Short Sellers Upend Nikola, Grenke Boards as Founders Exit
(Bloomberg) -- Short sellers made a big splash in the stock market this year. Now they’re making their impact felt in corporate boardrooms as well.
Nikola Corp., the electric-truck maker that’s partnered with General Motors Co., said its founder stepped down as executive chairman and left the board, just days after the company was reported to be the focus of investigations by U.S. regulators triggered by a short seller. And Grenke AG’s founder and biggest stockholder temporarily removed himself from the supervisory board as the German leasing firm defends itself against accusations of fraud.
Authorities haven’t accused either man or their companies of wrongdoing after the reports by Fraser Perring’s Viceroy Research Group on Grenke and Nate Anderson’s Hindenburg Research on Nikola. Both companies have said they’ve done nothing wrong, and Nikola accused Hindenburg of market manipulation.
The swift departures from the boards are a contrast to what happened in the past year with two other high-profile companies, German payments firm Wirecard AG and Middle Eastern hospital operator NMC Health Plc. Both rejected similar criticism, and their leaders initially remained in control, only to see the companies collapse into insolvency and their share prices crater.
Short sellers borrow shares and sell them, aiming to buy them back at a lower price to profit from the difference. Some activist shorts accuse the companies they target of malfeasance, and the companies typically push back aggressively, as happened in these cases. Nikola founder Trevor Milton called Hindenburg’s report a “hit job” and Grenke said it may pursue legal action against Viceroy.
Here’s a look at the four cases:
- Viceroy accused Grenke of accounting fraud, money laundering and lack of internal controls. The leasing firm called the allegations “completely unfounded” and mandated KPMG to conduct a special audit. Founder Wolfgang Grenke temporarily removed himself from the supervisory board. German regulator BaFin is considering an investigation into the company’s accounting practices, Bloomberg reported Monday. Shares have fallen 44% since Viceroy published its 64-page report on the company on Sept. 15.
- Hindenburg Research questioned the validity of Nikola’s claims about its electric-vehicle technology, accusing the company of being “an intricate fraud built on dozens of lies.” That drew the attention of financial regulators. While Nikola officially pushed back, accusing the short seller of mischaracterizations, some of the company’s responses were more counterarguments than rebuttals. Milton stepped down late Sunday as executive chairman. Shares have dropped about 32% after Hindenburg’s report on Sept. 10.
- Wirecard filed for insolvency in June after saying that a quarter of its balance sheet didn’t exist. Its auditor accused the company of “an elaborate and sophisticated fraud.” Prosecutors arrested CEO Markus Braun, and former executive Jan Marsalek is on the run from the law. BaFin last year investigated investors and journalists who said the company was cooking the books. An unprecedented ban on bets against the stock gave short sellers the impression that the regulator was taking sides. BaFin said it was obliged to act after receiving indications of market manipulation from German prosecutors. The stock has lost 99% of its value this year.
- Muddy Waters Capital in December said that London-listed NMC Health was understating its debt and overstating its cash. NMC denied wrongdoing, said it would hire an accounting firm for a review and would pursue regulatory action against third parties that tried to manipulate the share price. The company collapsed this year after uncovering $2.7 billion of hidden debt and saying fraud apparently occurred. A U.K. court placed NMC into administration. The company fired its CEO and forced out founder Bavaguthu Raghuram Shetty. The stock plunged before being suspended from trading and later delisted.
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