Activist Short Selling in W24

Activist Short Selling in W24

  • Weekly short selling bits and pieces: QCM elaborates their short selling process; How hackers targeted short sellers; Hindenburg flags GNUS again.
  • This week, we recorded two new major activist shorts campaigns, with targeted stocks declining 13.9% on average.
  • We highlight the report of a new activist short-seller, OSS Research, who targeted a $1bn medtech company due to allegations of dubious kickback scheme which could unravel soon and leave the stock with 70% downside risk. 
  • We also focus on Rota Fortunae who revealed his identity and shared his ordeal with Farmland Partners (FPI) whom he targeted in 2018. While the stock hit his initial target, the story is far from over. 
  • Finally, we also remind that next week will be an important  moment for Wirecard, as they are supposed to release their 2019 annual report.

Short Selling: Bits and Pieces

Hacking short sellers: Citizen Lab, an academic research lab from the University of Toronto, published an interesting report about hack-for-hire operations that also targeted of hedge funds, short sellers, and journalists. One name very familiar to short sellers  pops-up:

The most prominent targeting of the financial sector concerned a cluster of hedge funds, short sellers, journalists, and investigators working on topics related to market manipulation at German payment processor Wirecard AG.

Process of QCM: One of the activist short sellers with the best track record in our database, QCM gave an in-depth interview to the Contrarian Investor Podcast. This is what QCM said about engaging with a company during the research process:

I don't like speaking to fraudsters, and I don't like speaking to criminals.

Hindenburg vs GNUS: One of the recent high-flying stocks and one of the recent favourites among retail clients, was questioned by the short-seller due to dubious fundamentals in a report on June 5. According to the short seller, GNUS is supposedly a failing TV production company with the potential to significantly dilute shareholders. GNUS is down about 50% since the report, but up more than 1000% on YTD basis. Hindenburg Research flagged it again this week:

YOLO for Hertz retail holders: Hertz (HTZ) shares closed about 37% higher on Friday. This was seemingly fueled by stock moving as much as 78% in pre-market and another wave of retail buying. About 20k of Robinhood users added HTZ shares to their porttolio on Friday. In another interesting twist on Friday afternoon, this bankrupted company received an approval to sell up to $1 billion in new shares.  

Blast from the past 

Rota Fortunae, an activist short-seller who released two campaigns in the past two years, has revealed his identity and shared his ordeal with Farmland Partners (FPI), whom he targeted in 2018. 

While his campaign was successful and the stock is now down 26% since then (and was down as much as 50%), the story is not ending. This is due to a lawsuit launched by the company against Quinton Mathews, the real name of Rota Fortunae. He was forced to reveal himself due to a court order. 

The company believes Mr. Mathews somehow conspired with others to manipulate FPI’s stock and that the allegations raised by his campaign were constructed to ‘damage a legitimate company’. Mr. Mathews believes FPI’s CEO is being defamatory and should accept responsibility for the languishing stock price of FPI. 

Mr. Mathews received a round of support from the short-selling community. Marc Cohodes retweet the story with this comment.

John Hempton tweeted this. 

Thus, FPI might not only be worth following for yet another lawsuit aimed at a critic of a public company, but also for the potential further developments in the share prices. Mr. Mathews himself said that he will provide more research on FPI soon.

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* Note: Presented data and analytics is as of available on 2020-06-12, UTC 12:00.

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