The author of this article has a short position in Ominto
Why Did Ominto Hire An Auditor You’ve Probalby Never Heard Of… And Bury The Disclosure?
In addition to the numerous red flags our previous article raised about Ominto Inc. we believe investors and regulators should closely examine the company’s recent change in auditors. Specifically,
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- Why did OMNT switch to a much smaller and not well known auditing firm?
- Why did OMNT use what we consider to be highly questionable methods to disclose this change in auditors?
Why Ominto Needs A Highly Reputable Auditor
The quality of an auditing firm is critical, particularly to a company such as OMNT which has a controversial business model (OMNT is a multi-level marketing firm), has consummated several questionable acquisitions (we believe largely so the company could uplist to the Nasdaq which triggered a large bonus for the CEO), has a history of losses and financial difficulties, has operations in several foreign countries and will likely need to raise additional capital.
Why Would Omnt Move To Auditor You’ve Probably Never Heard Of?
We are concerned that OMNT recently changed auditing firms and in our opinion moved to a far less qualified auditing firm. In May, OMNT hired Morrison Brown Argiz & Farra, LLC (“MBAF”) and dismissed Mayer Hoffman McCann P.C. (“MHM”) as OMNT’s principal independent registered public accounting firm. We’ve spoken to many people in the investment community and none of them have ever heard of MBAF. We also analyzed Edgar SEC filings and believe MBAF appears to have very, very little experience auditing publicly traded companies.
Even more troubling was a report issued last year by the Public Company Accounting Oversight Board (PCAOB) ( https://pcaobus.org//Inspections/Reports/Documents/104-2016-086-Morrison.pdf ) that indicated that MBAF had only 1 (yes 1) Issuer audit client. Furthermore, in this report the PCAOB, among other things, faulted the quality of MBAF’s work and noted that MBAF “issued an opinion without satisfying its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatement.” The report also noted MBAF had only has 1 foreign office (in India).
So, of all the auditing firms OMNT could have selected, why did it chose a firm that has minimal relevant experience, has been criticized by the PCAOB, has virtually no foreign operations and, most alarmingly, that most of you reading this article have probably never heard of?
Questionable Disclosure About Auditor Change
In addition to our concerns about the quality of OMNT’s new auditor, we believe OMNT’s disclosure about the auditor switch is highly questionable.
In its proxy filed May 18, 2017 OMNT stated it had selected “Mayer Hoffman McCann P.C. as
the independent registered public accounting firm for 2017.” However, in a subsequent 8k, OMNT disclosed that “On May 19, 2017, Ominto, Inc. dismissed Mayer Hoffman McCann P.C. (“MHM”) as the Company’s principal independent registered public accounting firm and appointed Morrison Brown Argiz & Farra, LLC (“MBAF”) as our principal independent registered public accounting firm.”
We wonder how and why on May 18th OMNT stated it would use MHM and then, on the very next day, OMNT replaced them with MBAF? Hiring a new auditing firm takes time as one generally interviews several firms, does reference checks and negotiates fees. So, we find it hard to believe that in one day OMNT both decided to fire its auditor and was able to find a replacement.
While we can’t prove it, we suspect OMNT realized investors would not be happy with the new auditor, so rather than disclosing the auditor switch in the proxy statement, OMNT buried the news in an 8k filing (which is probably not as widely read as the proxy statement).
We don’t know why OMNT changed its auditors…could it have something to do with the Going Concern statement the auditor had previously given OMNT? Or perhaps MHM was reluctant to keep working on the account because it became concerned about the way OMNT was conducting itself. Regardless of why OMNT changed auditors, it is abundantly clear to us that the decision to hire MBAF and the disclosure about the move should raises even more red flags about this company and its stock.
The author of this article has a short position in Ominto Inc OMNT