The Bear Cave #163

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

Apr 02, 2023

Welcome to The Bear Cave! Our last premium articles were “Problems at Symbotic (SYM)” and “More Problems at Coinbase (COIN)” and our next premium investigation comes out this Thursday, April 6.

New Activist Reports

Scorpion Capital published a 366-slide presentation on Harmony Biosciences (NASDAQ: HRMY — $1.95 billion), a pharmaceutical company targeting rare neurological diseases. Scorpion called the company “one of the most thoroughly corrupt healthcare schemes in recent years.” Specifically, Scorpion alleged the company’s “speakers program” essentially funded kickbacks to physicians that prescribed an excessive amount of Harmony’s drugs, often off-label, according to interviews Scorpion conducted with 14 ex-employees. In addition, Scorpion “obtained dozens of serious adverse event reports from the FDA via Freedom of Information Act requests” concerning the company’s flagship drug, Wakix, including “a recent sudden cardiac death” from a healthy patient taking the drug.

Scorpion Research also disclosed, “We are shortly filing a Citizen’s Petition with the FDA requesting withdrawal of approval of Wakix.” Harmony Biosciences stock fell ~22% this week.

Hindenburg Research published a follow-up response on Block Inc (NYSE: SQ — $41.3 billion), a financial technology company focused on the underbanked demographic. Hindenburg claimed Block “confirmed inflated user counts while ignoring other key issues” and alleged “customer acquisition costs had been artificially lowered by inflation of the number of users on the platform.”

Vidar Research, a new short activist, published on Metropolitan Bank (NYSE: MCB — $371 million), a New York City-based commercial bank that engaged in crypto-adjacent business lines. Vidar Research claimed that “MCB is the issuer of choice for prepaid debit cards of crypto firms,” alleged that MCB “is bleeding deposits,” and compared Metropolitan to the recently failed Signature Bank. Vidar Research also raised concerns about the bank’s large commercial real estate loan exposure and highlighted additional high-risk fintech companies that have done business with the bank.

Guasty Winds published on BigBear AI Holdings (NYSE: BBAI — $344 million), an AI analytics and consulting company. Guasty Winds called the company “a roll-up of five businesses” with equity that “is very overvalued at best, worthless at worst.” Guasty Winds highlighted stagnating growth, an exodus of talent, and negative Glassdoor reviews, among other issues.

In January, Iceberg Research also published on the company and highlighted spurious claims around a contract with the US Airforce and other promotional behavior.

(In other news, prolific short-seller John Hempton recently launched a Substack publication. Check it out here.)

Recent Resignations

Notable executive departures disclosed in the past week include:

CFO of Westamerica Bancorporation (NASDAQ: WABC — $1.19 billion) resigned after three years in an 8-K filed Friday after the close. The company’s eight-person board has one member who has served for over forty years, three additional members who have served for thirty to forty years, and a fifth member who has served for nearly twenty years. Half of the company’s board members are over the age of 75 and the company’s stock has fallen ~20% in the last month.
CFO of Marathon Digital Holdings (NASDAQ: MARA — $1.46 billion) resigned “for personal reasons” after a little over one year. Last month, J Cap Research alleged accounting irregularities and dubious related party payments at the company.
CFO of Swvl Holdings Corp (NASDAQ: SWVL — $7 million) resigned after about one and a half years. The company has fallen ~99% since its April 2022 SPAC merger.
CEO of Amarin Corporation (NASDAQ: AMRN — $609 million) resigned “effective immediately” after a little over one and a half years. The company disclosed the outgoing CEO “asserted that he is entitled to severance payments as the result of his resignation, which the company disagrees with and intends to dispute.” Over the last two months, eight directors of the company resigned “to avoid further proxy contests.”
CEO of SomaLogic (NASDAQ: SLGC — $478 million) resigned after four and a half years “to pursue other opportunities.” Last week, the company’s Chief Accounting Officer “agreed to a transition plan” after one and a half years. In addition, the company’s Chief Operating Officer departed in August 2022 and the company has fallen ~75% since its September 2021 SPAC merger.
CFO of Nikola (NASDAQ: NKLA — $674 million) “retired” after five years. In December 2022, the company’s Vice President of Sales departed and in November 2022 the company’s CEO retired.
CEO of Presto Automation (NASDAQ: PRST — $81 million) resigned after fifteen years. The company has fallen ~85% since its September 2022 SPAC merger and last week Guasty Winds Musing alleged the company engaged in non-economic deals to show revenue growth.
Chief Accounting Officer of Enviva (NYSE: EVA — $1.95 billion) resigned after one and a half years. In January, the company’s general counsel retired and in November 2022 the company’s CEO stepped down “to pursue medical and surgical treatment.” In October 2022, Blue Orca Capital criticized the company’s ESG disclosures and called Enviva “a dangerously levered serial capital raiser which generates nowhere near the cash from operations to support its dividends, which are increasingly funded through capital raising.”
Barry Sternlicht resigned from the board of Cano Health (NYSE: CANO — $481 million) after two years. Along with his resignation, Mr. Sternlicht issued a raging resignation letter that read, in part,

“I can no longer lend my name and reputation to the Company, nor support actions of the Board and [CEO] Marlow Hernandez, which I believe are not in the best interest of stockholders. I have communicated my concerns to the Board and to Marlow Hernandez directly on numerous occasions, but they have largely been ignored. To be crystal clear, I do not believe Marlow should remain the Chairman & CEO of the Company… I remain extremely troubled by the poor operating decisions and performance, by what I consider the opacity and obfuscation of information furnished to the Board, and by the inability to forecast the Company's financial performance…”

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

What to Read

“Jim Chanos: A Short Thesis on Data Centers” (JoinColossus)

“Jim Chanos is the president and founder of Kynikos Associates. We cover his short thesis on the US Data Center REITs, his bear case for commercial real estate, and some broader wisdom on how management can thoughtfully respond to short sellers.”

Illumina Proxy Statement Against Carl Icahn (EDGAR)

“On March 2, 2023, Messrs. Thompson and deSouza met with Mr. Icahn at his office in Sunny Isles Beach, Florida, to discuss his views of Illumina’s strategy and potential Board candidates… Mr. Icahn was clear that the purpose of his campaign was to secure the nomination of individuals he could control and thereby exert direct influence over Illumina. In Mr. Icahn’s words, he ‘would not even support Jesus Christ’ as an independent candidate over an Icahn Nominee as ‘my guys answer to me.’”

“A Short 100-Question Diligence Checklist” (The Diff)

“Does the company raise money through some instrument other than what you're buying? If you're looking at the bonds, what does the stock price indicate about investors' assessment of the business? And vice-versa?”