Capital Markets

Taser Hit with Formal Probe

''There may be a large, improper, naked short position" in the stun-gun maker's stock, says the CEO.
Stephen TaubSeptember 27, 2005

Taser International Inc. announced that the Securities and Exchange Commission has upgraded its probe to a formal investigation, giving the SEC subpoena power to obtain documents and testimony.

Best known as a manufacturer of stun guns, Taser added that it understands the investigation has been expanded to examine the possible unauthorized acquisition of material non-public information by individuals outside the company in an effort to manipulate Taser’s share price.

In a statement, chief executive officer Rick Smith acknowledged that “there may be a large, improper, naked short position” in Taser’s stock. (In taking a “short position,” an investor borrows stock and sells it, betting that the share price will fall and that the stock can be repurchased at a lower price. In a “naked” short, the investor sells stock he or she does not own, without borrowing stock that can be delivered in the future when the position is closed out.)

“We continue to make all efforts to assist the SEC in completing their investigation as expeditiously as possible,” Smith added.

In January, Taser disclosed an informal inquiry from the SEC on two matters: company statements regarding the safety of its products and a recent order received from Davidson’s Inc., a distributor for Taser since 1999.

Earlier this month, about four months after the company restated its 2004 earnings, Taser replaced its auditor, Deloitte & Touche, with Grant Thornton. At the time, Taser stated that it had erroneously treated certain stock-option grants as incentive stock options; the grants should have been classified as non-statutory stock options because of the annual limitation on incentive stock options under applicable tax regulations, the company added.