đ»The Bear Cave #43đ»
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 â $583 million), a Chinese electric vehicle company. Hindenburg alleged that Kandi falsified revenue with âfake sales to undisclosed affiliates.â The report found Kandiâs 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 â $870 million), a healthcare company that makes back implants for children. The report highlighted the companyâs lax revenue recognition, ties to distributors run by former employees, and old SEC charges against the CEO. Culper wrote,
âWe believe OrthoPediatrics has engaged in a channel stuffing scheme that has systematically and significantly overstated revenues.â
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 â $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
Mastercardâs Porn Problem
I believe the market is underestimating Mastercardâs (NYSE: MA â $343 billion) ties to high-risk payment industries like adult entertainment. Yesterday, Nicholas Kristof at The New York Times published a heartbreaking story titled, âThe Children of Pornhubâ that shined a light on how some companies âprofit off videos of exploitation and assaultâ 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,
âWe are investigating the allegations raised⊠If the claims are substantiated, we will take immediate action.â
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 âwas a program manager for prepaid Mastercards issued by Choice Bank; the cards let customers receive payments and withdraw their money at ATMs worldwide.â When Choice Bank, which was based in Belize, failed in 2018 many U.S. customers had their accounts frozen.
The investigation also found:
âBefore it failed, Choice Bank had over 300,000 of its own Mastercards circulating, according to the bank's liquidator.â
A Mastercard spokesman said,
"Mastercard maintains a formal and rigorous rules enforcement process.â
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 âfraudulent activities by online pornography and gambling companies.â
In July of this year, it was reported that a senior unnamed Mastercard employee âwas involved in money launderingâ at FBME Bank. According to an internal report commissioned by FBME Bank,
âPrivate investigators found the âapparent involvement of a senior Mastercard employee in criminal activitiesâ and recommended that the bankâs shareholders tell prosecutors in the United States that a source of the problem âmay be with Mastercard.ââ
Mastercardâs 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,
 âbe on the safe side while dealing with Visa in your favorite online casino!â
SlotsUp Mastercard page says,
âAll the top US online casinos accept MasterCard as a No.1 method for deposits and withdrawals.â
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 Mastercardâs âaccounting, controls, internal audit, risk management, global supply chain, and regional financeâ stepped down as Mastercardâs 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
â2,596 Trades in One Term: Inside Senator Perdueâs Stock Portfolioâ (NYT)
âThe Georgia Republicanâs stock trades have far outpaced those of his Senate colleagues and have included a range of companies within his Senate committeesâ oversight, an analysis shows.â
âThe Death of Zapposâs Tony Hsieh: A Spiral of Alcohol, Drugs and Extreme Behaviorâ (WSJ)
 âMany questions remain about the specific circumstances of his death. Close friends now say it was the culmination of a more than six-month downward spiralâŠâ
âProblems at Root Insurance (ROOT)â (The Bear Cave)
âRoot Insurance (NASDAQ: ROOT â $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.â
(This post is paywalled for paid subscribers to The Bear Cave.)
Tweets of the Week
Until next week,
The Bear Cave