Stock Plunges as Web Site Hunts for Firm’s Customer

Shares of Coyote Network Systems Inc., a Westlake Village-based telecommunications company, plunged 45% on Wednesday after a popular financial Internet site published a story saying it could not locate the company’s biggest customer.

TheStreet.com, a Web site headed by oft-quoted Wall Street pundit James J. Cramer, wrote that despite extensive research, it could not find Crescent Communications Inc., which it said represented about 75% of Coyote’s fiscal second-quarter sales.

Coyote’s stock fell $6.44 to close at $7.81 on trading of 2.4 million shares, more than 17 times its three-month average. Coyote was the second-biggest percentage decliner in U.S. markets. The shares peaked at $16.75 on Nov. 30 after more than doubling since mid-October.

Coyote executives declined to comment. An employee said the company was flooded with at least 200 calls from brokers and stockholders.

Coyote makes switching devices for phone and Internet services. The story by TheStreet.com pointed out that Coyote is a descendant of Diana Corp., whose once-highflying stock was delisted from the New York Stock Exchange in March 1997.

The story detailed TheStreet.com’s efforts to track down Crescent and its chairman, Gene Curcio, searching public records, sending a reporter to its supposed headquarters in Long Beach and asking Coyote for help.

“It is almost like trying to locate Godot,” the story said.

Coyote bought a 20% stake in Crescent in September, according to SEC documents. But the site quoted James Fiedler, Coyote’s chief executive, saying he hadn’t “physically” visited Crescent’s office.

Coyote reported sales of $15.2 million for the quarter ended Sept. 30, compared with $106,000 a year earlier. The company reported a net loss of $1.4 million for the quarter, versus a net loss of $8.8 million in the like period the year before.

An analyst who follows the company defended Coyote and Crescent.

Vik Grover at Kaufman Bros. in New York said the Web site could not find Crescent because it is based in Mexico, not Long Beach. The sales in question were actually made to Comdisco Inc., a Rosemont, Ill.-based technology-services company, which is leasing the equipment to Crescent, Grover said.

A Comdisco spokeswoman confirmed that Coyote sold her company about $12 million in equipment made by Coyote and other companies, which it is leasing to Crescent. She said she had no further information, including when the transactions occurred.

Companies lease equipment to avoid the expense of buying or to avoid owning technology that might become outdated.

Grover reiterated his “buy” rating on Coyote on Tuesday, saying it has strong growth prospects and that the shares could reach $38 in 12 to 18 months.

“This is a real company,” Grover said of Coyote, adding, “There has been, in my opinion, a significant disservice done to investors today.”

Dave Kansas, editor in chief of TheStreet.com, said his site did exhaustive research in trying to find Crescent. It repeatedly asked Coyote for assistance, but the company was unhelpful, he said.

“I’m concerned that a publicly traded company would be so curt with information that obviously would be vital to their shareholders,” Kansas said. “Our story states specifically all the reporting we did.”

TheStreet.com noted that Coyote insiders filed forms with the Securities and Exchange Commission this month indicating that they might sell 5.4 million shares. A Coyote spokesman told the Web site that the managers have no intention of selling.

But in an interview with The Times, Robert Gabele, president of CDA/Investnet, a Rockville, Md., service that tracks insider activity, said the filing of the so-called S3 forms usually suggests plans to unload stock.

“There’s no reason for filing an S3 unless you plan to sell the shares,” he said.