The Bear Cave #248

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

Nov 17, 2024

Welcome to The Bear Cave! Our last premium articles were “Problems at Roblox (RBLX) #5” and “Problems at Viasat (VSAT)” and our next special investigation comes out this Thursday, November 21.

New Activist Reports

Culper Research published on Zeta Global Holdings (NYSE: ZETA — $4.14 billion), a data and marketing automation company. Culper wrote,

“We are short Zeta for two distinct but related reasons, each of which undermine the integrity of Zeta’s data and reported financials. First, revenue round tripping, and second, Zeta’s predatory ‘consent farms’ that we believe generate most of Zeta’s growth and Adjusted EBITDA.”

Specifically, Culper alleged Zeta operates dozens of deceptive websites designed to obtain consumer info under false pretenses that Zeta then resells to marketing firms. Culper also highlighted that InPhonic, a company previously led by Zeta’s CEO, faced charges from the SEC for “a fraudulent scheme involving a series of round trip transactions.” Culper said it expects Zeta “to face intense FTC scrutiny” and concluded:

“Zeta trades at an eye-watering 7.2x revenues or 51x its $167 million in LTM Adjusted EBITDA, while the entirety of Zeta’s ‘earnings’ are soaked up after accounting for the company’s egregious $215 million in LTM stock-based compensation. We are short Zeta and believe the stock unravels in short order.”

In response, Zeta said Culper’s report was “riddled with misrepresentations” and highlighted that Culper misstated the company’s auditor as E&Y when it is actually Deloitte, claimed the contribution from its alleged “consent farm” acquisitions was only 3% of revenue, and authorized a $100 million buyback.

Zeta stock fell ~54% this week.

Last month, independent researcher Lauren Balik called Zeta an “AI scam” and raised concerns about its reliance on Indian outsourcers and its large business as a Snowflake reseller. In May 2022, The Bear Cave also published on Zeta and called the company “a roll-up of low-quality marketing and data gathering companies.”

Leo Perry, a former hedge fund manager, published a series of Substack posts on VusionGroup (Paris: VU — EUR2.16 billion), previously SES-imagotag, a French electronic retail labeling company. The posts raise concerns about a potential 130-million-euro discrepancy in the company’s cash balances.

In June 2023, Gotham City Research published on the company and its relationship with China-based BOE Technology Group, which is its “largest shareholder, largest supplier, one of the largest customers, JV partner, and on the audit committee.”

Recent Resignations

Notable executive departures disclosed in the past week include:

CFO of Azenta (NASDAQ: AZTA — $2.03 billion) departed after one year.
CFO of Calavo Growers (NASDAQ: CVGW — $481 million) “will be departing the company on November 29 to pursue a new opportunity” after two and a half years. The company has had five different CEOs and nine different CFOs in the last ten years.
CEO of Healthcare Realty Trust (NYSE: HR — $6.20 billion) was “terminated other than for cause” after eight years and will leave the board and receive “severance compensation [of] approximately $5.6 million.” Healthcare Realty Trust’s CFO was also “terminated other than for cause” after eight and a half years in September. The medical outpatient REIT is audited by BDO USA.
Mr. Cheng Yao, board member of BitFuFu (NASDAQ: FUFU — $880 million), resigned effective immediately after nine months. In August, another board member also resigned effective immediately after just five months. The company is down ~45% since its February 2024 SPAC merger.
Chief Accounting Officer of Grindr (NYSE: GRND — $2.49 billion) “announced that her final day would be November 25, 2024” after nearly two years. The company is up ~40% since its November 2022 SPAC merger.
Anthony R. Chase, board member of Par Pacific Holdings (NYSE: PARR — $994 million), resigned with one week’s notice “for personal reasons” after three years. Mr. Chase continues to serve on the boards of four other public companies.
Ms. Kelly Ayotte, board member of Blackstone (NYSE: BX — $220 billion), resigned after five and a half years “following her election as governor of New Hampshire.” Ms. Ayotte was previously a Senator for New Hampshire from 2011 to 2017 and the state’s Attorney General from 2004 to 2009.
W. Andrew Adams, founder and board member of National HealthCare Corporation (NYSE: NHC — $1.94 billion), retired after 32 years. His brother, Robert G. Adams, serves as Chair of the board, which has an average age of 77.

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

What to Read

“The undercover hedge funds financing activist short sellers” (FT)

“Kingdon Capital Management had received a draft of the short seller’s report in November 2022 as part of an agreement it had signed with Hindenburg a year earlier, India’s markets regulator revealed in June… Hindenburg was set to receive 30 per cent of the profits Kingdon made from the Adani position, according to the Indian regulator, but the hedge fund renegotiated that down to 25 per cent.”

“A Drug Gang Stole 3 Tons of Gold in a Scam So Perfect It’s Still Going” (WSJ)

“Miners are plundering one of the biggest mother lodes of gold in Latin America, led by gunmen who seized tunnels from a Chinese mining giant”

“Gamblers Pay 400% Loan Rates to Fund Betting Frenzy in Brazil” (Bloomberg)

“A recent central bank report underscored the magnitude of this problem and sent shockwaves through Brasilia: 20% of the money the government handed out for its flagship social program in August was spent at on-line gambling sites.”