The Bear Cave #144
New Activist Reports, Recent Resignations, and Tweets of the Week
Welcome to The Bear Cave — your weekly source of short-seller news! If you are new, you can join here. Please hit the heart button if you like today’s newsletter and reply with any feedback.
New Activist Reports
Scorpion Capital published on Twist Bioscience (NASDAQ: TWST — $1.40 billion), an early-stage synthetic DNA company. Scorpion wrote that “Twist has no value proposition beyond price and is a bottom-tier vendor with a poor reputation, and viewed as inferior to even Chinese vendors due to escalating manufacturing delays, product limitations, and a lack of quality control.” In addition, Scorpion alleged the company “has resorted to Worldcom-esque accounting fraud, fabricating a 45% gross margin.” Specifically, Scorpion alleged the company reclassified certain Cost Of Goods Sold items as Research and Development costs hidden under spurious projects “in order to concoct a gross margin narrative that gives investors some hope that all is not lost.” In addition, the company’s auditor, PwC, found numerous material weaknesses in Twist’s financial statements and Scorpion alleged that some of the company’s Chinese investors appear dubious, opaque, or involved in circular transactions.
In total, Scorpion’s 236-slide report was based on findings from over 20 research expert interviews. The company’s stock fell ~36% this week.
Culper Research published on Treace Medical Concepts Inc (NASDAQ: TMCI — $1.25 billion), a foot and ankle surgical device company based in Ponte Vedra Beach, Florida. Culper wrote, in part,
“Treace’s primary innovation has not been in any sort of medical advancements, but in aggressive reimbursement practices and deceptive DTC marketing. We view these business drivers as problematic and self-defeating, as insurers appear to have begun placing Lapiplasty procedure reimbursements under scrutiny while customer complaints about misleading claims from Treace are mounting. We think Treace’s best days are behind it, and insiders are voting with their wallets: through the Company’s April 2021 IPO and subsequent sales, insiders have cashed out over $136 million in stock, and continue to sell through 10b-5 plans.”
Overlook Alpha published on Rover Group (NASDAQ: ROVR — $862 million), an online marketplace for pet care services. Overlooked argued that its high valuation, inactive user base, and rough economic forecasts mean the business “is set to roll.”
Independent short-seller Keith Dalrymple published on Vertiv Holdings (NYSE: VRT — $5.22 billion), a data center equipment and services company. The article alleges Vertiv is a low-quality spinoff that is booking billions in unprofitable business “to project the optics of growth.” In addition, the article highlights critical reviews from ex-employees and shows overlaps between the company’s management team and its private equity sponsor. The company is up ~40% since its December 2019 SPAC merger.
Muddy Waters Research published on DLocal (NASDAQ: DLO — $3.78 billion), a fast-growing Uruguayan payments company. Muddy Waters said the company “is likely a fraud” and estimated that the company’s foreign currency exchange gains are inflated by 2-3x. In addition, Muddy Waters has “concerns about the controls for client funds” as evidenced by a ~$4 million deficit in the company’s Malta subsidiary. Muddy Waters also highlighted governance shortcomings in the company including highly manual financial reporting, capital breaches at its subsidiaries, and “entanglements” with its former parent company.
NINGI Research published on Provident Bancorp (NASDAQ: PVBC — $132 million), a bank founded in 1828 that recently pivoted to serving the crypto industry. NINGI Research said “the bank is riddled with nepotism” and noted the audit chairwoman was granted residential mortgage loans and the compensation chairwoman was contracted for the design of the bank’s new headquarters. In addition, the CEO has received ~$4 million in compensation over the last two years and the bank rearranged its retirement plan and allocated ~$12 million into its own stock, which is down ~60% this year.
On Thursday, The Bear Cave also criticized the company for poorly performing loans in the crypto space and the bank’s partnership with a crowdsource investing platform selling “a diversified portfolio of digital assets across 13 metaverses.”
Recent Resignations
Notable executive departures disclosed in the past week include:
CEO of Amedisys Inc (NASDAQ: AMED — $2.79 billion) was “terminated without cause” after just seven months. The company’s Chief Legal Officer also departed last month.
CFO of Katapult Holdings (NASDAQ: KPLT — $93 million) “is transitioning into a senior advisory role” after five years. The company is down ~90% since its June 2021 SPAC merger.
General Counsel of PROG Holdings (NYSE: PRG — $936 million) “resigned for personal reasons” after just five months. The prior general counsel was “terminated without cause” after one and a half years.
Data for this section is provided by VerityData from VerityPlatform.com
What to Read
“They Lived Together, Worked Together and Lost Billions Together: Inside Sam Bankman-Fried’s Doomed FTX Empire” (WSJ)
“Mr. Bankman-Fried’s companies had neither accounting nor functioning human-resources departments, according to a filing in federal court by the executive brought in to shepherd FTX through bankruptcy. Corporate money was used to buy real estate, but records weren’t kept. There wasn’t even a roster of employees, to say nothing of the terms of their employment. Bankruptcy filings say one entity’s outstanding loans include at least $1 billion to Mr. Bankman-Fried personally and $543 million to a top lieutenant.”
“Sam Bankman-Fried tries to explain himself” (VOX)
“F**k regulators. They make everything worse. They don’t protect customers at all.”
Bird Global Restatement (SEC 8-K)
“The Audit Committee of Bird Global, determined that the financial statements should no longer be relied upon…
The determination results from an error… related to system configuration that impacted the recognition of revenue on certain trips completed by customers of its Sharing business for which collectability was not probable. Specifically, for certain customers with insufficient preloaded ‘wallet’ balances, the Company’s business systems recorded revenue for uncollected balances…”
Tweets of the Week
Until next week,
The Bear Cave