The SPAC Sector; A Short Seller’s Confessions

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Whitney Tilson’s email to investors discussing the SPAC sector; stunning confessions of a short seller; Wirecard: a record of deception, disarray, and mismanagement; runaway house prices.

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Q1 2021 hedge fund letters, conferences and more

In Defense Of The SPAC Sector

1) Special purpose acquisition companies ("SPACs") have been getting hammered recently, but I don't think they're going away – nor should they.

Professor Steven Davidoff Solomon from the School of Law at the University of California, Berkeley agrees, as he writes in this New York Times column: In defense of SPACs. Excerpt:

After the dot-com bubble burst and the Sarbanes-Oxley Act ushered in reforms to reduce broker conflicts, the small IPO [initial public offering] all but disappeared, the subject of a study of mine. Since then, there has been a much slower pace of IPOs, almost all bigger companies.

Eventually, the notion that regulation had become too strict gained prominence, which led to the JOBS Act of 2012. This made it easier to go public, but the goal of giving public investors earlier access to innovative start-ups has proved elusive.


The sell-off in the SPAC sector is creating some great bargains such as Pershing Square Tontine Holdings (PSTH), which sold off earlier this month after it announced a complicated transaction that included purchasing 10% of Universal Music Group. My colleague Enrique Abeyta published an in-depth, extraordinarily insightful report analyzing it entitled, "The Type of Investor That Can Change Your Investing Life," which I covered in my June 7 e-mail.

If you're investing in the SPAC sector, it's critical to have an experienced guide like Enrique. Be sure to check out his Empire SPAC Investor newsletter – you can learn more about it right here.

Stunning Confessions Of A Short Seller

2) This is the first time I've ever seen this. You gotta be extra careful on the short side! Stunning Confessions of a Short Seller. Excerpt:

The proliferation of short activist research in recent years has raised red flags about some of the originality, accuracy, and depth of these works – especially when combined with put options that are timed to coincide with the publication of reports that might send the stocks into a tailspin.

Now one of those activists, David Quinton Matthews, who wrote under the pseudonym Rota Fortunae, has admitted making false statements and profiting from short-dated put options ahead of his report's publication. David Quinton Matthews' admissions were made as part of a settlement of a defamation lawsuit that was billed as a "short and distort" case brought in federal court by the subject of the report – Farmland Partners, a Colorado real estate investment trust.

Wirecard: A Record Of Deception, Disarray, And Mismanagement

3) Far more often, short sellers do excellent work exposing promotions and/or outright frauds like bankrupt German payment processor Wirecard AG (OTCMKTS:WCAGY). Here's the Financial Times with another follow-up story about it: Wirecard: a record of deception, disarray, and mismanagement. Excerpt:

The Financial Times has reviewed e-mails, internal chats, minutes of supervisory board meetings, and other documents, as well as hundreds of hours of witness hearings by Germany's parliamentary inquiry commission into the scandal.

The picture they paint is striking. In the aftermath of Wirecard's collapse, it quickly became clear that the company's top echelon had spent years deceiving investors, regulators, auditors and large parts of its own staff. But what the internal communications also show is that the confused and disorderly scenes of its last few weeks were anything but an isolated incident.

The documents and testimony reveal a company shaped by persistent mismanagement. Wirecard had presented itself as one of Germany's rare technological success stories; but on the inside, it was a chaotic, byzantine, and often ineffective organization.

Best regards,