🐻The Bear Cave #44🐻

New Activist Reports, Interesting SEC Comments, A Special Thank You, Tweets of the Week

Dec 14, 2020

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New Activist Reports

Quintessential Capital Management published a new report on Penumbra (NYSE: PEN — $6.93 billion), a catheter maker whose products have been linked to at least 18 deaths. The new report claims that Penumbra created a fake persona, Antik Bose, with a similar name to Penumbra’s founder, Arani Bose, to help hide potential conflicts when he published academic research. The company initially said,

“This attack by sleazy short-sellers reads like an internet conspiracy written by teenagers. It is impossible to dispute the facts because there are no facts.”

Penumbra later added,

“Penumbra confirms the papers rumored to be attributed to Antik Bose are in fact attributed to Dr. Arani Bose. To imply that Dr. Arani Bose's peer-reviewed research, co-authored with a large cohort of his peers, was ever or would ever be attributed to anyone other than Dr. Arani Bose is inaccurate and conspiratorial.”

In my opinion, neither view makes complete sense. The company has not explained why the wrong name was given or why doctored photos of the fake “Antik Bose” appears on some biographical websites. On the other hand, the published studies had multiple authors and both the fake and real person share the initials A. Bose, which is what is published in medical research.

All of Quintessential’s work on Penumbra is available here. In addition, independent short-seller Marc Cohodes has published three video blogs criticizing the company’s safety record (1, 2, 3). The Capitol Forum, a Washington D.C. focused research firm, also made three of their past reports on Penumbra’s safety issues public in their archives.

White Diamond Research published on GreenPower Motor (NASDAQ: GP — $349 million), a Canadian electric bus company. White Diamond showed that GreenPower’s buses are made in China, and therefore not eligible for certain U.S. subsidies. White Diamond also highlighted that GreenPower’s CEO has a history of questionable penny stock ties. Mariner Research also published on GreenPower in September. GreenPower stock is up about 1,000% this year.

Mariner Research published on iBio, Inc. (NYSE: IBIO — $252 million), a biologics company that claims to be developing a coronavirus vaccine. Mariner highlighted that iBio previously claimed to be developing vaccines for H1N1 and Ebola, but has never brought one to market. Mariner also highlighted questionable business ties with iBio’s executives and that executive compensation has exceeded the company’s total revenue. IBIO stock is up about 300% this year.

“Yet Another Value Blog” published a brief long thesis on Multiplan (NYSE: MPLN — $5.65 billion), a healthcare company that recently went public through a SPAC. Muddy Waters previously published on Mulitplan as a short. Follow the blog’s smart author on Twitter @AndrewRangeley

An anonymous 114-page report was published on Solutions 30 (EPA: S30 — EUR1.52 billion), a French tech services company. The report alleged ties to criminals, money laundering, and financial filings “riddled with errors.” Muddy Waters published an open letter with more questions about Solutions 30 and disclosed they have been short since May 2019. Solutions 30 stock was down about 25% last week.

Citron Research tweeted critically about Luminar Technologies (NASDAQ: LAZR — $1.41 billion), a driving automation company that is up ~200% since going public through a SPAC in November.

Citron Research @CitronResearch

$LAZR at $14 bil ($40) is not even a casino stock...you can actually win at a casino..it is more of a "suckers game" Would much rather own industry leader $VLDR at less than $4 bil mkt cap. Citron expects $LAZR back at $20 and $VLDR at $30. Real outstanding shares for LAZR

New Comment Letters

Comment letters are publicly available letters sent between the SEC Division of Corporation Finance and public companies concerning their SEC filings. The letters and company responses are uploaded to EDGAR with a 30-day lag and can foretell future accounting issues, future disclosure issues, or future SEC action. Below are some recent Bear Cave favorites:

GDS Holdings (NASDAQ: GDS — $33.8 billion), a Chinese data center company, has received three comment letters from the SEC in the last six months. In response, the company has twice requested extensions to respond.

In a letter dated July 31, 2020 the SEC requested GDS explain certain non-GAAP adjustments for GDS’s adjusted NOI. The SEC wrote,

“Your adjusted NOI non-GAAP measure includes adjustments for certain expenses [that appear] to be normal cash operating expenses… tell us what this measure is intended to convey and how it is useful information to investors…”

In an August 28 letter GDS offered a 777-word response for its adjustments and argued the company provided adequate disclosures.

The SEC was not convinced and, in a letter dated September 18, 2020, the SEC wrote,

“As it appears you are attempting to show a non-GAAP gross profit measure, please revise to reconcile your adjusted NOI to GAAP gross profit and label accordingly. Also, expand your disclosures to further explain the usefulness of this measure to investors.”

After the company responded with suggested revisions the SEC sent another letter on October 7 and wrote,

“Please further revise to clarify how the exclusion of certain expenses from adjusted gross profit provides a useful measure of your core operating performance.”

Earlier this year J Capital Research published on GDS and wrote,

“GDS is a fraud. At least 25% of its revenue is fraudulent. Unlike most Chinese companies, GDS creates the fake revenue by round-tripping its own debt and capex.”

In 2018, Blue Orca Research also published a critical report on GDS.

Opera (NASDAQ: OPRA — $1.03 billion), a legacy web browser that has pivoted to high-interest online lending, received two comment letters from the SEC in the last six months.

In the first letter, dated July 9, 2020 the SEC wrote,

“Your disclosure indicates that you recorded accumulated credit losses on loans to customers that is 41% of the total amount disbursed. You further disclose that the average duration for a micro loan in 2019 was 15 days. Please explain what changed after you estimated the customer loan fair value at initial recognition.”

In response, the company initially told the SEC,

“As communicated over the phone, the Company needs additional time to prepare its response due to July being the primary vacation month in Norway where the Company is headquartered.”

Hindenburg Research previously published on Opera and found “Post IPO, Opera promptly directed ~$40 million of cash into businesses owned by its Chairman, including $30 million into a karaoke app” and concluded, “We think Opera collapses on its own worsening financials, with that timeline accelerating significantly if Google bans its lending apps or if its Chairman/CEO continues to draw cash out of the business through questionable related-party deals.”

NV5 Global (NASDAQ: NVEE — $938 million), an engineering services roll-up, has received three comment letters from the SEC since July 1st of this year (1, 2, 3). The letters focus on revenue recognition and accounting issues. The SEC noted,

“It appears undue prominence is given to your non-GAAP financial measures.”

The company changed auditors in 2016 and changed CFOs in 2019. You can read a thoughtful 2018 Value Investors Club write-up on NV5 Global here.

Brookfield Renewable Partners (NYSE: BEP — $10.7 billion) has received six comment letters from the SEC (1, 2, 3, 4, 5, 6) in 2020.

Thank You & Bonus Report

Thank you for being a paid subscriber to The Bear Cave. The Bear Cave now goes out to nearly 8,000 free members and has 100s of paid subscribers. I am excited for the future and incredibly grateful for your support.

In addition to the normal report deep-dive report coming this Thursday, I will also be publishing a bonus mini-report tomorrow at 10:47am ET on a company that I believe has an SEC inquiry and accounting issues that the market has been missing.

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What to Read

“Georgia GOP Senate staffer sent dossier on critic of GOP donor to FBI” (NBC News)

“Cohodes had gone public with his criticism of MiMedx in late 2017. Cohodes said he had heard from a host of company insiders about its questionable practices. At an investors' conference that October, he gave a presentation about the company and recommended shorting its stock, and on a personal website he urged the company to conduct an internal investigation.”

“General Electric Agrees to Pay $200 Million Penalty for Disclosure Violations” (SEC Press Release)

“GE misled investors by describing its GE Power profits without explaining that one-quarter of profits in 2016 and nearly half in the first three quarters of 2017 stemmed from reductions in its prior cost estimates… GE failed to tell investors that its increase in cash collections was coming at the expense of cash in future years.”

“New Trump admin rules make it easier for lenders to charge small businesses super-high interest rates” (NBC News)

“Hansen-Dreijer's interest rate on one loan was 127 percent, records show, while another was 85 percent; repayments were due weekly. Alabama laws generally cap interest rates at 8 percent but allow higher rates "if not unconscionably high."”