VirnetX Anything but a Marginal Market Problem

Updated to clarify pledged shares and calculation on Deutsche Bank loan

NEW YORK (TheStreet) -- Despite VirnetX (VHC) lighting up message boards and StockTwits over the "patent troll" accusations, the bigger issue for shareholders is the CEO's pledging of shares of his company's stock.

CEOs and board members hocking shares for investments - with the possibility of getting killed in a share rout - is something that stock market regulators have ignored for years.

"I don't think that the current disclosure requirements are in any way satisfactory at all because there aren't any," says Paul Hodgson, a senior research associate at GMI Ratings, a corporate governance research firm.

There's no question that VirnetX, a holding company that is suing the likes of Apple (AAPL) , Cisco (CSCO) and NEC (NEC) to commercialize its portfolio of tech patents is a speculative company. It's gone from a penny stock to a company with a $1 billion-plus market cap in under a decade and has long been home to short-term traders trying to catch the prospective spoils of an intensifying Silicon Valley patent war.

However, during a recent stock surge to record highs of nearly $42 and a subsequent tumble as questions of its business model resurfaced, chief executive and founder Kendall Larsen's use of VirnetX's stock as pledged collateral also turned into a key risk to shareholders, forcing the CEO to add new disclosures about the accounts to concerned investors.

Last week, VirnetX CEO Larsen rightfully drew scrutiny from CNBC's Herb Greenberg for the large concentration of his shares in that are pledged against other assets. Greenberg's concerns that those shares could be pledged against volatile personal investments came amid a Seeking Alpha analysis from an anonymous short-seller, who argued that VirnetX may underwhelm in squeezing out IP-related revenue from the likes of Apple and Cisco.