CEO Conway Just Sold $120,000 Of His Stock On The NASDAQ, At $6/Share

And -- to be clear -- there are only nine trading days left in the quarter (at the point he is disclosing this open market sale, to the world). He lists the sale date as September 13, 2012, though. That is extremely close to the time when he might know how the quarter is turning out. Some 75 days -- of 90 -- are already in the books. He must know of every new contract signing. The proof (as with the General Counsel's NASDAQ sales, last week) will turn on whether the stock is higher than $6, or $6.15, when Q3 2012 results (GAAP losses per share, actually) are announced -- or lower. Seems a decidedly foolish gamble to take -- unless one had no other more prudent option.

Here is the SEC Form 4 he just filed.

He's the CEO. And he couldn't think of a better way to raise cash -- a measly $120,000 worth?

I'll have a more relevant image, and More commentary -- shortly:

UPDATED: Mattersight stock is off about 5.4 percent this morning on the NASDAQ -- the first trading session after disclosure of CEO Conway's end of quarter open market sale. Eight sessions left in the quarter. Sheesh.

If He EVER Builds It (NPS®)... Will Anyone Come? I Dunno...

A month ago, I snarkily mentioned that Mr. Conway (after a misfired press release) re-announced in a corrected press release that Mattersight was selling something called NPS^®, or Predictive Net Promotoer Score^® Analytics. The theory -- it seemed -- was that customers of Mattersight would pay twice for the same thing: once, for a Behavioral Analytics^TM rundown of call interactions, then a second time, for a so-called NPS analysis -- one that ostensibly predicted how accurately that BA analysis matched an actual survey of the customers' experience -- but without doing the survey.

Okay -- that was the concept -- I gather.

Not long after, CEO Conway announced that Mattersight had signed a "top five" property and casualty insurer in the US -- as a customer for NPS. I dutifully ignored it -- figuring that they were big boys, and could figure out soon enough that Mr. Conway was only selling a self-reinforcing feedback loop here.

But just last night, I noticed that the Mattersight press release announcing the signing actually only says that Mr. Conway "will build" an NPS analytical tool for the insurer customer. So -- it is, definitively -- at the moment, wait for it. . . yep, vaporware.

I am shocked. . . shocked that Mr. Conway is selling vaporware to distract from a flat to down sales trendline -- in 2012 (and slightly rising expenses -- again!). Just shocked.

What is crazy is that the public shareholders stand for it -- for nearly 13 years running. That is jaw-slacking.

It's Very Late In The Quarter, For An "Executive Insider" To Be Open-Market Selling, IMHO. . .

To be certain, it may all be innocent enough. The proof in the pudding will come when Mattersight's stock rises -- or falls -- as Q3 2012 results are announced in about 40 days' time, now.

After the market closed tonight, the General Counsel and Vice President of Mattersight filed an SEC Form 4, disclosing that prior to the weekend, she sold 4,000 shares into the open market, at $6.15.

That may not seem unusual, to the untrained eye. However, there are only 14 trading days left in Mattersight's third quarter. At many (perhaps most) public companies, high-ranking insiders, like the general counsel, are "locked out" from NASDAQ trading within ten days of the close of a quarter -- as a precautionary policy. The thought is, that with some 75 to 80 of the 90 days of the quarter already in the books, executives will already have a pretty good sense of where the "rolled-up" quarter is likely to finish. If Ms. Carsen's trade has not netted her a significantly higher price than that prevailing on Q3 2012 post-announcement morning, she is definitively in the clear. If, on the other hand, $6.15 turns out to be a high water mark for the next 90 or so days, she may well come in for criticism -- as the question would be whether she knew the quarter was so soft that it would cause a NASDAQ price decline on announcement.

So now we wait -- and watch. But I do wonder whether Mattersight has a "closed window" policy for its executives, as the quarter roll up begins. If it does not, Ms. Carsen might again be criticized, for not having one -- since all SEC compliance decisions presumably fall to her office, as a matter of policy, at Mattersight.

As ever, be careful out there. [I do note that Sutter Hill Ventures was a Mattersight buyer, at $5.40, only one day before her sales began. Moreover, her selling price was about 15 percent above where a very savvy inside/control affiliate (at 17 percent of outstandings) investor was last a willing buyer. Interesting.]

New Sutter Hill SEC 13D Shows Increase; But Longer Term (Since 09.2008): Decreasing Percentages Held

To be sure, the entities affiliated with Sutter Hill Ventures still hold a very substantial stake in Mattersight, and to be equally sure -- the Sutter Hill folks were the large purchasers this past week. . . but that doesn't begin to tell the whole story. No, we need to use the longer telescopic lens -- and look back in time, now. . .

And when we do look backward, to September 22, 2008 (pre-meltdown) -- see page 44 of this SEC Schedule 13D -- when what is now Mattersight was called eLoyalty Corp, we see that both the Sutter entities, and Tench Coxe individually (as well as most other affiliated entities and persons), controlled a larger percentage of the company's outstanding shares, than they did at September 6, 2012 (see page 19 of this just-filed SEC Schedule 13D).

While we cannot be certain here, it would seem that over time, Sutter Hill is trying to reduce its overall position in Mattersight -- even as it is the buyer of the moment.

The key question, though -- is from whom was Sutter Hill buying, on the open market this past week? That we may never know. [Was it a vast, but uncoordinated, series of holders, turned into sellers -- disappointed by the GAAP "errors" restatements, and the downturn in sales growth, here -- quarter to quarter? Who knows?]

As ever, be careful out there. [For completeness, I should note that this other blog (published through SeekingAplha) lists recent buys, but provides no historical perspective -- and that could be part of the short-term run-up in Mattersight's NASDAQ prices.]

A Previously Unexamined Connection -- PureStorage And Mattersight, Via Sutter Hill Ventures

I noticed last night that a financial blogger had commented on Sutter Hill Venture's continuing purchases of Mattersight common stock, on the NASDAQ open market. Sutter Hill, of course, was founded by the great William H. Draper, III, son of General Draper (think Draper, Gaither) -- and the Sutter Hill name holds founding or follow-on stakes in a long list of Silicon Valley legends.

So -- it is not a huge surprise to learn that Sutter Hill Ventures also is a very significant investor in privately-held PureStorage. I came to know this, solely because pure storage just completed another $40 million equity round, in which Sutter Hill Ventures affiliates participated.

Then I remembered that Mattersight made a very large capital purchase of flash storage arrays from the very same PureStorage, just about two months ago. Flash storage is -- at the moment -- significantly pricier than conventional mechanical disk storage, per terabyte. At the time, the CIO of Mattersight said that he needed the speed of PureStorage's flash arrays. [And, in closing the $40 million investment a few days ago, PureStorage officers said ". . .It has certainly been a tumultuous year: Every month it seems a new flash storage product and the associated marketing hype join the milieu. . . . To successfully separate the signal from noise, you only need convictions about what really matters. . . ." Interesting. Why exactly did Mattersight select PureStorage, then?]

Now I am beginning to wonder -- since we have established that the Behavioral Analytics output cannot be delivered in anything like real-time, why is the speed increase so compelling that Mattersight would pay bleeding edge prices for it?

Is it possible that Mattersight (as a decade-long dead money posiiton for Sutter Hill) is being used to accept, and capture, continuing losses -- and thus transfer revenue, and eventually net income, to Sutter Hill's more promising investments -- ones like PureStorage?

I don't know -- but the terms of that purchase ought to be examined by the auditors and the SEC -- at least insofar as the public's money is at stake, as sharehlders of Mattersight.

It might well be that PureStorage offers such a compelling solution that Mattersight would have selected it independently -- even without the overlapping Sutter Hill stakes, but the SEC rules do require that sort of an analysis (under Reg S-K) from Mattersight's auditors, in this situation.

Let's see what the third quarter Form 10-Q has to say on the subject, in about two months' elapsed time.

Was The Registered Reseller Active On August 22, 2012?

We will have to wait to see (SEC Schedule 13 filings take a while, for smaller holders) -- but at 100,000 shares of NASDAQ volume, that was about seven to ten times the normal average daily trading volume.

What was going on there? It's been over a week, and I've seen no mention in any SEC-filed document -- though it ought to be in a Schedule 13 soon -- if it was one seller -- or an organized group of sellers.

I'll try to find out.

Be careful out there.

And -- Right On Cue! -- Yet Another "Shiny Object" PR Piece/Vaporware Announcement, After The Q2 2012 Results Call. . .

And what is the new bauble? It is that Mr. Conway will tell you what your customers think of your performance, based on his metrics -- without you ever having to ask them. [It is actually almost a week old now; but I was at sea when he dropped the original, and then corrected it -- a day later.]

But, of course! He measures the interaction, decides whether it was good or bad -- and tells you how your customer would score your performance. A perfect echo chamber -- without any external form of verification.

So -- in a sense -- Mr. Conway is simply reselling you the analytic he just sold you -- and using it as a feedback loop, to confirm the correctness of his assessment. See this presser bit:

. . .Mattersight Corporation today announced the expansion of its Behavioral Analytics service with Predictive Net Promoter Score® Analytics. Predictive NPS Analytics automatically predicts the NPS score a customer will give following an interaction. Using Mattersight's Predictive NPS Analytics, every captured customer interaction is given a NPS score, without needing the customer to complete a survey. . . .

Who actually falls for this nonsense?

Seriously -- who does? I hope that it is not the large, sophisticated Mattersight client engagements -- for the sake of those companies' shareholders. Sheesh.

Mr. Conway's Q2 2012 Outlook: Desktop Analytics Are Unexpectedly Tough To Deploy -- Pipe Ambiguous

Having now returned to the country, I've taken an hour to listen to Mr. Conway's Q2 2012 GAAP Loss Per Share call.

Before I get into a detailed analysis here, perhaps the most-astonishing, and disconcerting, moment on the call came when Mr. Conway said he "did not know how many" of the 17 pilots were new logos, and new to this quarter. That seems to evince a lack of attention to basic blocking and tackling -- he should know this, in his sleep. I suspect he does, because he said five or six were new logos in Q1 2012. But as to any new pilots to Q2 2012, I suspect the number is. . . zero -- new this quarter.

And that, in turn, points to the larger object lesson from the Q2 call: once again, we are supposed to trust that his vaunted pipeline of new deals will save the ever-increasing expense line he runs. It's been nearly 13 years -- and not once has revenue, on a GAAP, continuing operations basis, fully covered all GAAP expenses and capital items -- Mr. Conway deployed in the process of generating that revenue. Not once.

Why should we trust him now -- especially when he is admitting to "new difficulties" in deploying the desktop analytics -- and he is admitting to a lower conversion rate, now at 75 percent, from pilot opportunities to implemented contractual revenue (finally now disclosing the internal management expectations, on that score). In the past, Mattersight had said that it expected over 80 percent would convert to revenue.

In addition, expenses are ramping up, even though headcount was three FTEs lighter in Q2 2012, from Q1 2012 -- 212, compared to 215 in Q1.

In sum, each of the core metrics are heading in the wrong direction at the moment: (a) sales revenue is flat to down for the next few quarters; (b) the conversion rate from pilot investment to revenue is now down -- at 75 percent; (c) and the expenses lines related to those sales, are up, quarter over quarter -- even though (d) headcount is down marginally.

This one is looking pretty darn ugly -- for at least the next year.

I'll be back later with more -- but The downgrades -- and the $5 price tell the bulk of the rest of the story.

This dip below $5 a share is no anomaly -- it is the new world.

Mr. Conway Will Report Q2 2012 Results (Showing Another Quarter Of GAAP Losses Per Share) On August 5, 2012 5 PM EDT

Perhaps mercifully (albeit unintentionally), I am now scheduled to be aboard a ship -- somewhere in the Atlantic, when the call happens (i.e., it is highly unlikely I'll have access to internet to live-blog it). So, all of you here assembled will have to sort through his manifold smoke-screens, for yourselves. Here's a link through to his call details, for your easy reference.

Count on the following, though -- there will be GAAP losses per share from continuing operations, given that Mr. Conway has indicated he expects flat to down sales revenue for Q2 2012. Count also on this prediction: you will have to dig down, to very near the end of his attached slides, in all lkelihood, in order to find the first mention of the negative GAAP results. [13-plus years worth, now!]

Count also on Mr. Conway to tout his "unusual" notion of what he calls "backlog". [See Mattersight's FAQ No. 7.] Most companies use the term "backlog" to refer to firmly-committed contractual work already in process under non-cancellable contracts, which -- but for plant capacity (for example), would be completed in the present quarter, and pulled into current sales revenue. In Mr. Conway's case, it seems clear that he includes in his "backlog" contracts for services he hasn't yet performed -- AND, in almost all of those contracts, the services may be cancelled on 90 days (or shorter) notice (in most cases with or without cause). Thus, in my humble opinion, his backlog is nowhere near as "firm" as, say Boeing's -- which is sitting on firm orders for modified 767s from various parties, that it just hasn't the capacity to build, yet.

So, yes -- look for that, whilst I am sailing the high seas. I'll likely comment on his Q2 2012 results around the 15^th of Augist, if the Universe is willing, and the prevailing winds are high.

Do be very careful out there.

Mr. Noon To Receive 20,000 Stock Options -- If He Sticks Around For A Year. WHY?

See tonight's SEC Form 8-K text, at Item 5.02(b). Why 20,000 stock options for Mr. Noon? Why? Shareholders should ask the board this question.

I do understand transition planning, but I'm not sure Mr. Noon should be getting anything more than cash to stick around. What is this for? What, exactly?:

. . .Mr. Noon will also receive, subject to approval of the compensation committee of the Company’s board of directors, an option to purchase 20,000 shares of the Company’s common stock, vesting quarterly over four years beginning August 31, 2012, so long as he remains employed by the Company. . . .

Afterall, the grant to Mr. Noon by the compensation committee of the board, of these stock options is presumably at a price which reflects a dip in the market-value, due to the mis-statement of the size of the GAAP loss from continuing operations. Recall that Mattersight was trading around $9 a share before the announcement that GAAP Losses per share had been vastly understated in 2011 due to an elementary accounting error.

Now the stock is at $7.80 or so. Granting Mr. Noon these "cheapened" stock options effectively allows him an opportunity to reap additional income -- from his and Mr. Conway's "mistakes".

That cannot be sensible corporate governance -- even if the company is feeling a cash crunch. Recall here that Mr. Conway recently crowed about the $26 million of cash on hand (at year end 2011) -- and that makes Mattersight (he said) attractive, as a takeover candidate. I am sure some of that cash could be used appropriately to create a modest stay-bonus opportunity for Mr. Noon -- if his transition services are so desperately needed on Wacker Drive, Chicago.
This company seems -- more than occasionally -- to take actions without thinking them through. This may be one of those times.

Why should a guy exiting the CFO role get a cheap stock option denominated stay bonus?

If, on the other hand, we posit that Mr. Noon is the guy who is "falling on his sword" (to protect Mr. Conway's job) -- then, at least the cheap options make internal sense: they are providied to keep him happy, because if he were to complain to the board -- maybe Mr. Conway would be asked to step aside as well.

As ever, be careful out there.

New CFO To Get $75,000 More A Year Than Mr. Noon; Mr. Iserloth's Bonus Opportunity Is 2-1/2 Times Mr. Noon's

Under his May 23, 2012 (re-struck) employment agreement, Mr. Noon used to make $200,000 a year and was eligible for up to $80,000 in bonus money. Because he is no longer a Section 16 executive officer of Mattersight, under the '34 Act rules, we will not know what he is being paid as VP of Finance. [More on his retention arrangement, though -- in my next post.]

The new CFO, on the other hand, is a '34 Act Section 16 executive officer, and so -- here is his shiny new employment agreement, via an SEC Form 8-K, filed tonight. Mr. Iserloth, is being paid $275,000, with a $200,000 bonus opportunity. However, he hasn't yet been granted any restricted stock or incentive stock options, per the initial SEC Form 3 he filed tonight. In fact, he owns no shares of Mattersight at present. We may well see a Form 4 shortly -- which will likely disclose an equity award from the board, to him -- of some sort, though.

We will keep you posted.

Caremark Finance Alum Selected To Replace Bill Noon As CFO, Effective Immediately

Well -- the handwriting was on the wall, at the end of May -- when Mr. Noon's contract was renegotiated, to add beefed-up litigation defense/cooperation duties, even if terminated, and to drop his payouts on termination. [I am sorely tempted to observe that this resignation is one rung too low, on the totem pole -- given that the CEO is a former CPA, and should ALSO know how to properly book preferred repurchase, and dividend, obligations.]

It is interesting that Mr. Noon stays on as VP of Finance -- and it is interesting that the new CFO was an alum of Caremark -- at least historically, one of Mattersight's largest customers. Here is the presser:

. . .Mark Iserloth has joined the company as Vice President and Chief Financial Officer, effective immediately. Mr. Iserloth, who brings more than 25 years of finance, business development, strategy, and operations experience, will be responsible for finance, accounting, human resources, and administrative functions for Mattersight. Mr. Iserloth replaces Bill Noon, who has served as CFO since February 2009 and will continue at Mattersight as Vice President of Finance.

Prior to joining Mattersight, Mr. Iserloth was Chief Financial Officer of Trustwave Holdings, Inc., a rapidly growing, leading provider of cloud-based compliance and information security solutions, where he was responsible for finance and human resources. Prior to joining Trustwave, Mr. Iserloth was Chief Financial Officer of Initiate Systems, Inc., a leader in the master data management space. Mr. Iserloth holds an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University and a Bachelor of Science in Electrical Engineering from Northwestern University. . . .

The incoming CFO looks to have managed "explosive growth" situations. Didn't CEO Kelly Conway tell the world on May 10, 2012 not to expect much or any sales growth at Mattersight for the next few quarters? Yes, in fact -- he did. Not sure why they need this sort of a CFO today, then.

In addition, to complete the record -- here is the last sale Mr. Noon transacted in Mattersight's common stock (he sold the shares back to the company, privately) -- to pay his taxes on equity grants, last month.

Erh -- It's (Past) Time To Update Your FAQs, Mr. Conway!

Here is what the mattersight.com FAQ No. 6 presently offers (link was accurate as of Noon on July 11, 2012):

. . .6. What have been the company’s revenue growth rates?

The growth rate for Mattersight’s principal revenue source, Behavioral Analytics subscriptions, was 50% in 2009, 33% in 2010, and 10% in 2011. While Mattersight’s subscription revenue growth slowed somewhat in late 2010 and early 2011, the company expects growth to re-accelerate back to historical levels in 2012. . . .

Well -- as of May 10, 2012 [on the "Regular Quarterly GAAP Losses Per Share Call"(!)], Mr. Conway indicated that revenue would be flat to down for at least the next two quarters. [BTW, when is the Q2 2012 conference call? No press release as of July 11, 2012.]

That is a far cry from between 33% and 50% growth, year over year.

'Tis (past) time to tell the truth, Mr. Conway -- update your FAQs.

Mr. Conway "Tones Down" His "Over-The-Top Puffery" -- On Phone Fraudster Analytics Tool

Do see below, but just before the 4^th, Mattersight, and Mr. Conway, put out a press release, again touting the virtues of his phone fraud analytics tool. However, it has been significantly revised -- when compared to the June 12, 2012 version -- and much of the over-the-top, wild-eyed puffery is now gone.

I can't help but think he and his marketing team (and the lawyers!) are regular readers of this blog. [My stat-packages confirm that many hundreds of visits here orginate from devices connected inside Mattersight's intranet and extranet.] So -- it seems we are having an effect -- see our original piece -- at mid-June 2012.

In any event, gone is the claim that his tool "solves" the phone fraud problem -- now replaced by the far-more-supportable claim that it "counteracts" the fraudsters "tactics". If one of his key engagement clients (each of which pay him millions, year over year -- for his product offerings) were to suffer a massive loss due to fraudsters breaching the private credit card or health records data of millions of customers, and Mr. Conway had continued to claim that his tool "solved" the problem of fraudulent access -- I'd have some difficulty defending a claim for breach of impled warranty -- and fitness for the intended purpose, here. [But -- then again -- maybe I'm just not as skilled a lawyer as those Mr. Conway employs -- at Chicago's Winston & Strawn. They too visit here often.]

Actually, it is more than even money that the revision was purposeful -- so do take a look below.

This is a comparison of the old June 12, 2012 press release language -- against new -- line by line:

". . . .Sophisticated fraudsters and fraud rings are able to gather enough customer information from publicly available sources to exploit the authentication procedures in call centers and gain access to customer accounts. The complexity of capturing and analyzing call center interactions to identify fraudsters has heretofore made it nearly impossible for companies to measure the frequency of these types of attacks, let alone proactively identify this activity and take preventive action.

Mattersight's Fraud Analytics solution solves these problemscounteracts these tactics by capturing customer interactions and automatically analyzingidentifying fraudsters conducting fraudulent activity through the contact center by leveraging predictive analytics to score the percentage likelihood each caller is a fraudster. The result is a significant reduction in voice-facilitated fraud losses and the enhanced ability to identify and stop fraud before it occurs.

Mattersight's Fraud Analytics solution captures customer interactions and automatically analyzes every second of every captured interaction in the cloud, using millions of proprietary algorithms and unique behavioral models. The output of this analysis is hundreds of contextually accurate data attributes on every captured interaction. . . ."

Well -- it is baby-stepping the problem -- but it is baby-stepping in the right general direction.

Be careful out there.

Mattersight Admits Its Business Model Isn't Scalable -- Without Additional Significant Hardware Investments

Mattersight's CIO, Jeff Geltz recently acted as the overseer of an apparently very large hardware migration -- from disk-based storage -- to flash drive (solid state) storage arrays. See the press release from Pure Storage, the chosen vendor -- from yesterday afternoon. [Pure Storage is a great company -- here's their website, BTW. All IP is -- and remains -- the property of its owner. It appears here for clear identification, and commentary, only.]

The press release makes two things clear: (1) the analytics are not provided in anything near real-time (but those of us who understand computing knew that already), and (2) Mattersight's business model in analytics may be very capital intensive (again, something we suspected, given the extremely massive amounts of data voice conversations generate) -- as the company adds flash storage arrays to scale the business.

What was surprising -- to me, at least -- was how open the CIO was about all of this (from the end of the press release):

. . . .Mattersight CIO Jeff Geltz said, "The Mattersight Business Monitoring Engine is an I/O hungry application, and it was clear that traditional disk-based storage just wouldn't allow us to scale our business. . . ."

Indeed.

The $3.7 Million Mattersight Lending Floats -- At 750 bps Above Prime -- Ouch!

Well -- after hours, Mr. Conway filed his SEC Form 8-K -- and the loan from Silicon Valley floats at 750 basis points over prime. [It also totes a 125 bps ununsed commitment fee.]

That's pretty pricey, for money that is lent for less than two years -- here is the just filed SEC Form 8-K, and the loan and security agreement (in full), too:

. . .On June 29, 2012, Mattersight Corporation (the “Company”), together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers, entered into a Loan and Security Agreement with Silicon Valley Bank (the “Credit Facility”). The Credit Facility provides for a $10,000,000 revolving line of credit maturing in 2014 and is secured by a security interest in the Company’s accounts receivable, equipment, inventory, cash, deposit accounts, securities, and all other investment property, supporting obligations, financial assets, and other personal property, with the exception of the Company’s intellectual property rights. The Company and its subsidiaries, subject to certain limits and restrictions, may from time to time request the issuance of letters of credit under the Credit Facility.

On June 29, 2012, the Company used the Credit Facility to repay in full the principal balance and accrued and unpaid interest outstanding under the promissory notes issued by the Company to various affiliates of Technology Crossover Ventures to settle previously disclosed arbitration, in an amount equal to approximately $3.7 million. The principal amount outstanding under the Credit Facility will accrue interest at a floating annual rate equal to three quarters of one percentage point (0.75%) above the United States prime rate, payable monthly. In addition, the Company will pay a commitment fee on the Credit Facility and a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears.

The Credit Facility imposes various restrictions on the Company, including usual and customary limitations on the ability of the Company or any of its subsidiaries to incur debt and to grant liens upon their assets, and prohibits certain consolidations, mergers, and sales and transfers of assets by the Company and its subsidiaries. The Credit Facility includes usual and customary events of default for facilities of this nature (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts payable under the Credit Facility may be accelerated and/or the lenders’ commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the Credit Facility will automatically become immediately due and payable, and the lenders’ commitments will automatically terminate.

The description of the Credit Facility contained herein does not purport to be complete and is qualified in its entirety by reference to the full text of the Credit Facility, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference. . . .

We still don't know who sold nearly 7 percent of MATR's outstandings, two weeks ago -- nor who acquired those shares. Time will tell.

This Is Material -- SEC Form 8-K Due Soon -- What Interest Rate Is Mattersight Paying?

It appears that B of A has pushed away from the table -- in its relationship with Mattersight. B of A has terminated its $5 million revolver with Mr. Conway's company. Today, Mattersight announced that it has signed -- and immediately borrowed under -- a new $10 million two year (one and one half, actually) facility with Silicon Valley Bank. Here is the MATR presser:

. . .Mattersight Corp.. . . announced that on June 29, 2012, the company entered into a new two-year, $10 million credit agreement with Silicon Valley Bank.

The credit agreement provides for borrowings under a revolving credit facility maturing in 2014. The company immediately borrowed under the credit agreement approximately $3.7 million to pay off the remaining balance on the promissory notes previously issued by the company to various affiliates of Technology Crossover Ventures to settle previously disclosed arbitration. . . .

This borrowing is clearly material to Mattersight -- and yet the company does not recite the interest rate it is paying, on the $3.7 million obligation. Mr. Conway's SEC Form 8-K -- due shortly -- better disclose both the interest rate, and the full credit acgreement -- covenants, defaults, and any collateralization provisions -- or he will plainly have violated his SEC reporting duties.

We will keep you posted.

We May Have Our Answer, On The 1.2 Million Share-Day -- Of Last Friday

If, by later this evening, no SEC Form 4 has been filed to disclose trading by a 10 percent holder of Mattersight, as of last Friday, it would be a fair guess to assume that many differing index funds were the contract-buyers (or call purchasers), at last Friday's close -- in anticipation of being told that Mattersight would be added to the Russell 3000 Index.

Many exchange-traded mutual funds mimic the results of the Russell 3000 by buying a value-weighted portion of each of the 3,000 components. We shall see. But it is a plausible alternate explanation, geven that we learned this morning that the Russell 3000 has added MATR. It would ALSO certainly be permissable for underwriters or broker-dealers acting on behalf of IGC Fund IV, LLC -- under the 424(b)(3) resale prospectus -- to arrange off-exchange purchases of chunks of MATR, for each of the mutual funds that mimic the Russell 3000 holdings. We may see much more, this evening.

Will We See An SEC Form 4 From IGC Fund IV's Sales, On Tuesday?

Since IGC is north of a 10 percent holder of Mattersight, it will have to promptly file an SEC Form 4 -- if it was a net seller of shares, in the 1.2 million share volume day, on the NASDAQ-OTC on Friday. [By way of background, here is the original SEC Form 3, announcing IGC's 14 percent stake in Mattersight, in December of 2011 (when it acquired its position).]

So -- SEC Section 16 rules require reporting on Tuesday, if IGC was open-market selling on Friday, thus -- Instruction 1(a) to SEC Form 4:

. . .This Form must be filed before the end of the second business day following the day on which a transaction resulting in a change in beneficial ownership has been executed (see Rule 16a-1(a)(2) and Instruction 4 regarding the meaning of “beneficial owner,” and Rule 16a-3(g) regarding determination of the date of execution for specified transactions).

This Form and any amendment is deemed filed with the Commission or the Exchange on the date it is received by the Commission or the Exchange, respectively. See, however, Rule 16a-3(h) regarding delivery to a third party business that guarantees delivery of the filing no later than the specified due date. . . .

So -- we shall see -- after the close of the market on Monday, or certainly before market open on Tuesday. I would bet dollars to donuts that it was IGC selling on Friday.

Today's Mattersight NASDAQ-OTC Volume: 1,220,478 Shares! That HAS To Be The S-3 Blocks -- Pre-Arranged Trades

A "normal, regular way" NASDAQ trading day would see somewhere between 9,000 and 35,000 shares, recently. So this is truly a whopper.

And -- more generally, just as I said this morning, early on -- it has looked for a few days like the institutions were setting up several stabilized trades in Mattersight common stock, likely to help IGC exit at least some of its position. If this was mostly those sales, they are about half done -- needing to place about another 1.14 million shares.

Well, I will give the institutions credit -- they are figuring out how to exit the company, without unduly disrupting the market price.

It will be fascinating to see which institutions are picking up these sales -- and buying in -- we will know soon (assuming one or more of them breaches the 5 percent of Mattersight's outstandings, as a threshhold for SEC reporting) under the Section 13 rules. Prior to the latest selling, IGC held over 14 percent of all the common outstanding.

Looks Like IGC's Selling Effort Is Being Conducted Through Pre-Arranged Stabilizing Transactions. . .

There will be no way to tell for a few months, definitively, whether or when the IGC sales began -- or were halted from time to time -- as SEC reports won't be triggered until certain percentage threshholds are breached (as IGC falls below 10 percent of outstandings, then again at 5 percent of outstandings) -- but the larger volume, and orderly trading of the last few days is suggestive of transactions that are either stabilized (supported by hedged positions), or pre-arranged, in blocks -- and only reported throught the NASDAQ-OTC system, after the fact.

All of this is perfectly appropriate, and specificly authorized under the prospectus that Mattersight filed (and paid for), on behlaf of IGC Fund VI, L.P., last month. See the definitive Rule 424(b)(3) prospectus, at page 6:

PLAN OF DISTRIBUTION

. . .[IGC Fund VI, L.P.,] and any of its pledgees, assignees and successors-in-interest may, from time to time in one or more transactions on the NASDAQ Global Market or any other organized market where our shares of common stock may be traded, sell any or all of its shares of our common stock through underwriters, dealers or agents, directly to one or more purchasers or through a combination of any such methods of sale. The selling stockholder may distribute the shares of our common stock from time to time in one or more transactions:

• at a fixed price or prices, which may be changed;
• at market prices prevailing at the time of sale;
• at prices related to such prevailing market prices; or
• at negotiated prices.

The selling stockholder may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
• one or more block trades in which the broker-dealer will attempt to sell the shares as agent or principal of all of the shares held by the selling stockholder;
• purchases by a broker-dealer as principal and resale by such broker-dealer for its account;
• an exchange distribution in accordance with the rules of the applicable exchange;
• privately negotiated transactions;
• short sales;
• agreements between broker-dealers and the selling stockholder to sell a specified number of such shares at a stipulated price per share; and
• any other method permitted pursuant to applicable law.

If the selling stockholder effects such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholder or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling stockholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholder may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholder may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares. . . .

Even so, as the graphic at upper right makes plain, it will be several quarters before the overhang is cleared, in all likelihood.

UPDATE: Additional evidence for this theory is provided by the fact that "ordinary bid/ask" quotes on the NASDAQ show a spread of over a dollar: bidders to buy are willing to buy at $7.65, while sellers are willing to sell (the "ask") stands at $8.63 -- with 100 shares indicated on each. That means the normal NASDAQ OTC trading is all but frozen, as buyers and sellers (regular way) are over a dollar apart on the haggling gap. That is huge, on an $8 stock, that usually only trades 10,000 shares a day.

So it goes -- be careful out there.

Yet Another "Shiny Object" Press Release -- On a Lazy June Afternoon

An organization called PCI provides, for a fee, certification that a given vendor's data handling -- for payment information, among other things -- is up to snuff, from a security standpoint.

For the last three years, apparently, Mattersight has met those standards. That's good -- insofar as it goes. It is surprising to me that a public company would take the time to press release such an event -- unless, of course, it had no new customer signings, or other revenue-producing events to discuss.

That must be what is going on here (MATR presser link):

. . ."We continue to invest in policies, procedures, and controls necessary to ensure the safekeeping of our clients' data. Achieving PCI-DSS Level 1 Certification demonstrates Mattersight's commitment to providing our clients with the highest standards for data security and privacy," said Kelly Conway, Mattersight's President and CEO. . . .

I should also note that Mattersight rose almost a buck on Monday -- on large volumes -- only to fall back yesterday afternoon. My guess is that a series of pre-arranged trades were pushed through, in blocks, by the S-3 selling stockholders -- placing some of their shares with other institutional holders, on Monday. Be careful out thre.

Just To Reset/Clarify: Why This Blog Exists

An anonymous former Mattersight employee offered a comment a few posts back -- and it made some very solid points. I do hope this site brings a smile to the faces of the "regular" line and staff employees of Mattersight -- undoubtedly hard-working, decent, honest, thoughtful folks -- to a person.

But I do not write the site simply to poke fun at breathless claims of "millions of algorithms" -- as many software vendors make similarly-silly claims. No -- to reset this -- I write because I am concerned about material mis-statements (over several SEC reporting periods) that vastly increased GAAP losses per share, from continuing operations. See chart at right.

I do think something important needs overhauling, at Mattersight.

For a company led by a CPA, it strains belief to imagine that Mr. Conway, and his executive team booked preferred dividend accruals accurately for perhaps eight-plus years, or 32 straight quarters -- and then suddenly "forgot them" -- when it was time to pull the three year financials, as restated for discontinued operations, during the divestiture of the ICS businesses. Mr. Conway "forgot" them?! Really?! Did the dog eat his homework, in grade school (for three straight years) too?! C'mon man.

No -- Mr. Conway proceeded next to file three additional SEC reports, re-asserting the "error". Grant Thorton has labeled this a material weakness in Mattersights financial controls -- and cannot give an opinion that Mr. Conway's measures to "correct" it are adequate. Why? Because Conway and Co. could always "forget" something else.

The lapse of memory vastly inflated the GAAP loss from continuing operations per share in 2011.

That's a very, very suspicious fact pattern -- all the more so, when coupled to the regular selling by executive officers.

That is why this blog exists. Be very careful out there.

Another Dubious Marketing Claim, Courtesy Of Erstwhile Commenter "Bob"

While we were yammering on about minor, meaningless press-release claims, faithful commenter "Bob" (likely not his real government name!) has pointed us to a much more important piece of longer-term Mattersight puffery:

". . .Of note, a Mattersight claim that I’ve found interesting, yet unchallenged, is the assertion they employ millions of unique algorithms. While they may have a number of algorithms that can be combined in various ways as to constitute millions of possible combinations, this would not change the fact that the core unique set of algorithms is much smaller. Think about the lottery, there are only like 55 unique numbers but there are 417 million combinations of 5 numbers. If MATR wants to suggest they have millions of unique algorithms, then I would question if they have ever had enough dollars in their bank account to have properly tested each one, let alone design and code. Nor, should they happen to have a computational and storage system of over a million physical or logical nodes (which I doubt), would the same algorithm running on multiple notes be considered separate or unique algorithms. . . ."

I quite agree. If Mr. Conway considers every addition, subtraction, multiplication, division or limiting variable to be a "unique algorithm" -- then he is essentially claiming he invented math. And we all know that is preposterous. Even "Cookie Monster KNOW this!!"

But when it is dressed up in pseudo-scientific jargon -- it sounds impressive, on first blush. So it goes, in Mr. Conway's little fiefdom (covered in the Emperor's New Robes), natch.

Instantly Analyze "Known Fraudsters' Voiceprints"? Seriously!? C' Mon, Man...

Okay -- so I've been harping on the pattern of executive-selling Mattersight's common stock, without the company ever having generated any GAAP Earnings Per Share -- for 13 years. As it is wont to do, when in such straights, Mattersight today put out a pufferey press release.

Mattersight proposes to sell a phone-call/live-voice fraud analytics tool, using the same data-sets it uses for all customer interactions. While I might be inclined to agree that live voice attempts at impersonating people for the purpose of committing fraud are on the rise, I am not sure that the business world is ready to pay high margins for the rather ordinary insights Mr. Conway's data might offer. Especially suspect is the claim that he can match a caller against a database of known fraudsters, by "voiceprint" -- in any significantly close to real time way. It seems unlikely that his systems could do so in real time -- in other words, quickly enough to actually prevent a fraud, while it was underway.

I could be wrong, but I don't think even Langley (the CIA) or Quantico (the FBI) would make such a claim -- and if the CIA/FBI doesn't have the raw computing power to do so -- how can Mr. Conway claim to possess enough processing power to analyze, with instant accuracy, and meaningful insight -- all those tera-bytes of data, in real time?

Okay -- enough of my skepticism -- let's hear from Mr. Conway, shall we?

Yes, let's. From Mr. Conway's latest press release, then:

. . . .Voice-facilitated fraud is a rapidly growing problem in a number of industries. Financial Services companies and Property Casualty Insurers have realized their call centers are a vulnerable and lucrative point of attack for fraudsters. Sophisticated fraudsters and fraud rings are able to gather enough customer information from publicly available sources to exploit the authentication procedures in call centers and gain access to customer accounts. The complexity of capturing and analyzing call center interactions to identify fraudsters has heretofore made it nearly impossible for companies to measure the frequency of these types of attacks, let alone proactively identify this activity and take preventive action.

Mattersight's Fraud Analytics solution solves these problems by capturing customer interactions and automatically analyzing every second of every captured interaction in the cloud, using millions of proprietary algorithms and unique behavioral models. The output of this analysis is hundreds of contextually accurate data attributes on every captured interaction. . . . Mattersight also leverages a consortium database of known fraudster's voiceprints that every caller is compared against to identify repeat fraudster activity. . . .

This looks to me to be more of a product "by accident," than "by design." That is, it seems someone at Mattersight just realized that this was another (albeit non-real-time) use for all that stored voice data: create some metrics to try to identify fraudsters. Great. But that is only truly useful, if the filter(s) can be made to work in near real time, not some post-hoc analysis. But maybe I'm wrong, and the Fortune 500 will pay high prices for this analytical tool. I doubt it, but it could happen.

Executive VP Of Client Management Sold Stock Into Open Market, On June 8, 2012

They say timing is everything, when one sells a long-held common stock position. This is doubtlessly doubly true when a company insider and executive officer, to boot, sells stock in his or her own company, on the open market. So, listen up!

Mattersight takes great pains (including offering one-sided FAQ answers, on the topic) to make it seem as though its executive team almost never sells stock into the open market. Yesterday, on the other hand it reported an executive officer's series of open market stock sales which occured last week (the reporting is all as required by law). Feel free to take a look, but it was very near the recent highs for Mattersight, post the "GAAP errors disclosures".

Be very careful out there in the next few days.

A Materially-Incomplete Investor FAQ Answer, On Mattersight's Website?

First -- note that mattersight.com contains this "Investor FAQ" page. Here is the pertinent part:

. . .11. I saw on a third-party website that a Mattersight executive officer engaged in a non-open market disposition of his shares – what does this mean?

Links and downloads of all of our SEC filings are available on the Mattersight website’s Investor Relations page under “SEC Filings.” We encourage you to review these filings. In some cases, third-party financial websites may report information regarding our SEC filings that incompletely describes the contents of such filings. For example, when an executive officer files a Form 4 to report the shares of our common stock withheld by the company to satisfy mandatory tax withholding requirements upon vesting of a restricted stock award, certain websites simply summarize the content of the Form 4 filing and report this as a “Disposition (Non Open Market) at $X per share.” In this case, referring to the actual Form 4 report will allow you to see that such disposition was made solely to satisfy the executive’s tax withholding obligation in accordance with the terms of the stock award. . . .

What is the implication of the bolded portions? To my eye, it implies that the executive is paying these taxes in the only way he or she is legally allowed to do so.

That is simply not true. Mr. Conway or Mr. Noon or Ms. Carsen could (perhaps should, given the vast, and growing accumulated stockholders' deficits) pay these tax obligations with their own cash. That would be no cash drain on the company, since the company has run 13 years straight of GAAP losses per share, from its continuing operations.

No the way that Mattersight does it, the company is effectively drained of cash (in a truly Transylvanian fashion!), in order to pay the tax obligaitons of its top executives. Yes, the transaction is off market -- but this form of compensation is also dilutive to common shareholders, under GAAP accounting -- and drains precious cash from the company, when it pays the tax and cancels the shares -- all without ever being paid cash for the shares in the first place.

This method of paying taxes for executives is in no manner required by any law or regulaiton. Here endeth the lesson.

Be careful out there.

Having "Monopoly Money" -- To Pay Mattersight Executives' Taxes -- Is Sweet!

Let's be clear here -- when a public company grants restricted stock, the executives pay for it with (only) their services over time. When the restrict stock vests, the executive has been enriched by the full value of the stock (as he or she paid no cash whatsoever for any of it). Thus, the IRS is owed taxes on the vesting -- at ordinary income rates.

Yesterday, the top executives of Mattersight reported "paying" that tax, by selling some of the same vested stock, as of May 31, 2012, back to Mattersight, in an off-market transaction, at $7.01 a share. Again, no cash from the executives -- and now they hold the shares free and clear. This is true of CEO Kelly Conway, CFO Bill Noon, EVP Chris Danson, and GC Christine Carsen, among others. Of course, this is a cash obligation then paid by the company to the IRS. [A more-jaundiced view would hold that the original grant size was effectively adjusted upward, so that the full intended value would be transferred to the executive, net of all tax obligations.]

This is a common practice at public companies, but when a company is underperforming, it sure looks like an overreaching use of the company (and its assets) -- solely for the benefit of the executive crew.

Finally, of course, allowing the restricted stock to vest, immediately after management committed a material accounting "error" -- and that error has (at least temporarily) enhanced the price, but not the long-term value, of that same stock -- strikes me as odd, indeed.

Mattersight's CFO -- Bill Noon -- Gets A New Contract? Why Now?

And one with a tin parachute (six months severance), to boot!

I found the following changes -- especially the beefed-up requirement to cooperate in litigation -- noteworthy, given the recent restatement of (material increases in) three years worth of GAAP operating losses per share (new language in bold):

. . .Assistance in Litigation. Employee shall upon reasonable notice and without compulsion of law (e.g., subpoena), furnish all accurate and complete information and other assistance to eLoyalty as eLoyaltythe Company as the Company may reasonably require in connection with any litigation, proceeding, or dispute to which eLoyaltythe Company is, or may become, a party, or in which it may otherwise become involved, either during or after Employee’s employment; provided, if such assistance shall occur after termination of Employee’s employment, the Company shall reimburse Employee for his reasonable expenses incurred in connection with such assistance, including, without limitation, as relevant transportation, meals and lodging, and shall also pay Employee a consulting fee of $200 per hour, as compensation for his inconvenience and the disruption of his other endeavors. . . .

Well -- that's odd.

In any event, the company made no separate mention of this change, and summarized his new deal, as follows -- in an after hours SEC filing, on Form 8-K, tonight:

. . . .Effective May 23, 2012, Mattersight Corporation entered into an executive employment agreement (the “Agreement”) with William B. Noon, its Vice President and Chief Financial Officer. The Agreement replaces Mr. Noon’s prior employment agreement. The material components of Mr. Noon’s compensation package under the Agreement are as follows: (a) an annual base salary of $200,000, less standard payroll deductions and withholdings; (b) a target annual bonus of $80,000; (c) severance benefits payable on termination by the company without Cause and by Mr. Noon for Good Reason equal to six months’ salary, 50% of the average of his current year’s estimated bonus and prior year’s actual bonus, six months’ continuation of health benefits, and six months’ additional vesting of his stock awards; and (d) severance benefits payable on death or Disability equal to 12 months’ salary, 100% of the average of his current year’s estimated bonus and prior year’s actual bonus, 12 months’ continuation of health benefits, and 12 months’ additional vesting of his stock awards. Under the Agreement, Mr. Noon is also subject to certain non-competition and non-solicitation restrictions for one year following his termination of employment. . . .

Here's the new one; here's the old one.

Separately, Mr. Conway touted (via press release, after hours) a new contract signing with an HMO he says is among the top five in the nation. Yawn.

Me? I see a concentration of revenue/over-reliance on a small number of customers problem, here highlighted. Again, at best. . . a yawn.

Mattersight's "Stock Overhang" Problem -- Pictured. . .

With its shiny new resale S-3 effective, the IGC Fund IV may unload up to 2.36 million MATR shares into the open markets, or in private transactions or off-market blocks without any restriction at law.

The occurence of this sort of an event is called an "overhang" event, and the graphic at right (click it ot enlarge) depicts visually why the event carries the name it does. The average daily trading volume of around 40,000 shares is shown in blue, on the bottom -- with the more than 2.36 million IGC owned shares shown in orange, "overhanging" the daily volume of all other sellers and buyers. Even if IGC sells 40,000 shares every day, it will take nearly 60 trading days to liquidate the "overhang".

But the reality is that it will perhaps take a year or two, if the seller(s) don't want to unduly injure MATR's NASDAQ trading price on any given day.

So -- with CEO Conway's mention of slowing sales momentum in Q2 2012, I see very little chance of any surprise upside catalyst in this stock for perhaps a year or more -- and, in the mean time, I see widening GAAP losses per share. Ouch.

The Mattersight Resale S-3 Registration Statement Declared Effective: SEC

So -- as of 8:30 AM EDT this morning, all or any of the 2.36 million MATR shares owned by IGC Fund VI, L.P. may be resold immediately. No word on whether the institutional investor(s) will begin selling on Tuesday after the holiday -- or sit on the sidelines -- for weeks, or months, even.

Here is the effectiveness order -- and here is the final prospectus, listing the resale shares.

The company will receive no proceeds from these shares -- and we should expect that the sales, once they begin, will act as a cap on the market price of MATR shares.

Each Director Was Just Granted A 5,000 Share Stock Option, At $7.70?!

It bears noting here (click image at right, to enlarge) that these entirely discretionary 5,000 stock option allotments were each granted at the May 18, 2012 NASDAQ closing price for MATR. I am pretty sure that Mr. Conway would argue (and in fact is so-arguing, through his corporate investor relations representatives) to so-called "buy-side" analysts that -- at the $7.70 price -- MATR was significantly under-valued. [I might suggest otherwise, but that doesn't matter in the analysis of conflicted transactions, under the law, below.]

Remember that about ten days earlier, it was trading at $9.45. Also remember that Mr. Conway told the world -- on May 10, 2012 -- that the restatement would not affect future results, and would only affect one line, on the historical income statements. He plainly minimized the $0.55 per share 2011 increase in GAAP losses per share, from continuing operations, on the quarterly call (that shocking jump in GAAP Loss Per Share for 2011 wasn't disclosed until effectively five days later -- May 14, 2012, after market-close).

So, I ask: how -- given Mr. Conway's supposedly-genuinely expressed views -- regarding the triviality of the GAAP losses per-share "errors" -- can it be appropriate to choose a grant date for the board of directors' stock options that transfers an unwarranted, undeserved (in Mr. Conway's own view) discounted exercise price? At $7.70, this is the moment when the directors' fiduciary duties -- to avoid engaging in conflict of interest transactions, vis-a-vis the company itself -- trump the regular incentive compensation calendar. Or, in a well-governed public corpotation, those duties ought to.

Of course, if asked, Mr. Conway and the compensation committee will likely say that they grant the options in the same week of every year -- so they are just adhering to the prior schdule. That ignores the fact that the company announced what is -- in actuality -- a major GAAP financial restatement just three days prior to these "regular" but discretionary grants of options. That created an "unwarranted windfall opportunity" for the board -- if management's rosy predictions for the future of the Mattersight businesses are to be believed. And those predictions are governed by the SEC rules of being completely truthful, and non-misleading in any way (again, if Mattersight is complying with its lawful obligations, as a public company).

In sum, Mr. Conway -- as CEO -- cannot have it both ways: it cannot be that the restatement wasn't important -- and that the stock is undervauled -- and so, he is free to make rose-tinted forward-looking projections (all on the revenue-, not net profit- line) especially where (as here) insiders are to benefit (and benefit mightily, in Mr. Conway's own view) from the supposed pricing "anomaly".

Here endeth the lesson -- in conflicted transactions, by public company insiders.

MATR 5 Day Chart: Lookin' A Lil' Like Leon Spinks'* "Teefies"...

Said another way, there are a LOT of gaps in trading over the last five days.

More importantly, it looks like at least some of the larger holders are heading for the exits -- Mattersight has traded about half its daily volume in the first hour, and has been off as much as 17 percent on the day (now recovering a bit to be off only about 13 percent -- for the day).

Is this stock's intrinsic value closer to $2 -- than it is to $8? I don't know -- but be careful out there, just the same. [Click the small chart at right to emlarge.]

<sup>~~~~~~~~~~~~~~

* If that pop culture reference offends, please feel free to substitute the name "David Letterman" for the name "Leon Spinks" above.</sup>

SEC Comments -- On Mattersight's Form S-3

Mattersight let it be known Friday night that the SEC has requested changes to the resale registration statement it filed in March 2012, to allow two of the institutional investors to sell, into the public markets, up to 2.36 million MATR shares the investors have earlier puchased in Reg. D private placements.

Two thoughts -- first, and primarily -- that free-resale will now be a significant new overhang on the MATR common stock, should the investor start lightening its position, given that at present, as privately-placed shares, their sale is pretty tightly contollled by volume and manner restrictions under applicable SEC rules.

How so? Well, even with a resale registration in effect, MATR only trades about 40,000 shares a day on the NASDAQ. At that rate, even if the newly-registered shares' investor(s) comprised all of the daily volume each day (which would certainly depress pricing), it would take over 60 trading days to clear the overhang.

So, the far more likely reality is that the investor(s) will be lightening positions -- in dribs and drabs -- over much of the next year, to year and a half. And that will almost certainly be a limit on upside movements -- if not a direct downside mover.

Second, i'll offer a rather technical thought: SEC Form S-3, or short form registration, is available only to companies that keep their '34 Act periodic filings current. In that regard, thus far at least, Mattersight has not indicated that the SEC staffers have agreed with Mr. Conway and Ms. Carsen that the "unreasonable hardship and expense" exemption was available under the recent restatement circumstances (see page three of this very helpful Paul Hastings law firm generated memo -- PDF backgrounder).

So -- it could still turn out that the SEC will say dividing six numbers, and reporting the resulting quotients, is not the stuff from which "undue hardship" is reasonably made.

If that occurs, then MATR will need to convert the SEC Form S-3 to an S-1 -- and will incur significant additional expenses -- in that long-form registration process. Chief among these will be the denial of subsequent incorporation by reference.

That would mean amending the registration statement manually, for each 8-K, 10-Q or 10-K -- a painful and cumbersome process. It would also be highly-embarrassing for a company with 12 years of SEC-reporting history. [But I guess not reading "Accounting for Dividends" -- under GAAP -- is also pretty embarrassing.]

In short, Mr. Conway is hoping that the SEC will agree that dividing six numbers makes for very tough sledding.

It should be remembered that S-3 short form registration was created for companies that repeatedly demonstrate their competence in filing accurate and timely SEC reports. That may not describe s company that forgets (for three years!) to charge dividend obligations against continuing operations (loss) earnings per share, under GAAP, and thus materially understates its GAAP losses per share for three years.

As ever -- we shall see. Could be a bit of a bumpy road, from here.

Starting to Look "Bubblicious"?

The chart below is derived -- and transformed -- from a great interactive in this morning's New York Times -- do go click around on it, there.

I thought it would be useful to put the legacy eLoyalty Corp./Mattersight spinoff history into the perspective of the rest of the "e-" bubble of 2000 -- and along with the Times, update it for Groupon, et al. -- so I ginned up the below in Photoshop. Enjoy (click it to enlarge):



Where will Facebook land, three years from now? Who knows. But it is certain that at 100 times eLoyalty's cap as it goes out -- it has a better chance of showing GAAP EPS from its operations. Be careful out there, just the same.

Mattersight Falling On NASDAQ Today...

The stock is essentially losing today whatever it was able to recoup yesterday (which is about where it was last on Monday), but today's down trading is on significantly heavier volume, and earlier, than yesterday's move.

Oddly -- I noticed that both Yahoo! Finance and E-Trade show an afternoon gap in the chart data, yesterday. [Click image at right to enlarge it.]

Was there a trading halt? Who knows. In any event, it seems the bigs are sitting on the sidelines, this week.

Be careful out there.

An Ironic Object Lesson -- At Mattersight...

In an ironic way, the board of directors of Mattersight has re-taught the investing world an unintended lesson here. A lesson learned over at least one full year, and perhaps almost two and a half years, now.

It is often said that -- at public companies -- "you will get the behaviors you measure, reward and/or punish. . ."

I know that much is true. What is puzzling to me -- looking at all of this through the lens of an unaffiliated investor in Mattersight's equity securities -- is why no one was being rewarded (or even measured!) on whether Mattersight ever reported a quarter's worth of continuing operations fully-diluted GAAP earnings per share.

Why does the board allow Conway & Co. to be bonused for things like "not breaking the securities laws" and finding "new logos" (on loss-producing "test-pilot" engagements, no less!) -- to the implicit exclusion of GAAP EPS acheivement? Why?

Well, I suspect that it is because a goodly portion of the board represents only its own narrow institutional-investor-driven interest, rather than the common stockholders at large, as the applicable law of fiduciary duties plainly requires them to. That is, when the MATR NASDAQ-OTC common stock price can be effectively (allegedly) pushed up by "accounting errors" -- and then the institutions are able to unload partions of their investment -- by management's not correcting these same "errors" for either one full year, or about two and a half years, then the game as they say, is well-afoot. The duration of the game, in turn, depends on whether the "Series B dividend error" was first made in the 2010 (for the year ended 2009) SEC Form 10-K's diluted loss per share figures attributable to continuing operations (see page 56), as well as the later SEC filings -- or whether the "error" first began when Mattersight filed the first Form 10-Q (see page 2 -- it certainly was in error, by Q1 2011), after announcing the sale of the ICS businesses to TeleTech Holdings.

In either case, the larger point is that if all the board members are effectively insiders -- and know when, or whether to lighten their respective institutional holdings -- it is only the unaffiliated common shareholder who gets the shaft. Conway & Co. reap unearned bonuses (which ought now be subject to a complete clawback), the big holders move in and out of their positions, for quarterly window dressing purposes -- but the small unaffiliated holder takes it up the tail-pipe.

Thankfully, the applicable US federal securities laws provide these small investors a remedy.

More on that, shortly.