The Bear Cave #159

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

Mar 5

Welcome to The Bear Cave! Our last premium articles were “Problems at The Beauty Health Co (SKIN)” published on February 16 and “Problems at Symbotic (SYM)” published on March 2. The next premium investigation comes out Thursday, March 16.

New Activist Reports

Grizzly Research published on ZTO Express (NYSE: ZTO — $20.5 billion), a Chinese express delivery and logistics company. Grizzly Research said it believes the “financials are fake and insiders are stealing from the company.” Specifically, Grizzly Research obtained Chinese government SAIC filings that show the company’s margins are roughly half those claimed in its SEC filings. In addition, Grizzly Research alleged the company made spurious related-party acquisitions of “network partners” at excessive prices in 2014 and 2015. Grizzly Research concluded,

“After adjusting for ZTO’s artificially inflated margins and applying generous trading multiples, we believe the company is trading far above its fair value. Our analysis implies at least a 50% downside.”

(The Bear Cave has no affiliation with Grizzly Research.)

J Cap Research published on Marathon Digital Holdings (NASDAQ: MARA — $745 million), a digital asset mining company. J Cap alleged the company has overstated its purchases of miners and that most of its existing digital asset mining devices are not currently operational. In addition, J Cap highlighted “a series of highly questionable payments” by the company including share grants to a nonexistent entity, a $35 million contract with a related party, and “huge deposits with service providers for unclear reasons.”

Viceroy Research published another follow-up report on Medical Properties Trust (NYSE: MPW — $6.29 billion), a Birmingham-based REIT that owns hospitals typically in long-term sale-leaseback transactions. The report alleged that Medical Properties Trust’s largest tenant, Steward Health Care Systems, “made millions, or potentially tens of millions, in disbursements to Accutor AG.” Viceroy said it was presented with a whistleblower dossier that shows Accutor AG, a payroll services company, “has committed pension fraud, embezzlement, and forging & counterfeiting across dozens of its jurisdictions.” Viceroy also published excerpts from some Swiss banking statements for Accutor AG that show dubious “milestone fees,” “master disbursements,” and “shareholder loans” that may have been a front to launder money to Steward executives.

Recent Resignations

Notable executive departures disclosed in the past week include:

CFO of NewAmsterdam Pharma (NASDAQ: NAMS — $1.02 billion) resigned after less than three months. The company is up roughly 25% since its November 2022 SPAC merger.
CFO of Root Inc (NASDAQ: ROOT — $71 million) “was terminated for cause” after one year. Last month, the company sued its former Chief Marketing Officer over “a brazen and sophisticated scheme” to divert at least $9.4 million in company funds. The Bear Cave previously published on problems at Root Insurance in December 2020.
Chief Revenue Officer of HireRight Holdings (NYSE: HRT — $890 million) resigned after three years. The company is down ~35% since its October 2021 IPO.
Jeffrey C. Smith, Chair of Papa John's (NASDAQ: PZZA — $2.94 billion), “notified the board that he would be resigning from the board effective immediately” after about three years. Mr. Smith is also the CEO of Starboard Value LP. Papa John’s Chief Operating Officer and Chief People Officer have also both resigned in the last four months.
Chief Business Development Officer of Lemonade Inc (NYSE: LMND — $1.08 billion) resigned after four and half years. Lemonade has fallen ~75% since its July 2020 IPO and four board members have departed in the last two years. The company’s board now has six members with an average age of 45.
Chief Human Resources Officer of Patterson Companies (NASDAQ: PDCO — $2.65 billion) resigned after four and a half years. In October 2022, the company’s CEO, Mark Walchirk, resigned “following an investigation conducted by independent counsel and overseen by independent members of the Board. The investigation determined that Mr. Walchirk's conduct represented a material violation of company policy, which was not susceptible to correction, and that Mr. Walchirk had demonstrated poor judgment regarding an encounter with an employee.” The company has had four different CEOs and five different CFOs in the last ten years.

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

What to Read

“How the Biggest Fraud in German History Unravelled” (New Yorker)

“Over coffee in London, a hedge-fund manager named Leo Perry shared with McCrum his theory: Wirecard’s primary business model was to lie to the public, claiming huge profits, so that investors would push up its share price. However, ‘faking profits, you end up with a problem of fake cash,’ Perry said. ‘At the end of the year, the auditor will expect to see a healthy bank balance—it’s the first thing they check. So what you have to do is spend that fake cash on fake assets’—dormant shell companies in Asia, reported as profitable investments.”

“At Marc Benioff’s Salesforce, It’s One Big Family—Until Trouble Hits” (WSJ)

“Since its founding in 1999, the San Francisco-based business-software company has grown fast and spent big. Salesforce put its name on skyscrapers in San Francisco, Tokyo, London and New York City and, according to people familiar with the arrangement, agreed to pay actor Matthew McConaughey more than $10 million a year to be a creative adviser and TV pitchman. Mr. Benioff added around 30,000 employees from the start of 2020 until the end of last year, roughly a 60% increase.”

“SEC Charges Ontrak Chairman Terren Peizer With Insider Trading” (SEC)

“According to the SEC’s complaint, prior to May 2021, when Peizer established a Rule 10b5-1 trading plan in the name of Acuitas Group Holdings, LLC, his investment vehicle, to sell Ontrak stock, he had learned that Ontrak’s relationship with its then-largest customer—representing more than half its revenue—was tenuous. Nevertheless, Peizer attested at the time that he was unaware of any material nonpublic information concerning the company, executed the 10b5-1 plan, and sold nearly 600,000 of Ontrak shares worth more than $19.2 million. In August 2021, the complaint alleges, Peizer learned the same relationship was on the verge of being terminated, which prompted him to adopt a second Rule 10b5-1 trading plan and sell 45,000 more shares of stock worth more than $1.9 million.”