The Bear Cave #156

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

Feb 12, 2023

Welcome to The Bear Cave! Our last premium articles were “Problems at Planet Fitness (PLNT)” published on January 19 and “More Problems at Planet Fitness (PLNT)” published on February 2. The next premium investigation comes out this Thursday, February 16.

The Bear Cave’s author, Edwin Dorsey, was recently interviewed on the Time4Coffee podcast to discuss building The Bear Cave and our long-term ambitions. Listen to the interview here.

New Activist Reports

Sprue Point Capital published on Progyny Inc (NASDAQ: PGNY — $2.94 billion), a fertility benefits management company. Spruce Point said the fertility benefits market “is becoming increasingly commoditized and crowded” and highlighted dubious marketing claims by the company. Spruce Point also noted “management’s past proximity to a massive accounting fraud” and raised concerns about Progyny’s historically high amounts of revenue recognized from “unbilled accounts receivable” — revenue that has been recognized in its financial statements but not yet billed to a customer.

In December 2022, Jehoshaphat Research also published on Progyny and alleged the company “is deceiving the investor community via its financial reporting practices.”

Wolfpack Research published on B. Riley Financial (NASDAQ: RILY — $1.17 billion), an investment bank and financial services company. Wolfpack called B. Riley “a lender of last resort for the dregs of the public market” and highlighted multiple B. Riley investments that have recently gone sour. For example, B. Riley extended a $75 million loan to Exela Technologies (XELA), which is down ~99% from its highs, and extended a $42 million loan to Core Scientific (CORZQ), which recently filed for bankruptcy. Wolfpack concluded,

“B. Riley is overleveraged to low quality assets and staring down the barrel of several negative catalysts. Yet on a price to book value basis, it trades at a 110% premium compared to its peers whose assets are, in our opinion, much higher quality. We are short RILY.”

Viceroy Research published multiple updates on Medical Properties Trust (NYSE: MPW — $7.24 billion), a Birmingham-based REIT that owns hospitals typically in long-term sale-leaseback transactions. In particular, Viceroy alleged the company engaged in a spurious joint venture with the CEO of its largest tenant by significantly overpaying for a hospital in Malta. In another example, Viceroy alleged that Medical Properties Trust paid a tenant ~$35 million for hospital construction costs when the actual costs were closer to ~$18 million. Viceroy alleged that the excess payments are part of a “pervasive revenue round-tripping scheme” to inflate Medical Properties Trust’s lease income.

Recent Resignations

Notable executive departures disclosed in the past week include:

CFO of Rigetti Computing Inc (NASDAQ: RGTI — $146 million) was terminated after one and a half years as part of “a reduction in workforce to align with the company's updated business strategy and revised technology roadmap.” The company is down ~90% since its February 2022 SPAC merger.
CFO of Vital Farms (NASDAQ: VITL — $628 million) departed after a little over two years. The company is down ~55% since its July 2020 IPO.
CFO of Genworth Financial (NYSE: GNW — $2.93 billion) “will be transitioning out” after about two and a half years. The company’s Principal Accounting Officer resigned in April 2022 and the company’s General Counsel and Chief Human Resources Officer both resigned in December 2021.
CEO of PayPal Holdings (NASDAQ: PYPL — $92.1 billion) disclosed “his intention to retire” after over nine years. The company’s Chief Accounting Officer also departed “to pursue another opportunity” this month and the company’s Chief Financial Officer has been on medical leave since September.
CEO of Holley Inc (NYSE: HLLY — $268 million) retired after twelve years and departed the board. The company’s CFO also resigned “for personal reasons” in September 2022 and the company is down ~75% since its July 2021 SPAC merger.
Chief Banking Officer of First Interstate Bancsystem (NASDAQ: FIBK — $3.83 billion) “was terminated” after just ten weeks.
Chief Commercial Officer of Vacasa (NASDAQ: VCSA — $656 million) “separated” after just four months. The company’s CEO also resigned in September and the company is down ~85% since its December 2021 SPAC merger.
Chief Accounting Officer of Cantaloupe Inc (NASDAQ: CTLP — $360 million) resigned after seven months “in order to pursue other opportunities.” In September 2022, the company’s CEO also resigned after two and a half years and in February 2022 the company’s CFO resigned after one and a half years. In October 2021, the company’s Chief Revenue Officer departed, in June 2021 the company’s Chief Compliance Officer “separated,” and in January 2021 the company’s Chief Operating Officer “separated.” The company has had nine different CFOs in the last ten years and is audited by BDO LLP.
Rebecca Rettig resigned from the board of Silvergate Capital (NYSE: SI — $475 million) after about eleven months because “she has accepted an executive position at another company.” Silvergate also disclosed that “the Company’s Nominating and Corporate Governance Committee will commence a search for a qualified director candidate to fill the Boards’ vacancies, taking into consideration the need for continued diversity on the Boards.”
The Bear Cave previously highlighted problems at Silvergate Capital and its ties to FTX and alleged money laundering in November 2022 and December 2022.

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

What to Read

“The weirdest corporate action I've ever seen $SCLX $SRNE” (Yet Another Value Blog)

“I’ll jump right to the point: the situation at SCLX / SRNE might be the strangest I’ve ever seen. It involves perhaps the strangest corporate action I’ve ever seen (a dividend from SRNE of another company’s restricted shares with the restricted shares not saleable or transferable for ~5 months), some of the strangest press releases I’ve ever seen (several include the contact information for basically every major broker in America), and perhaps the most aggressive attempt I’ve ever seen from a company attempting to initiate a short squeeze.”

“Idea Brunch with Phil Timyan on Community Bank Investing” (Sunday’s Idea Brunch)

“Things I love to see in a community bank include large shareholdings in the board room, a dominant position in the towns the bank serves, and a smart, grounded CEO who cares about shareholders. A few current examples where these conditions hold are Spring Valley Bank & Trust in Jasper, Indiana, and Lake Ridge Bancorp in Wisconsin, which is the result of the merger between State Bank of Cross Plains and Monona Bank.
Some things I consider to be red flags are high-efficiency ratios and CEOs who got their jobs via birthright, are overpaying their boards to skirt accountability, or have a habit of hiring friends and family every chance they get.”

“Root Insurance sues former marketing chief, claiming $9.4M ‘brazen and sophisticated scheme’” (Columbus Business Journal)

“Root Inc. has sued its former chief marketing officer over what the insurer calls ‘a brazen and sophisticated scheme’ to divert at least $9.4 million… [Root discovered] an outside marketing agency hired by Silver had immediately transferred most of its invoice payments to a company he controlled – called Collateral Damage LLC, according to a complaint filed last week in U.S. District Court. The complaint includes screenshots of WhatsApp messages and quotes from Silver's private email account about dividing the payments.”

The Bear Cave previously published on problems at Root Insurance (ROOT) in December 2020.