🐻The Bear Cave #7🐻

CACC, HFFG, PRED, CODX, RETA, GDS, SDC, SEC News and More

Mar 30, 2020

Welcome to The Bear Cave — your weekly source of short-seller news. Feedback and sharing are always appreciated. If you are new, you can join our email list.

New Activist Shorts

Citron Research published a short report on subprime auto-lender Credit Acceptance Corp (NASDAQ: CACC — $5.18 billion). Citron called the coronavirus crisis a black swan event for the company and predicted a spike in subprime defaults and regulatory pressure. The report concludes:

“We live in a new reality and it happened so fast that it is difficult for anyone to absorb. While critics of CACC long thought the company would go through a slow unwind process because of economic headwinds and long, drawn-out regulatory action – everything just happened in two weeks.”

Credit Acceptance was previously the target of a lengthy investigation by Plainsite.

Hindenburg Research published a great report on HF Foods Group (NASDAQ: HFFG — $417 million), a restaurant food and delivery company formed from a SPAC in 2018. Hindenburg alleged the company was backed by pump-and-dump artists and had some related party transaction issues:

“HF has transacted with at least 43 separate related-party entities in 2019 alone… HF also directed over $2 million of shareholder cash to business entities owned by the Chairman’s teenage son, including one that bought another fleet of 7 Ferraris with vanity plates such as “FUCKAH0E”, “RUSINGLE”, “IPULL”, “DIKTAT0R”, and “IMHUMBLE”. (And yes, we have photos.)”

Hindenburg Research also published a critical report on Predictive Technology Group (OTC:PRED — $245 million) highlighting questionable claims about the company’s recently announced coronavirus test.

White Diamond Research published a follow-up on Salt Lake City-based biotech Co-Diagnostics Inc (NASDAQ: CODX — $232 million).

“Co-Diagnostics issues a PR almost every day regarding its coronavirus test. But it hasn’t mentioned a single customer, be it a lab, University, hospital, or government who has bought, used or vouched for its Logix Smart coronavirus test.”

CODX stock is up 900% this year.

An anonymously released report on Reata Pharmaceuticals (NASDAQ: RETA — $4.98 billion) gained traction on Twitter last week. The report questioned the efficacy of Reata’s primary drug, Bardoxolone.

J Capital Research published a negative report on Chinese IT company GDS Holdings (NASDAQ: GDS — $8.48 billion).

SEC News

SEC Enforcement Chiefs Issue Statement on Coronavirus Insider Trading (SEC Statement)

“In these dynamic circumstances, corporate insiders are regularly learning new material nonpublic information that may hold an even greater value than under normal circumstances… Given these unique circumstances, a greater number of people may have access to material nonpublic information than in less challenging times. Those with such access – including, for example, directors, officers, employees, and consultants and other outside professionals – should be mindful of their obligations to keep this information confidential and to comply with the prohibitions on illegal securities trading.”

SEC Extends Deadlines for Companies Affected by Coronavirus (SEC Press Release)

“Today, the Securities and Exchange Commission announced that it is extending the filing periods … for certain public company filing obligations whose operations may be affected by COVID-19.”

“Stanley Sporkin, crusading SEC enforcer and tough-minded U.S. judge, dies at 88” (Washington Post)

“Stanley Sporkin, who was the scourge of industry in the 1970s as the crusading chief enforcement officer of the Securities and Exchange Commission and who later had a colorful and controversial tenure as a federal judge in Washington with strongly worded rulings on high-profile cases, died March 23 at a hospice center in Rockville, Md. He was 88.”

What to Read

“Amazon’s Bezos, Other Corporate Executives Sold Shares Just in Time” (WSJ)

“Some of the executives who sold stock came from industries most battered by the economic crisis. James Murren, outgoing CEO of MGM Resorts International, sold $22.2 million of his company’s stock, staving off a possible $15.9 million loss. The company’s shares closed at $9.11 on Friday, down 73% from their February high.”

“Treasury: U.S. will be 'compensated' for assistance to airlines” (Reuters)

“Under the bill approved Friday by the U.S. House of Representatives, Mnuchin can demand equity, warrants or other financial instruments to “provide appropriate compensation to the federal government.” …. “Boeing has said they have no intention of using the program - that may change in the future,” Mnuchin said.”

“Boeing to Emerge as Big Stimulus Winner” (WSJ)

“[The] aerospace giant’s customers and suppliers stand to benefit from government aid, even if Boeing declines direct taxpayer help.”

“Testing SmileDirectClub: Hidden camera investigation” (CBC Marketplace)

The Canadian news outlet, CBC Marketplace, published a blistering hidden camera exposé of SmileDirectClub (NASDAQ: SDC — $2.11 billion). Here’s a quote:

“He now carries his teeth in a bag thanks, he says, to SmileDirect”

The company’s “teledentistry” practices were previously scrutinized by Hindenburg Research and the New York Times. SDC is currently down 70% since its September 2019 IPO.