As originally appeared in The Troubled Company Reporter.
PICO Holdings, Inc. (Nasdaq:PICO), based in La Jolla, Calif., is a diversified holding company reporting recurring losses since 2008. PICO owns 57% of UCP, Inc. (NYSE:UCP), 100% of Vidler Water Company, Inc., a securities portfolio and various interests in small businesses. PICO has $664 million in assets and $434 million in shareholder equity. Central Square Management LLC and River Road Asset Management LLC collectively own more than 14% of PICO. Other activists at http://ReformPICONow.com/ have taken to the Internet to advance the shareholder cause.
Here is a PICO Riddle:
Q: What do the years 2010, 2011, 2012, 2013, 2014 and 2015 have in common?
A: During those years, John Hart signed PICO 10-Ks, pursuant to Section 302 of the Sarbanes-Oxley Act, which, among other things, indicates that, “based on the officer’s knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact . . .”
The bloggers recount the events of the last week: “On Friday, June 17, Justin Akin and River Road improved the lot of PICO Holdings’ shareholders with one brilliant stroke. In an appropriately demanding 13D (its second in just 5 weeks), Mr. Akin calls for definitive answers from PICO related to PICOGate. And since PICO has been silent in relation to PICOGate up to this point, River Road will vote its chunky 8.2% stake against the reelection of Kenneth ‘The Slug’ Slepicka. Given that the Annual Meeting is on July 11, PICO has 3 weeks to respond.
ISS and Glass Lewis have strict policies about what information can be used in formulating a recommendation. The more formal the information, the more weight it carries. When a mongrel blog publishes a bastard conspiracy theory on failure to disclose a conflict of interest, the proxy firms treat it as suspicious. When “best in show” River Road files a 13D, the information becomes as legitimate as if sprung from the collective loins of William and Kate.”
The bloggers draw a poker analogy. They write, “Mr. Akin’s 13D “calls” PICO to turn over its Slepicka cards, leaving Mr. Slepicka with just two choices:
a) remain silent and lose reelection due to reasons cited above; or
b) provide the likely incriminating answers to PICOGate and self-humiliate.
If you hear a strange, loud sound Mr. Akin, that is stadium-size applause from all PICO shareholders.”
The activist bloggers perceive a coverup of PICOGate. They note that PICO is hardly following best practices in its response. “RPN has voted “Against” the election of Howard Brownstein. We suggest all shareholders do the same.
Underneath River Road’s 13D is dissatisfaction with Mr. Brownstein’s handling of PICOGate. Mr. Brownstein is the Audit Committee Chair, and management of PICOGate rests on his shoulders. By all accounts, and we mean ALL, Mr. Brownstein has been derelict in his response to PICOGate.
RPN senses a coverup. “A coverup,” you ask? Yes, a coverup. PICO has an extensive history of executive and director corruption and incompetence. Mr. Brownstein was appointed both Director and Audit Committee Chair by corrupt and incompetent directors. Mr. Brownstein has not communicated with PICO shareholders — the owners of the company — regarding PICOGate. Since we have heard nothing regarding a 6-year failure to disclose a conflict of interest, we assume the worst and claim a cronyistic coverup.”
The bloggers are exasperated with Mr. Brownstein’s lack of response, which they deem “a dereliction of duty.” They continue, “It has been 13 days since RPN broke PICOGate. Mr. Brownstein has not issued a press release. Mr. Brownstein has not communicated with shareholders. We sent Mr. Brownstein an email a week ago and he has not answered — a professional discourtesy which has been duly noted. As a result of this silence, we assume a PICOGate coverup. We are the owners of the company and we are in the dark.
RPN has been flooded with emails regarding Mr. Brownstein’s inappropriate handling of PICOGate. Let us put it in language that a Harvard attorney can understand: Most PICO shareholders, if questioned in a legal forum, would testify that Mr. Brownstein has breached his fiduciary duty to PICO shareholders.
An investigation of the truth must be objective, thorough and expeditious. Once the honesty and integrity of executives and directors is legitimately questioned, it is the Audit Chair’s responsibility to arrive at the truth, communicate that truth and take appropriate action — as soon as possible. Anything short is a dereliction of duty and a betrayal of shareholders.”
In typically irreverent fashion, the bloggers end with two important questions for Mr. Brownstein.
“We have two questions for you, Howie:
a) Why must shareholders coerce you to seek the truth regarding PICOGate?
b) As Audit Chair, shouldn’t you be aggressively seeking truth on behalf of the corporation you steward and the shareholders you represent?”