How to Lose 75% of Your Company's Value Overnight

Sequenom's shares sank 75% today after the company said last night
that four employees had been suspended because of "employee mishandling
of R&D test data and results" for its revolutionary blood test for
Down syndrome.

Yikes indeed.

No news is not good news
The information about
what happened was frustratingly not available on the conference call,
as the company is continuing to investigate. What we do know is that
Sequenom needs to throw out all the promising clinical data it had
reported on beginning last summer and repeat the tests on new clinical
samples to find out if the test is able to determine if a fetus has
Down syndrome. Those tests should be completed in the fourth quarter,
but under the circumstances, Sequenom doesn't plan to launch the test
until after larger, on-going, independent clinical studies are
published in a peer review journal sometime next year.

Basically, the company went from being on the verge of launching a
promising test -- the data to date said it was more accurate and/or
safer than what is currently available -- to having no proven clinical
data that its most advanced test works.

How does something like this happen?
When you invest in a company, you're basically putting your trust in management,
but management in turn needs to be able to be able to trust the foot
soldiers. Unfortunately, that's not as easy as it sounds and this
certainly wasn't the first time a company has had to deal with a rogue
employee.

Allied Irish Banks (NYSE: AIB), Credit Suisse , and Solomon Bothers -- now part of Citigroup (NYSE: C) -- have been responsible for losses of billions of dollars because of bad trades they performed. On the flip side, BP (NYSE: BP) had a "rogue trader" that may have made the company money -- possibly illegally, though.

A Disney
(NYSE: DIS) employee apparently released photos of women flashing the
automated camera on Disneyland's Splash Mountain ride. It might be the
happiest place on earth, but I'm pretty sure that's not what the
clean-cut company had in mind.

An employee at Fidelity National Information Services
apparently stole 2.3 million records of customers that contained
personal information -- including credit card and bank account
information -- and sold them to a data broker.

President Obama's cell phone records were accessed by a Verizon Communications
(NYSE: VZ) employee, according to the company. It may have been just
idle curiosity, but it doesn't paint the company in a good light.

Of course, even CEOs aren't immune to rogue behavior. Remember Whole Foods Market 's (Nasdaq: WFMI) CEO John Mackey and his misguided message-board musings about his company under his alter ego, "Rahodeb"?

The perils of investing
No one said investing
in individual equities was easy. Companies lose value for many
different reasons, from ones you should have seen coming to those that
were impossible to foresee.

You can limit the pain from the problems you should have seen coming by doing plenty of homework
before you purchase. Play the devil's advocate and figure out the bear
argument before you invest and you might decide the risks aren't worth
the reward. There's not much you can do about unavoidable plunges from
the unfathomable, but keep a well diversified portfolio so that one 75% loss doesn't kill your hopes for the future.

As for Sequenom, it's hard to tell whether it's a value or a value trap
at this beaten-down level. The company is trading at a lower price now
than it did before the first clinical data was released last June, so
buying at this level, you're essentially getting the test for free.
Whether the test is worth something remains to be seen.

© 2009 UCLICK, L.L.C.