Executives at NetZero Inc., the country’s largest free Internet access provider, have been unloading large blocks of stocks in recent weeks, raising concerns about the company’s future prospects.
On June 30, Mark R. Goldston, the company’s chief executive and L.A. County’s highest-paid public company executive last year, sold 100,000 shares at $6 each, close to the stock’s 52-week low. Coincidentally, the company’s first fiscal year ended the same day.
Financial results are expected to be released on about Aug. 8, NetZero officials said last week.
Goldston’s most recent stock sale occurred only two months after he unloaded 350,000 shares for $3.3 million in early May. Goldston, who was unavailable for comment last week, had a 1999 base salary of only $56,000 but the value of his stock options put his total 1999 compensation at more than $153 million.
And Goldston is not the only option-heavy NetZero executive dumping shares lately. In total, company insiders have sold 1.3 million shares since they were allowed to start divesting their stock holdings on March 21.
Charles S. Hilliard, the company’s chief financial officer, sold 180,000 shares in May and June for a total of $1.61 million. And on June 28, Ronald T. Burr, the company’s president, sold 55,000 shares at $5.41 a share.
While some Wall Street experts might be alarmed to see a massive sell-off of stocks at such rock-bottom prices (NetZero’s 52-week high was $40 a share, on Dec. 21, 1999), insider trading observers said it is not unusual for executives in young companies to sell large amounts of stock after the first year to diversify their investments and get access to some cash.
“This was probably their first real opportunity to get compensated,” said Carr Bettis, an insider trading observer and manager of Pinnacle Investment Advisers in Scottsdale, Ariz. “There are a lot of good reasons for early selling in the first couple of years of a company’s life. If this were an older company, it would clearly be a very bad sign for investors. But since this is a younger company, I would be cautious in suggesting that this is a bad sign.”
A company spokesman said the stock sales came because many of the executives, who are not earning big cash salaries, wanted to gain some liquidity. At the same time, several NetZero executives have set up trusts managed by independent advisers that dictate certain amounts of stock be sold automatically at specified periods.
It is not unusual for executives to have such trusts set up to handle their stock so they will not be charged with insider trading, experts said. “They have no control over the actual sale,” said Brent Zimmerman, director of NetZero’s investor relations. “All our management team has a tremendous amount of faith in the company going forward.”
However, Donn Vickrey, a financial expert who writes a column about insider trading for Insiderscores.com, is less optimistic. “All I can say is, they don’t seem to have any expectations of anything good happening, especially when they are selling such large quantities of stock at such low prices,” Vickrey said.
The Westlake Village-based company has not shown a profit since it went public in April last year, losing more than $12 million in the first three quarters of the fiscal year ended June 30. While that is not unusual for a young Internet company, it has not helped NetZero’s stock, which closed July 20 at $6.44 a share.
