From 5i researchOctober 13, 2015 (asked by Carla) Question: Hello, I own NHC and am down 50%. I was planning to hold for the long term as fluctuations are common in small caps, however, I just read that two US law firms are now investigating them for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.Can you please explain what this violation is? And what does it mean when a law firm gets involved? Does it mean there is a problem or the law firm is just looking to make some money? Sadly this is my largest small cap holding, I bought way too much in it, about 5% of my total portfolio. Should I sell now or hold? Best, Carla 5i Research Answer: Without getting into the legalese, the sections are basically referencing insider trading and material disclosure of information. A link is here: https://www.sec.gov/about/laws/sea34.pdf These lawsuits are very common when a stock drops. In and of themselves, they are almot meaningless. Sometimes companies pay a small payment to make them go away, but we would not expect this. All of the information in the Seeking Alpha report which caused the drop is old news and previously disclosed and discussed. The suits are just there because the stock dropped. The legal firm is just looking for a quick payment. But that does not make the stock risk free, of course. Most of the issues raised are 'old' and the company is a 'roll up' where it acquires other companies in order to grow. We have commented about some prior management in the past, but there is new management. It is not our favourite name, but we would not sell just on this recent news. We would consider a 5% weight fairly big for this one, however, but of course it has more than tripled in the past year. It was an easy target for short sellers considering recent sector weakness. At 17X earnings now we would view it more of a HOLD than anything else. Like other short attacks, we would expect this issue to die down over time.