Mike Wilkins on Short Selling: Invest For Kids Chicago ~ market folly

Friday, November 7, 2014

Mike Wilkins on Short Selling: Invest For Kids Chicago

We're posting up notes from Invest For Kids Chicago 2014.  Next up is Mike Wilkins of Kingsford Capital who talked about short selling.

Mike Wilkins' Invest For Kids Chicago Presentation

•    Short focused firm with $250MM in AUM
•    Focused on small and micro-cap US listed equities, Founded in FY01.
•    Topic is “benefitting from persistent fraud”
•    Fraud is persistent because fraudsters are persistent. Fraud is a people business.
•    Find a stock promotion and build a network form there.
•    To find a promotion, look for a tell.
 •    Step 1: Look for a tell. Look for money losing companies in south Florida/Nevada. Sometimes the CEO looks like a crook!
•    David Brooks – DHB Industries – sold defective body armor to the army. Ended up going to prison.
•    Sometimes the tell is in the SEC filings. The OCZ filings had suspect filings. IPO is a lawyer document. CEO was convicted in a felony (wrote as youthful discretions in the IPO prospectus).
•    Focus on the investor relation firms, transfer agents, lawyers, accountants, etc. Some of them similar.
•    Interoil (IOC): No production but has over a $2B market cap – look at the networks once again (not a short selling recommendation but a potential stock promotion he saw).
•    Look for the stock promoters.
•    Persistent fraud lets them create a history of the company. Sell-side or money managers never really look into the history of managers and companies.
•    Star Scientific is one short than played out. Formed in 98. Burned through $290MM in multiple offerings. Promoted multiple times over the years. Jonnie Williams was one of the people involved. Became chief ethics officer and on the board.
•    Pumped one of their products that was a chemical found in cigarettes that could supposedly cure inflation, a driver of Alzheimer’s.
•    Patrick Cox was one of the promoters. Called it the last stock you ever need, could cure Alzheimer’s. And makes a great face cream.
•    Came into light that Jonnie Williams gave $11MM in bribes to the former VA governor. Was investigated and Williams worked with authorities gaining a blanket immunity from stock pump and dumps.
•    John Stewart couldn’t believe that Jonnie Williams got away with it.
•    John Isner was sponsored by the company
•    John Isner was also sponsored by Ebix another potential promote.
•    Paid promoters: Red Chip, Dave Gentry – involved with L&L Energy. Talks about many of the Chinese frauds. L&L claimed to have coal mines, but did not.
•    Dave Gentry went on CNBC to talk about the company. In FY13, went back up to 5 after new promoters where hired.
•    This March LLEN was charged with fraud and the CEO plead guilty.
•    Tobin Smith was a former Fox contributor on business. Fox fired him for a pump and dump scam. Must be bad if Fox fires you.
•    The DreamTeam Group is another stock promoter group that pays writers to write positive investments. Galena Biopharma was one company that was pumped by the DreamTeam.
•    Lightdingo is one promote.
•    GALT is one idea. Who is GALT?
•    Galectin Therapeutics – went from $2 to $19 since FY13. Zero revenue and more board members than employees. Working for a cure for liver disease.
•    History goes back to another name and founded in FY98. Sold an orange derived product and a home cleaning product. No miracle ingredients – used the same chemicals of that everyone else had, just used more water. Pumped as a safe cleaner, while all it had was watered down chemicals.
•    Then went to pitch a cancer cure. Didn’t work. Brought in new money and directors in FY09. Brought in John Mauldin to the board.
•    Added Dave Gentry, John Fugler, Tobin Smith, and other promoters.
•    Liver drug flopped – was safe (just pectin) but didn’t work (not a surprise). 

Be sure to check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

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