To put it mildly, the hiring of John McAfee has been a boon to anyone who happened to own MGT Capital Investments Inc., an obscure penny stock that has surged sevenfold in two weeks. That’s counting its plunge today.
Since May 9, when McAfee was named chief executive officer ostensibly to oversee the mobile-gaming company’s move into cybersecurity, MGT’s stock has increased almost 600 percent. Volume has jumped sixfold and the market value surged to about $80 million from $6 million — for a company that has reported losses every year since at least 2001.
Volatility is nothing new for the 70-year-old tech entrepreneur, who returned to public markets five years after selling his anti-virus company to Intel Corp. Since then, he declared his candidacy for president, and in 2012 was the subject of a manhunt in Belize by police investigating the murder of his neighbor. McAfee moved to Guatemala, where he was detained and released before returning to the U.S. and proclaiming his innocence.
His impact on MGT’s stock shows how quickly attention-grabbing headlines can translate into price momentum, though the effect is usually temporary, according to Michael Antonelli of Robert W. Baird & Co.
“These types of stocks become sideshows when a piece of sensational new hits them,” said Antonelli, an institutional equity sales trader and managing director at Robert W. Baird in Milwaukee. “In this day and age, it’s easier than ever for information like this to get around. It really shows how crowds react to things in the very short term, whether they’re right or wrong.”
Kyle Sandler, who runs an Alabama-based technology incubator and handles McAfee’s media requests, didn’t immediately respond to an e-mail seeking comment. Robert Traversa, who resigned as MGT’s chief financial officer in December but is still listed as the public relations contact on its website, didn’t immediately respond to phone and e-mail messages requesting a statement.
After seven straight days of gains of at least 13 percent, MGT fell on Wednesday. The shares declined 37 percent to $2.64 at 3:31 p.m. in New York on volume of 93 million shares. Short interest climbed to 1.3 percent of shares outstanding on Monday, the highest since August, according to Markit Ltd. data. The company’s annual sales peaked at $540,000 in 2011. No analysts cover the shares.
As recently as 2007, Harrison, New York-based MGT was changing hands for more than $120. Back then the company said it focused on health-care information technology. In 2010, MGT underwent a corporate restructuring that saw it divest several businesses while focusing remaining resources on its health-care and financial services subsidiaries.
By 2011, with its stock price dipping below $1, MGT was identifying itself as a “holding company engaged in the medical imaging industry.” In 2012, the company began acquiring intellectual property for online gaming platforms, forming the base of its current mobile-gaming business.
Now the company says it’s in the business of “acquiring, developing and monetizing intellectual property assets.” To that end, MGT says it purchased technology and assets from spyware maker D-Vasive Inc. MGT, which operates a number of mobile and online gaming sites and owns stakes in DraftDay.com, a daily fantasy sport-betting platform, plans to change its name to John McAfee Global Technologies Inc., according to a statement on May 9.
The surge in trading and price stems largely from retail investors, according to Antonelli.
“When news like this hits a lightly traded company, it ends up in the realm of day traders,” he said. “No institutions are following or trading this.”
McAfee is also a founder of Future Tense Secure Systems Inc., a security and privacy company that provides products including D-Vasive’s, according to its website. MGT Capital has a consulting agreement with the company, also known as Future Tense Central, the statement said.
McAfee announced a run late last year as a presidential candidate for the Libertarian Party, campaigning on a privacy-focused platform that includes pushing for the government to create a cybersecurity defense strategy.
In 2012, while living in Belize, McAfee had run-ins with local police for alleged unlicensed drug manufacturing and weapons possession but was released without charge. Later, Belize police started a search for him as a person of interest in connection with the murder of his neighbor, Gregory Viant Faull. McAfee moved to Guatemala, where he was detained and released before eventually returning to the U.S. McAfee said he was innocent.
KaloBios Pharmaceuticals Inc. saw a similar stock surge in November after Martin Shkreli, the Turing Pharmaceuticals LLC executive who drew criticism in August over a dramatic jump in a prescription drug price, acquired a stake of more than 50 percent. The company’s share price increased 280 percent in the week following Shrkeli’s purchase, only to see the entire gain erased by mid-January.
Published at Bloomberg