🐻The Bear Cave #37 + More Problems at Vista Equity Partners🐻
New Activist Reports, More Problems at Vista Equity Partners, and Tweets of the Week
Welcome to The Bear Cave — your weekly source of short-seller news. If you are new, you can join our email list here.
New Activist Reports
CXJ Research published a blog post on GSX Techedu (NYSE: GSX — $16.0 billion). The highly controversial Chinese online education company fell 40% last week.
GSX was previously criticized by Muddy Waters Research, Citron Research, Grizzly Research, The Bear Cave, a Chinese YouTube channel, and a Chinese Fund.
GlassHouse Research published on Columbia Sportswear (NASDAQ: COLM — $6.34 billion) and claimed the company could have accounting and revenue recognition issues.
Two critical reports on IGM Biosciences (NASDAQ: IGMS — $1.87 billion) were published on Scribd (1, 2).
Grizzly Research published on SPI Energy (NASDAQ: SPI — $148 million) calling the company a “perpetual pump and dump” that has pivoted between cryptocurrency, CBD, and electric vehicles.
Viceroy Research published an update on German financial services company Grenke (ETR: GLJ — EUR1.62 billion).
John Schnatter, the ousted founder of Papa John’s (NASDAQ: PZZA — $2.52 billion), criticized the company in a Seeking Alpha post.
More Problems at Vista Equity Partners
Robert Brockman, the CEO of auto software company Reynolds and Reynolds, invested $1 billion into Vista Equity Partner’s first fund. That fund appears to have invested in Mr. Brockman’s company. This potential circular flow of cash raises serious governance and ethics questions about the private equity giant.
According to a Department of Justice indictment of Mr. Brockman, he invested approximately $300 million into Vista’s first fund and later increased his investment to $1 billion by 2004.
Mr. Brockman, who founded Universal Computer Systems Inc, later merged his company Reynolds and Reynolds in 2006. On page 38 of an SEC exhibit for the transaction, dated August 7, 2006, the company disclosed it had received a commitment letter from “Vista Equity Fund II, L.P” for the transaction:
“Parent has provided to the Company true, complete and correct copies of (i) executed commitment letters from GS Capital Partners V Fund, L.P., Spanish Steps Holdings LTD and Vista Equity Fund II, L.P. (the "EQUITY FINANCING SOURCES") pursuant to which, and subject to the terms and conditions thereof, the Equity Financing Sources have agreed to provide Parent with equity financing in an aggregate amount of up to $420,000,000…” (Emphasis mine.)
A shareholder letter for Reynolds and Reynolds, dated September 20, 2006, also disclosed the involvement of Vista Equity Partners:
“Pursuant to the equity commitment letters, each of GS Capital Partners V Fund, L.P., Vista Equity Fund II, L.P. and Spanish Steps Holdings Ltd confirmed to UCS that, upon satisfaction of certain customary conditions, they will purchase equity securities of UCS.” (Emphasis mine.)
The Department of Justice indictment also alleged ongoing involvement between Mr. Brockman and Vista. According to the indictment, Mr. Brockman was to be given quarterly reports on all portfolio companies:
According to the indictment, Mr. Brockman purchased debt in a Vista portfolio company:
According to the indictment, Mr. Brockman requested detailed information about a potential Vista deal:
In addition, according to the indictment, in 2018 Mr. Brockman invested around $1 billion into Falcata Capital, a private equity fund in Houston, Texas. Much like the tech-focused Vista Equity Partners, Falcata invests “in software and technology-enabled services across a wide array of industries.”
Despite $1 billion in capital and two years in operation, Falcata appears to have done only one acquisition. Falcata’s website previously listed Mr. Brockman as a “founder & CEO.” That information is no longer on Falcata’s current website.
Follow me on Twitter @StockJabber for updates. If you have information on Vista and would like to connect, please contact me at edwin@585research.com or (718) 873-2362. Please do not share any information that would breach a confidentiality agreement, and please do not share any material non-public information about a public company.
What to Read
“Problems at Vista Equity Partners” (The Bear Cave)
“Robert Smith, a co-founder of Vista Equity Partners, recently signed a non-prosecution agreement over alleged tax fraud. Two lawsuits filed by independent directors of Vista’s portfolio companies suggest much bigger problems at the private equity giant.”
“Financial Firms Gear Up for Biden and an Emboldened Consumer Watchdog” (WSJ)
“Biden team envisions Consumer Financial Protection Bureau issuing harsher penalties; companies are pushing to resolve pending cases.”
“SEC Issues Record $114 Million Whistleblower Award” (SEC)
“Today’s milestone award is a testament to the Commission’s commitment to award whistleblowers who provide the agency with high-quality information,” said SEC Chairman Jay Clayton. “Whistleblowers make important contributions to the enforcement of securities laws and we are committed to getting more money to whistleblowers as quickly and as efficiently as possible.”
“SPACémon: Gotta List 'Em All!” (Non-GAAP newsletter)
“On "Pokémon" Governance, SPACs, and The "Go Public" Process”
Tweets of the Week
Until next week,
The Bear Cave