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We do our best to find and present facts, based on extensive primary research and using public sources.
But we will profit if these stocks decline or, when we are long, rise in value.
We do not offer advice on how to trade a stock. We present our views.
We do our best to find and present facts, based on extensive primary research and using public sources.
But we will profit if these stocks decline or, when we are long, rise in value.
We do not offer advice on how to trade a stock. We present our views.
J Capital is short Hut 8 Corp. (NASDAQ: HUT, TSX: HUT)
Management hiding stock ownership through undisclosed related party,
a stock-promoter cabal, and a host of left-for-dead assets
- Hut 8 recently merged with U.S. Bitcoin Corp. (USBTC). We uncover that USBTC is backed by promoters with a history of legal trouble. In its short existence, USBTC appears to have defaulted on a loan and paid two government fines, one for committing securities violations.1
- One of USBTC’s largest shareholders is an undisclosed related party.
- Our diligence highlights USBTC’s core asset, purchased from bankrupt Compute North, has historically failed to provide energy and high-speed internet—unquestionably the two most important inputs for mining Bitcoin. Compute North’s bankruptcy docket showed that no one else wanted the assets, aside from one bankrupt entity, which bid up the price of USBTC.
- One person highly familiar with USBTC told us, “without the merger, [USBTC] would have done a structured bankruptcy.” Why then did HUT pay $745 mln2 to acquire this company and its planned payments? Even worse, we estimate a value for USBTC that’s as much as 70% less. Typically, such egregious over-payments occur only when management is being enriched.
- USBTC’s co-founder/CEO (now HUT CSO/director) is a 30-year-old used-car salesman from Vancouver whose history is littered with involvement in SEC-defined pump-and-dumps, sporting share-price declines of 83%. Its other founder, now HUT’s president, has seemingly abandoned several failed start-ups.
- We reveal a relationship between USBTC and the SEC-charged Honig group stock promoters. The SEC accused the Honig group of engaging in ”classic pump and dump” and “fraudulent schemes.”3 Stocks the group has been associated with are down an average of 89% from peak.
- We link the USBTC CEO to multiple Honig group promotes. Under that CEO, Michael Ho, USBTC gave one affiliate a consulting agreement despite “never receiving a resume [or] otherwise vetting her credentials.”4 We believe that, at worst, this was a plan to steal from shareholders or, at best, a bad process.
- The Honig group members were early investors in USBTC. USBTC was investigated and fined over violations of securities law alleging that they hid the identity of stock promoters.
- In a DOJ plea agreement, the CEO of YesDTC, an earlier Honig group promote, explained how the scheme worked: “Honig wanted to use promotions to drive up the price of YesDTC shares and then sell his shares.”
- USBTC management hired a 13-year-old “chief meme officer” with family ties to the Honig group and the disgraced Miami mayor, who is under FBI investigation for alleged bribes and more. Investors need to ask why the company employed a child with connections to stock promoters.
- We have linked another group of likely stock promoters, the DesLauriers twins,5 to both of HUT and USBTC’s CEOs. We believe that the DesLauriers may also be behind the promotion scheme.
- Limited lock-ups and undisclosed related-party shell corps lead us to believe insiders may soon sell shares.
- No. 1: Note that USBTC co-founders locked up only a fraction of their shares.
- No. 2: The related party holding shares is the USBTC CEO’s life partner. She and the CEO appear to have gone to lengths to hide their relationship. Her LinkedIn page never mentions her “investment firm,” and it uses what is likely to be a fake a name. We suspect that the firm could be a shell corp for the USBTC CEO and that the partners could dump shares quietly on unsuspecting shareholders.
- No. 3: Two promoters sold their stock to “other equity holders of USBTC,” though Jonathan Honig, Barry Honig’s brother, remains a shareholder. We think it’s likely that “other equity holders of USBTC” may be a reference to additional shell corp games. Once again, this seems to be happening to set up a future share dump.
- Hut 8 came to market via reverse merger on the little-known NEX board of the TSXV, home to many scams and frauds.
- Hut 8 employed Redchip, a PR firm from the Chinese RTO era, as its IR firm. Certain Redchip clients’ securities registrations have been revoked, and many others are down by upwards of 95%.
- Hut 8’s former auditor, Dale Matheson Carr-Hilton LaBonte LLP, was sanctioned for “violating PCAOB rules and standards” in 2021, when it was still conducting Hut 8’s audits.6 Other Dale Matheson clients’ stock prices have declined more than 95%.
- Hut 8’s North Bay mining facility has been non-operational for an extended period of time, and problems at its Drumheller facility “have been causing miners to fail.”
- We think Hut 8’s HPC and USBTC’s AI ventures are nothing more than buzzwords. Hut 8’s HPC business is floundering, and USBTC is spending $40 mln on “AI equipment” from an unnamed provider. Given this company’s record of poor disclosure, we believe shareholders should ask who is selling this equipment.
- The combined entity is a result of a failed merger process in which no other party contacted was interested in merging with either Hut 8 or USBTC. Why did other parties walk away but this one did not?
- Behind the promoter network is a slew of left-for-dead assets. The combined company has an industry-low efficiency rate ad, post halving, will produce Bitcoin at a loss of close to $20,000 per Bitcoin at current spot prices.
- USBTC’s managed services business appears to be at significant risk. It is currently being sued for patent infringement by Lancium, which has been successful in its other lawsuits.
- Major dilution ahead: with an estimated $21.4 mln of cash7 and its Bitcoin subject to the company’s HODL strategy, we expect the company to raise at least $200 mln in the near term just to stay in business.
- Management clearly hasn’t learned from its mistakes. The company already appears to have defaulted once in its short history and yet has taken on another mountain of debt.
Ultimately, we strongly believe that shareholders are likely to feel the pain of being on the wrong side of an over-levered pump-and-dump, only to be left holding the most inefficient Bitcoin miner, which is unprofitable even at a Bitcoin price of over $60,000.
1. Apparently defaulted loan was for Pecos, Texas site. See page 185 HUT S-4: https://www.sec.gov/Archives/edgar/data/1964789/000110465923115414/tm235928-38_s4a.htm. Fine of $1 mln to the City of Niagara and an order to halt operations due to noise pollution: https://www.coindesk.com/policy/2023/04/05/us-bitcoincorp-expected-to-settle-with-city-to-resume-mining-in-niagara-falls/ Fine of $1 mln to the state of New York in partial settlement of a case charging USBTC made an illegal securities offering. See page 54 HUT S-4:
https://www.sec.gov/Archives/edgar/data/1964789/000110465923115414/tm235928-38_s4a.htm
2 Inclusive of $495 in stock, $160 mln in debt (per S4 February 13, 2023), $40 mln in planned AI purchases, and $50 mln in planned capital expenditure that has not been detailed.
3. See “SEC Charges Microcap Fraudsters for Roles in Lucrative Market Manipulation Schemes,” September 7, 2018 https://www.sec.gov/news/press-release/2018-182
4 See page 8, Massachusetts Consent Order, March 22, 2022, https://www.sec.state.ma.us/divisions/securities/download/20220322090340072.pdf
5 See https://www.newswire.ca/news-releases/former-ceo-of-i3-interactive-sues-for-wrongful-dismissal-885971437.html,
https://twitter.com/TimmyAAPL/status/1274831993004580866, https://iknnews.com/cannabis-wheaton-cbw-v-a-total-scam/
6. See PCAOB, https://pcaob-assets.azureedge.net/pcaob-dev/docs/default-source/enforcement/decisions/documents/105-2021-021-dale.pdf?sfvrsn=6cf66cdb_4
7. pro forma for the recent $7.1 mln land and substation acquisition
https://www.sec.gov/Archives/edgar/data/1964789/000110465923115414/tm235928-38_s4a.htm
2 Inclusive of $495 in stock, $160 mln in debt (per S4 February 13, 2023), $40 mln in planned AI purchases, and $50 mln in planned capital expenditure that has not been detailed.
3. See “SEC Charges Microcap Fraudsters for Roles in Lucrative Market Manipulation Schemes,” September 7, 2018 https://www.sec.gov/news/press-release/2018-182
4 See page 8, Massachusetts Consent Order, March 22, 2022, https://www.sec.state.ma.us/divisions/securities/download/20220322090340072.pdf
5 See https://www.newswire.ca/news-releases/former-ceo-of-i3-interactive-sues-for-wrongful-dismissal-885971437.html,
https://twitter.com/TimmyAAPL/status/1274831993004580866, https://iknnews.com/cannabis-wheaton-cbw-v-a-total-scam/
6. See PCAOB, https://pcaob-assets.azureedge.net/pcaob-dev/docs/default-source/enforcement/decisions/documents/105-2021-021-dale.pdf?sfvrsn=6cf66cdb_4
7. pro forma for the recent $7.1 mln land and substation acquisition
FEATURED REPORTS
Lake Resources (LKE ASX) “Lake” is one of several lithium explorers planning to use an unproven direct lithium extraction (DLE) technology to remove lithium from brine. If Lake can get the DLE technology to work then it plans to build a $1 bln processing facility in a remote location in the Andes.
Lake is claiming to produce “cleaner lithium.” We believe, however, DLE will still use large amounts of water and produce toxic waste. Lake has failed to get an operational pilot plant on site three years after promising it would. Lake insiders have successfully sold $8.1 mln in stock in the last year. Lake granted 41.5 mln options to financial institutions that published favorable research on the company. Insider share sales have followed a pattern of Lake announcement, followed by favorable research, stock price rise, and then insider sales. Investors had been expecting the delivery of the pilot plant to site and a definitive feasibility study (DFS) by the end of June. Instead, they got the resignation of the CEO and Managing Director Steven Promnitz without a replacement. |
For the last 15 years, we believe NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built. During that time, management has been treating this 12-person concept company like an ATM, awarding themselves base salaries that rival those of the CEOs at Newmont and Barrick and total compensation packages comparable with those at Rio and BHP. If the information from the company’s feasibility studies were presented in a more honest light, investors would understand that the Donlin deposit, of which they own 50%, is not feasible to put into production at any gold price.
We think management misleads investors with custom metrics designed to deceive, directing investors to presentations which claim the deposit will require $6.7 bln in capital, however, the feasibility study clearly shows this number is $8 bln (already, we believe, far too low). The proposed natural gas pipeline central to powering the project is dead on arrival. The terrain around the Donlin deposit is among the most inhospitable on the planet. Based on recent cost-per-inch/mile data we obtained from ICF, we show the costs of the pipeline (if someone were even to attempt to build it) are likely in excess of $3 bln, two to four times higher than management’s previous forecast. One engineer we spoke with who worked on costing the pipeline told us he doesn’t know of any engineering company that has the experience to build such a complex pipeline. Management has a long history of over-promising. The Galore Creek project, once promoted as the company’s key asset, was quietly sold at a loss in 2018 after revised capex estimates increased by 5x. In short, this is a stock promote, not a mining plan. |
We don't think Faraday Future (FFIE), an EV SPAC, will ever sell a car. So far, it's nothing but a bucket to collect money from U.S. investors and pour it into the black hole of debt created by its founder, China's best-known securities fraudster, Jia Yueting.
Jia is the Chinese equivalent of Elizabeth Holmes. But just as she might be able to raise money if she fled to China, so Jia has moved to the United States, where there's a new pool of gullible investors. |
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Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
Investments involve risk. The value of investments can go down as well as up, and investors may not get back the full amount invested. The information contained in these reports has not been reviewed in the light of your personal financial circumstances. Reliance upon the information is at your sole discretion.
The reports and other commentary displayed are for information purposes only and should not be relied upon as investment advice. The information provided is not a complete analysis of every material fact regarding any country, region, or market. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this posting and may change without notice.
Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
Investments involve risk. The value of investments can go down as well as up, and investors may not get back the full amount invested. The information contained in these reports has not been reviewed in the light of your personal financial circumstances. Reliance upon the information is at your sole discretion.