The Bear Cave #72

New Activist Reports, What to Read, and Tweets of the Week

Jun 28, 2021

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

New Activist Reports

Viceroy Research published on Reconnaissance Energy Africa Ltd (TSXV: RECO — CAD$1.81 billion), an early-stage oil and gas miner that has seen its stock rise over 1,300% in the last twelve months. Viceroy wrote,

“RECO’s mining assets are not highly speculative: they are borderline imaginary. Despite a CAD >1bn market cap, RECO has a near-zero chance of finding any asset of value in their exploration site, and an even lower chance to capitalize on any find.”

In addition, Viceroy alleged the company’s management has been previously involved in bribery and other failed ventures.

Prescience Point Capital tweeted bullishly on Spirit Airlines (NYSE: SAVE — $3.35 billion), and said the airline “is about to enter a major upward earnings revision cycle.” Prescience Point highlighted newly raised management guidance and depressed analyst estimates. At its historical 11x earnings multiple, Prescience Point sees 35% upside.

J Cap Research published on ChromaDex (NASDAQ: CDXC — $711 million), a promotional health supplements company. J Cap Research alleged the company makes medical unsound claims and highlighted ChromaDex’s ties to alleged “microcap fraudsters” that have been previously charged by the SEC. The company has been consistently unprofitable and a serial diluter. The stock has more than doubled this year.

Rota Fortunae, a short activist that previously published market-moving critical reports on Farmland Partners (NYSE: FPI — $371 million), issued a lengthy retraction as part of a settlement with the company. The statement read, in part,

“On July 1, 2018, I published an article on Seeking Alpha that led to a 39% decline in Farmland Partners’ share price that day. As explained below, many of the key statements in that article were incorrect… a hedge fund called Sabrepoint Capital asked me to research FPI in May 2018, at the time Sabrepoint was my largest client, paying me more than $100,000 in 2018 alone. I had frequently researched several companies for Sabrepoint that I also wrote articles about on Seeking Alpha… I worked with Sabrepoint on my FPI research, exchanging language, information, and ideas… With the benefit of evidence from years of litigation… it’s now clear that my article contained inaccuracies and false allegations.”

Farmland Partners’ stock has doubled since the inaccurate short article in July 2018.

What to Read

“Strange Case of Dan Loeb and Daniel S. Loeb” (Cloud Valley Substack)

“When he was twelve, Loeb had been inciting trouble with the junior high bullies, and hired a classmate, Robert Schwartz to be his bodyguard for 25 cents a day. Today, Schwartz is managing partner of Third Point Ventures, Loeb’s venture capital arm.”

“Stunning Confessions of a Short Seller” (Institutional Investor)

“The proliferation of short activist research in recent years has raised red flags about some of the originality, accuracy, and depth of these works — especially when combined with put options that are timed to coincide with the publication of reports that might send the stocks into a tailspin.”

“Google Executives See Cracks in Their Company’s Success” (NYT)

“Fifteen current and former Google executives, speaking on the condition of anonymity for fear of angering Google and Mr. Pichai, told The New York Times that Google was suffering from many of the pitfalls of a large, maturing company — a paralyzing bureaucracy, a bias toward inaction and a fixation on public perception.”