The Bear Cave #122

New Activist Reports, Recent Resignations, and Tweets of the Week

Jun 19, 2022

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New Activist Reports

Hindenburg Research published on Ebix (NASDAQ: EBIX — $514 million), a conglomerate focused on payments, travel, and IT. Hindenburg called the company a house of cards with “a glaring fake revenue problem.” Hindenburg noted numerous irregularities with the company’s prepaid gift card sales and its Indian EbixCash subsidiary, which the company hopes to IPO. For example, the company’s auditor resigned in February 2021 and cited “unusual transactions related to the company’s gift card business in India” and said it was “unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions.” In addition, Hindenburg found that one of EbixCash’s top customers accounted for ~$46 million in revenue despite having only ~$151,000 in sales.

Hindenburg also highlighted that Ebix has had 7 different auditors since 2004, derives ~37% of its pre-tax income from high-risk territories, and has $643.9 million in debt coming due in February 2023 and only $75.9 million in cash. Hindenburg concluded,

“We think a substantial portion of EbixCash’s gift card revenue is non-existent. Consequently, we expect the EbixCash IPO will flop or fail. Given Ebix’s massive near-term debt load in a rising rate environment, we see significant solvency risk over the next 12 months.”

In a public response, the company said it “is limited in its ability to respond to the article’s specific contents.” Ebix stock was down ~32% this week.

Culper Research published on Piedmont Lithium (NASDAQ: PLL — $870 million), a pre-production lithium miner. Culper called the company “a US-flag waving stock promotion” and said the company’s plans to develop a lithium mine in North Carolina are unlikely to materialize “given overwhelming local pushback and management ineptitude.” Piedmont claims its mine is “the best lithium asset on the planet,” but Culper noted that the company “has owned the asset since 2016 yet remains without permits, without funding, without offtake agreements, and without a CEO possessing real-world operating experience.” Culper added that it views the company’s promotion “as architected by long-time Chairman Levi Mochkin, who was barred from the Australian securities industry, then ran Avenue Group (OTC: AVNU), [which was] delisted in 2012.”

Recent Resignations

Notable executive departures disclosed in the past week include:

CFO of 22nd Century Group (NASDAQ: XXII — $270 million) “was permanently separated” after seven months. The company has had five different CFOs over the last five years.
CFO of BlackSky Technology (NYSE: BKSY — $245 million) “stepped down” after nine months. The company is down ~80% since its September 2021 SPAC merger.
CFO of Fast Radius Inc (NASDAQ: FSRD — $32 million) resigned after eleven months “to pursue another opportunity.” The company is down over 95% since its January 2022 SPAC merger.
CFO of Sema4 Holdings (NASDAQ: SMFR — $604 million) resigned after a little under one and a half years “to pursue other career opportunities.” The company is down ~85% since its July 2021 SPAC merger.
CFO of Latham Group (NASDAQ: SWIM — $783 million) “retired” after a little over one and a half years. In February 2022, a board member resigned “effective immediately” and in September 2021, the company’s Chief Operating Officer resigned after nine months “to pursue other opportunities.” The company is down ~75% since its April 2021 IPO.
CEO of Trueblue Inc (NYSE: TBI — $538 million) resigned after a little under four years following “an investigation, led by outside counsel, into allegations regarding his conduct.” The company said that the “conduct in question was not related to financial controls, financial statements or business performance” and added the outgoing CEO “will not receive any severance payment in connection with his resignation.” The company is down ~30% this month.
CFO of Vita Coco Company (NASDAQ: COCO — $591 million) resigned after nearly five years “to pursue another opportunity.” In April, a member of the company’s audit committee resigned after just one year. The person responsible for auditing Vita Coco was also the audit engagement partner for Bark Inc (NYSE: BARK), which is down ~85% since its SPAC merger, and Quantum-Si (NASDAQ: QSI), which is down ~70% since its SPAC merger. Vita Coco is down ~25% since its October 2021 IPO.
Vince McMahon, CEO of World Wrestling Entertainment (NYSE: WWE — $4.65 billion), “voluntarily stepped back from his responsibilities as CEO and Chairman” after forty years and the company said, “a special committee of the board is conducting an investigation into alleged misconduct.” Mr. McMahon was temporarily replaced as CEO by his daughter and may return as CEO following the investigation. Earlier this week the Wall Street Journal reported on a “secret $3 million hush pact” concerning an alleged affair by Mr. McMahon. In April 2022, the company’s general counsel “departed” after eleven months and in November 2021 the company’s CFO “departed” after a little over one year.
Chief Accounting Officer of Energy Fuels Inc (NYSE: UUUU — $827 million) resigned after five months. The company’s prior Chief Accounting Officer also departed after about two and a half years.
President of the ModivCare Home division of ModivCare Inc (NASDAQ: MODV — $1.25 billion) resigned after six months “to pursue another career opportunity.” In January, the company’s Chief Operating Officer “departed” after a little over one and a half years. In addition, in May 2021 the company’s Chief Accounting Officer resigned after just nine months “to pursue another career opportunity” and that same month the company’s general counsel also resigned after a little less than two years. The company had three different CEOs and four different CFOs in the last five years.
Three board members resigned from Electric Last Mile Solutions Inc (NASDAQ: ELMS — $45.5 million) in connection with the company’s commencement of Chapter 7 bankruptcy proceedings. The resignations will “become effective upon such time as a Chapter 7 trustee is authorized to assume control of the Company's affairs.” The company is down over 95% since its June 2021 SPAC merger and Fuzzy Panda Research previously criticized the company for high executive turnover and for offering a “Buyer Put Right” to a major customer.
Chief Human Resources Officer of New Jersey Resources (NYSE: NJR — $3.97 billion) resigned “to pursue another professional opportunity” after six and a half years. In May 2021, the company and its general counsel “mutually agreed that [she] will separate from the company” after four years. The average age of the company’s board is ~67 years.

Data for this section is provided by VerityData from VerityPlatform.com

What to Read

“Why we trust fraudsters” (FT)

“From Enron to Wirecard, elaborate scams can remain undetected long after the warning signs appear. What are investors missing? …Find one lie and another soon follows. But short-sellers who search for overvalued companies to bet against are unusual, because they go looking for fraud and skulduggery. Most investors are not prosecutors fitting facts into a pattern of guilt: they don’t see a cockroach at all.”

“Jim Chanos on Why Some of the Worst Hit Parts of the Market Still Have More Pain Ahead” (Odd Lots Podcast)

“Legendary short seller Jim Chanos says that despite the plunge in stocks, there are numerous swathes of the equity market with plenty of downside risk. On this episode, the Chanos & Co fund manager, argues that the market overall has simply not internalized what sustained higher rates will mean to business models and valuations across a variety of sectors, including real estate, utilities and consumer packaged goods. He walks through the various excesses that we've seen over the last several years, and why investors are all paying the price for them now.”

“FTC Acts to Protect Pet Owners from Private Equity Firm’s Anticompetitive Acquisition of Veterinary Services Clinics” (FTC)

“The Federal Trade Commission today took action to protect competition in markets for specialty and emergency veterinary services by requiring the owner of a chain of veterinary clinics, JAB Consumer Partners, to divest clinics in California and Texas as a condition of its proposed $1.1 billion acquisition of competing clinic operator SAGE Veterinary Partners. The Commission also is imposing robust prior approval and prior notice requirements on JAB’s future acquisitions of specialty and emergency veterinary clinics.”