and then went back down to $18. Making the ride even bumpier is the company's penchant for attracting lawsuits. At last count, it had been sued (or threatened with legal action) by the attorneys general of at least six states plus Australia. Maybe it's the never-ending litigation, or maybe it's the company's unconventional business model, but Imergent has attracted the attention of short-sellers to such a remarkable degree that some investors and analysts believe naked shorting (essentially, selling short shares that don't exist) is at play. Indeed, nearly two-thirds of the company's float is held by short-sellers, making it one of the most heavily shorted stocks on a major exchange. Neal Goldman, president of Goldman Capital and Imergent's largest shareholder, says, "Unless the regulators act, there is no way that companies can protect themselves from fraud perpetrated by short-sellers. These guys could be poster boys for fraudulent illegal short-selling and using the system to destroy a successful company." Successful company? Billionaire entrepreneur Mark Cuban, until recently an Imergent short, doesn't see one here. "The bottom line is that the company doesn't deliver. Its happy customers are few and far between," he said.
Indeed, Cuban and various state regulators claim that Imergent isn't a software company at all. Utah has sued the company twice, claiming that it should be registered as a seller of business opportunities. The first action was dropped, but the state filed a similar action again last year. Imergent, says CEO Donald Danks, has no intention of settling. "We are a software company and will prove it."