Bloggers Wonder about Fate of PICOGate

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 have taken to the Internet to advance the shareholder cause.

The bloggers note that two weeks have passed since they released PICOGate. “We and our experts find the silence unusual and not reassuring. But we reserve judgment for now. We hope that Howard Brownstein and the PICO Audit Committee are taking action that is commensurate with the breach of trust that has occurred — and the fact that it persisted for 6 years.”

The bloggers provide an interesting PICO factoid. “In May of 2010, PICO’s market capitalization was roughly $700 million. Today, PICO’s market capitalization barely crosses $200 million. Assuming 250 workdays per year, Mr. Hart has destroyed $325,000 in shareholder value every day he has shown up for work. We wish he would call in sick more often.”

The Bloggers walk the walk. “PICO shareholders should understand that, in relation to PICOGate disclosure, we had a few choices. Broadly speaking, we saw three options:

a) Send it to Howard Brownstein, Chair of the Audit Committee, and allow the PICO gears and pulleys to work;

b) Turn it over to the Securities and Exchange Commission; or

c) Run it through the RPN blog and let the law of the financial jungle sort it out.

The main advantage to turning the evidence over to the SEC was the potential for a Whistleblower Award — a benefit which would have inured exclusively to us here at RPN. We calculated that our award would migrate to the high end of the 10%-30% of settlement range — perhaps 25%.

Next, we analyzed the amount of a potential settlement. The PICOGate transgression endured for 6 years, two individuals were involved, both perpetrators are of financial means. We guessed a settlement would equate the minimum for an award, or $1,000,000.

Our best guess was that we may be in line for an award of $250,000 if we turned our PICOGate evidence over to the SEC.

But there was an enormous disadvantage to the SEC route: time. Due to the nature of the offense, the dollars involved, PICO’s small size and low-profile, we calculated it would take a year for the SEC to substantially respond. This meant we at RPN would be in possession of material information whose revelation would benefit our fellow PICO shareholders. But we would withhold it from you for our own personal benefit. We might get a big payday in a year, but in the meantime, the PICO struggle would continue without the potential advantages of the PICOGate information. Any windfall we may receive would set us economically apart from our fellow PICO shareholders. We were uneasy with that.

So we examined running the evidence through the blog. The blog’s main advantage was instant sunlight: everyone would have the same information, everyone would know Messrs. Hart and Slepicka had breached PICO shareholder trust. All parties in interest could instantly respond as they saw fit. The blog would serve as an efficient market for information.

The downside of utilizing the blog inured to RPN: once we publicly divulged the PICOGate evidence, its value in a Whistleblower Award was forever lost.

Our final measure was to compare the NPVs. We asked ourselves “Which option is likely to produce the highest NPV to PICO shareholders?” The answer was obvious. You know the result — we ran PICOGate through the blog.

Passing on the potential to receive a quarter million dollars was no small choice. We laughed around the RPN Boardroom the other day as we totaled our cumulative costs. If we add our cash costs ($3,000) to a blended rate for our time multiplied by hours spent, we roughly calculate that we have invested $75,000 in RPN ($200 per hour x 60 hours per month x 6 months). For those of you with good memories, you know $75,000 is just a Steph Curry jump shot from Central Square’s $100,000 expense reimbursement. And our number climbs with every post.

When we activated this blog, our motto was: By PICO Shareholders, Of PICO Shareholders, For PICO Shareholders. We stand shoulder to shoulder with our fellow PICO shareholders. We ran PICOGate through the blog because could not sleep at night knowing we had potentially useful information that we withheld from our fellow shareholders for our own personal benefit.”