The Bear Cave #69 + Problems at the PCAOB

Four New Activist Reports, Problems at the PCAOB, What to Read, and Tweets of the Week

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New Activist Reports

Jehoshaphat Research published on View Inc (NASDAQ: VIEW — $1.86 billion), a smart glass manufacturing company that went public through a SPAC in March. Jehoshaphat argued that View’s customized glass offerings are uneconomical and that there is scant demand for a cheaper standardized offering. Jehoshaphat also highlighted that the company could run out of cash within a year and had previously issued “going concern” warnings.

Iceberg Research published a Twitter thread on Nemaura Medical (NASDAQ: NMRD — $345 million), a medical device company for glucose monitoring. Iceberg highlighted that the company has $0 in revenue over the last ten years, uses fake testimonials, and that the company’s recent purchase orders come from one of the company’s own shareholders!

Kerrisdale Capital published on Virgin Galactic Holdings (NYSE: SPCE — $7.55 billion), a space tourism company. Kerrisdale said that the company’s technology will be surpassed by SpaceX and Blue Origin and alleged that Virgin Galactic has had four deaths and four serious injuries. Kerrisdale called the company “an $8bn pretender hoping to offer a souped-up roller-coaster ride in a world where the real thing is coming soon.”

Boatman Capital Research published on Thungela Resources, a thermal coal company that is about to be spun off from Anglo American. Boatman Capital alleged that Thungela understated its environmental clean-up obligations. Boatman Capital wrote,

“We believe that Thungela has massively under-estimated the environmental liabilities associated with closing its mines, which have just five to 11 years of expected life remaining…. Based on our estimates, Thungela’s environmental liabilities could be three times greater than currently reported and are more than the value of the entire company.”

Problems at the PCAOB

On Friday, the SEC announced the removal of William D. Duhnke III as chairman of the Public Company Accounting Oversight Board (PCAOB). The removal comes in parallel with an alleged whistleblower email that was sent to members of the media:

In 2019 the Wall Street Journal reported on a whistleblower complaint at the PCAOB that alleged chairman Duhnke created a “sense of fear” at the agency and may have improperly fired employees. According to the Wall Street Journal,

“After receiving the whistleblower letter, the SEC appointed Harvey Pitt, a former agency chairman, to review the PCAOB’s corporate governance, according to people familiar with the matter. Mr. Pitt declined to comment.”

In March of this year, a former employee filed a wrongful termination suit against the PCAOB and Chairman Duhnke. The lawsuit alleged,

“Mr. Duhnke perpetrated a xenophobic and racist campaign against [ex-employee] culminating in her termination.”

“Beginning in spring of 2020 Mr. Duhnke began exhibiting increasingly discriminatory behavior toward [ex-employee] due to her Chinese ethnicity and national origin.”

“Mr. Duhnke regularly referred to the ongoing COVID-19 pandemic as the ‘kung flu’ and ‘Chinese flu.’”

“Mr. Duhnke touted multiple politically-motivated agendas regarding PCAOB’s future that he intended to effectuate as Chairman.”

“In 2019, the Securities and Exchange Commission initiated an investigation into Mr. Duhnke regarding allegations of assault, misuse of office, fraud, waste, abuse, breaches of fiduciary duty, retaliation, discrimination, and wrongful termination. Despite this investigation continuing for over twenty months (20) to date, the PCAOB did not suspend Mr. Duhnke.”

SEC Commissioners Hester Peirce and Elad Roisman, both Republicans, criticized the decision to remove Mr. Duhnke and wrote that “these actions set a troubling precedent for the Commission’s ongoing oversight of the PCAOB and for the appointment process, including with respect to attracting well-qualified people who want to serve.”

Mr. Duhnke previously worked under Sen. Richard Shelby (R., Ala.) on the Senate Banking Committee. Mr. Duhnke was paid annual compensation of $670,000 as PCAOB chairman.

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What to Read

“Engine No 1, the giant-killing hedge fund, has big plans” (FT)

“It has been depicted as a new David-and-Goliath tale for Wall Street: a tiny hedge fund called Engine No 1 went up against the mightiest oil company in the US and won three seats on its board, with a mandate to prepare it for a future free of fossil fuel.”

“The Mystery of the $113 Million Deli” (NYT)

“While the N.Y.S.E. and the Nasdaq can ‘delist’ a company for breaking the rules, the OTC Markets Group can only ‘flag’ a stock as suspect and report it to the Securities and Exchange Commission.”

Tweets of the Week

Until next week,

The Bear Cave

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