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11 August 2017

CEO controversy slashes IoT darling Telit’s share price

An incendiary report has emerged from Italian outlet il Fatto Quotidiano, alleging that RF module specialist Telit’s CEO is a fugitive defendant in a 1992 wire fraud case in Boston. The news has caused Telit’s share price to plummet by 40% (peaking at a 54% drop), and the board has approved CEO Oozi Cat’s request for a leave of absence while the lawyers investigate.

The report alleges that CEO Oozi Cats is also the Uzi Katz that was indicted by Boston’s district court in 1992, on charges of wire fraud – later called a “fugitive defendant” in court documents that il Fatto Quotidiano claims to have seen. Telit has appointed a law firm to review the allegations.

The apparent revelation stems from the newspaper’s investigation into millions of euros of research funding awarded to Telit by the Italian government, to the UK company – including low-interest loans. The UK’s Telegraph says that a source close to Telit has said that Cats occasionally uses the alternate Hebrew spelling for his name – Uzi Katz, rather than Oozi Cats.

Reuters did some digging and translating, finding that the charges relate to a ‘land flip’ scheme, which “bought and sold properties at inflated prices in order to take out fraudulent mortgages.” Those court documents show that Uzi Katz was never detained.

Now, notably, the case against this Katz was dismissed in 2006, but Reuters seems pretty convinced that this Katz is Cats. It notes that the case was not mentioned in Telit’s prospectus, the documents needed to list on London’s Alternative Investment Market when it went public in 2005.

Reuters says a source has said that the legal investigation will examine whether Cats’ history was properly disclosed to Telit’s board and investors – which sounds like an admission of involvement, should that source be correct. Reuters also points to the history of elevated short-selling, and that 13.3% of its shares are currently on loan to hedge funds – the highest ratio for any AIM listed company.

So it’s still not legally clear whether Katz is Cats, and if it is, it seems that there won’t be a legal consequence for the alleged historic crime. However, Katz-Cats, should they be the same person, may well face charges for fraud – depending on what the Telit lawyers find. In the meantime, Finance Director Yosi Fair will be in charge of the company.

Telit had a peak valuation of around £500m, a few months ago. In May, CEO Cats sold 7m Telit shares (about a third of his stake) to raise £24m, in order to repay personal loans that he had taken out in USD – and would have been feeling the post-Brexit pinch of the Pound Sterling’s drop in buying power.

The company had been enjoying strong growth in its valuation, in recent quarters, with frequent investor articles being posted with positive sentiments. However, its interim numbers, published this week, were disappointing for the investment community ($6.7m loss for H1 2017, compared to 2016 profit of $4.7m) – leading to a 40% post-results dip that has since been exacerbated greatly by the allegations.

Telit specializes in selling the wireless RF modules that let companies connect their devices to the internet. It includes some services in the offering too, but it’s core competence is in the hardware – and a new (ish) PaaS platform called IoT Portal. Telit will also manage the connectivity deals for each country, meaning it can quite fairly say it offers an end-to-end solution for a device maker.

The modules range from 2G, 3G, and 4G, into satellite positioning (GNSS), LPWAN options like Sigfox and LoRa, and short-range links like Bluetooth, WiFi, Zigbee, WM-Bus, and the plethora of sub-GHz protocols. Telit targets specific industries and applications, with a firm grounding in the industrial side of things, but also Automotive, Healthcare, and Logistics.