The Bear Cave #216

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

Apr 07, 2024

Welcome to The Bear Cave! Our last premium articles were “More Problems at Hershey (HSY)” and “Problems at Marqeta (MQ)” and our next premium investigation comes out Thursday, April 18.

The Bear Cave was recently delighted to go on Run the Numbers to discuss our background, the genesis of The Bear Cave, our approach to finding ideas, suspicious auditors and other red flags, and much more. You can listen to the episode on Spotify, Apple, and YouTube.

New Activist Reports

Jehoshaphat Research published on Doximity (NYSE: DOCS — $4.81 billion), a social media and networking site for doctors and healthcare providers. Jehoshaphat raised concerns about the company’s accounting and wrote, in part,

“We believe Doximity’s underlying sales, contrary to the Street’s expectations for double-digit growth, are declining at a negative -3-6% rate, but that this decline has been masked through accelerated revenue recognition.”

Jehoshaphat also noted that the company’s Chief Revenue Officer, Co-Founder, and Controller have all departed in the last year “alongside unusual selling patterns from other insiders.”

Hunterbrook Media, a new media outlet that shares its stories in advance with an affiliated hedge fund, published on UWM Holdings (NYSE: UWMC — $10.3 billion), a wholesale mortgage lender. Hunterbrook alleged that UWM gets almost all its business “from brokers who sent UWM more than 99% of their business” rather than shopping mortgages to competing lenders. Because of this, Hunterbrook estimates that “borrowers paid UWM between hundreds of millions and billions more in closing costs than people whose brokers found them typical loans.”

Hunterbrook also disclosed that it:

“Submitted data analysis and research — as well as the planned date of publication — to Boies Schiller Flexner LLP… in exploration of a class action lawsuit against UWM.”
“Shared key findings with federal regulatory agencies.”
“Sent letters detailing the data analysis to Attorneys General in states where brokers have a legal duty to borrowers.”

Hunterbook added that two of the authors of its UWM article also “filed a whistleblower report to the S.E.C.” You can sign up for email alerts on future Hunterbrook stories here.

Spruce Point Capital published on WSP Global (Toronto: WSP — CAD$26.8 billion), a Canadian engineering and consulting firm. Spruce Point alleged the company “is experiencing growing financial and business strains that are being masked by aggressive and non-standard financial reporting, accounting and reduced transparency” and gave an estimate of “25% to 50% downside risk.”

Blue Orca Capital published on Dayforce (NYSE: DAY — $9.50 billion), an HR software, payroll, and human capital management company. Blue Orca alleged that the company “is abusing a highly subjective revenue recognition policy to pull forward sales by inflating the stand-alone selling price of the professional services component of its contracts, thereby inflating the revenue it recognizes at the start of its contracts.”

Blue Orca also noted that Dayforce recognizes a much higher proportion of its revenue as professional services than peers and Dayforce’s auditor, KPMG, “[took] the unusual step of rescinding its previous clean opinion on its internal controls and, in a mid-year update, [issued] an adverse opinion on the internal controls specifically related to its revenue allocation.”

J Capital Research published on AXT Inc (NASDAQ: AXTI — $138 million), a Chinese semiconductor company. J Capital claimed the company “may be on the brink of collapse” because the IPO of its subsidiary operations in China has apparently been blocked by regulators and sales have been declining “despite the claims [management makes] about AI demand.”

Bleecker Street Research published on Sealed Air Corp (NYSE: SEE — $4.72 billion), a packaging company best known for bubble wrap. Bleecker Street called the company “a melting ice cube hiding in plain sight” and noted the company has $4.8 billion in debt and “collapsing organic growth.” Bleecker Street highlighted that Amazon is shifting away from using the company’s plastic packaging and that new environmental legislation in California will make the company’s products unusable for many customers.

At the Ira Sohn Conference on Wednesday, Nate Kopikar of The Friendly Bear pitched Globe Life (NYSE: GL — $10.2 billion) as a short over questionable sales practices and potential regulatory action. In addition, Fahmi Quadir of Safkhet Capital reiterated her short call on for-profit education company Adtalem Global Education (NYSE: ATGE — $1.98 billion).

Recent Resignations

Notable executive departures disclosed in the past week include:

CFO of NWTN Inc (NASDAQ: NWTN — $2.15 billion) “will no longer be considered the principal financial and accounting officer of the company” after just two months. The prior CFO resigned after two years “for personal reasons” and the company is audited by Marcum Asia. The company is down ~25% since its November 2022 SPAC merger.
CFO of Jacobs Solutions (NYSE: J — $18.6 billion) “is departing the company to pursue other opportunities” just eight months after being promoted into the role.
CFO of Energy Vault Holdings (NYSE: NRGV — $254 million) “plans to retire” after one and a half years. The company has had three CFO departures since its February 2022 SPAC merger and has fallen ~85%. In July 2022, The Bear Cave listed Energy Vault on our list of “The Five Worst SPAC Deals Still Above $5.”
CFO of Voyager Therapeutics (NASDAQ: VYGR — $507 million) “entered into a Transition, Separation and Release of Claims Agreement” after one and a half years. The company has had five different CFOs and four different CEOs since its November 2015 IPO.
CFO of Zymeworks (NASDAQ: ZYME — $681 million) was “removed” after a little over two years. In February, Dr. Kenneth Hillan “submitted his resignation from the board, including as chair and member of the nominating and corporate governance committee and as member of the research and development committee of the board.”
CFO of Royal Bank of Canada (NYSE: RY — $144 billion), Nadine Ahn, was “terminated effective immediately” after two and a half years. Royal Bank of Canada disclosed:
“RBC was recently made aware of allegations involving Ms. Ahn and immediately launched an internal review and engaged outside legal counsel to investigate. The investigation found evidence that, in contravention of the RBC Code of Conduct, Ms. Ahn was in an undisclosed close personal relationship with another employee which led to preferential treatment of the employee including promotion and compensation increases. As a result, the two individuals have had their employment terminated.”
CFO of Thermon Group Holdings (NYSE: THR — $1.10 billion) resigned after three years “to pursue a new professional opportunity.”
CFO of Veeva Systems (NYSE: VEEV — $34.6 billion) “established, via mutual agreement” that he would depart after three and a half years. In June 2023, the company’s Chief Accounting Officer resigned “for personal reasons” after four years.
William S. Simon, board member of Pitney Bowes (NYSE: PBI — $703 million), resigned after just two months “in order to spend time on his other commitments.” Mr. Simon continues to serve on the boards of Darden Restaurants and Hanesbrands. The company’s CFO and Chief Legal Officer also both departed in March and the company’s Chair, Mary Guilfoile, “announced that [she] will step down following the 2024 Annual Meeting of Stockholders.”
Rhett Bennett, board member of Metals Acquisition Ltd (NYSE: MTAL — $934 million), resigned after ten months “with immediate effect.” The company disclosed, “The Board has for some time been discussing the need for greater diversity (including, but not limited to, geographical and gender diversity) including in the context of the company’s current operating asset being in Australia, whilst the majority of the Board are based in the Northern Hemisphere. It is in this context that Mr. Bennett offered his resignation.”

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

What to Read

“A new kind of activist journalism: Hunterbrook investigates corporations (and hopes to make bank trading off its reporting)” (NiemanLab)

“Prepping a class-action suit, filing a whistleblower claim, shorting UWM’s stock (and buying that of its rival Rocket Mortgage) — it brings new meaning to the term ‘activist journalism.’”

“Biotech Executive Who Bet on Rival’s Stock Committed Insider Trading, Jury Says” (WSJ)

“Congress has never defined what insider trading means, leaving regulators and courts across the country to decide what qualifies, a volatile process that sometimes leads appellate courts to rein in what they see as excesses.”

8-K Filing From Cleveland-Cliffs (SEC)

“Section 1503(b)(1) of the Dodd-Frank Act requires the disclosure on a Current Report on Form 8-K of the receipt of an imminent danger order… [The company] received an Order from MSHA at the company's operations in Michigan regarding two employees observed working without fall protection on the back of a stationary flatbed vehicle at a height of 48 inches above the ground. The employees returned to the ground and the Order was subsequently terminated.” (Emphasis ours)