One of the big questions I’ve had all along is whether American Capital actually knew it was buying into an arbitrage play with Geosign, or whether the private equity company really believed, as its press release made out, that it was getting a share of an innovative internet publisher. I lean toward American Capital getting suckered due to 1) the wall of silence and 2) this indiscretion on the part of Geosign founder Tim Nye 3) the fact that Mark McQueen has good sources and a job that requires him to be careful about what he says.
The argument against American Capital being played for fools is that they did tremendous due diligence, yada, yada, yada, but there are plenty of stories about investors who supposedly did their due diligence losing everything.
Even those who concede that American Capital may have been fooled, like to point out $160 million is just a drop in the bucket for such a big player, and that the Geosign split wasn’t even announced as it wasn’t considered material to the company’s results. While that may be true, the Geosign debacle says that the people who worked on this deal didn’t have a clue what they were doing. It should have been clear to anyone — let alone supposed technology experts with MBAs and very large salaries to justify — that something was very strange about Geosign and Tim Nye.
None of this looks good for American Capital so it’s hardly surprising that, according to TheStreet.com, 7% of its stock is being shorted.