Following the standard stock promotion script we have observed countless times in the past, we can now add insider sales as an important reason for investors to be concerned about their die-hard commitment to Sphere 3d. Based on filings, John Morelli, the co-founder, former CTO and director (he resigned on March 6) of Sphere 3D, has sold 300,000 shares. More importantly, it is quite clear that there has been a violation of securities rules in the process. Let’s start with the sales:
1) Sphere 3D’s listing document, from December 2012 gave Morelli’s stake in Sphere 3D at 1,528,571 shares.
2) Morelli’s only insider filing since then was a September 16, 2013 statement that he had received 50,000 options as director compensation. (screenshot from sedi.ca)
3) On Friday, May 30th, Sphere 3D filed irrevocable proxies (giving Sphere 3D the right to vote their shares in favor of the Overland Storage merger) for each member of its board of directors and Giovanni Morelli. It states that he owned 1,228,571, or 300,000 shares less.
One wonders why the founder and technology “guru”, as he has been referred to by a certain stock tout letter, would be selling stock in this alleged transformational company. In any event, his selling is a likely answer to a question we have had for some time: why have there been reported marker sellers in Sphere stock (a total of 162,300 starting on January 2, 2014 according to INK Research) with no follow-up insider sales reports? There are no satisfactory answers to this question. If indeed it was Morelli, then he broke securities laws by not reporting sales while he was still a director. And if it wasn’t him, then exactly who was it, and why are those sales not being reported? As the OSC website states:
What are the deadlines for filing an insider report?
We think Sphere shareholders should be asking:
1) Why did Morelli sell 300,000 shares?
2) When did he sell those shares?
3) He can now sell without reporting. Was this the primary reason that the founding visionary left the board?
4) If it wasn’t him selling, who was it, and why have there been no insider reports filed?
Questions (2) and (4) should be of interest to the regulators.