The Bear Cave #213

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

Mar 17, 2024

Welcome to The Bear Cave! Our last premium articles were “More Problems at B. Riley (RILY)” and “Problems at an ARK Invest Favorite” and our next premium investigation comes out this Thursday, March 21.

New Activist Reports

Hindenburg Research published on LPP S.A. (Warsaw: LPP — PLN21.2 billion), a large Polish fashion retailer. At the time of Russia’s invasion of Ukraine in February 2022, Russia was “LPP’s biggest international market, generating ~19.2% of revenue from 553 stores” Hindenburg found. In May 2022, the company claimed to divest its Russia division “with an unnamed buyer” and later posted record sales growth. Hindenburg wrote, in part,

“We believe LPP was able to post these remarkable results because its claimed divestment of its Russia business has been a complete sham.”

Hindenburg showed that LPP sold its Russia business to a Dubai-based shell company “Far East Services” that “was incorporated just one day before LPP’s [sale announcement].” In addition, Hindenburg also interviewed former LPP employees who claimed the company never truly divested its Russia business and published an internal document showing how LPP “planned to modify [clothing] barcodes to covertly track Russia merchandise via its own IT systems.” LPP stock fell ~35% following the report.

Spruce Point Capital published a 30-slide presentation on Enfusion Inc (NYSE: ENFN — $1.19 billion), a technology provider for hedge funds and financial services firms. Spruce Point claimed that “[the company’s] product offering is under increased competitive pressures and that the CEO, CFO, CRO, and CSO all having been replaced within the past two years is a telling sign.” Spruce Point also claimed that the company is at high risk of a financial restatement because the company retroactively revised its allowance for bad debts and loosened its revenue recognition policies.

Recent Resignations

Notable executive departures disclosed in the past week include:

CEO of Hertz Global Holdings (NASDAQ: HTZ — $2.31 billion) “has decided to step down as Chief Executive Officer and member of the Board of Directors on March 31, 2024” after a little over two years.
CFO of Turning Point Brands (NYSE: TPB — $487 million) “stepped down to pursue other opportunities” after nearly three years. The company has also had three different CEOs in the last three years and is audited by RSM LLP.
CFO of Cullinan Oncology (NASDAQ: CGEM — $681 million) “will enter into a Separation and Transition Agreement” after nearly three and a half years. The company is down ~50% since its January 2021 IPO and during that time the CEO, Chief Medical Officer, Chief Legal Officer, and Chief Scientific Officer have all departed the company.
CFO of ARMOUR Residential REIT (NYSE: ARR — $920 million) was “removed” after nearly twelve years. Earlier this month, the company disclosed “an internal investigation to review issues raised internally at the company in late January 2024. The issues generally relate, among other things, to (a) the appropriateness of reporting Distributable Earnings and Net Interest Margin, which are non-GAAP financial measures, and the methods of calculating such measures; (b) the company’s considerations with respect to reviewing and evaluating its external manager, ARMOUR Capital Management LP and (c) certain of the internal controls over financial reporting.” ARMOUR’s CEO also announced his “retirement” this week as well after nearly fourteen years.

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

What to Read

“SEC Charges Tallgrass Energy’s Former Board Member Roy Cook and Four Others with Insider Trading in Advance of Blackstone Acquisition” (SEC)

“The Securities and Exchange Commission today announced insider trading charges against Roy Cook, a former board member of Tallgrass Energy LP, and four of his friends for trading on material nonpublic information in advance of a public announcement that Blackstone Infrastructure Partners had offered to acquire Tallgrass and take it private.”

“Hawley Calls on DOJ to Investigate FICO for Anticompetitive Practices” (Senator Josh Hawley)

“The credit score market is dominated by FICO, a for-profit company operated under a sweetheart deal from the federal government… Because of this government-granted monopoly, FICO enjoys a 90 percent market share in the business-to-business credit scoring market. It is the only real competitor in the space. In an apparent abuse of this market power, FICO has astronomically hiked its prices.”

“Mid-March: The Rarity of the ‘Isolated Credit Issue’” (Five Points Substack)

“Look for cues on credit culture to decipher if a bad loan is a “one off”. We look at examples at First Western (MYFW), Summit State (SSBI) and Bancorp (TBBK).”