Penny stock pump and dumps are somewhat of a guilty pleasure of LST… so enter Unipixel (“UNXL”), a ~$300 million market cap stock with the following characteristics that a long-term investor would love:
(1) $16 million in total assets (of which $12 million is recently infused cash via an equity raise)
(2) a management team with a long history of failure/capital misallocation
(3) Price/Sales multiple in the 3,000-4,000x range
(4) Laundry list of other red flags
UNXL has nevertheless returned over 400% to shareholders within just 1 year.
Despite the stock’s impressive performance, an SEC filing yesterday showed that Wellington Management increased their stake in UNXL to 14% stake up from 5%, essentially indicating they expect more upside. To the unexperienced market participant, this would seem to support the prevailing belief that the critics’ concerns (and laundry list of red flags) are much ado about nothing. The market is efficient, it discounts all information, big money is smart money… right?
LST believes that facts speak for themselves. Here are a few facts about Wellington Management’s track record, when it comes to frauds:
Sino-Forest Shares Surge After Wellington Management Discloses 11.5% Stake – Bloomberg News July 5, 2011 (Sino-Forest’s price today: $0.00)
And if you think Sino-Forest was an isolated case for Wellington Management (after all, we all make mistakes), here’s an excerpt from Six Big Investors Who Lost Big on China :
The gigantic investment manager Wellington Management has made some pretty hefty bets on a number of Chinese stocks that are now halted or delisted. The firm built an 8.2% stake in China-Biotics, the yogurt-culture company in Shanghai, despite the fact that China-Biotics had spent the previous year defending itself against report after report by short-sellers and the Chinese media alleging that the company isn’t what it says it is. The Nasdaq exchange halted trading in China-Biotics last week after it failed to meet the deadline for filing a 10-K report with the SEC.
But it doesn’t stop there for poor Wellington, a spokesman for which declined to comment. The firm holds 5% of Jiangbo Pharmaceuticals (JGBO), whose shares have been halted since May 31;3.7% of Yuhe International (YUII), a provider of “day-old chickens” whose shares were halted on June 17; and 2.2% of Puda Coal (PUDA), whose shares were halted on April 11.
Wellington also recently unloaded an 800,000-share position in China Electric Motor (CELM), a company whose auditor resigned after finding alleged irregularities. CELM was delisted by Nasdaq earlier this month.
If you’re long UNXL, you should be fearful that Wellington has bought into UNXL. The real question is: whoever the analyst/pm that ultimately pulled the trigger… are they just simply uninformed “believers” in UNXL (cults exist too), or are they the slick/cunning variety trying to orchestrate a short squeeze (ignoring the moral and legal considerations) ?