Letters Blamed for Sharp Drop in Stock Price : CompuSave Says It’s Focus of Smear Campaign

Times Staff Writer

CompuSave Corp., an Irvine-based maker of electronic shopping terminals, on Thursday blamed a sharp drop in its stock price the day before on a smear campaign.

Shares in the company fell $1.25 in over-the-counter trading Wednesday to close at $3.75. More than 107,000 shares traded hands. After the company’s statement Thursday, the stock gained 25 cents to close at $4. Volume on Thursday slowed to 65,700.

CompuSave said copies of a letter containing “disparaging and inaccurate” information about the company had been mailed last weekend to security analysts and others in the investment community. Some company officials privately suspect that the letters, postmarked in Santa Ana, are the work of an activist “short seller” who hopes to profit by a drop in CompuSave’s stock price.

Among other things, the letter alleges that CompuSave’s computer terminals are defective and unpopular with consumers. Paul Weiss, an analyst with Sutro & Co. in San Francisco, said the letter was accompanied by a forged company document intended to support claims of the devices’ unpopularity.


Company officials indicated that they believe that the same person was responsible for a series of letters, mailed in August and September, that accused CompuSave officials of fraud, mismanagement and improper relationships with brokers who handle the company’s stock. The anonymous letters, whose author claimed to be a former CompuSave employee, were received by both The Times and the Orange County Register.

Company officials declined to elaborate on their announcement Thursday, but Thomas McShane, CompuSave’s treasurer, said it was “undetermined” whether the anonymous author worked for the company.

However, a New York stockbroker who received a copy of the letter that was mailed out this past weekend said he believed that its sender was someone who had access to CompuSave’s mailing list. He called the letter “dirty pool.”

“I think that it was someone who works at the company now or some disgruntled ex-employee who met with a group of people who wanted to short the stock and orchestrated a plot to do this,” he said. “I definitely believe that this was a conspiracy. . . . It was too professionally done.”


The company declined to comment on whether it had reported its suspicion of stock manipulation to the Securities and Exchange Commission.

Irving Einhorn, the SEC’s Western regional administrator, said he “never heard of the company before.” Einhorn, in keeping with SEC policy, would neither confirm nor deny that an investigation is under way.

CompuSave went public in May, 1984, with an offering of about 1 million shares at $5 each. During the last year, the stock price has ranged from $10.625 to $2.50 a share.

As previously reported, CompuSave posted a loss of $2.6 million during the fiscal first quarter ended Aug. 31. During fiscal 1985 ended May 31, the firm posted a $4.8-million loss.


“Those losses were expected,” Weiss said. “This is a company that is in the development stage. They lost money in the past, and they will continue to lose money in the foreseeable future.”