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Globo CEO Admits He "Falsified Data" After Short-Seller Report, Resigns; But First Sells 40 Million Shares
Globo plc is no stranger to attracting skeptical short-seller attention.
Like many other companies with a complex org chart, no cash flow (ever, in its history), a shady appearance in the public markets (the company emerged on London's AIM exchange aimed at "smaller, growing companies" as a reverse merger), a track record of equity-funded rollups, a penchant for raising both debt and equity capital, the software maker has regularly been fodder for short sellers over the years, such as Ennismore Fund Management which in January of 2014 published a report revealing its short position on the basis of the following:
Globo is a Greek software company with two main product categories: text-based services that make web content such as social networks available for feature phone users, and a remote access product that employees can operate using their own personal smartphone or tablet (in the first half of 2013 these two products accounted for nearly 90% of Globo’s revenue).
As at 21st January 2014 the company has a market capitalisation of GBP 267m despite never generating positive free cash flow after nearly a decade of publically reporting its financial statements. Future growth is expected to come mostly from the second of Globo’s products – GO!Enterprise - which is an app that allows a company’s employees secure remote access to work servers from their own personal mobile device, which the company describes as “ideally suited for the implementation of Bring Your Own Device (BYOD) mobility strategies”. According to the 2013 interim results statement, Globo management “believe that GO!Enterprise revenues will soon become the most significant part of Group revenue”. We have a number of concerns about this product and the level of revenue reported for it that have led us to conclude that this valuation is not justifiable and the funds that we manage are short the stock.
Following the report, Globo's stock initially dipped, but after several denials by management promptly regained its previous highs.
Then not much changed, with the stock trading at or above 40p for a long time...
... until last week when another hedge fund, this time Quintessential Capital Management issued the latest 39-page report slamming Globo with the simple enough title: "Our Final Opinion: It’s a Greek Parmalat" in which it basically said the company was nothing more than a cook-booking fraud:
In a nutshell, we are of the view that Globo Plc is massively overstating its revenue and profit by generating fictitious sales invoices from shell companies created and controlled by Globo to pose as legitimate clients. In order to justify the resulting cash shortfall, other shell companies pose as suppliers to Globo and generate fictitious expenses, part of which are then capitalized. The results of our investigation suggest that the Company relies on its fabricated financial statements to issue shares and to secure credit to cover its ongoing expenses and to finance the acquisition of legitimate businesses, in the hope of diluting the "fraudulent" part of its business and eventually listing itself on the NASDAQ.
While a minor portion of its business is authentic, the results of our investigation strongly suggest that at least 60% of Globo’s turnover is fabricated. The Company’s alleged activities, in our view, suggest possible criminal behavior and to cause its total demise if exposed.
While the rest of the report is self-explanatory - it's a fraud - the following perusal of the company's, and especially that of its Greek CEO Costis Papadimitrakopoulos (whose linked in profile has now been deleted), history should have been sufficient to raise loud, red flags for pretty much anyone.
Costis Papadimitrakopoulos founded Globo Plc in 1997 out of a small office in Athens, Greece. Costis has followed an unconventional career path for a tech entrepreneur. Costis initiated his career as a professional windsurfer. He then joined his family business, a food processing company. This experience apparently involved plenty of travel abroad, especially in Eastern Europe, where Costis claimed he formed many business contacts which, as we will see later, might play a part in the subsequent Globo affair. Following his family business experience, he then completed a degree in Electrical Engineering and subsequently started Globo.
According to our research, in 2007 Globo went public not through a customary IPO, but by way of a reverse merger with an Israeli shell company. While a legitimate instrument, reverse mergers have historically been used by numerous fraudulent companies to float their shares and their reputation is doubtful, since they allow a company to go public while avoiding the scrutiny and due diligence typical of an IPO.
Over the years Globo showed an impressive sequence of increasing sales and profits (albeit with increasingly negative free cash flows) and was active in M&A transactions, both as a buyer and as a seller. In 2013 and 2014 it acquired Notify and Sourcebits, two California-based mobile software companies for $5m and $12m respectively. Each transaction was performed at a valuation of 1x sales so Globo acquired $17m worth of sales.
In 2012, Globo sold 51% worth of Globo Technologies (GT), a subsidiary engaging in software development and distribution, to Globo’s management. Although the consideration was about $15m, the terms of payment were unusual and one of the net effects of the disposal was to effectively decrease the amount of trade receivable on Globo’s balance sheet. This is because at less than 50% GT assets, including receivables, get consolidated and treated as a long-term investment.
Following its US acquisitions, Globo’s CEO has moved to Palo Alto in order to lead Globo’s expansion in the United States, although the company’s headquarters remain in Athens. In June 2015 Globo attempted to raise $180m on the high yield bond market.6 The move raised many eyebrows in the investment community7 since these bonds would be issued at a very high interest rate. According to its financial statements, Globo sits on $104 of cash (though most of it held in banks with speculative credit ratings) and it is unclear why it would be willing to pay a 8%+ interest rate while having cash sitting unused in the bank. The bond issue was first reduced to $120m and then suspended altogether because it failed to generate sufficient interest from perspective buyers. According to our research, prior to their attempt to issue junk debt, Globo tried unsuccessfully to raise a senior secured loan of $120m from a large global investment management firm. The apparent inability of Globo to pass serious creditor due diligence lately should be seen with concern.
It should have been but it wasn't.
When the report emerged Globo's CEO promptly refuted "all allegations" made in the report, and requested its shares be suspended from trading in order to give it more time to provide a more detailed response.
Only this time, the CEO's denial failed, and we were surprised to read this morning that following a Saturday board meeting of the U.K.-based software maker Saturday, CEO Costis Papadimitrakopoulos and CFO Dimitris Gryparis told the board admitted "the falsification of data and the misrepresentation" of Globo’s financial information.
In other words, the CEO and CFO both admitted that not only had they been falsifying data, but that the company was a pure fraud as so many short sellers had claimed in the past. Then they promptly resigned.
Chief Operating Officer Gerasimos Bonanos was also suspended, as the company - now without any leadership - "investigates further" it said Monday in a statement. Globo told its lawyers to report the matter to authorities and its principle bankers.
However, we wouldn't hold our breath for the company to announce that upon further inquiry, not only does it have no assets left, but its chief executives were using it as a fraudulent shield from which to steal with impunity.
And while Global’s stock was suspended last week after the Quintessential report (at a price of 28.25 pence valuing it at GDP106 million) we were even more surprised to learn that while the CEO felt the noose getting tigher, he was busy selling stock.
According to Alliance News:"Globo also said that Papadimitrakopoulos had informed the company that up to last Thursday he has sold 42.05 million shares in the company, and pledged 10 million shares under a personal loan agreement with Lantau Holdings Ltd - a loan that will default at close of business Monday due to two consecutive days of the suspension of the company's shares from trading."
At Globo's last quoted price before suspension of 29.45 pence, the share sale would amount to GBP11.9 million.
This means Papadimitrakopoulos' holding in the company has been reduced from 18.67%, or 69.78 million shares, to 7.42%, or 27.73 million shares. Globo noted that it has requested additional details about these dealings, and does not yet "possess all relevant information about their timing and nature." It will make a further announcement once this information is received.
Prior to the share suspension, Globo had a market capitalisation of GBP105.6 million.
It is very likely that Papadimitrakopoulos is long gone, and is now to be found - or rather not found - in some quiet, non-extradition country, as this latest episode of truly hilarious corporate fraud concludes.
As for shareholders who suddenly have absolutely nothing, maybe they can address their complaints to the regulators or the auditors who allowed this fraud to continue for years, or perhaps to Globo's corporate broker, Canaccord Genuity, which moments ago also resigned with immediate effect, effectively admitting it never did any underwriter due diligence on the company for the duration of its paid tenure.
No matter who they appeal to though, one thing is certain: their money is forever gone, in this latest example of corporate greed gone absolutely wild.
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He'd better sleep with one eye open...
Canaccord Genuity, which moments ago also resigned with immediate effect, effectively admitting it never did any underwriter due diligence on the company for the duration of its paid tenure.
Why am I not surprised?
Activist short sellers are the only source of justice in the financial world.
This guy must be hired by the NY Fed, pronto. A very valuable asset with appropriate skill set.
...Son of Corzine...
feature film coming to a theatre near you Xmas 2015.
No Big Deal
https://www.youtube.com/watch?v=1YDurhx8QyA
Nice work, if you can get it...
How come my gigs never work out like this?
I guess you gotta know a guy who knows a guy....
Matt LeBlanc can play him in the TV mini-series...
Cynic that I am... I have to believe that practically EVERY large corporation does what this guy did on some level. Why? I think it's because we have lost our spiritual soul as a generation and very few people are in tune with their inner conscience anymore. There will be a heavy price to pay for this negligence.
"So what did he do wrong? Weren't his investors professionals that were well aware of the risks. I don't see anything wrong with this." said Lloyd Blankfein
HAHAHAHAHAHAHAHAHAHA, good one :)
Gerasimos Bonanos...Bonanos....hmmm, wasn't here a italian mafioso family in California named Bonano? Any italio-Greek relation? Hmmm, I wonder...
https://en.wikipedia.org/wiki/List_of_Italian-American_mobsters_by_organ...
Thanks for reminding me of the good old days.
Windex will solve that!!!!!
Or humous.
If he was caught is because he wasnt good. The good ones are never caught up.
Hear no evil, see no evil, just cash that check . . . and fast.
There's never just one cockroach...
He'd betta hope the mob in Greece didn't not lose on their positions or he will be taken on a dive to see the underwater ancient ruins without an air tank.
Globo Oh-no Bozo.
This won't be the last one of these...
Just watch, He'll get away with it. The rule of law has been lost.
Must be nice to not have any conscience. At all.
Guess it all depends on who he knows in government as to whether he keeps the money or goes to jail. He should sign up to work for Corzine.
http://globoplc.com/wp-content/uploads/2015/06/globo-admission-document....
http://www.investegate.co.uk/aim/rns/schedule-1-israeli-acquisitor/20071...
I'm not expert of course, but it seems to me that anyone who lost money with these guys deserved to lose that money. It's like looking at a house where every area home has iron bars on the windows and believing that people move in for the "good schools."
Gun to my head and had to guess? Somebody was hiding lots and lots of money from the taxmensch.
Thank you, Lloyd.
(See above.)
Financial Fraud is the new MBA track at Pincetown and Hahvarrd.
Rugged individualism!
He bears a striking resemblance to the character in "American Psycho".
No coincidence, I am sure.
http://www.businessinsider.com/american-psycho-new-york-restaurants-2011-8
An Israeli shell company, smells as if he's part of the chosen ones. Can't wait until their number comes up again.
http://www.biblebelievers.org.au/expelled.htm
Maybe we can just eventually kick them off the planet.
EDIT: The hasbara is strong today.
"It is very likely that Papadimitrakopoulos is long gone, and is now to be found - or rather not found - in some quiet, non-extradition country, as this latest episode of truly hilarious corporate fraud concludes ..."
He only needs to go to a non-extradition country if he was too dumb to save the standard 10% fine on the profits from white collar crime.
Please post on the chart where Cramer stated to load up on this piece of shit. We all know the general region but just for the sake of precision.
This guy deserves a bullet.
About USD2000 in Thailand.
pay room and expenses....its all taken care of.
You can pay in cash as well, no tracks.
Done.
Squid
Sell it all!
Make it look organic.
They should have known something was wrong when it was revealed that Globo plc was a fully owned subsidiary of Global-Gym Inc.
What's the difference between this guy and the government creeps that put Greece where it is today?
Answer, he didn't work for the government.
Answer, he didn't work for the banks. Fixed it for you. Remember, the government works for the banks too.
Bankers weren't the only criminals,
There were a lot of politicians that got rich.
Oh no doubt the politicians are criminals but they're doing the work at the behest of the bankers/corporations. Fucking over the electorate just doesn't automagically make you rich. You need someone to provide the payola.
How do they separate the men from the boys in Greece? With a crowbar...
It's outrageous that they didn't actually perform any due diligence, after being paid the big bucks. Next thing you know, companies will be charging their clients hefty storage fees for precious metals that don't really exist.
So when is somebody going to stick a pin into AMZN's share price?
According to Yahoo Finance:
Price per Share 604.48
P/E 866.43
EPS 0.70
Total Debt 18.59 Billion
Debt/Equity 149.53
Operating Cash Flow (ttm) 9.82 billion
Levered Free Cash Flow (ttm) 7.12 billion
What happens the day that consumers slow down consumption and the juice to AMZN slows?
The bullshit with that stock will never stop. Up $100 in one month.
You want to know why?
Amazon's true business has nothing to do with selling crap on the internet. Amazon launders money for drug dealers, arms dealers, human traffickers, etc. That is Bezos's true purpose.
Jeff probably has his own personal harem of 8 year old Asian boys.
That is the only thing that makes sense. Same with Herbalife. The company exists to launder money for the Sinola Cartel.
This guy makes Madoff look good. Greeks are a nightmare from all perspectives. The Government, the public sector, the private sector, the corporates, the individuals. What the Fuck Greece! Get it together!
All these conspiracy theories.
I'm sure he meant well.
Like this company isn't any different from all the rest.
Have someone really look deep into Linked In or Facebook's books. The revenue ain't real.
I was just telling my cousin the same thing. How much money does Facebook generate from fake likes? Click farms? Take it a step further and have companies that are subsidiaries of Facebook advertise on Facebook.
Maybe hilarious stuff (depending). Lantau Holdings and this guy negotiated an LTV stock loan of 10 million shares when it was somewhere around 28 cents? According to its website Lantau charges between 3 - 10% for a LTV loan up to 75% of stock value? So this f*ckface could have gotten up to almost $2 million and then paid probably close to 10% interest for a max of 2 days before defaulting? Just out of curiosity - how much would that be?
I must have misunderstood something (I'm sorry). Because this is not a particularly good business model for Lantau Holdings.
" .... or rather NOT to be found in some quiet non extradition country .."
Even money Northern Cyprus
8/11 Russia
Feel sorry for peeps who got burnt here, London is so crooked in finance.
Have a small (£40per point) short position here but its suspended so will not be able to cash in methinks. It will be delisted soon as the full horrors of fraud are revealed.
As sure as the sun rises, the real economies particularly in the EM space are being devasted. The weakest in the links, which are th SMEs can only resort to trickeries. Ask any insurance underwriter for statistics of fires to inventories in downtturns (just an example). You need to smoke the right stuffs to hallucinate in the emerging market growth stories and their stellar SMEs that swim in these many crony capitalist lakes. Leave the table of these card sharps or spend time/money soaking in spins that distingush fraudsters and struggling honest businessmen. Real needs to buy/sell can still take place thru barters or cash.