Restoration Hardware recently announced the pricing of the convertible debentures that they are selling (here is the press release filed on EDGAR). Unfortunately, this is a blow to my short thesis.
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Author: GlennC
Chinese companies with poorly executed websites
For whatever reason, some Chinese companies listed on foreign exchanges have bad websites.
For example, Yongye links to a press release put out by ambulance-chasing lawyers targeting Yongye.
Insider ownership is overrated
I’ve seen some people argue that management’s incentives must be aligned with shareholders because insider ownership is high. I think that this is a dangerous idea. Insider ownership tends to be fairly high in fraudulent stocks and stocks with bad management teams. Scams and frauds involving the sale of shares at inflated prices often begin with the perpetrators owning almost all of the stock.
Yongye: Bizarre trading
A week ago, Yongye announced that shareholders approved the going private transaction (8-K filing). This would suggest that the merger has a higher chance of happening than before the vote. There is one less possible scenario as to why the going private transaction might fail for a second time.
Strangely enough, the stock is trading down a week later. I have no idea why this is. Shareholders may soon be paid $7.10 and the stock was previously trading at $7.08/$7.09. Perhaps Mr. Market’s mood swings are taking effect or some weaker merger arb players are panicking. In any case, I am closing a portion of my short position in Yongye. The $7 Jan 2016 puts previously trading at a bid/ask spread of $0.00/$0.05. The current spread is $0.30/$0.40. If you had a time travel machine, you could have made several times your money on these puts (before commissions and rebates). (*EDIT: When I talk about time travel, I’m being a little facetious.)
One somewhat similar situation is Fushi Copperweld, covered here on the Bronte Capital blog. Shortly before the going private transaction closed, somebody panicked and the common shares traded down. The transaction ultimately closed and the shorts lost money.
*Disclosure: I own Yongye puts. No position in the common.
Bad management tends to continue
Some CEOs are bad because they spend way too much time and effort figuring out how to enrich themselves. Inevitably, they will siphon money from the company from taking an excessive salary, expensing “travel and entertainment” costs to the company, etc. etc. These CEOs tend to fill the board of directors with their cronies. What sometimes happens is that the board of directors has interlocking relationships with other boards, CEOs, etc. All the shady people know each other. It becomes a network of people giving each other favours and returning them. What ultimately happens is that the directors and CEOs want to maintain a status quo of insiders profiting from the company.
Smart fraud
Smart fraudsters do not commit fraud. There are many ways in which scumbags can legally deceive (or lie to) investors. Given all the legal methods available, I’m surprised that some people choose to do illegal things.
Avid’s impending financial restatement
Oddly enough… I don’t think that there is major fraud occurring at Avid, a stock that I have blogged about a few times in the past.
