A Skeptical Stock Analyst Wins Big by Seeking Out Frauds

Today, Hindenburg employs a mix of former journalists, including from Bloomberg and CNN, and analysts, who have all been working remotely during the pandemic. The firm can take six months or more to produce a finished research report, which entails going through public records, talking to company employees and hunting for internal corporate documents. About 10 deep-pocketed investors bankroll some of the firm’s operations, and some of them make their own short bets alongside Hindenburg. Mr. Anderson declined to disclose the names of his investors.

“It has become a successful enterprise,” he said of his firm. “But it was very hard early on to fathom that anything would turn out of it.”

The boom in SPAC deals — such companies have raised nearly $200 billion since the beginning of 2020 — has provided rich material for Hindenburg to investigate. Sometimes called a “blank check” company, a SPAC raises money from investors through a public offering and has two years to find an operating business to merge with. Many companies that go public via this route undergo far less scrutiny than they would in initial public offerings.

Last summer, two whistle-blowers provided Hindenburg with a tip about Nikola, the electric truck maker that had gone public in June 2020 via a $700 million merger with a special purpose acquisition company called VectorIQ.

The whistle-blowers, former business associates of Mr. Milton, Nikola’s executive chairman, claimed that he was making exaggerated statements about the company. A few months later, Hindenburg published its report, calling Nikola an “intricate fraud built on dozens of lies.” According to the report, Nikola put out a promotional video to suggest it had a working prototype for its truck — without disclosing that the truck was moving only because it was rolling down a hill in neutral gear. Mr. Milton resigned a few weeks later, and the authorities began investigating.

Mr. Milton’s lawyers have denied the charges, and the company has said it cooperated with authorities. DraftKings, in disclosing the S.E.C. subpoena, said it would cooperate with the investigation.

“Nate’s killing it right now,” said Mr. Block of Muddy Waters. He added that Hindenburg found issues with Nikola that his own firm had looked for and missed.

Article source: https://www.nytimes.com/2021/08/16/business/short-seller-wall-street-scams-hindenburg.html