🐻The Bear Cave #61🐻

New Activist Reports, Leon Black's Legal Woes, What to Read, 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. Last week I did a podcast with Andrew Walker on the fascinating new industry of connected car data — check it out here.

New Activist Reports

Hindenburg Research published on Ebang International Holdings (NASDAQ: EBON — $976 million), a China-based crypto company that has raised ~$370 million from stock offerings since going public in June 2020. Hindenburg alleged over $20 million was used to repay related-party loans and over $100 million was used in bond purchases from its underwriter, AMTD Global Markets. In addition, Hindenburg highlighted that Ebang’s cryptocurrency mining business and cryptocurrency exchange seem to have little-to-no substance.

Ebang’s auditor is MaloneBailey, LLP.

Muddy Waters Capital published two open letters on Solutions 30 (EPA: S30 — EUR1.18 billion), a French tech services company. In a letter dated April 7, Muddy Waters said that Deloitte’s external investigation did “nothing to dispel our concerns about S30’s multiple and persistent ties to individuals associated with organized crime and money laundering.” Muddy Waters also highlighted six months of missing internal emails and management’s false statements about an accounting issue.

In a letter dated April 9, Muddy Waters highlighted additional ties between Solutions 30 and alleged criminals. Muddy Waters previously criticized the limited scope of the company’s external investigation and highlighted potential money laundering issues raised by an anonymous report about the company.

Spruce Point Capital published a 15,000-word report on Porch Group (NYSE: PRCH — $1.50 billion), a home services software company that went public through a SPAC in December 2020. Spruce Point highlighted a misleading CEO biography and potentially aggressive accounting.

The website “Deloitte Watch” published an article alleging fraud at GSX Techedu (NYSE: GSX — $6.92 billion), an embattled Chinese online education company. The new article alleges GSX inflated teacher credentials and created fake and duplicate teacher profiles.

Separately, Grizzly Research published seven reasons why GSX’s auditor, Deloitte, might not sign off on its annual report. The company called the allegations “ungrounded” and said GSX would “consider any necessary and appropriate course of action to protect the interest of the Company.”

Marcus Aurelius Research previously called GSX a “complete and utter fraud” and also published a 16-page document detailing seven employee whistleblowers alleging fraud at the company.

Numerous other activist reports have also alleged fraud at GSX. Citron Research called GSX “The Most Blatant Chinese Stock Fraud since 2011.” Muddy Waters called GSX “a near-total fraud.” Grizzly Research called GSX “too good to be true.” Scorpio VC called GSX “a long-planned listing scam.”

GSX stock is down about 80% from its January 2021 highs.

Leon Black’s Legal Woes

Leon Black is back in the spotlight after Guzel Ganieva said she was “sexually harassed and abused by him for years” and signed an NDA in 2015.

In March, Black resigned from Apollo’s board months earlier than expected. The New York Post reported that his early departure was partly due to the Apollo board learning about the settlement with Ganieva, who met Black after emigrating from Russia at the age of 25.

Black told the New York Post he was “extorted” by Ganieva because he “made substantial monetary payments to her, based on her threats to go public concerning our relationship, in an attempt to spare my family from public embarrassment.”

Mr. Black also paid a total of $158 million to Jeffrey Epstein for tax advice. Black emphasized that those payments were not extortion. A review by Dechert LLP found that Black “regularly visited Epstein’s townhouse in New York,” flew on Epstein’s plane, and spent time in Epstein’s houses in Florida, Nevada, Paris, and the Caribbean. The Bear Cave previously criticized the Dechert investigation for omitting numerous other ties between Apollo and Epstein.

Leon Black is also close with President Trump and previously told Senate investigators that they “might have been in a strip club together” in Russia in the late 1990s.

What to Read

“Assets Have Tanked at Two of the World’s Biggest Short Sellers” (Institutional Investor)

“Jim Chanos’ Kynikos Associates and Jim Carruthers’ Sophos Capital got much smaller in 2020, according to new regulatory filings.”

“Inside Nissan's Battle With Ghosn: A Whistle-Blower Speaks Out” (Bloomberg)

“Ravinder Passi uncovered flaws in Nissan’s investigation of Carlos Ghosn, then he faced a vicious blowback…”

“Alden Clashes With Billionaire Over Future of Tribune—and of Local News” (WSJ)

“As part of the deal with Alden, Mr. Bainum believed he had reached a verbal agreement… when time came to put pen to paper, Mr. Bainum felt that Alden changed its tune… So Mr. Bainum decided to buy the whole company instead, turning a nearly done deal into what may amount to a bidding war for the newspaper chain.”

Tweets of the Week

Until next week,

The Bear Cave

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