Augmented reality device maker Vuzix has filed a defamation lawsuit asking for $80 million in punitive damages, money damages, and interest against a short seller who has publicly claimed that the Amazon Alexa functionality of the company's Blade smartglasses is fraudulent.
Filed with the Supreme Court of the State of New York, the action was triggered by a report written by self-described "activist investor" Richard Pearson via his MOX reports site on March 16 and subsequently published on Seeking Alpha on March 20.
Vuzix accuses Pearson of conducting "short and distort" tactics, a practice in which an investor spreads unsubstantiated claims about a company in an effort to profit from a decrease in the stock's price. Pearson did not immediately respond to a request for comment from Next Reality.
"The filing of this lawsuit is a necessary course of action to defend the interests of the Company and all of the Company's shareholders, customers and business partners against false, misleading and defamatory statements made about Vuzix by a malicious short seller," said Vuzix CEO and president Paul Travers in a statement. "The decision to pursue legal action against the short seller was a unanimous decision by our Board of Directors and is not something that any of us take lightly."
The report claims that the Alexa feature of the Blade was a "ruse" and that favorable coverage of the device at CES was paid for, pointing to leaked documents from IRTH Communications, LLC detailing its efforts on behalf of Vuzix. Pearson also questioned the credibility of Matt Margolis, the director of corporate communications and investor relations at Vuzix, by claiming that Margolis has a pattern of leveraging media coverage and social media to push stock promotions. (Pearson has disclosed on his website that he is in a short position on Vuzix stock.)
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After the report was published, Vuzix stock dipped from $7.65 per share on March 16 to $6.95 on March 20. One day later, the price fell again to $5.95 as law firm Bragar Eagel & Squire, P.C. announced that it was investigating Vuzix for federal securities violations and other illegal practices. The stock has yet to cover its value.
At the time, the report prompted Vuzix to issue a rebuttal, debunking the report in a statement, and pointing to its own video demonstration along with videos from Tom's Guide and tech journalist Ehud Kenan to prove that the Blade works as advertised.
"Vuzix employees are an extremely proud and humble group of individuals that have and continue to work hard to do things 'the right way,'" said Travers. "We will not stand idly by when clearly false and misleading statements and attacks are made against our Company."
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