Although Zwan did not contradict the main focus of the story – which said that he raised more $300 million through forward sales agreements through a firm he controlled called ZG Partnership – he did clarify some points and identify an error in the story. When the original story went to press, Zwan had not responded to several requests that he comment on it.
In order to set the record straight, Light Reading has updated the story with the following correction and clarifications:
Correction: The date of an open-market purchase of stock made by Zwan was misstated. He acquired the shares in 2002.
Clarification: All of the forward sales agreements pertaining to ZG Partnership were disclosed in a series of Securities and Exchange Commission (SEC) filings dating back to 1999, to the best of our knowledge. Zwan disclosed that he was transferring 4.5 million shares of DIGL to ZG Partnership's control in several "non-market" dispositions; these transfers were disclosed in SEC Form 144s filed in 2000 and 2001.
Clarification: Zwan, according to SEC filings and himself, still controls all of the Digital Lightwave stock involved in the forward sales purchase agreements. Clarification: To our knowledge, there is no ongoing SEC investigation of Digital Lightwave or Bryan Zwan, nor are there any active shareholder lawsuits against Zwan or Digital Lightwave. Light Reading is not aware of any shareholder litigation arising from Zwan's sales of Digital Lightwave stock.
The letter follows:
August 21, 2002
Mr. R. Scott Raynovich
Re: Dr. Bryan Zwan
Dear Mr. Raynovich:
This firm represents Dr. Bryan Zwan and Digital Lightwave, Inc. ("Digital"). I am writing in regards to your story which appeared on your website at www.lightreading.com on August 15, 2002, regarding Dr. Zwan and Digital. The content of your publication is defamatory and has damaged and will continue to damage both Dr. Zwan and Digital.
Your story contains numerous inaccuracies about Dr. Zwan and Digital and portrays Dr. Zwan in a false light. Among the most glaring falsities are the following:
1. Dr. Zwan's personal and related entity transactions in Digital stock have always been disclosed as required by federal securities laws. Your story incorrectly infers that the disclosure of these transactions occurred only recently. A reader of your story would reasonably conclude (evidenced by the message board relating to the story) that Dr. Zwan failed to comply with the federal securities laws; that is simply false. A review of prior 13D filings, including but not limited to filings on December 8, 1999, February 9, 2000, May 11, 2000, December 29, 2000, April 30, 2001, October 31, 2001, and May 13, 2002, clearly reveals that each transaction was properly disclosed. Those filings are public documents, available to you and the general public. You obviously either failed to look at them or ignored the information contained therein.
2. Your reference to the "magnitude" of the sales is false and misleading in several respects. Dr. Zwan continues to hold 11,518,750 shares of Digital Lightwave, a number well in excess of those referenced in the transactions. A reader of your story would reasonably conclude that Dr. Zwan sold all or virtually all of his shares. That, as you know, is untrue, and could easily have been verified by the same public fillings. Moreover, at the time of the transactions referenced in the story, Digital's stock was trading in the range of $12.81 to 139.12 per share, at which time the market capitalization ranged from $402 million to $4.3 billion dollars. Your failure to include such information appears to be intentional and part of your effort to damage Dr. Zwan's reputation by suggesting he sold virtually all of his stock at the same time Digital stock was declining in value and his sales were a part of the decine.
3. The "facts" your story reports, relating to Dr. Zwan's purchase of Digital shares, are false. The purchases did not occur in 2000; they occurred in 2002. Your failure to be accurate in this respect implies that Dr. Zwan bought Digital stock at the same time he was selling, an act which would be in violation of the securities laws. Again, a reader of your story would wrongly conclude that Dr. Zwan engaged in improper and illegal activity.
4. Your story incorrectly indicates that "[i]t's not clear what CSFB did with the shares, or whether the stock has yet been transferred to CSFB and CSFB SAILS Corp." On the contrary, a review of SEC filings shows that Dr. Zwan continues to control the shares under the Forward Sales agreements. This statement is simply reckless, and again intentionally ignore publicly available information.
5. Your statement – "Zwan's activities [which can only mean the transactions referenced in the story] have grabbed the attention of Digital Lightwave's shareholders, who have filed numerous suits" is patently false. There is no shareholder litigation pending against Digital and there has been none filed since 1997, long before the transactions referenced in your article occurred. The statement is a deliberate attempt to disparage not only Dr. Zwan, but Digital as well.
6. Your story also implies that the decline in stock price of Digital is attributed solely to the period of Dr. Zwan's leadership as CEO. Dr. Zwan resigned as CEO on December 31, 1998, and did not return to that position until January 22, 2002. Digital's stock price between 1998 and February, 2002 ranged from a low of $1.16 to high of $150.00 per share. At the time he resumed the duties of CEO, Digital's stock was trading at approximately $5.00 a share. Moreover, Digital's stock has suffered the same market decline as other telecommunication stocks.
7. Your reference to the SEC investigation of the actions described in the article, when none in fact exists, is irresponsible and appears designed, in the current SEC corporate governance climate, to injure Dr. Zwan and, indirectly, Digital.
This is not the first occasion on which your publication has printed such misleading information about Dr. Zwan and Digital. It also appears that your staff is well aware of such problems in its reporting. In fact, on July 24, 2002, following the second quarter conference call, your Senior Editor, Mary Jander contacted Digital Lightwave and admitted that her questioning was "probably crossing the line." Her article of July 25, 2002 contained numerous errors and false statements. Later, changes were apparently made on the website, without being labeled as retraction. Thus, the public had no way of knowing that the original text was wrong and had been changed. This is questionable journalism to say the least, and it certainly demonstrates a reckless and cavalier attitude in your reporting practices. Moreover, it also appears that no effort was made to ensure balanced and accurate reporting. Despite being made aware of certain facts by Digital, you nevertheless proceeded with the current story. As evidenced by the message board responses to the story, readers believe that Dr. Zwan has engaged in improper, and in some instances, illegal corporate conduct. That simply is not true.
This sort of "reporting" is and will continue to harm Dr. Zwan and Digital Lightwave's reputations. We demand a retraction and correction of the false information in your story within two days, and on or before Friday, August 23, 2002. If you fail to do so, Dr. Zwan and Digital will take such actions as may be necessary to protect their reputations and to recover damages which your story has caused.
W. Reece Bader Orrick, Herrington & Nutcliffe L.L.P.
— R. Scott Raynovich, US Editor, Light Reading