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MagicJack Rises From 7-Month Low as Ex-CEO Rebuts Blog

Jan. 11 (Bloomberg) -- MagicJack VocalTec Ltd. rebounded from a seven-month low as the company’s former chief executive officer denied a blog post that said the Israeli provider of voice-over-Internet services misstated its earnings.

Shares of MagicJack rose for the first time in three days, adding 1.4 percent to $14.79 at the close of trading in New York. The Netanya, Israel-based company, which trades on the Nasdaq Stock Market, tumbled 15 percent this week, its steepest weekly slump since November.

MagicJack dropped after a Jan. 9 blog post on the Seeking Alpha website attributed to “Copperfield Research” said the company used “accounting gimmicks” to boost profits and that former CEO Daniel Borislow used his common equity on margin as collateral for debt. Borislow, who relinquished his post to Gerald Vento on Jan. 1, said the blog post was “clear and utter lies” by phone yesterday from West Palm Beach, Florida.

Short interest on MagicJack was 13 percent of shares outstanding Jan. 9, compared with 2.7 percent for the Nasdaq, according to data compiled by research firm Markit. The Bloomberg Israel-US Equity Index of the largest New York-traded Israeli companies fell 0.2 percent to 85.87 today, dropping 1 percent in the week.

The short positions will “weigh on the shares” until the new CEO updates investors on MagicJack’s new strategy, Timothy Horan, a New York-based analyst at Oppenheimer & Co. who has a buy rating on the stock, said by phone yesterday. “If they’re selling the product and the revenues and earnings are coming in, the shorts will have to cover.”

Shorting MagicJack

The Copperfield post focused on Borislow’s actions as chief executive officer. Borislow “has notoriously played by his own set of public market rules” the report said. The author cited a May 18 filing in which Borislow said “I regrettably had to sell shares in MagicJack for liquidity.”

In an e-mail sent to Bloomberg News, a writer who said they were the author of the post said that they were shorting MagicJack, or betting on its decline. The writer asked not to be named and said that Copperfield is based in the U.S.

The Jan. 8 post was based on “information derived from public sources,” according to the e-mail. “While there is absolutely some opinion, speculation and analysis in our report, we have arduously tried to delineate those sections clearly.”

MagicJack spokesman Kari Hernandez said it was the policy of the Netanya, Israel-based company not to comment on “such a report,” when contacted by phone yesterday.

Borislow said in yesterday’s interview that the suggestion in the Copperfield post that he used his stock as collateral for debt was “a complete lie.”

‘Backward Looking’

Horan at Oppenheimer said the blog post was “backward-looking, not forward-looking.” MagicJack’s 41 percent decline since the end of the third quarter is due to a delay in delivery of the company’s new WiFi device, which was scheduled to go on sale in September, Horan said. “I feel fairly good about my estimates as long as the new device comes out,” he said.

Borislow, who founded MagicJack, took up a new position Jan. 1 to lead new marketing and product development, according to a Dec. 28 filing.

Israel’s TA-25 Index rose 1.1 percent this week to 1,224.11, the highest level since Dec. 19.

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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