The U.S. Attorney's Office in Massachusetts has indicted several former eBay Inc. (EBAY) employees on charges that they threatened a blogger and her husband to avenge critical comments made against the retail giant in 2019. The company responded with a public statement insisting that no current employee was involved while admitting that an internal investigation was conducted after law enforcement officials made them aware of potential charges in August 2019.
eBay also admitted that an independent special committee was formed to investigate the matter, leading to the September 2019 termination of "security personnel." So far, so good – but the last part of the release is a potential market mover because it revealed that "unspecified communications" of former CEO Devin Wenig were "inappropriate" but that he has no knowledge of the potentially criminal actions.
Dirty Tricks Campaign
It's troubling because Wenig also got fired in September after complaining to a "fellow employee" about the blogger's coverage of a lawsuit with Amazon.com, Inc. (AMZN) in the EcommerceBytes newsletter, stating, "If you ever are going to take her down … now is the time." The actual connection between those comments and potential criminal actions remains ambiguous, provoking theories that they were management led while the investigative committee whitewashed the boardroom's participation by throwing lower-level workers under the bus.
As a result, the arrest of two former top security executives and four other employees will leave eBay at risk for months. For starters, defense attorneys are likely to depose Wenig and other top brass while pressing their clients for deeper connections between the CEO's initial complaint and "dirty tricks" that included mailing live cockroaches and a bloody pig Halloween mask. More importantly, the path to trial could include new indictments against boardroom executives.
eBay stock had been on a roll, rallying back to the 2018 high earlier this June and breaking out to an all-time high at $51.88. It has been pulling back since that time, with preliminary reports about the scandal working their way into the rumor mill. The downtick has just reached new support in the upper $40s, allowing market watchers to gauge the short-term impact of current events, but it could be weeks or months for the deeper truth to come out.
EBAY Long-Term Chart (1998 – 2020)
The company came public at a split-adjusted 82 cents in September 1998 and entered an uptrend that went vertical in 1999, lifting the stock to $12.15 in May, ahead of a pullback that found support at $3.65. It rallied back to range resistance in March 2000 and exceeded that level by just one point before turning tail in a failed breakout and modest downtrend that ended at a two-year low at year end. A 2004 breakout topped out at $24.60 in 2005, marking a high that wasn't challenged for the next nine years.
The stock posted an eight-year low in single digits during the 2008 economic collapse and turned higher into the new decade, reaching within a point of 2005 resistance in the first quarter of 2012. It finally broke out in 2015, entering a choppy uptrend that has carved a series of new highs and steep lows in the past five years. Price action between February 2018 and June 2020 completed a broad rectangular pattern, with support in the mid-$20s and resistance in the upper $40s. The stock mounted range resistance by four points this month before reversing into a key test at support.
The monthly stochastic oscillator has lifted into an extremely overbought level that has triggered five sell cycles since 2009, but the timing of a bearish crossover isn't easy to predict. More importantly, the stock has pushed more than 50% outside the top 20-month Bollinger Band®, marking a high-odds pattern for a reversal and multi-week decline, similar to what happened in 2018. It's possible that damaging criminal revelations will trigger this failure swing.
The Bottom Line
eBay stock has broken out to a new high, but troubling allegations regarding the company's treatment of a newsletter writer and her husband could have bearish long-term implications.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.