The Bear Cave #152

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

Jan 15, 2023

Welcome to The Bear Cave! Our last premium articles were “Problems at Six Flags Entertainment (SIX)” published on December 15 and “More Problems at Rumble (RUM)” published on January 5. The next premium investigation comes out this Thursday, January 19.

New Activist Reports

Dirty Media Bubble published on Signature Bank (NASDAQ: SBNY — $7.45 billion), a commercial bank that pivoted aggressively to crypto deposits and payments. Dirty Media Bubble highlighted that Signature Bank’s Signet private blockchain, a 24/7 dollar transfer service for crypto clients, performed hundreds of billions of dollars of transactions per quarter. As a result, “Signature may face significant legal and regulatory consequences from doing business in the fast and loose world of cryptocurrency.”

For example, Dirty Media Bubble published excerpts from FTX’s bankruptcy filings that showed Alameda Research was a client of Signature Bank’s Signet network along with True USD, a stablecoin founded by controversial entrepreneur and accused money launderer Justin Sun. In addition, Dirty Media Bubble published screenshots from June 2022 that appear to show Signature Bank as the recipient bank for transfers to “Key Vision Development Limited,” a Seychelles-registered shell company associated with crypto platform Binance.

Dirty Media Bubble is a prolific Substack known for identifying bad actors in the crypto space. The author disclosed that “for the first time in our brief journalistic career, we are short the subject of the following article [SBNY].”

Blue Orca Capital published on Stem Inc (NYSE: STEM — $1.52 billion), a clean energy storage systems company. Blue Orca wrote,

“We are short Stem Inc, a broken SPAC which we think covertly finances its flagship customer, disguises hardware lease payments as software revenues and peddles bogus non-GAAP metrics, all while insiders dump stock.”

Specifically, Blue Orca criticized the company’s $500 million deal with Available Power and said that, based on interviews with a former Stem Inc executive, the company is contributing development capital to Available Power to finance the deal. The circular flow of funds raises concerns that Stem “will use this arrangement to recognize revenues, profits and cash flows effectively paid for by Stem.”

Spruce Point Capital published on Super Micro Computer Inc (NASDAQ: SMCI — $4.26 billion), a hardware manufacturing and microchip company. Spruce Point said it had “grave concerns about the accuracy of [the company’s] financial reporting” and noted that the company “recently experienced a large quarterly increase in deferred revenue” and previously restated financials for “widespread accounting violations.” In addition, Spruce Point raised concerns about the company’s reliance on Meta Platforms, a ~22% customer, and highlighted that the company’s founder/CEO and CFO are selling record amounts of stock.

Bleecker Street Research published on Credit Acceptance Corp (NASDAQ: CACC — $5.31 billion), a subprime auto finance company. Bleecker Street noted that the company has “declining loan loss reserves into a likely recession” and cited a decline in used-car prices as an additional headwind. Bleecker Street concluded,

“We believe this company is nearing maturity and market implied expectations will not be realized. Near-term, we believe the Street is vastly over-estimating earnings (GAAP) and see Credit Acceptance running into a number of disappointing quarters.”

Recent Resignations

Notable executive departures disclosed in the past week include:

CEO of Satixfy Communications (NYSE: SATX — $545 million) “will cease his duties” after just seven months. The Israel-based company is down ~30% since its October 2022 SPAC merger.
CFO of Mitek Systems Inc (NASDAQ: MITK — $447 million) resigned “to pursue another career opportunity” after one and a half years. The company’s Chief Legal Officer also departed in March 2022 “to pursue other professional interests.”
CFO of Blend Labs (NYSE: BLND — $366 million) resigned after almost two years. In addition, the company’s President, General Counsel, and a board member all resigned this week. The company is down ~93% since its July 2021 IPO.
CFO of Hanesbrands Inc (NYSE: HBI — $2.83 billion) resigned after almost two years “for family reasons.”
CFO of First Financial Bankshares (NASDAQ: FFIN — $5.00 billion) resigned after two and a half years “in order to pursue other opportunities.” The company’s prior CFO had served for 17 years and the current CEO/Chairman has served for 22 years. In addition, the company’s Chief Lending Officer resigned in January 2022 after 17 years.
CFO of ViewRay (NASDAQ: VRAY — $862 million) resigned after two and a half years. The company has had four different CFOs in the last five years.
CEO of Kimball Electronics Inc (NASDAQ: KE — $601 million) retired after 24 years. The company’s VP of Information Technology retired after 18 years in March 2022, the company’s Chief Compliance Officer retired after 21 years in December 2021, and the company’s CFO retired in June 2021 after 25 years.
Chief Operating Officer of Domo Inc (NASDAQ: DOMO — $491 million) resigned after eleven months. The company’s CFO resigned in December 2022, the company’s CEO departed in March 2022, and the Utah-based software company has fallen ~66% over the last twelve months.
Chief Product Officer of NerdWallet Inc (NASDAQ: NRDS — $766 million) resigned after a little over one year “to pursue another professional opportunity.” The company’s Chief Marketing Officer resigned in October and NerdWallet is down ~60% since its November 2021 IPO.
Chief Marketing Officer of Sovos Brands (NASDAQ: SOVO — $1.47 billion) “notified the company of her intention to resign to pursue another leadership opportunity” after a little over one year. The company’s Chief Commercial Officer also departed in February 2022 and the company is up ~6% since its September 2021 IPO.
Jo Natauri resigned from the board of Flywire Corp (NASDAQ: FLYW — $2.87 billion) “effective immediately” after about two years. In addition, Yvonne Hao departed Flywire’s board “in connection with her appointment as the Secretary of Economic Development of the Commonwealth of Massachusetts.” Flywire is down ~25% since its May 2021 IPO.
Chief Risk Officer of Primis Financial Corp (NASDAQ: FRST — $298 million) resigned after about two and a half years. Primis Financial Corp has had five different CFOs over the last five years and in June 2022 replaced its auditor, Dixon Hughes Goodman LLP, with Forvis LLP. In addition, three of the company’s ten board members are currently over the age of 80.

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

What to Read

“How pervasive is corporate fraud?” (Academic Study)

“We provide a lower-bound estimate of the undetected share of corporate fraud. To identify the hidden part of the “iceberg,” we exploit Arthur Andersen’s demise, which triggered added scrutiny on Arthur Andersen’s former clients and thereby increased the detection likelihood of preexisting frauds. Our evidence suggests that in normal times only one-third of corporate frauds are detected. We estimate that on average 10% of large publicly traded firms are committing securities fraud every year, with a 95% confidence interval of 7%-14%. Combining fraud pervasiveness with existing estimates of the costs of detected and undetected fraud, we estimate that corporate fraud destroys 1.6% of equity value each year, equal to $830 billion in 2021.”

“SEC Charges McDonald’s Former CEO for Misrepresentations About His Termination” (SEC)

“According to the SEC’s order, McDonald’s terminated Easterbrook for exercising poor judgment and engaging in an inappropriate personal relationship with a McDonald’s employee in violation of company policy. However, McDonald’s and Easterbrook entered into a separation agreement that concluded his termination was without cause, which allowed him to retain substantial equity compensation that otherwise would have been forfeited. In making this conclusion, McDonald’s exercised discretion that was not disclosed to investors. Subsequently, in July 2020, McDonald’s discovered through an internal investigation that Easterbrook had engaged in other undisclosed, improper relationships with additional McDonald’s employees…
‘Public issuers, like McDonalds’s, are required to disclose and explain all material elements of their CEO’s compensation, including factors regarding any separation agreements,’ said Mark Cave.”

“JPMorgan Bought College Financial-Aid Platform for $175 Million—and Now Says Most of Its Users Were Fake” (WSJ)

“Ms. Javice approached JPMorgan in summer 2021 about a potential acquisition, according to the lawsuit. She claimed Frank had 4.25 million users, the bank said. The company had fewer than 300,000 real users, the suit said, less than 10% of the stated 4.25 million figure.”