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Allegations Of "Shell Game" Fraud Involving Gerova Financial Group (GFC)

Tyler Durden's picture


Our recent reports by third parties on alleged Chinese fraud companies, even if conflicted, appear to have hit the nail on the proverbial head. And after all, how different is it to have anyone present a position paper with a bearish bias, compared to what managers such as Ackman, Einhorn and Tilson do on a periodic basis when they talk their book, online or on financial TV channels? At the end of the day, it is the market that decides if the investment thesis of any bullish or bearish report is viable, and if not it merely provides a better, and lower cost entry point (long or short) for those who end up being proven correct about a given company. That said, RINO is now trading on the pink sheets, while our most recent disclosure on China Green Agiculture has pushed the stock down 20% in a few days. But who says frauds are only foreign in origin. Our latest report, courtesy of Dalrymple Finance (and yes, we were correct that a plethora of micro-funds focused on ferreting out alleged frauds would soon appear), focuses on a company that has nothing at all with China, and a lot to do with Bermuda, and the US hedge fund industry. Presenting Gerova Financial Group (NYSE:GFC), which per the authors is a "NYSE-listed shellgame, in our opinion."

From the report, below are the key allegations as to why GFC should trade far, far lower per Dalrymple:

  • Complete lack of financial disclosure. GFC has not filed financial statements since becoming public a year ago. Consequently, there is no publicly available information available to shareholders. We believe this is intentional.
  • Impaired and overvalued assets. The acquired assets were likely impaired and overvalued at purchase; quality has eroded in 2010. In our opinion, critical information on asset quality, performance and a long history of audit problems has been kept from GFC shareholders.
  • Undisclosed related-party transactions and affiliations. An examination of numerous transactions indicates self-dealing to us. Moreover, we believe these relationships have been carefully edited from GFC documentation to give the illusion of arms length transactions.
  • Strong ties to the investment underworld. GFC insiders exhibit strong ties to individuals and entities that have been sanctioned, sued or shut-down by regulators, including Jason Galanis, Matthew Jennings and Westmoore Capital.
  • A deeply troubled company. GFC has many hallmarks of a classic fraud. In our opinion, GFC exhibits: a lack of financial disclosure, insider dealing, and obfuscation of both relationships and transactions. When this information is widely disseminated, we expect the stock to trade at a fraction of the current price.

There is much more in the report, and while we have not verified the claims independently, there does appear the risk that these shares will trade materially lower as investors digest all the presented allegations. The report's conclusion on valuation is not favorable: "To us, GFC looks like a pink-sheet stock scam writ large. It has a market value of almost $1 billion and an NYSE listing to give the cover of respectability, but we do not believe the story...At some point we believe that the light of day will shine on GFC’s activities and the story  will unwind in a spectacular fashion and the stock will collapse."

With a float of 25 million shares and short interest of just 180k, a bearish bet on this stock may just make a delayed Christmas present for someone...

Full report from Dalrymple Finance (pdf), and as always buyer (and shorter) beware.


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Mon, 01/10/2011 - 11:43 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Why would a company like this go public? Just because they could?


Mon, 01/10/2011 - 11:49 | Link to Comment Misean
Misean's picture

"GFC has many hallmarks of a classic fraud."

So do JPM and GS, but they're still around...

Mon, 01/10/2011 - 11:55 | Link to Comment Star Warrior
Star Warrior's picture


Mon, 01/10/2011 - 11:58 | Link to Comment DonutBoy
DonutBoy's picture

Size matters

Thu, 07/14/2011 - 03:17 | Link to Comment knightrider007
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Banks overseas are typically much more innovative.In the west banks think they’re being innovative when they get a Twitter account.In Asia you can sign up for the next big IPO from an ATM.You can send a worldwide wire transfer from your mobile.You can denominate accounts in different currencies and precious metals. eulogy speech

Mon, 01/10/2011 - 11:53 | Link to Comment snowball777
snowball777's picture

Global Financial Clusterfuck

Mon, 01/10/2011 - 11:57 | Link to Comment gwar5
gwar5's picture

"Investment Underworld"

Is there an Overworld?

Mon, 01/10/2011 - 12:01 | Link to Comment redpill
redpill's picture

Buy the fucking dip, all in, with leverage?

Mon, 01/10/2011 - 12:02 | Link to Comment hannah
hannah's picture

whether a company is real or not isnt really important when the whole market is just one big fed or pd plaything...!

Mon, 01/10/2011 - 12:04 | Link to Comment williambanzai7
williambanzai7's picture

Gee wiz, I am sure the SEC is watching YouPorn as we read this.

Mon, 01/10/2011 - 12:10 | Link to Comment redpill
redpill's picture

Mon, 01/10/2011 - 12:10 | Link to Comment Shell Game
Shell Game's picture

I didn't do it.

Mon, 01/10/2011 - 12:19 | Link to Comment Tortfeasor
Tortfeasor's picture

Look at the one year chart.  May & June look like a classic 'pump n dump'.  2x the float trading at the highs.

Mon, 01/10/2011 - 12:25 | Link to Comment Sylvia Plath
Sylvia Plath's picture

Has anyone else decided to call their phone # listed on Google finance: +1-407-805-0879.  Interestingly enough it has ALREADY BEEN DISCONNECTED!!!

Looks like the rats are already running from the sinking ship!

Mon, 01/10/2011 - 14:33 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

Check the website -Hilarious

Now, check the linked website. A little better until you check fund fact sheets (hint: these are ETFs of ETFs !!!) Also notice the non existent volume on the funds.

Mon, 01/10/2011 - 12:47 | Link to Comment Sylvia Plath
Sylvia Plath's picture

Not to mention a Mail box (PO at that) next to a shopping mall and graveyard... Who needs high level finance when you have google earth and some logic?,...

Mon, 01/10/2011 - 14:10 | Link to Comment deepsouthdoug
deepsouthdoug's picture

GFC - 2500 shares traded?  Am I looking at the right GFC?

Mon, 01/10/2011 - 14:20 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

About GFC: From Forbes Mag just last week :

NYSE-Listed Gerova Financial Has Close Ties To Westmoore Ponzi Scamsters


And this from Forbes some years prior:

The Long Reach Of John Peter Galanis

Mon, 01/10/2011 - 14:34 | Link to Comment deepsouthdoug
deepsouthdoug's picture

I can't short em through TD Ameritrade - Anyone else having an issue?  I got a message 'these shares not available to short'. 



Mon, 01/10/2011 - 15:02 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

a/o 12-15-10 open short interest 376K (of 24MM float)

BTW Dalrymple says 90% of the float is restricted meaning that only 2.4MM shares are potentially available for loan therefore the real short interest ratio is more like 15%. Pretty high.

Mon, 01/10/2011 - 16:23 | Link to Comment Sylvia Plath
Sylvia Plath's picture

In order to short, someone must be willing to buy from you, and loan you those shares to short.  Now that the cats out of the bag, who's going to do that? You an't the only "genisus" out there :P

Try shorting GM or something more liquid if you want to take your pants off!

Mon, 01/10/2011 - 17:50 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

You'd better stick to poetry. At least in that enterprise no one will understand when you are bullshyting them.

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