Investing in tech companies with issues can be hazardous to your retirement funds. VirnetX, a publicly traded company, supposedly sells Internet connectivity and security software. By all reports, sales of its products don’t actually generate much revenue. Instead, VirnetX makes a lot of money suing other companies who allegedly infringe on its patents. Although it was successful in suits against Microsoft and Apple, VirnetX saw its heyday dwindle after the Supreme Court’s Alice Corp. v. CLS Bank International that invalidated a lot of software patents. For Dr. Poppell, an eye doctor in Florida, VirnetX’s woes proved to be the downfall in Dr. Poppell’s investment strategy. Despite warnings from financial managers, Dr. Poppell, who had no financial training or background, personally administrated the 401(k) plan for his employees. Using Internet research, Dr. Poppell invested over half of his employees’ 401(k) money in VirnetX. VirnetX stock fell precipitously. As a result, the plan participants lost about 53% of their 401(k) investments. When the good doctor’s employees complained about the large losses, he terminated the 401(k) plan. When they complained about that, he fired them. The plan participants sued Dr. Poppell and he settled for less than a third of the losses. Then the Department of Labor got involved and required Dr. Poppell to make the plan participants whole.
WHY YOU SHOULD KNOW THIS. Dr. Poppell is surely an example of what not to do when as the administrator of a 401(k) plan. But it all started with a high risk and heavy investment in a company that, by all reports, is a patent troll. A patent troll usually has no real inventions (or real inventions that don’t result in much revenue, are driven by lawyers rather than scientists, don’t develop, sell or license any real products, and assert weak patents to get settlements in cash or through licensing. These types of companies usually fly under the publically held stock radar. But for any publicly traded stock in the tech industry, be sure to check the company out thoroughly before making any type of investment.