Nearly two years ago, when Aaron Katsman, managing director of America Israel Investment Associates, started hunting for his next investment,

Verint Systems

(VRNT) - Get Report

seemed like a real find.

Verint makes "video intelligence" products that help customers sort through hours of security videos and analyze them for potential threats. After Sept. 11, it was a fast-growing market -- and Verint looked as if it was at the center of it.

"It was a strong growth company in what we perceived as an up-and-coming niche," says Katsman about his thinking in late 2005. "We rode it part of the way up and now are a part of the way down."

That way down has been a steady slide. Earlier this year, Verint Systems was booted from the


for failing to file its financial statements on time. It has traded on the Pink Sheets since Feb. 1.

The company's ambitions don't seem affected. In February, Verint acquired workforce management services provider Witness Systems in a $950 million deal that turned Verint into the second-largest company in the sector, behind rival

Nice Systems

(NICE) - Get Report


But for investors, betting on Verint has become an unexpected gamble -- and highlights a unique dilemma as to how Wall Street and traders deal with a delisted company sporting a billion-dollar market cap that's growing in a hot market.

Financial information about Verint has become hard to find. Its quarterly reports are threadbare, and there has been no balance sheet or income statement available since the third quarter that ended Oct. 31, 2005. Verint hasn't filed an annual report in two years.

"It's been a rocky road," says Daniel Ives, an analyst with Friedman Billings & Ramsey. "The delisting represents the turmoil Verint is going through, and it has been challenging for investors."

Verint's fortunes were tied to that of its 57%-owner,

Comverse Technology

( CMVT), which also sits on the Pink Sheets following an almost unsurpassed accounting and stock option backdating scandal that made a fugitive of its CEO, Kobi Alexander.

Until Comverse cleans up its own books, Verint says it is helpless.

Verint CEO Dan Bodner and the company's head of investor relations, Alan Roden, declined to be interviewed. The company also declined to answer any questions about how it is trying to work with shareholders concerned about the delisting.

Verint shares are down about 14% to $30.25 since the beginning of the year. More important, since the delisting, Verint's trading volume has dropped dramatically -- and investors considering offloading their stakes face difficulty. The stock's average trading volume during the past months is about 62,000 shares a day -- and is often less than that.

"It probably is the only billion-dollar company that has been trading 5,000 shares," says Katsman. "It is absurd."

The lack of liquidity has taken interest away from the stock, analysts agree. Few large funds or institutional investors want to buy a stock they can't sell quickly.

On the surface, Verint's sparse financials look relatively strong. Revenue for the first quarter grew 15% to $101.2 million, and excluding charges, net income was $9.35 million, up from $7.71 million.

But they don't tell the whole story, and informational cornerstones of a good financial investment thesis -- such a cash flow position, inventory and balance-sheet ratios -- are unavailable.

Wall Street analysts concede that analyzing Verint is a challenge.

"We are making a lot of assumptions," says RBC Capital analyst Daniel Meron. "There are things we don't know, like what the actual gross margins are, so that creates uncertainties around modeling."

Meron and Ives say they rely on field checks and customer perspective to fill out what the company can't tell them.

"No one really knows what the actual numbers are," says Meron. "For a while there was no guidance, so the numbers were vague, and for those on the outside it is difficult to gauge what's going on."

But the delisting and lack of financial stats aren't all to blame for dampening investor attention, says Meron. Even before accounting issues rained down, Verint's growth rates and margins were slowing down, he says.

"They are growing and doing a good job overall, but Verint's shareholder base was a lot of momentum investors," says Meron. "Once top-line and bottom-line surprises diminished, some of them exited."

Those investors that have remained continue to believe in Verint's attractive business model and the chances that the company could be attractive to private equity.

"There are few players in this space, and it is a good growth opportunity," says Katsman. "And we are already seeing consolidation in the segment."

Verint's delisting problem is unlikely to put off any suitors, say analysts.

"It is a negative factor on the valuation," says Ives. "But if investors believe in the story, and the long-term growth is there, it is attractive. And the numbers are the numbers."

But criticism of Verint is generally hard to find among Wall Street analysts, who are reluctant to pull their support for the stock, despite low-liquidity trap for large investors. Verint has three strong-buy ratings, two buy, four hold and just one underperform.

On June 13, Deutsche Securities upgraded its rating to a buy and raised its price target for the stock from $32 to $40. Deutsche Securities owns Verint shares and has an investment banking relationship with the company; RBC Capital and Friedman Billings do not.

In its latest quarterly report on June 11, Verint offered guidance for the upcoming quarter -- the first time it has done so in more than a year. It could be a sign that the company is turning a corner, say analysts. Katsman hopes Verint will return to the Nasdaq later this year.

In the black hole of delisted companies, hope is the only thing that keeps shareholders going.