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Podcast: ShareIntel CEO David Wenger on how public

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Podcast: ShareIntel CEO David Wenger on how public company executives can track short sellers

James West, MidasLetter | April 12, 2016 | Last Updated: Apr 12 1:30 PM ET
More from MidasLetter

ShareIntel makes software to help public company executives track who is buying and selling their stock.
FotoliaShareIntel makes software to help public company executives track who is buying and selling their stock.

David Wenger is the CEO of ShareIntel, a company that makes software to help public company executives track who is buying and selling their stock with a level of accuracy that has not been available until now.

Midas-Letter-financial-radio-podcast-thumbListen to the podcast interview with David Wenger: Audio Player
00:0000:00Use Up/Down Arrow keys to increase or decrease volume.

James West is an investor and the author of the Midas Letter, an investing research report focused on small cap stocks. The views expressed on this podcast are his own and are presented for general informational purposes only — they should not be construed as advice to invest in any securities mentioned.

James West: David, thanks for joining us today.

David Wenger: Thank you for having me.

James West: David, can you tell us what is ShareIntel, and what is it that ShareIntel does?

David Wenger: ShareIntel, in very simple terms, is a software as a service designed to provide transparency into who’s buying, who’s selling, who’s friend, who’s foe. It’s designed to tell a CEO, a CFO, a fiduciary of a public company who’s buying and selling his shares.

James West: Okay. So you basically can look at the owners’ list, the non-objecting beneficial owners’ list, the objecting beneficial owners’ list, and other sources of data, to determine who’s holding what?

David Wenger: Yes, exactly. There are multiple data providers, multiple sources for data; most of these are quasi-governmental reporting entities. Much of the data is controlled by the banks, broker-dealers and clearing firms. The data I’m referring to is shareholder information. It’s private in nature. So we aggregate data from disparate sources, and we assign common identifiers, which is part of data management process, enabling us to compare it. So we piece together, if you will, pieces of a puzzle that enable us to create transparency into, in one unique, archival, historic, easy to access and understand and follow, database.

James West: Okay. So then what is it that you’re doing that a public company can’t do for itself already?

David Wenger: Well, as I said, much of the information on shareholders and share holdings, and the ability to track critical broker-dealer and shareholder information, is controlled by the banks, broker-dealers and clearing firms responsible for trade executions in its stock. Knowing how to access this data is where ShareIntel can help.

James West: So this would be a useful tool to combat, for example, naked short selling?

David Wenger: Oh, for sure.

James West: Okay. And is naked short selling a major problem in North American markets?

David Wenger: I would argue that it is, and probably more so today than at any point in history. As you know, trades are processed today, trades are going off, they’re processed by computers and trades are going off in gigaseconds. What’s a gigasecond? While the stock borrow process is still very much a people-driven, largely manual process.

Andrew Krystal: Can you give us an example of how your drill-down software has been deployed successfully?

David Wenger: Well, in very simple terms, to sort of pick up on that last comment, when stock is not located or borrowed prior to a trade, it results in settlement fails, in essentially the creation of phantom or counterfeit shares in the marketplace. This in turn creates stock dilution, which decreases the value of a company’s market cap by pushing the share price down. And what we do is simply provide a window into this sort of activity. You can’t manage what you can’t see, is what I’m often quoted as saying. If you can’t see this data, if you don’t know that this is happening, you can’t begin to manage the process.

So we have multiple examples of where we’ve been able to help companies, but a large part of that is confidential.

James West: Okay, so let’s just back it up for a sec there, David. What is the product that ShareIntel offers that facilitates the drilling down into the data that reveals who’s holding what and who’s selling what?

David Wenger: Well, it begins with understanding who your shareholders are. You have to be able to DrilDown behind street name, down to individual names and addresses, to identify who’s buying, who’s selling, you know, to identify who, for example, is a real investor, a true anchor investor. Who are your friends, and who are your foes? There’s a whole host of information that’s available out there, but it’s very hard to access and it’s in disparate form. So comparing it becomes very difficult.

James West: And so you have a product that specifically performs that function?

David Wenger: Correct.

James West: And what’s that product called?

David Wenger: DrilDown.

James West: Okay. So your DrilDown software program is something that a public company can license in order to track who’s holding what and when they’re selling, what they’re selling, as you say, to know who your friends are?

David Wenger: Correct. Absolutely.

Andrew Krystal: How would you then use that information to target anchor investors?

David Wenger: Well, think about it this way: in the world that I grew up in, 25 years ago, I’m dating myself; there were arguably let’s say roughly 200 regional investment banks and armies of brokers. And those brokers performed a very meaningful function for, in particular, development phased companies, companies that were new to the marketplace, recently IPOd. They would essentially reach out to investors, actually identify the investors, find these investors, maintain relationships with these investors, and keep them apprised of the company’s development.

That no longer exists. Those brokers are gone, the regional investment banks are gone, and I think we’re down to less than 30 now. So many of these companies have been orphaned. In fact, a lot of them have been shorted out of businesses because it’s been easier to make money in the last 20 years forcing companies out of business, shorting their stocks, in some cases illegally, pushing the share price down, and capturing profits that way rather than invest in companies.

So it really becomes – it’s incumbent upon companies today to recognize that they have to know who their investors are. It starts with a database of knowing who their current investors are, knowing who their key anchor investors are, and reaching out, developing those relationships and maintaining those relationships. For example, if there’s a seller in the marketplace, you can use this software to help cross a block of stock. It’s all geared to managing a company’s market cap effectively. The onus, unfortunately, is on the individual issuer, client issuer or company, to fill the gap, to fill the void that the traditional retail broker used to perform.

James West: Right. So then how does a public company president use the information generated by the DrilDown software, how do they actually use that to prevent naked short selling or even just opportunistic short selling that might even be legal? How can they prevent that?

David Wenger
: Well, you first have to understand if it’s happening. And I think there’s an overwhelming body of evidence out there to suggest or verify that it is in fact happening. The next question becomes, is it happening to you? And you’ve got to ask yourself, has your share price decreased in value for the last several months in a row for no apparent reason? Does your stock come under selling pressure any time there’s a press release, regardless of how positive the news is? Are people making negative, slanderous posts on message boards? And so on.

We can tell a company if this is happening, and we can identify parties to a transaction which are resulting in fails in the settlement process. This DrilDown software that we’ve created tracks settlements. It tracks long positions. And where we can see anomalies in the data, and identify party to the transactions, we can begin to see who and what and why and how this is happening and advise the client issuer company on meaningful action steps. This is actionable data.

Andrew Krystal: Do you believe that if companies were to use your software to display graphic evidence that they do on their website, that short sellers would be thwarted from targeting them?

David Wenger: That’s the idea. But it’s more than just — there’s two aspects to the power of this software, if you will. There’s the reactive and the proactive, the offensive or the defensive. We talked a little bit about the surveillance side or the reactive side, the protection mode, if you will, that a company needs to be in to effectively identify and go after those that would be nefarious — trading the stock in an abusive manner, perhaps violating the rules, illegally naked short selling. But the other thing that the company can do, as we talked about a little bit earlier, is go on the offensive, or the proactive, to be sure to reach out, to communicate their story very effectively to their existing shareholder base, to use this software to target likely investors, and again, investors: underscore the word investors, as opposed to those who would just trade in and out of the stock and attempt to manipulate the stock to drive it down to capture quick profits. Does that make sense?

Andrew Krystal: Oh yeah.

James West: You bet. So what are the privacy issues surrounding the use of your software?

David Wenger: Well, they’re meaningful. ShareIntel becomes an authorized third party agent on behalf of the issuer company when they become a client; we go about the business of aggregating data that is private in nature, it belongs to the company. We do not repurpose this data. So essentially what we’re doing is using our expertise to piece together — if you were to use a jigsaw puzzle analogy, if you were to piece together 75 pieces of a 100-piece jigsaw puzzle, could you see the image?

James West: I see. Interesting.

Andrew Krystal: I wanted to ask about your company’s output; could you actually, in terms of retribution, use that in court in terms of pursuing illegal naked shorts?

David Wenger: We do and have been involved in litigation support. So we are more than simply a software company, we are a team of seasoned experts with probably collectively 100+ years of experience on Wall Street. So the answer is Yes.

James West: Wow. And so why do so few companies pursue short sellers?

David Wenger: Well, I think a lot of the smaller companies which are the logical easier targets, they simply don’t have the resources. They don’t have the money, and nobody wants to ever talk about having to litigate, and again, this software is designed to avoid that sort of thing. But at the end of the day, to a large extent, we’re collecting data. We’re in effect gathering evidence, the kind of evidence that attorneys would normally have to spend a small fortune on in a discovery process. So if a company gets to a point, unfortunately, if they get to a point where they need to rely on this data to litigate, well, guess what? They have it.

Andrew Krystal: David, what’s going on with government regulators? Shouldn’t they be doing some of the heavy lifting here in terms of going after naked shorts?

David Wenger: In an ideal world, absolutely. I think that the regulators are simply understaffed, and I think to a large extent, if you look at the average age of somebody at the SCC is a kid out of college, two years out of college. Never worked at a trading desk, never worked in the operations department, and doesn’t really have a really good understanding of this problem. It’s a complex problem, and I think that they’re aware of it and they’re trying to do what they can.

Some would argue that we’re still in a ‘too big to fail’ environment. So the question becomes, if this is really prevalent, which we think it is, how do you unwind it in a responsible manner? And my suspicion is, behind the scenes they’re trying to solve some of those issues, but for now, if you’re a company and you’re public, you’d better be aware of the fact that you need to get in the fight. You need to fight for yourself.

James West: You bet. So could you see this becoming a standard feature of the public company toolbox in the future, where fund managers are going to say, I’m not going to invest in your company unless you know exactly what’s going on with your shareholder base, and I highly recommend you use DrilDown to accomplish that. Can you see that becoming an eventual possible reality?

David Wenger: Well, I think that would be a strong possibility, we would hope. You know, we’re out there trying to level the playing field. We’re out there trying to create transparency where very little exists. And I think that the investing public would be a lot more comfortable, and the fund managers would be a lot more comfortable knowing that these tools are being deployed.

Andrew Krystal: David, how does a public company CEO go about arranging a trial of your program and software?

David Wenger: Well, they would simply need to contact us. They can go to our website at www.shareintel.com, or I can be contacted directly via email. My number is 203-838-5471. The email and co-ordinates are also on the website. We’d be delighted to talk about helping any and all companies out there that feel like they could benefit from our services, which I will add is the vast majority of them.

James West: Now you know what I want to do, I’m just wondering, David, a question like ‘so how much does this cost a public company a year to run’, do you think that would be something where guys who are listening, who are public companies, would say ‘oh, that’s it?!’ or whether they’d say ‘oh, wow, that’s too expensive for me, I’m not even going to look at it’.

David Wenger: Here’s how that conversation should go. A), we’re not interested in talking to any CEO or CFO that doesn’t see this as a critical need to have. If you don’t see this as a critical need to have in today’s world, you’re not educated. You’re either not educated or you’re sticking your head in the sand, and for whatever reason, you don’t want to get in the fight.

I would argue – and you can think about this for a minute, because this is really the truth. We’re out there, we’re on the side of the angels. We’re providing a very meaningful and, I would argue, critically valuable service. It’s not a like to have, it’s a need to have. So what I would ask the audience or the average CEO is, what is it costing you not to have a service like this in place? In other words, if ShareIntel could put a nickel, a dime, a quarter back in your share price, what did that translate to? I would argue there’s a meaningful and significant cost not deploying a service like this, and we’re the only game in town, and we’ve got two patents on this.

So yes, companies will see this as a budget item. The CFO’s job is always to push back; he’s the guy watching the pennies. But if you start thinking about how quickly the pennies add up, I go back to what I’m often told I repeat too frequently: you can’t manage what you can’t see. And if you’re not deploying a service like this, you’re flying blind. You simply don’t have a lot of alternatives. Those armies of brokers that I referred to don’t exist in today’s world.

James West: Right.

David Wenger: There’s not a lot of support for small companies out there. It all begins and ends with the data. You have to leverage this data, and I think we’re out there, I think we’re creating the new paradigm. I’m told by many that that’s what we’re doing.

Andrew Krystal: And you can add to the share price.

David Wenger: Absolutely. Absolutely.

James West: All right, David, that’s a fascinating interview. We’re going to catch up with you in a couple quarters’ time and see how it is going. Thank you so much for your time today.

David Wenger: Thank you.

Andrew Krystal: Thank you, David.

original link courtesy of 7/10/11



10/5/07 -- there are no coincidences here ...
oh and like many other longs .. not selling at this level --
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