A short seller has accused three money managers of manipulating the price of Avant! Corp. stock, and one of the managers contends its accuser is doing the same thing.
Avant!, Fremont, Calif., is a software company whose top executives were indicted in April on charges of copyright infringement.
The three money managers - Fidelity Investments, Boston, and San Francisco-based Van Wagoner Capital Management and Amerindo Investment Advisors Inc. - are Avant!'s largest shareholders.
Manuel Asensio, chairman of Asensio & Co., a New York brokerage with a large short position in the stock, charged the three firms have been buying the stock to pump up the price, despite negative developments at the company.
Alberto Vilar, chief investment officer of Amerindo, denied Mr. Asensio's accusations. Mr. Vilar counter-charged the broker could be guilty of criminally manipulating the stock. Amerindo added 397,800 shares of Avant! after the indictments, and owned a total of 6.21 million shares as of Sept. 30, according to CDA/Spectrum, a division of CDA Investment Technologies, Rockville, Md.
Amerindo owned about 24% of the company's outstanding shares as of Sept. 30.
Another investor close to the situation said Mr. Asensio also appears to be manipulating the Avant! stock. If the managers are forced to sell, the price would fall, which would benefit Mr. Asensio's plan to sell short.
Mr. Asensio said the money managers want to be able to claim the stock is performing better than it actually is.
"Together, they have bought 40% of the stock, despite negative developments at the company, so that the stock price hasn't reflected the problems."
Mr. Asensio, who refused to say how many shares he holds in the stock, conceded it's to his advantage for the price of Avant! to fall.
But he insisted he has been making the charges to "honor our professional code and protect the investment market. We don't want investors to become cynical about our industry."
Mr. Asensio said he has asked the Securities and Exchange Commission to investigate whether the three money managers have conspired to pump up the stock price.
SEC spokesman John Heine said the agency will neither confirm nor deny whether it is investigating the matter.
Late last month, Mr. Asensio wrote to the money managers, arguing Avant! shareholders could lose their entire investment. In his letter to Fidelity Chairman Edward Johnson, Mr. Asensio said: "We believe that Fidelity's large, aggressive share purchase of AVNT at the end of the second quarter of this year created a fraud on the market and Fidelity's investors. We further believe that certain of your portfolio managers are acting as a group with other investors in a manner that violates securities regulations."
Fidelity started buying after the indictments, snapping up 2.73 million shares of Avant! as of Sept. 30, according to CDA/Spectrum.
Fidelity spokeswoman Anne Crowley said the company does not comment on individual stocks.
Mr. Asensio also sent a letter to Jon Lukomnik, deputy comptroller for New York City's five retirement systems, with assets totaling $89.9 billion, saying: "The city's $30 million account with Amerindo may have over 20% of its assets invested in Avant! and that stock is not suitable for purchase by any prudent fund, much less a pension fund for public employees."
He urged Mr. Lukomnik to sell the funds' Avant! holdings and to terminate its contract with Amerindo.
In an interview, Mr. Lukomnik said Amerindo owns 243,600 shares of Avant!, valued at $4.3 million on behalf of the New York pension funds. He said of Mr. Asensio's charges: "We have pre-existing policies in place internally to appropriately deal with most allegations, including this one."
Why Amerindo has stock
Amerindo's Mr. Vilar said he has been buying the stock because he believes it's one of the best technology companies around. "We have owned it for at least five years and continue to like it despite the lawsuits." He insisted he wasn't conspiring with anyone, but buying the stock because it's one of the pre-eminent technology companies whose earnings and revenue are exploding. He also expects the case to be settled.
Last week, he responded to Mr. Asensio's charges in writing:
"Your activities contacting public agencies and our clients in connection with our position in Avant! are intentionally and wrongfully interfering with our economic advantage, defaming us and willfully and intentionally attempting to manipulate the price of Avant! stock. .*.*.
"Your activities are mean, shameful and loathsome. They are motivated by appalling avarice and greed, and they will not be permitted to go unanswered."
Garrett Van Wagoner's firm bought 833,079 shares of Avant! between March 30 and Sept. 30 for its small-capitalization growth portfolios. It owned 2.4 million shares as of Sept. 30, according to CDA/Spectrum.
Said Mr. Van Wagoner: "We don't manipulate stock prices. But when the price fell to $10 or $11, we bought, and since then it's been up 70% for our shareholders."
Meanwhile, Avant! - started as ArcSys Inc. in 1991 by four former engineers from Cadence Design Systems, San Jose, Calif. - has been embroiled in court battles over whether its founders pirated critical electronic design automation software codes from Cadence, now a major competitor. Last April, the case turned into a criminal proceeding after Santa Clara County District Attorney George Kennedy charged six Avant! managers, including Chairman Gerald C. Hsu and former Cadence official Mitch Igusa with six counts of felony for theft.
As the civil and criminal legal battles swirl around Avant!, money managers have remained bullish about the company, emphasizing it's a leading edge stock that's undervalued.
Some still bullish
"We believe the stock will be worth more in six to eight months, based on the fundamentals of the business and the legal outcome. They make a very good product, which people need and want," said Mr. Van Wagoner, who has owned the stock since it went public in June 1995.
And Emeric McDonald, software analyst at Amerindo, concurs, arguing the stock is significantly undervalued. He expects its earnings and revenue to climb 35% to 40% during the next two years, if it prevails in the lawsuits. "We owned shares of its predecessor ArcSys in a private placement and became shareholders when the company went public in 1995. We have been buying right along," he said.
Avant!'s share price reached its all-time high of 51 following its public offering, and plummeted to a low of 93/4 last April after the indictments were announced.
Recently it has been trading between 14 and 18. It closed at 18 on Jan. 8.