🐻The Bear Cave #10🐻
Citron Shines Light on GSX, Marc Cohodes Fights Back, New Activist Reports and More
Welcome to The Bear Cave — your weekly source of short-seller news. Feedback and sharing are always appreciated. If you are new, you can join our email list here.
Citron Shines Light on GSX, Questionable Auditor
Citron Research published a report and video on GSX Techedu (NYSE: GSX — $7.45 billion), calling the Chinese online education company, “The Most Blatant Chinese Stock Fraud since 2011.” The report read in part,
“After tracking >20% of available GSX classes, Citron estimates that 2019 revenue was overstated by 70%.”
Citron highlighted that GSX’s Chinese filings do not appear to reconcile with its SEC filings, some GSX co-founders have resigned, and a previous report by Grizzly Research that raised similar concerns. GSX “firmly denies” the allegations of the Citron Report and said Citron edited its report post-publication.
Citron also questioned GSX’s choice of Deloitte as an auditor. Citron wrote,
“It is interesting to note that GSX's auditor is Deloitte. This is the same auditor that was used in the Longtop and China Media Express frauds – both exposed by Citron. We are not saying that all of their clients commit fraud, but don't for a minute think because GSX has a Big Four auditor they are clean.”
The Bear Cave looked into GSX’s auditor. According to the PCAOB Auditor Search database, the Engagement Partner from Deloitte responsible for GSX is Li Li Shan. According to PCAOB records Ms. Shan has served as the engagement partner for two other public Chinese education companies. The first, RYB Education (NYSE: RYB — $60 million) is down 90% since its 2017 IPO. The second, Puxin Ltd (NYSE: NEW — $369 million) is down 80% since its 2018 IPO.
After Citron’s report, GSX remains up 235% since its 2019 IPO.
Marc Cohodes Fights Back
Marc Cohodes, the prolific short seller known for exposing numerous frauds including Lernout & Hauspie, Media Vision Technology, NovaStar Financial, and AremiSoft, filed a FOIA lawsuit against the Department of Justice and FBI, seeking “communications between MiMedx Group and its officers, directors, employees, and agents, including its former Chief Executive Officer, Parker “Pete” Petit, and retired United States Senator Johnny Isakson referring or relating to Plaintiff Marc Cohodes.”
MiMedx (OTC: MDXG — $422 million), which was a $1 billion+ biopharmaceutical company, has been ensnared in controversy for the last two years after short-sellers exposed numerous issues at the company. Cohodes was one of the most vocal, questioning management at an investment conference, operating a website dedicated to exposing MiMedx fraud, and frequently tweeting about the company.
In a bizarre twist, Bloomberg reported the FBI visited Cohodes and told him to “stop sending threatening tweets” about the MiMedx’s CEO, Parker Petit. The Bloomberg article highlighted the Petit was a big fundraiser in Georgia and the Wall Street Journal would later report that Georgia’s Senator, Johnny Isakson, called the FBI on behalf of MiMedx.
Since then, MiMedx’s CEO, CFO, COO, corporate controller, and treasurer have all resigned, the CEO and COO have been indicted, the company withdrew six years of financial statements, its auditor resigned, the company was delisted, and an independent investigation found “Material Misstatements and Omissions to Several Key Stakeholders and Regulators,” “Management Disregarded Revenue Recognition Rules,” and “Actions Taken Against Whistleblowers.” 🤯
We are very excited to see what comes out next.
New Activist Reports
Hindenburg Research published on Scworx Corp (NASDAQ: WORX — $47 million):
SCWorx, a nanocap company headquartered in a Regus rental office in New York City, recently announced it had entered into massive $35 million per week deal to buy and re-sell COVID-19 tests, causing its stock to surge 434%. SCWorx’s CEO has a checkered past, including pleading guilty to felony tax evasion charges and paying a judgment in a lawsuit alleging he submitted fraudulent expense reports.
Prescience Point Capital Management published on the cooking manufacturer, Middleby Corp (NASDAQ: MIDD — $2.81 billion).
What to Read
“Charlie Munger: ‘The Phone Is Not Ringing Off the Hook’” (WSJ)
“Well, I would say basically we’re like the captain of a ship when the worst typhoon that’s ever happened comes,” Mr. Munger told me. “We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity. We’re not playing, ‘Oh goody, goody, everything’s going to hell, let’s plunge 100% of the reserves [into buying businesses].’”
“Cisco offers big payment deferrals until 2021 as companies seek remote-work tools” (Reuters)
“Cisco Systems on Tuesday launched a $2.5 billion financing program that lets its customers defer 95% of payments until 2021, giving companies additional leeway at time when some are facing a cash crunch but also need more remote-work tools.”
“Bets Against the Stock Market Rise to Highest Level in Years” (WSJ)
“Short sellers have revived their wagers against the stock market in recent weeks, taking their most aggressive positions in years… Among the individual companies they have targeted in recent weeks are travel-related firms, including Carnival Corp, Royal Caribbean Cruises, Marriott International, and Wynn Resorts.”
“Tesla Seeks Rent Savings Amid Coronavirus Crunch” (WSJ)
“Tesla has reached out to at least some of its landlords seeking rent reductions, according to firms contacted by the car company.”
Tweets of the Week
Until next week,
The Bear Cave