OCZ's stock took a big nosedive today following the release of a report by Copperfield Research that accuses the company of fraud.
The report claims OCZ misrepresented its SSD growth and basically calls the stock a scam. You can read the accusations at Zero Hedge. The release of the report caused OCZ's stock to plunge over 30 percent to $6.25, but at press time the shares have recovered to $7.95 (-17.19%).
Over the last six months, investors have learned a painful and expensive lesson from the following story. A small Chinese company comes public through an RTO (reverse take-over) or a backdoor listing on theOTC Bulletin Board. The story blossoms alongside a rising stock price, riding a new hot theme or even a legitimate end market. Ignoring red flags from management's past, sell side analysts and investors choose to believe the Cinderella tale. The tale itself is always hard to verify, but the detailed insight the CEO shares creates complacency and a willingness to look past obvious risks and financial irregularities. Based on the CEO's story, a cult-like following ensues, and the company is able to raise large sums of capital. The company puts up huge revenue numbers quarter-after-quarter, yet the profitability and cash flows never seem to materialize. And then one day, investors realize that numbers never reconciled and huge accounting inconsistencies existed the whole time. They also realize important facts were never disclosed and the product wasn't what management claimed. Ultimately, investors suffer large losses as the final chapter. OCZ Technology (OCZ) may just be the American version of the story above.