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Exclusive: Axon CEO Talks Insane Short-Seller Attack, Says 'My Secretary Was A Mole'

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Exclusive: Axon CEO Talks Insane Short-Seller Attack, Says 'My Secretary Was A Mole'

Rick Smith, CEO of Axon Enterprise Inc (NASDAQ: AXON), joined Benzinga’s "Raz Report" on Friday. He discussed the origins of Axon and told the story of some unbelievable lengths short sellers went to back in 2004 to try to destroy the company, including installing a mole inside the company.

Axon’s Origins: Smith said he’s been passionate about safety and self-defense since he was a child. When he was 23, he tracked down and called the patent holder for the taser gun to convince him to revive the technology.

“As I got to know him, I discovered that he actually wasn’t that interested in owning any stock in the company. He was kind of skeptical and pretty jaded about business. He just wanted a very clear patent royalty,” Smith said.

Ultimately, Axon ended up buying out the patent holder’s patents and a 5% stake.

Axon has gotten more attention in the past year due to the political protests surrounding police killings. Smith is optimistic that a solution is just around the corner.

“We will develop a taser-like weapon by the end of this decade...that will outperform a 9 millimeter [firearm],” Smith said.

Taser’s Short Attack: Smith discussed the recent volatility in GameStop Corp. (NYSE: GME) and how it was reminiscent of a similar period of volatility for Axon, which was then known as Taser, back in the early 2000s. From early 2003 to late 2005, Taser shares surged from under $5 to as high as $154 back down to around $5.

“We had a $1 billion short position come in in 2004, and that’s when all the craziness hit… All the negativity about Taser happened at the exact same time our short position topped a billion dollars,” he said.

Smith said the measures short sellers took to damage the company and its stock bordered on the absurd.

“Ultimately, my personal secretary was a mole who was sending information to short sellers who were then using it to manipulate the stock,” Smith said. “We actually think she recruited in specifically to do this job because she joined us only about six months before all hell broke loose."

Smith said he can only tell this story now because his lawyers advised him at the time not to speak publicly due to an ongoing SEC investigation into the matter. He also said a public company’s CEO complaining about short sellers manipulating the stock price only plays into the negative narrative short sellers are peddling.

“We did not go public with any of this until the last year, where now I’m sharing it because the world is paying attention to what short sellers can do to companies. It’s not a problem today, but it nearly killed us 15 years ago,” he said.

Related Link: How Retail Option Traders Are 'Supercharging The Short Squeeze' In GameStop And Other Potential Bubble Stocks

More Regulations Needed: Smith said one step in the right direction would be for more short-seller regulation.

“I can’t tell you who it was because short sellers can operate in complete darkness. To this day, if you take a sizable position in my stock, if you buy the stock, we know who you are. You have to register with the SEC. But you can take a $1 billion short position in my company and nobody knows,” he said.

Short sellers can then go out and spend $20 million on negative press, investigations and other tools to drive the stock price down in total anonymity.

“When I tell you my secretary was a mole, it’s because she was uncovered by two prestigious investigative firms we brought in and they confronted her with the evidence that she had been the one that sent the SEC letter to the Arizona Republic. She pulled a resignation letter out of her pocket and walked out of the office never to be seen again,” Smith said.

Watch the full interview with Rick Smith in the video below.

In the Raz Report, Benzinga CEO Jason Raznick sits down with a different high-profile guest each episode for a longform conversation. Watch every Raz Report episode here.

 

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