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Analyst Owns $9M in ONI Systems Stock

Paul Johnson, a managing director of Robertson Stephens, and one of Wall Street's most respected technology analysts, has made a bundle owning pre-IPO shares of ONI Systems Inc. (Nasdaq: ONIS). He is listed in the company’s S-1 as having over 100,000 shares of preferred stock.

ONI’s stock has traded well since it debuted in June. Shares were trading today at around $87, making Johnson’s cut worth about $8.7 million. It's common for sell-side analysts to own positions in the stocks they cover, but uncommon for an analyst to own a position that large.

In the past three months since the company has been publicly traded, Johnson has recommended the stock as a “Buy". The fact that he continues to cover the company, even though his shares are worth close to $9 million, doesn’t sit well with other optical networking vendors.

“I’ve known Paul for a long time,” says one optical networking company spokesperson, who requested anonymity. “I respect his judgment a lot, but for him to be sitting on a big chunk of stock like that makes me wonder if his judgment could be affected.”

Johnson says that his objectivity hasn’t been compromised. “I’ve spent 20 years building my reputation. It’s how I put food on my table,” he says. “I wouldn’t jeopardize that. Anybody who knows me and has spent any time with me would say that I am almost objective to a fault.”

He says that he plans to hold onto his ONI shares as a long-term investment and that he would not sell any shares even if he was set to downgrade the stock, because "that would be unethical."

He argues further that any overt schemes to keep the stock price up would only backfire on him: For example, if he tried to bury negative news in an effort to keep the stock price high, his competitors would be more than happy to break the news instead.

And, he contends, if he comes out overly bullish on the stock while his competitors take a more realistic stance, the market would probably ignore his recommendations and his reputation would end up suffering too.

Johnson says he invested in the company back in 1998 long before its IPO and at the time he had no expectation of it ever doing well. “Some old friends had asked me to invest. I thought they were crazy at first, but they’re smart guys. So, I made a private investment.”

“At the time, I was just trying to help out some old friends,” he says. “I wasn’t thinking, ‘Geez, this is going to make me rich.’ If I had known that it was going to turn into such a big investment, I probably would have passed on the opportunity —- just because of questions like this. What can I do now? I can’t really give the shares back.”

Johnson isn't the only person who has done well out of ONI. Matt Bross, chief technology officer for Williams Communications, an ONI customer, also profited from the IPO (see Williams' CTO Profits From His Position ). His shares are now worth almost $30 million.

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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