Shares of Local.com Corp. plummeted for the third day Friday after a website published a critical story about the Irvine-based operator of a search engine for finding local businesses.
Investors sent the stock down nearly 9% in midday New York trading on a recent market value of about $70 million. The shares are off some 30% for the week.
Local.com’s slide started Wednesday after website TheStreetSweeper.org published a story that raised questions about the credibility of the company’s current and past executives and its way of doing business.
The story, by former TheStreet.com reporter Melissa Davis, is a laundry list of issues she says investors should be aware of.
Local.com refuted the assertions, calling them “loose implications” designed to benefit investors who’ve shorted the company’s shares and profit when they fall.
“In the opinion of management, this article misrepresents and distorts facts not relevant to the company’s current financial position, long-term growth prospects and management policies,” the company said.
The incident appears to have parallels to others where short sellers dig up incriminating information about companies and then profit when the stock falls on the revelations.
The most famous muckraking short seller is San Diego’s Barry Minkow, who’s gone after Irvine’s Microsemi Corp. and Florida’s Lennar Corp.
Minkow spent seven years in prison for fraud, embezzlement and other financial crimes after his carpet cleaning company ZZZZ Best collapsed in 1987.
Not a lot is known about TheStreetSweeper.org.
Davis started the site, which is part of a group called the American Fraud Fighters. The group doesn’t have its own website and operates as a blog where its members gather.
Any direct ties of TheStreetSweeper.org to short sellers are unclear.
In an online interview, Davis said her site could benefit short sellers but “that is not my primary priority.”
“I am more interested in getting the people who have bought the stock out of it before they lose all of their money,” she said.
TheStreetSweeper.org’s self-described mission is to “partner with the public in exposing corporate fraud and bringing its engineers to justice.”
The Local.com story alleged Chief Executive Heath Clarke “pump and dumped” the company’s stock—meaning he gave Wall Street analysts bullish projections and then sold off a lot of his own shares amid a run-up.
The story also called out the background of Brenda Aguis, Local.com’s chief finance officer. She was hired at the start of 2009.
The story charged Aguis was involved with several small technology companies that were plagued with accounting problems. The story also said she headed a strategy of rapid-fire acquisitions to bulk up numbers.
Local.com runs an online search engine that directs users to local businesses, such as “flowers in Irvine.”
Users also get search results that include offers from local businesses, reviews, links to local websites, maps, driving directions and other features.
Local.com got started a decade ago as Interchange Corp.
Interchange, which went public in 2004, initially surged on the coattails of Google Inc. that same year.
In 2005, the company acquired the Local.com domain name.
Later that year, it did an about-face and halted the licensing business in order to run its own local search site at Local.com.
Its shares fell off a cliff in the following years—plummeting nearly 90% by 2006.
The company has slowly been rebuilding itself since then via acquisitions of customers and a new branding strategy that includes various Web properties.
Late last year, Local.com reorganized and divided itself into three business units, dubbed “owned and operated,” “network” and “sales and advertiser services.”
