Jeramey Jannene

Koss Family, Insiders Get Rich On Stock Jump

Company insiders cash in on Wall Street feud. And the Journal Sentinel's huge error.

By - Feb 10th, 2021 01:31 pm
Koss Corporation headphones. (Pixabay License).

Koss Corporation headphones. (Pixabay License).

While national media attention focused on GameStop, several other companies were caught in the crosshairs of a stock market fight between pessimistic hedge funds and aggressive retail traders, including Milwaukee’s own Koss Corporation.

The headphone manufacturer’s stock surged to record highs as retail traders started buying large numbers of shares in late January.

Koss, with just over 30 employees, saw its market value climb from approximately $20 million to more than $1 billion as its stock went from trading around $3 per share to briefly more than $120.

The Koss family, board members and other executives, which collectively owned over 81% of the stock at the start of the surge, cashed in. In total they’ve sold more than $40 million worth of stock, and still own the majority of the company.

John Koss Jr., vice president of sales, was the chief beneficiary. From February 1st through the 4th, he netted $13.48 million from selling 367,912 shares by exercising stock options and selling shares he previously owned (90,133).

Many of the sellers did the same, cashing in long-unused options for quick profits. The options are a regulated compensation tool that allows employees and board members to purchase shares at a future date at a set, low price. With Koss stock stagnant and threatening to go lower because of short selling pressure, for years they haven’t been very desirable. But once the stock surged they were worth millions.

Koss Jr. still owns 266,161 shares directly and another 119,392 indirectly through an employee stock ownership plan according to his latest Securities and Exchange Commission (SEC) filing.

His brother, president and CEO Michael Koss Sr., also pulled in millions. He’s netted $7.81 million, less the cost of purchasing 50,000 shares he previously owned. Koss Sr. still owns 813,907 shares directly and 158,091 shares indirectly through an employee stock ownership plan

Trusts controlled by the Koss family have also benefitted.

A trust affiliated with Michael and John’s late mother Nancy Koss netted $3.56 million by selling 100,000 shares. It still owns 757,949 shares. Their father John Koss Sr. founded the company in 1958.

Michael’s children also saw their fortunes rise, both directly and indirectly.

An SEC filing says “trusts for children” netted $2.47 million from the sale of 50,000 shares. According to the latest filing, the trusts still hold over 140,000 shares.

Michael J. Koss Jr., the CEO’s son and vice president of marketing and product, netted $3.6 million in profit from exercising stock options and immediately selling the shares. He still owns 46,000 shares.

But the spoils haven’t gone solely to the Koss family. Board members and top executives also cashed in.

Chief financial officer David Smith netted a profit of approximately $5.47 million, less the cost of 25,000 shares he owned before the surge.

Smith had a stock sale plan already in place as of September 1st, and if just the one pre-planned sale went through, he would have netted $240,200. But he exercised stock options to buy an additional 124,000 shares and sold them all. In total, he sold 149,000 shares on February 1st. His peak sale was at $60.05 per share, the highest per share price reported by any insider.

Vice president of operations Lenore Lillie netted a $3.77 million profit, less the cost of her original 20,088 shares. She purchased 99,487 shares via stock options and sold them all, alongside her original holdings. She still holds an additional 30,022 shares indirectly through an employee stock ownership plan.

Lillie had been waiting to cash in on some of the options for almost a decade. One 2012 options award, 25,000 shares, allowed her to buy the shares at $6 each. With the stock trading lower than the option price it was effectively worthless compensation. Then the stock surged and she cashed in.

Board member Theodore Nixon sold all 30,000 shares of his stock, netting $1.3 million. He led all non-Koss family board members in profit-taking, but wasn’t the only member to sell.

Steven Leveen sold all 10,000 shares of his stock, netting $390,250. Thomas Doerr exercised a stock option to buy 6,667 shares for $1.92 each and sold them for $42.02, netting $267,346.

William Sweasy, Koss board member and retired Red Wing Shoe CEO, sold his 20,000 shares for $40 each, netting $800,000. But federal rules prevent board members from buying and selling shares within six months and Sweasy had acquired 10,000 shares in September for $2 each. He had to return the profit on the sale of those shares, $378,805, to the company, leaving him with an estimated profit of $421,905. A win for both Koss and Sweasy.

A Koss family trust didn’t sell any shares and still has 1,000,085 shares according to SEC filings. A family corporation has 983,8000 shares.

Other Koss family members and employees not designated as insiders may have sold without having to publicly disclose their transactions. John Koss Jr.’s latest SEC filing shows him transferring 32,000 shares to an adult daughter on January 13th.

But be wary of journalists doing math. A February 4th Milwaukee Journal Sentinel report double counted the stock sold by the Nancy Koss trust by assigning it to both Michael Sr. and John. The paper then compounded the error on February 8th by reporting the trust stock sale again after it was filed as a standalone SEC filing.

Two wrongs don’t make a right and you can’t count the same sale three times.

Each sibling must report the same sale to the SEC because they’re both trustees, but as their filings show they are indirect beneficiaries. At best they would have had to split the proceeds between themselves and any other trustees.

Which means insiders hauled in more than $40 million, not “more than $50 million,” as the Journal Sentinel reported.

At the time of publication, Koss stock is trading for $17.23.

For more on what caused the stock surge, see our earlier coverage.

Categories: Business, Weekly

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