How will the SEC handle the situation regarding Elevation Partners and Palm (PALM)? It has been nearly a week since Roger McNamee, managing director at Elevation Partners, went on a rant on Bloomberg television about how wonderful Palm’s Pre phone will be. McNamee is a founder of the private equity firm Elevation Partners that has received notoriety through association with mega-rocker Bono of U2. McNamee is a rocker of sorts himself playing under the personae of “Chubby Wombat Moonalice”, no joke. Included in his rant of March 5th were such notable statements:
“You know the beautiful thing: June 29, 2009, is the two- year anniversary of the first shipment of the iPhone. Not one of those people will still be using an iPhone a month later”…Palm Pre is “going to be a million times – well, not a million times – several times faster” than Apple, Inc.’s iPhone products and is “going to run rings around them on the web”…“the Pre is the first one that is the next generation”…“the result is it does a lot of things the others guys don’t do.”
Now, a personality on television making extreme statements regarding a stock would hardly be a story, if that were all. However, Elevation had invested $100 million in Palm last December (bringing Palm back from the brink), making the total portion owned by the firm to 39 percent. This situation is even more complex than that because earlier this week (just 5 days after the rant) McNamee’s firm sold off some of its investment in Palm’s secondary offering. Elevation was both a buyer and a seller in the offering. McNamee could never be considered an unbiased perspective, but did McNamee cross the line from being a cheerleader to doing something illegal?
I do not need to point any fingers; Palm’s own management is clearly worried about the appearance of impropriety as they issued a strange filing with the SEC regarding the conduct of McNamee on Bloomberg. In the “tail between the legs”-filing Palm backtracked on ten different claims made by McNamee and also said this:
“The interview and article published by Bloomberg were not prepared by or reviewed by Palm prior their broadcasting and publication. Bloomberg is not affiliated with either Palm or Elevation. Neither Palm nor Elevation made any payment or gave any consideration to Bloomberg in connection with the broadcast of the interview described here or any other article or broadcast published by it concerning Palm. Statements in the interview or article that are not made directly by Mr. McNamee represent Bloomberg’s or others’ opinions, and are not endorsed by Palm or Elevation.”
McNamee is nothing else if not a representative for both Palm and Elevation, so the fact that they are distancing themselves says quite a bit. The ethics of the situation are at best questionable, and Palm knows it. The official request was that McNamee’s statements be “withdrawn”.
We will leave it up to the regulators to investigate any wrong doing; however, what the man said was borderline idiotic. The Palm Pre by all leaked accounts is going to be a wonderful handset with a new operating system that reviewers rave about. There is a ton of excitement on the blogs and message boards for the release, and there have been false rumors about released dates for months. Sprint-Nextel (S) has the exclusive rights to the phone and hopes that it will keep them afloat in the highly competitive wireless carrier business. However, McNamee is way out over his skis to say that this will claim all of the first generation iPhone users. What he does not seem to grasp is that we are not dealing with phones anymore, these are mobile computers and the iPhone has a two year head start on the Pre. The technology for Pre may be incredible, but the iPhone has iTunes and the App store where people have already paid for a lot of money to buy and develop music and apps. Not to mention the fact that the Pre is launching in one of the toughest consumer spending environments in decades.
McNamee has done damage to his reputation, and it makes Palm look more desperate than ever. We have heard nothing of SEC action, but it just strikes us as wrong that McNamee has a large amount to gain by Palm stock doing well. One thing is for sure, McNamee never learned one of the key tenets of a successful business, under sell over deliver. He has put his neck on the line, and those investors who bought in the secondary offering could be looking his way if things do go south. Next time, let the product speak for itself instead of bashing competitors Apple (AAPL) and Research and Motion (RIMM) just days before a secondary offering.