🐻The Bear Cave #43🐻

New Activist Reports, Mastercard's Porn Problem, Tweets of the Week, and More

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New Activist Reports

Hindenburg Research published on Kandi Technologies (NASDAQ: KNDI — $583 million), a Chinese electric vehicle company. Hindenburg alleged that Kandi falsified revenue with “fake sales to undisclosed affiliates.” The report found Kandi’s largest customer shares a phone number and employee with Kandi and that the company has had three auditors in the last five years and four CFOs in the last four years. Despite falling 40% last week, Kandi stock remains up nearly 150% over the last six months.

Culper Research published on Orthopediatrics Corp (NASDAQ: KIDS — $870 million), a healthcare company that makes back implants for children. The report highlighted the company’s lax revenue recognition, ties to distributors run by former employees, and old SEC charges against the CEO. Culper wrote,

“We believe OrthoPediatrics has engaged in a channel stuffing scheme that has systematically and significantly overstated revenues.”

An anonymous account posted an outstanding critical write-up on Metromile, which is expected to merge with the INSU Acquisition Corp. II SPAC (NASDAQ: INAQ — $406 million). Metromile claims to use advanced analytics to provide pay-per-mile car insurance. In reality, the company borrows data from Progressive, does most of its business in California (which prohibits advanced data collection), and its SPAC sponsor has a checkered history. Follow the author on Twitter @Negative_GW

Mastercard’s Porn Problem

I believe the market is underestimating Mastercard’s (NYSE: MA — $343 billion) ties to high-risk payment industries like adult entertainment. Yesterday, Nicholas Kristof at The New York Times published a heartbreaking story titled, “The Children of Pornhub” that shined a light on how some companies “profit off videos of exploitation and assault” of children.

The article generated a tremendous backlash against credit card companies like Visa and Mastercard that process payments for sites like Pornhub. Following the story Mastercard said,

“We are investigating the allegations raised… If the claims are substantiated, we will take immediate action.”

Mastercard, more than any of its competitors, appears to have close ties to the dark parts of the adult entertainment industry.

For example, one adult entertainment review website recommended MasterCard prepaid cards as the most accepted among video cam sites.

In September of this year, Gretchen Morgenson published a detailed investigation into Payoneer, which caters to webcam models and others in the adult entertainment industry. The investigation found that Payoneer “was a program manager for prepaid Mastercards issued by Choice Bank; the cards let customers receive payments and withdraw their money at ATMs worldwide.” When Choice Bank, which was based in Belize, failed in 2018 many U.S. customers had their accounts frozen.

The investigation also found:

“Before it failed, Choice Bank had over 300,000 of its own Mastercards circulating, according to the bank's liquidator.”

A Mastercard spokesman said,

"Mastercard maintains a formal and rigorous rules enforcement process.”

Scott Galit, Payoneer's CEO, was previously global head of the prepaid card unit at Mastercard.

In 2017, Bloomberg reported that U.S. prosecutors were looking into FBME Bank, a small bank based in Tanzania, for aiding “fraudulent activities by online pornography and gambling companies.”

In July of this year, it was reported that a senior unnamed Mastercard employee “was involved in money laundering” at FBME Bank. According to an internal report commissioned by FBME Bank,

“Private investigators found the “apparent involvement of a senior Mastercard employee in criminal activities” and recommended that the bank’s shareholders tell prosecutors in the United States that a source of the problem “may be with Mastercard.””

Mastercard’s loose transaction restrictions appear to extend beyond adult entertainment. SlotsUp, an online casino review site, gives a different review of Mastercard and Visa credit cards.

SlotsUp Visa page says,

 “be on the safe side while dealing with Visa in your favorite online casino!”

SlotsUp Mastercard page says,

“All the top US online casinos accept MasterCard as a No.1 method for deposits and withdrawals.”

For most transactions, credit card companies charge around a 3% fee. High-risk transactions like adult entertainment, bail bonds, online tobacco, online gaming, and telemarketing are much more lucrative with fees sometimes exceeding 30%.

Martina Hund-Mejean, who oversaw Mastercard’s “accounting, controls, internal audit, risk management, global supply chain, and regional finance” stepped down as Mastercard’s CFO in 2019.

If you have information on Mastercard and high-risk transactions please hit reply or email me at edwin@585research.com

The Profile Newsletter

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What to Read

“2,596 Trades in One Term: Inside Senator Perdue’s Stock Portfolio” (NYT)

“The Georgia Republican’s stock trades have far outpaced those of his Senate colleagues and have included a range of companies within his Senate committees’ oversight, an analysis shows.”

“The Death of Zappos’s Tony Hsieh: A Spiral of Alcohol, Drugs and Extreme Behavior” (WSJ)

 “Many questions remain about the specific circumstances of his death. Close friends now say it was the culmination of a more than six-month downward spiral…”

“Problems at Root Insurance (ROOT)” (The Bear Cave)

“Root Insurance (NASDAQ: ROOT — $3.94 billion) is a car insurance company that is misleading investors and consumers… Root is telling investors it lowered base rates in Texas, but consumers are telling the Texas Attorney General they experienced increased rates.”

(This post is paywalled for paid subscribers to The Bear Cave.)

Tweets of the Week

Until next week,

The Bear Cave

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