Friday, August 26, 2011

Penson Worldwide, Inc. (PNSN) Sued In Class Action over Alleged Bogus Financial Statements

Stock clearing agent Penson Worldwide, Inc. (Nasdaq: PNSN) was sued over a basket of legal issues, including making false and misleading statements to inflate its stock price. The class action suit was brought by national law firm Levi & Korsinsky.

According to the complaint, filed this week in United States District Court for the Northern District of Texas Dallas Division on behalf of purchasers of PNSN stock, Penson “issued materially false and misleading statements… and concealed from investors” the fact that much of Penson’s claimed receivables were poorly collateralized, or collateralized by illiquid customer assets.

A large part of the referenced receivables apparently concerned revenue and interest the company was due on margin loans to customers, the customers in turn offering as collateral certain securities which the law firm called “illiquid… and therefore unlikely to be collected.”

Specifically, the suit alleges that at a point in 2010, Penson had about $96-97 million in receivables, termed “Nonaccrual Receivables”, of which about $43 million were collateralized by the allegedly illiquid securities and that these were therefore materially overstated and “should have been written down at least by the end of 2010”. The result was a material overstating of income and EBITDA, says Levi & Korsinsky. They further claim that Penson’s financial statements were not prepared according to GAAP rules.

A similar, or perhaps identical, suit was also filed this week against Penson in the same court by the law offices of Howard G. Smith. But, as the story was late-breaking, it has yet to be verified whether it‘s part of the other action.

Additional details of the Levi-Korsinsky filing are shown at the Shareholders Foundation website. According to Shareholders Foundation, Penson disclosed on May 9, 2011, apparently for the first time, that about $42.6 million of its Nonaccrual Receivables were collateralized “by bonds issued by the Retama Development Corporation (RDC) and certain other interests in the horse racing track and real estate project … financed by the RDC’s bonds,” and that certain parties related to the company were holders of about $14.7 million of RDC bonds that were pledged to the Company or its affiliates.

Throughout this period, Penson stock has taken a beating, and that appears to be the bottom line of the suit. The law firms have invited persons who acquired PNSN shares between February 10, 2011 and August 4, 2011 to contact them about their rights no later than the court deadline of October 24, 2011.

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