OCZ Suspected of Fraud

Here is an abstract of an article from Copperfield Research:

OCZ -The Master of SSD (Shady, Suspect, Deceitful)

OCZ has parlayed investor and market excitement for solid state drives (SSDs) into an amazing story. From a low of $1.79 last summer, OCZ’s stock has steadily climbed more than 350% on a feel good tale told by its CEO.

But there is a much darker and sinister side that has been well hidden. It is our opinion that OCZ has misrepresented its SSD growth and has financial irregularities that are nearly impossible to reconcile. We believe that some form of a restatement may be required and that the auditors tick and tie review has some substantial inconsistencies.

As such, we have sent our findings to the Securities and Exchange Commission asking for clarification on the multiple sets of numbers that we have uncovered. We believe OCZ’s Board has the fiduciary responsibility to form a special committee to examine these discrepancies. But the misrepresentations are not confined to the financials. A scathing lawsuit and industry reviews suggest OCZ has misrepresented product specs and performance.

Additionally, a recently completed secondary failed to disclose the CEO’s criminal record, major underwriter conflicts (until the final prospectus), and contained financial results that were different from past filings.

And if that is not enough, there are other confusing pieces to the story such as Fusion-io, STEC, and Smart Modular disclosing that they do not see OCZ in competitive situations.

Amazingly, we believe most of the interest in OCZ is nothing more than a wise guy backdoor play on the hot Fusion-io deal that should backfire as the OCZ issues get exposed. As investors begin to recognize that the CEO has told the world that OCZ is trying to get qualified at EMC and IBM (so much for selective disclosure), the last catalyst will have played itself out versus elevated expectations.

Although the sellside will likely remain complicit, we believe buyside investors that expect $400 million of revenue, and more importantly $0.75 of earnings in fiscal 2012, will be disappointed. With buyside estimates at unobtainable levels and promotional qual announcements fully priced in, we think the stock will finally be valued on fundamentals. If OCZ trades in-line with the comp group, a generous assumption given OCZ’s limited asset value, differentiation, and minimal profitability, a reasonable price target would be between $2.58 and $4.98 per share.