MindArrow Systems Inc.'s stock tumbled 59% Tuesday, the first day it traded since the Aliso Viejo company's startling disclosure three months ago that 1.1 million shares had been issued without authorization.
Shares of the online marketing concern closed at $1.85 on the Nasdaq SmallCap Market, down from $4.50 a share Feb. 2, the last day stock changed hands before Nasdaq suspended trading amid news about the counterfeit shares.
MindArrow said its former stock transfer agent, or others acting on the agent's behalf, issued the unauthorized shares between May 1999 and March 2000, when the company was known as ECommercial.com. A federal investigation is pending.
MindArrow Chief Executive Robert Webber said in an interview he hopes the company will now be "judged on its merits and not on the acts of a . . . third party."
"It's difficult to have headlines linking your company's name with the FBI and fraud and not have some people be nervous and want to sell the stock," he said. "Our view is we'd like to clear out the people who are nervous and solidify our base of shareholders."
MindArrow shares traded as low as $1.35 before buyers pushed the price back up. Many new shareholders as well as some longtime major shareholders stepped in as buyers, Webber said. Nearly 300,000 shares changed hands on Nasdaq, more than five times the average volume in the month before the disclosure.
MindArrow has replaced the counterfeit shares with valid shares from the personal holdings of its founders, Thomas J. Blakely and Eric A. McAfee, and took an $18.7-million noncash charge against earnings to account for the fraud.
The company's software creates electronic brochures delivered as e-mail attachments, which send back detailed information about users of the material--what they look at longest, whether they make purchases, to whom they forward the brochures. That helps companies refine their marketing pitches and create new ones.
Like many Internet start-ups, MindArrow had taken a pounding from investors even before the unauthorized shares came to light. The company's stock had lost nearly 85% of its value in the year before trading was halted.