Taser International Inc., the world’s largest stun-gun manufacturer, allegedly made false statements to the Securities and Exchange Commission concerning an agreement with two of the nation’s largest newspapers, according to the newspapers’ representatives and documents obtained by the Center for Investigative Reporting.
The statements stem from the 2006 settlement of Taser’s libel suit against Gannett Co., Inc, the parent corporation of the two newspapers—USA Today and the Arizona Republic. In two SEC filings, Taser claimed that the newspapers “would review articles regarding the Taser device with us prior to publication”—an extraordinary breach of journalistic standards. Taser’s general counsel initially stated the claim to Wall Street analysts in an earnings conference call, adding that it was “in order to ensure accuracy.”
The newspapers, which were unaware of Taser’s claim until their lawyer was contacted recently by CIR, deny ever making such an agreement, and have demanded that Taser formally correct the record. Initially, Taser was reluctant to amend its statements and the newspapers were considering further action, according to interviews with parties on both sides. Representatives of Taser and Gannett are currently in discussions to settle the dispute. The SEC declined to comment on the allegations.
The Scottsdale, Ariz.-based stun-gun maker and its hometown paper have had a contentious history, resulting from the Republic’s detailed reporting, from 2004-2006, about the company and the safety concerns of its flagship product, which is used by more than 13,000 law enforcement, correctional, and military agencies around the world.
Its sister Gannett paper, USA Today, has also angered Taser, particularly after publishing a June 2005 story and graphic that significantly overstated the electrical output of Taser’s X26-model stun gun. Taser contacted the newspaper and the story was corrected the next day of publication.
But a few weeks later Taser sued, claiming that the Republic and USA Today “engaged in the ongoing publication of misleading articles related to the safety of Taser products, resulting in substantial economic damages to us, our customers and our shareholders.” Taser claimed the newspapers’ stories cost company shareholders more than one billion dollars in lost value.
Maricopa County (Ariz.) Superior Court Judge Paul J. McMurdie rejected Taser’s claims in granting Gannett’s motion for summary judgment. In his Jan. 25, 2006 ruling, he awarded McLean, Va.-based Gannett attorneys’ fees after finding one of the claims “clearly unjustified.” About three weeks later, the two sides asked the court to formally dismiss Taser’s claims—and with it Taser’s right to an appeal—while Gannett withdrew its claim to attorneys’ fees, court records show.
“It was a total victory,” said David Bodney, Gannett’s attorney in the case. But that’s not how Taser reported it to the SEC, or to Wall Street analysts who covered the company.
In a Feb. 22, 2006 conference call with financial analysts, Douglas Klint, Taser’s general counsel and executive vice president, said: “Our lawsuit against Gannett Company Incorporated was dismissed with the understanding that, in the future, the USA Today and the Arizona Republic newspapers would review their Taser stories with the company prior to publishing in order to ensure accuracy,” according to a transcript of the call.
The next month, in its Form 10-K filing, Taser wrote: “[T]he parties entered into a stipulation for dismissal with the understanding that the USA Today and the Arizona Republic would review articles regarding the Taser device with us prior to publication.” That statement was repeated in the company’s May 18, 2006 quarterly report to the SEC.
Only one Wall Street analyst who was a participant in the February conference call, Matthew McKay, formerly of Jefferies & Co., responded to an interview request. McKay said the statement in question influenced his coverage. He concluded that the settlement terms appeared to benefit Taser and represented “a big-time opportunity” for investors.
Current San Francisco Chronicle editor Ward Bushee, the Republic’s editor at the time of the settlement, and Randy Lovely, the Republic’s current editor, said they were unaware of Taser’s statements until asked about them recently by CIR, and denied that any such agreement ever existed.
“Taser’s assertion in the SEC filing is completely false,” Lovely said. “The Arizona Republic would never allow a source to review a story prior to publication. To do so would completely violate our journalist principles and standards of independence. The Republic has aggressively reported on Taser during the past few years, and we stand behind the full scope and accuracy of our stories.”
Taser counsel Klint initially defended the statements in an interview with CIR, pointing to a letter about the settlement from Bodney which states that the newspapers and Taser agreed to “endeavor to communicate and interact with one another in a professional manner…In turn, Taser will make its executives or public relations personnel available for comment.”