The Bear Cave #257
New Activist Reports, Recent Resignations, and Tweets of the Week
Welcome to The Bear Cave! Our last premium articles were “Even More Problems at B. Riley (RILY)” and “Problems at Signet Jewelers (SIG)” and our next special investigation comes out Thursday, February 6.
New Activist Reports
Muddy Waters Research published on FTAI Aviation (NASDAQ: FTAI — $11.5 billion), an aerospace products company. Muddy Waters alleged FTAI “is exaggerating the size of its aftermarket aerospace business” and “reporting one-time engine sales as Maintenance Repair & Overhaul revenue in its Aerospace Products segment.” Muddy Waters further alleged the company engaged in channel stuffing and inflated EBITDA in its Aerospace Products segment by over-depreciating assets in its connected leasing segment.
The Muddy Waters report began with the following disclaimer:
“As of the time and date of this report, Muddy Waters is short the securities of, or derivatives linked to, FTAI Aviation. Upon publication, we intend to begin covering a substantial majority – possibly all – of our short positions. As we elaborate below, our risk reduction is not a reflection of a lack of conviction in our opinions or the facts presented; rather, it has to do with managing risk in a manner that is prudent for a fiduciary of our investors’ money.”
Kerrisdale Capital published on Red Cat Holdings (NASDAQ: RCAT — $737 million), a drone technology company. Kerrisdale argued that the expectations for the company’s recent contract with the U.S. Army “bear almost no relationship to reality.” Red Cat stock is up ~1,000% over the last year.
Spruce Point Capital published on PROCEPT BioRobotics (NASDAQ: PRCT — $4.11 billion), a medical technology and robotics company. Spruce Point alleged the company dramatically overstates its total addressable market and trades at an “absurd” 14x forward revenue multiple “despite being an unprofitable, niche, highly disruptable, single-product company with structural growth barriers.”
Capybara Research published on Quantum Computing Inc (NASDAQ: QUBT — $1.86 billion), an early-stage quantum computing hardware company. Capybara called the company “a rampant fraud” and alleged that “former insiders make it clear the technology is fake.” Capybara further alleged the company “even included a clause in an employee separation agreement prohibiting them from talking to the SEC” to conceal their alleged fraud and wrote:
“QUBT faked revenue through undisclosed related party transactions. These deals generated no revenue and the plaintiff with an ongoing lawsuit against the company claims that QUBT never even sent invoices to the related party customers.”
Recent Resignations
Notable executive departures disclosed in the past week include:
CEO of Caravelle International Group (NASDAQ: HTCO — $218 million) “announced his resignation effective January 15, 2025” after just seven months. In addition, on December 31, Xin He, an independent director and the chairman of the Audit Committee, resigned after just three months. The Singapore-based eco-friendly shipping company has had its Chief Shipping Officer, Chief Strategic Officer, and five additional board members resign in the last year. In response to a September 2022 SEC comment letter, the company added a risk factor stating:
“Your ability to protect your rights through U.S. courts may be limited, because [Caravelle]… conducts substantially all of its operations and a majority of its directors and executive officers reside outside of the United States.”
In an October 2024 comment letter, the SEC highlighted that “certifications at Exhibits 12.1 and 12.2 do not include all of the language… referring to your officer’s responsibility for establishing and maintaining internal control over financial reporting.” Caravelle International went public through a December 2022 SPAC merger and is audited by WWC, PC.
CFO of BlueLinx Holdings (NYSE: BXC — $895 million) resigned after one and a half years “to pursue another opportunity.” In November, the company’s General Counsel “entered into a Transition Agreement” after one and a half years as well.
CFO of Ouster Inc (NASDAQ: OUST — $527 million) resigned after two years “to pursue a new career opportunity.” The LiDAR technology company is down ~90% since its February 2023 SPAC merger.
CFO of National Vision Holdings (NASDAQ: EYE — $851 million) resigned “to pursue another opportunity” after a little over two years. Last January, Bristlemoon Capital published on the company and said it “faces weakening demand from its low-income customer base, and will be hurt by an optometrist shortage and rising labor rates.”
CEO of Sonos (NASDAQ: SONO — $1.70 billion) stepped down effective immediately after eight years and also departed the board. His departure is linked to the company’s failed app rollout that was called “one of the most disastrous software updates in the recent history of consumer technology.”
Mr. Tao Li, board member of ECARX Holdings (NASDAQ: ECX — $646 million), resigned “due to personal reasons” after just six months. Last year, two additional board members resigned with immediate effect “due to personal reasons.” The Chinese automotive technology company is down ~80% since its December 2022 SPAC merger and is audited by KPMG Huazhen LLP. According to PCAOB records, the engagement partner at KPMG Huazhen LLP responsible for auditing ECARX Holdings was also the engagement partner for First High-School Education Group (OTC: FHSEY), which has since fallen ~99%.
Data for this section is provided by VerityData from VerityPlatform.com
News of the Week
Hindenburg Research Disbands
Nate Anderson “made the decision to disband Hindenburg Research” and wrote, “There is not one specific thing—no particular threat, no health issue, and no big personal issue” that led to the decision to disband. Mr. Anderson said he made the decision “late last year… to wind up after we finished the pipeline of ideas we were working on.” Mr. Anderson also said that “over the next 6 months or so I plan to work on a series of materials and videos to open-source every aspect of our model and how we conduct our investigations.” Hindenburg’s last report on Carvana, dated January 2, coincided with the implementation of new Reg SHO disclosure rules that will likely affect the balance-sheet partners of activist short-sellers.
U.S. Department of Transportation Sues Southwest (Press release)
The Department of Transportation sued Southwest “for illegally operating multiple chronically delayed flights and disrupting passengers’ travel.” In 2023, Southwest paid over $600 million to passengers and paid a record $140 million civil penalty “for numerous violations of consumer protection laws during and after the operational failures that canceled 16,900 flights and stranded over two million passengers over the 2022 Christmas holiday.” According to One Mile at a Time, Southwest, which operates an all-Boeing fleet, has also had several near-miss safety incidents, including “a scary go around in Hawaii, a dangerously low approach in Oklahoma City, an inflight Dutch roll, and taking off from a closed runway.”
Scorpion Capital filed a Citizen Petition with the FDA requesting suspension of Pre-Market Approval for TransMedics (NASDAQ: TMDX) Organ Care System devices. Read the petition here.
Nikita Bier, an entrepreneur with a history of making viral social apps, launched Explode, which he called “an app to spite Snapchat.” Many commentators fear Snapchat no longer connects with the younger generations, while others have speculated that Snapchat could benefit from the potential ban of TikTok.
SEC sued Elon Musk after he allegedly “failed to timely file a beneficial ownership report after acquiring more than five percent of Twitter… [and] saved at least $150 million at the expense of Twitter shareholders by failing to timely file.” In response, Mr. Musk called the SEC a “totally broken organization.”
Tweets of the Week
Until next week,
The Bear Cave