5. Netflix Nuttiness Forgive us for being a little late to the party, but we just wanted to weigh in on Netflix's ( NFLX) Wells notice before CEO Reed Hastings ditches this shindig and dons a lampshade at another bash. After the market's close Dec. 6, the ever-entertaining Hastings revealed he received the SEC warning for making a Facebook ( FB) post this past summer that purportedly ran afoul of Wall Street's Fair Disclosure Act. The regulator will now decide whether to proceed with a civil injunction against Netflix and Hastings over the alleged violation. Hastings wrote July 3 that "Netflix monthly viewing exceeded 1 billion hours for the first time ever in June." And while that may seem like yet another one of Hastings' run-of-the-mill, run-of-the-mouth pronouncements, the government viewed it quite differently. The SEC said Reed's self-congratulatory comment was, in fact, material information that must be distributed publicly, or at least more publicly than a Facebook posting, so as not to give some Netflix investors an edge over others. So was Reed not right in divulging the arguably material information despite it being on a massive social network? Or were regulators wrong for being overzealous in their attention to detail? Yes, it really is a true conundrum for the digital age. Here's how we see it. First of all, Hastings should not have snottily dismissed the government's claim by responding to the charges last week with yet another Facebook post saying, "We think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers." Dude, don't you ever learn? If your first missive pissed them off, why on earth would you follow it up with an even more obnoxious one? There is no good reason to antagonize these people. They are government employees and get paid according to scale. Money does not motivate them. Spite, as we saw in the Martha Stewart trial, does. So get righteous, Reed. Bow to the higher power and be done with it. That said, we do feel that the SEC is acting a tad too fervently on this particular matter. Social networks are relatively new to the investor mix, and blowhards like Hastings may not yet know the boundaries of what is and what isn't legal. We know full well that the SEC's sleuths will be spending the rest of their lives trying to make up for missing Madoff, but this type of nitpicking certainly is not the answer. In fact, it will only make things worse for the organization should something far more sinister pop up while they are busy crashing this fairly uneventful affair.
4. Gravity Grips Groupon Forget rhyme or reason, it was a bunch of idiotic rumors that caused Groupon's ( GRPN) stock to defy the market's gravitational pull and levitate 23% last Friday. And it was a dose of good sense from Evercore analyst Ken Sena that brought it back to earth. Shares of the online deal site descended 9% Monday to $4.25 following Sena's note dispelling the inane chatter that lifted the stock the previous trading day. The heavily shorted stock (about 21% of its shares) apparently was squeezed higher on a swirl of silly speculation, according to Sena, including talk of a Google ( GOOG) acquisition. Why were the market's old wives telling tales of Google purchasing Groupon, a company that it considered buying two years ago for $6 billion only to see its offer rebuffed by Groupon's puffed-up CEO, Andrew Mason? Simple, because Mason was reportedly canceling a public appearance this week (untrue) and an article on Bloomberg chirped the idea that Google might be interested in a second look now that Groupon's enterprise value has fallen below $2 billion (talk about flimsy). Yeah, those were some pretty dumb sparks indeed that lit the fire under the stock, now down 84% from its high-profile IPO last year. Nevertheless, sometimes that's all it takes. "We see Google and other would-be acquirers as believers in 'network effect,' which argues against renewed interest, given the current pace of Daily Deal deterioration, which we peg at negative 20% quarter on quarter, excluding the effect of other contributing factors," wrote Sena, who kept his $3 price target and his "conviction sell" rating on the stock. Sena added that the recent mass layoffs at Groupon competitor LivingSocial also bode ill for any real buying interest from Google. "It would make sense to us that the company may be exploring strategic alternatives. However, we see this as a very speculative argument for Groupon given the sizable pressures the industry is undergoing," wrote Sena. Thanks for injecting some truth into the discussion, Mr. Sena. We're glad somebody finally got a grip on the stark reality facing Groupon.
3. HSBC's Own Goal Sorry, Lionel Messi, but you weren't the only one in Europe breaking a long-held record this week. It looks like HSBC ( HBC) shattered a major milestone as well. Two days after the Barcelona soccer superstar eclipsed German great Gerd Mueller's 40-year-old mark for most goals in a calendar year by scoring for the 86th time in 2012, Europe's largest bank agreed to pay a record $1.9 billion to settle a U.S. money-laundering probe. The sum HSBC is paying for its role in transferring funds through the U.S. from Mexican drug cartels and on behalf of sanctioned nations like Iran breaks down into $1.25 billion in forfeiture and $655 million in civil penalties. Also getting booked Tuesday -- to stick with the European football theme -- was fellow British banking giant Standard Chartered ( SCBFF), which signed an agreement with New York regulators to settle a money-laundering investigation involving Iran with a $340 million payment. You see, folks, let this be a lesson to you. If you don't play by the rules, eventually the market's referees will catch you in the act and sternly warn you with a yellow card. Of course, major international players like HSBC and Standard Chartered never have to be too worried about regulators flashing a red and ejecting them from the game entirely. Seriously, these guys traded with the enemy and they are still on the proverbial pitch! Even worse, if they do it again -- and they probably will in some form -- we doubt they will ever get the boot. Shares of HSBC rose slightly on the resolution, so, clearly, investors are already looking past this moral and legal stumble. The fine also won't trip up the bank too much since it only amounts to roughly 10% of its 2012 pretax profits. In 2011, the bank booked $18 billion in net income on revenue of $106 billion. "We accept responsibility for our past mistakes," said HSBC Chief Executive Stuart Gulliver. "We have said we are profoundly sorry for them, and we do so again." Good for you, Gulliver. And, by the way, welcome to the team! HSBC and Standard Chartered now join an already deep bench of Credit Suisse, Barclays, Lloyds and ING as banks that have ponied up big settlements in the past three years for trading with countries or companies that are on the U.S. sanctions list. Here's hoping they set their goals a little higher in the future.
2. Spectrum's Shortsighted CEO A slew of companies have been issuing special dividends lately due to the impending fiscal cliff. And with 2013 tax rates still unsettled, it's not difficult to understand why companies are doling out cash to investors prior to year's end. That said, the same solid reasoning can't be applied to the special 15-cent dividend announced by Spectrum Pharmaceuticals ( SPPI) this past Tuesday. According to TheStreet's biotech ax, Adam Feuerstein, Spectrum CEO Raj Shrotriya is less a dividend play to enthuse loyal shareholders than a dividend ploy to keep short sellers at bay. In fact, Feuerstein asserts that Shrotriya has an unhealthy obsession with the shorts, who now represent about 60% of the company's freely traded shares. Well, Adam, at least you can't accuse the guy of being paranoid, because with a short count that high, they really are out to get him. Unfortunately, you can't call him a great CEO either, because based on his firm's recent results, they are out to get him for a pretty good reason indeed. Spectrum posted disappointing third-quarter revenue and sequentially flat product sales figures. Furthermore, the company's 2012 guidance implies paltry 3% revenue growth for the December quarter, which only serves to heighten skepticism over Spectrum's sudden payout. The stock, which popped almost 4% on the news, is down 24% this year and probably would be down even more if the shorts hadn't started piling into it like clowns into a Volkswagon. "Recent Fusilev sales don't inspire confidence, with $25.4 million in October sales reported by Wolters Kluwer, down from $26.1 million in September, which was down from $29.7 million in August. That's a trend heading in the wrong direction," adds Feuerstein. "Don't forget, too, that Sagent Pharmaceuticals only recently began supplying the market with generic leucovorin, which could be stunting Fusilev growth." Shrotriya obviously sees things differently from our buddy Adam. Spectrum's CEO released a statement saying that the special dividend is based on the company's "successful growth in revenue and profits this year" and is an "appropriate way to provide an additional return on investment to our many loyal shareholders." Um, sorry Shotriya, but we don't see much loyalty when it comes to your stock. All we see is a whole lot of folks lending out their shares to people waiting for it to drop. And if you keep focusing on these silly little tricks to scare them off instead of leading your company, you are only going to prove them right.
1. Buffett's Back-Handed Buy Wait a second, Warren! We may be much younger than you, but we simply can't keep up with all you say and do ... especially when they wind up being entirely different things! Warren Buffett's Berkshire Hathaway ( BRK-A) announced Wednesday its plan to repurchase 9,200 of its Class A shares from what it calls the "estate of a long-time shareholder." According to Berkshire's press release, the company's Board of Directors authorized this purchase "coincident with raising the price limit for repurchases to 120% of book value." As of the third quarter, Berkshire Class A shares stood at a book value of $111,718.31 a share. That implies that the announced $1.2 billion buyback, which was priced at $131,000 per share, is roughly 117% of Berkshire's book value. Sorry to nitpick, Warren, but back in February you wrote in your annual letter to shareholders that your limit for stock repurchases was 110% of book value. Not to mention a whole lot of jazz about "the more and the cheaper we buy, the greater the gain for continuing shareholders." If that's the case, why are you now, out of the blue, raising it to 117%? Pray tell us, Oracle of Omaha, what brought on the sudden change? Inquiring value investors want to know. Or is this maneuver simply intended to benefit one of your buddies or family members so he or she won't get hit with a higher estate tax in the new year? Inquiring journalists want to know that as well. We know full well that the estate tax is on your mind, too, seeing as how just the day before this big stock repurchase you joined Bill Gates and George Soros in pushing for an estate tax hike. In a joint statement Tuesday, Buffett, Soros and a bunch of their billionaire buddies asked Congress to lower the estate tax's per-person exemption to $2 million from $5.12 million and to raise the top rate to more than 45% from 35%. "We believe it is right to have a significant tax on large estates when they are passed on to the next generation. We believe it is right morally and economically, and that an estate tax promotes democracy by slowing the concentration of wealth and power," wrote Buffett and friends. Yeah, well, we believe Buffett should eat his own cooking for a change instead of trying to serve it to everybody else. Look, Buffett could have told the seller to unload his shares on the open market. There's plenty of buyers for Berkshire's stock out there. He could also have asked his good friends at Goldman Sachs ( GS) to arrange a private sale. Hey, he did them a solid during the financial crisis and they certainly would have returned the favor. That's not what happened here, though. From all indications, Buffett broke his own pledge and paid more for his own stock than he said he would. And even more gallingly, he retroactively changed his price limit to 120% from 110% to cover his own tracks. And that's not even the worst of his hypocrisy. Despite his yearlong public campaign for higher taxes, Buffett completed the transaction prior to year-end in order to shield whoever was on the other side of the trade from paying higher estate taxes. And if the estate is that of a dead person where the tax basis of the shares gets stepped up, he should say so up front. We've spent the last decade playing "Name Buffett's Successor." We can't take another ridiculous guessing game over what should really be publicly released material information. Honestly, even if the death of a not-so-poor Berkshire shareholder did spur the stock sale and Buffett's subsequent repurchase, the whole thing still smells as fishy as last year's Sokol Lubrizol deal. Remember that doozy? Let's put it this way. A mere two weeks ago following Buffett's New York Times op-ed titled "A Minimum Tax for the Wealthy," we here at the Dumbest challenged Buffett to write a check to the government if he really wanted to raise some revenue for the country. We even offered to lend him a pen to sign the check. After this latest episode, however, we think we'll keep our pen. We're tired of watching him try to rewrite the rules for everybody but himself.