Disclsoure: the author of this article is short shares of Ominto, this article is not investment advice and for information only
We have documented numerous problems we see at Ominto Inc. (OMNT $OMNT) and why we expect the stock to soon be delisted soon. Given how overvalued we think the stock is and how much uncertainly surrounds the company, we were surprised to see this illiquid stock move up sharply last week (on no news) from $3 a share to over $5 per share (before giving up some of its gains and closing at $3.75 last week).
While it is impossible to know for sure why the stock traded up so much, we wonder if it had anything to do with a controversial loan the company made (we believe to one of its employees) which may result in significant losses to the borrower if OMNT’s stock is below $4 per share.
On December 13, 2016, OMNT lent Business Across ApS $900,000 to help finance the borrower’s purchase 225,000 OMNT shares at $4.00 per share. The loan had a 3.5% interest rate (which increased to 12% if it was not repaid on time) and a maturity date of February 14, 2017. The loan appears to be secured by a personal guarantee and some real estate.
For some reason the loan was not repaid as was originally scheduled and OMNT decided to extend the maturity date until February 14, 2018 and leave all other terms of the note unchanged.
This raises many questions in our minds:
- Why is OMNT, which we believe has liquidity problems, lending a relatively significant amount of money to someone so that person can buy OMNT stock?
- Why did OMNT extend the maturity date of loan instead of seizing the collateral or increasing the interest rate to 12%?
- Is the borrower a member of OMNT management? The managing member of Business Across ApS (the borrower) Is Peder Villads Vest-Hansen whom we believe is the same individual listed here as a vice president of the company
- Is such a loan permitted under the new Sarbanes Oxley regulations governing loans to employees?