We believe the Nasdaq failed to do sufficient diligence before agreeing to list the stock of Ominto Inc. Even worse, we believe the exchange has largely ignored several of OMNT’s actions that we believe contradict Nasdaq’s stated objective which is “to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.
Only months after being listed on the Nasdaq, OMNT is now no longer is in compliance with Nasdaq’s listing requirements. Furthermore, it has come to light that OMNT has engaged in what we would consider to be highly questionable behavior. We believe there is a clear case for delisting OMNT’s stock and we fail to understand why the Nasdaq has not done so. We can only wonder if the Nasdaq is that desperate for OMNT’s listing fees or if the Nasdaq is embarrassed by the reputational damage such a rapid delisting may cause. Alternatively, maybe the Nasdaq does not believe OMNT has done anything wrong? We believe OMNT has done many things wrong and that it is only a matter of time before the stock is delisted and the SEC begins a formal investigation.
The most recent alarming incident occurred last week when OMNT disclosed in an 8k filing that it had terminated its auditor, MBAF. After firing its auditor, OMNT then waited seven days before telling investors (note: we believe this exceeds the four business day deadline for making such disclosure). Even more concerning is the disclosure that prior to being fired MBAF “raised concern with certain material weaknesses in internal control over financial reporting and with certain issues which may impact prior period financial statements… “ Furthermore, it appears OMNT was so eager to fire MBAF that it has yet to find a replacement.
The firing of MBAF occurred only 3 months after OMNT parted ways with its previous auditor, Mayer Hoffman McCann, under what we consider to be highly unusual circumstances. In particular, we question OMNT’s decision to hire MBAF (a firm we consider to be not widely known for auditing publicly traded companies), as well as the timing of OMNT’s disclosure [insert link https://www.valuewalk.com/2017/06/why-did-ominto-hire-an-auditor-youve-probably-never-heard-of/ ]
The Nasdaq should also be concerned that OMNT failed to file its Form 10-Q by the deadline last month. So, after changing auditors twice in the past 3 months, OMNT now has no auditor and is more than 3 weeks late in filing its Form 10-Q.
These are only the latest red flags at OMNT. The most alarming incident involves OMNT’s curious investment in Lani, a Danish animation company. We fail to understand the strategic rational for OMNT’s investment in an animations company. However, we are far more alarmed that OMNT valued Lani at $25 million at the December 13, 2016 acquisition date when Lani’s subsequently released audit for calendar 2016 revealed the company was, in our opinion largely broke and virtually worthless. To make this transaction even more suspicious, it appears the Lani investment was a related party transaction. For more detail on this transaction, see [insert link https://www.valuewalk.com/2017/07/ominto-inc-omnt-stock-not-delisted-yet/]
We suspect the Lani investment was valued in a manner designed to increase OMNT’s book value so that OMNT could qualify for a Nasdaq listing, which it received in March 2017. Interestingly, the Nasdaq listings also triggered a large bonus for OMNT’s CEO which may have provided an incentive to do whatever was necessary to get uplisted. The uplisting also caused index funds to buy stock in this highly illiquid stock.
We doubt the Nasdaq needs any more reasons to justify delisting OMNT, but if it does, how about the legal problems of one of its largest shareholders [insert link https://www.valuewalk.com/2017/07/omnt/ ]? How about OMNT’s curious investment in Cayman real estate (yet another related party transaction which may also inflate the company's book value) [insert link to https://www.valuewalk.com/2017/08/ominto-incs-omnt-questionable-cayman-island-transaction/ ]. How about OMNT’s questionable and money losing business model of being a multi-level marketing firm. How about the fact that even though OMNT has been publicly traded in the USA for several years, OMNT has very few US investors and its largest shareholders are based in the UAE, Denmark and Hong Kong. Finally, how about the fact that many OMNT Board of Directors have ties to Utah, and while we have nothing against Utah, we do find many highly questionable companies in Utah (and in Boca Raton which is where OMNT is based).
WE REMAIN SHORT OMNT