By Steve Goldstein, MarketWatch
J2 Global Inc., a cloud service company and website operator, said the owner of a company it purchased was not a director — though public documents show he was on the board of one of the company’s subsidiaries.
J2 Global was accused by New York–based Hindenburg Research, a short-selling investment firm, of a “several-decades-long history of related-party acquisitions and undisclosed self-dealing.”
The report, issued June 30, caused the Nasdaq-listed owner of popular titles including PCMag.com and the gaming site IGN to shed 9% of its market value.
The Los Angeles company /zigman2/quotes/204635076/composite JCOM +2.22% responded to the Hindenburg report on July 1, saying the report contained “false claims and distortions,” and the stock recovered some of its losses.
J2 Global’s rebuttal of the Hindenburg report addressed the 2015 acquisition of a consulting business owned by Jeroen van Der Weijden.
The company said: “It is also important to note that Mr. van der Weijden was not a related party at the time of the $900,000 acquisition (contrary to Hindenburg’s assertion), as he was not an employee, director or significant shareholder. He was a consultant for J2 from 2004 until 2015. Moreover, Mr. van der Weijden was never an executive officer of J2 so the reporting of this immaterial transaction was never required.”
Publicly available documents in the U.K., however, show that van der Weijden was a director of J2 Global UK Ltd., from June 13, 2014, to Jan. 12, 2016. J2 Global UK is an arm of J2 Global Ireland, which ultimately is owned by J2 Global Inc.
Van der Weijden signed the company’s statement of director responsibilities on March 6, 2015, “on behalf of the board” of J2 Global UK.
A person familiar with the matter said it wasn’t unusual for a nonemployee to serve as a director of the subsidiary. Van der Weijden was never a director of the parent company.
Ed Ketz, an associate professor of accounting at Penn State, said there is no materiality threshold for related-party transactions. “In general, any related-party transaction should be disclosed that would impact the decision making of the company’s financial statements users,” he said. “The only way for an entity not to make this disclosure is if it can conclude that such information would have no impact on the users’ decision making with respect to the ownership interests.”
J2 Global, with a market cap of about $3 billion, is well liked by Wall Street analysts, who on average assign it a $97.17 share-price target, according to FactSet Research data, well above its Thursday closing price of $61.69. The stock has dropped 34% this year, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.40% has slipped 1.7%.