Irvine Firm Seeks NYSE Inquiry on ‘Rumor Campaign’
On Friday, just one day after the unexpected resignation of its president, National Education Corp. asked the New York Stock Exchange to investigate what it says is a rumor campaign aimed at damaging the company’s financial reputation.
Investment analysts said the rumors helped send the value of National Education stock down 20% on Thursday and early Friday before the Irvine-based vocational education and training services firm received a vote of confidence from a group of institutional investors.
H. David Bright, National Education’s chairman, said in a prepared statement Friday that company officials had received numerous requests from financial analysts for “verification of a variety of rumors.” He said the rumors denigrated the firm’s performance and prospects.
No Comments
New York Stock Exchange spokeswoman Martha Cid declined to comment on the situation and would not even say whether it is usual for companies to request investigations of apparent smear campaigns. She said the exchange does conduct investigations when there is an unusual volume of trading or an unusual volatility in a stock.
National Education officials declined to comment on their request.
The rumors, which analysts said began Monday after the release of a negative investment report, gathered steam with the resignation Thursday of President Jerome W. Cwiertnia, who said he was stepping down to pursue other career opportunities.
National Education stock began the week badly when an investment report questioning an unusually large buildup in the firm’s accounts receivable was released. Receivables totaled $96.9 million on Sept. 30, up from $51 million at the end of 1987 and $28.6 million at the end of 1986.
“The accounts receivable gave me uncertainties, and I downgraded the stock,” said Bert L. Boksen, an analyst at Raymond, James & Associates, a regional brokerage in St. Petersburg, Fla. Boksen downgraded the stock from a “buy” to a “hold” recommendation Monday, then issued a “sell” recommendation Friday because of investor uncertainty about the effect of Cwiertnia’s departure.
Other analysts said the large receivable figure is not cause for concern and that an increase is understandable considering that National Education has made two major acquisitions in the past 2 years.
“These receivables are with either Fortune 100 or Fortune 500 companies. Jerry Cwiertnia told me he has no doubt they’re going to receive them. Jerry Cwiertnia is as honest as a person can be,” said David Butterworth, an analyst at Wedbush Securities in Los Angeles.
‘No Connection’
One analyst said the unexpected resignation caused some investors to connect the concern over receivables with Cwiertnia’s resignation.
“I see some uninformed people saying, ‘Oh, here’s this receivables question and 3 days later the president is stepping down.’ I’ve followed the company for years, and I know there is no connection,” Butterworth said.
Institutional investors tried to give the stock a boost Friday with buy orders. And the investment firm of Morgan Stanley & Co. arranged a conference call between 50 investment managers and National Education officials in a bid to bolster confidence in the company.
“Among informed investors, nothing was amiss,” said Ram Capoor, a Morgan Stanley analyst.
Investor uncertainty over the company’s short-term cash flow caused Shearson Lehman Hutton analyst Jeff Kessler to slightly downgrade his firm’s rating for National Education, but Kessler said he nevertheless believes the uncertainty is unfounded.
Timing Is Questioned
One industry analyst, who asked not to be identified, said the timing of Cwiertnia’s announcement added to the uncertainty. “They could have waited until the market closed,” he said. Cwiertnia then “could spend the afternoon telling people his reasons for leaving and the stock wouldn’t be trading.”
National Education said it informed the stock exchange of the resignation before the announcement was made, and a company spokesman said that officials believed that they were required to announce the resignation while the market was open.
National Education stock closed Friday at $20.25, up 25 cents for the day. It was one of the most active on the exchange, with 1.7 million shares traded. The stock was trading as low as $18 Thursday. It began the week at $25.375.
