Taser defends insider deals, sales of stock
The family that used to run the company sold millions in stock, and the firm rented their airplanes.
Published: Wednesday, January 12, 2005 at 6:01 a.m.
Last Modified: Tuesday, January 11, 2005 at 10:53 p.m.
Taser International Inc., the stun-gun maker whose safety claims are being probed by the Securities and Exchange Commission, issued a letter Tuesday defending $105.8 million in stock sales last year by the family that has run the business.
A review of company filings with the SEC also shows that Taser paid $205,509 last year to lease airplanes owned by the family and that it has a 15-year lease to pay $1,556 a month for use of another plane, a Cessna 414, owned by family member Thomas Smith, the company's president.
Such arrangements are rare in the business world.
``If the company has an honest-to-goodness need for a plane, there's a very liquid commercial market,'' said David Yermack, a finance professor at New York University's Stern School of Business. ``There's no need to lease it from executives. It compromises the independence and objectivity of everyone involved.''
In a letter to shareholders Tuesday defending the Smiths' stock sales, Taser also said that it may see delays in orders as law enforcement agencies test and evaluate stun guns made by competitors.
Taser's shares dropped $5.05, down 25 percent, in early afternoon trading on the Nasdaq Stock Market to hit $15, down from a year-high price of $33.45 on Dec. 30.
In one week in November following an announcement that Taser stun guns had been approved by the federal government for use on domestic flights, three family members sold shares worth $54.6 million.
Their sales came at the end of a banner year for Taser, with revenues from sales to law enforcement, corrections and other agencies growing 150 percent.
But as the company's stock price climbed, the human rights group Amnesty International and various news organizations published reports raising questions about the safety of Taser's stun guns.
The Arizona Republic has found 84 cases of death following a Taser strike since 1999, with 11 cases in which medical examiners said Tasers were a cause, a contributing factor or could not be ruled out in a death. Amnesty said stun guns were linked to more than 70 deaths over a four-year period and urged law enforcement agencies to
suspend their use.
The so-called non-lethal weapons temporarily paralyze people with a 50,000-volt jolt delivered by two barbed darts whose current can penetrate clothing. Tasers have a range of up to 21 feet and can also shock on contact, like a cattle prod.
The nation's leading stun gun company said in its June quarterly report that it does not believe there is a ``causal link between the use of a Taser device and a death of a suspect other than the general stress of the physical exertion during Taser stimulation, which is similar to athletic type exertions and is comparable to or less than the stress of other available physical restraint procedures.''
The SEC and the Arizona Attorney General said last Friday that they are looking into claims Taser has made about safety studies for its stun guns. The SEC is also reviewing a $1.5 million, Dec. 31 sale by Taser to a firearms distributor that some analysts have questioned because it appears to inflate sales to meet annual projections.
``We understand these inquiries may not be resolved quickly and that there is no basis upon which to set a timeline for expected completion,'' the company said in its letter to shareholders.
Three shareholder suits were filed against the company this week,
charging that it withheld material information.
In its defense of the insider stock sales, the company said that Phillips Smith, who retired as company chairman on Dec. 31, ``sold the majority of his Taser stock as part of his retirement transition.''
His sons Thomas Smith, the company president and Patrick Smith, its chief executive, sold an average of 22 percent of their Taser stock to diversify their holdings, the letter said.
``We still retain a significant position in Taser International, which at year-end comprised a significant majority of our personal assets,'' said the letter, signed by Patrick and Thomas Smith. ``Hence, we feel that the rumors about us `bailing out' are not fair, nor accurate.''
The top insider seller has been Phillips Smith, who sold $48.3 million in company stock in 2004. Patrick Smith sold $29.6 million in company stock last year, while Thomas sold $27.9 million.
Records, filed with the SEC, show that the Smiths bought stock at low prices available to them under their options packages, and, in some cases sold it the same day or the day after.
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