MetaShortMeta-Studies on Allegations of Corporate Fraud |  |
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We investigate allegations of corporate fraud in public companies.
Our service is tailored for
- actively managed investment funds
- private investors
- lawyers
- government investigators and regulators
- auditors
- internal investigators
- journalists
- securities researchers
MetaShort's analyses have been used for
- decisions on investment allocations
- securities fraud litigation
- short-activist publications
- journalistic publications
- corporate communication strategies
- assessment of insolvency risk
Referrals
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To effectively manage legal and reputational risks in a complex company structure we require the right set of information. MetaShort's reports provide a tremendously helpful overview about the public discussions and players involved Dr. Franziska Leonhardt Former General Counsel & Chief Compliance Officer (interim) of Rocket Internet SE, lawyer, advisor to Private Equity and Corporate |
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We worked with Pascal on several high-profile E.U. cases of class action lawsuits in matters of securities fraud. I know him as extremely competent in the field, client-focused and responsive.
Prof. Dr. Ianika Tzankova
Founding partner of dispute resolution boutique Birkway B.V. Chair of Class Actions and Mass Claim Dispute Resolution, Tilburg University |
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For our short-focused research we at Grizzly constantly evaluate the current landscape of allegations and rumors in the stock market. MetaShort's reporting provides us precise and very useful analyses that are often highly relevant to our decision-making. Siegfried Eggert CEO of Grizzly Research LLC |
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MetaShort's Service Explained
Q: What value does MetaShort provide?
A: Allegations of corporate fraud are published on news channels, in social media, blogs, in legal filings or on activists’ websites. MetaShort provides an independent forensic analyses of the allegations' validity and we dig deep into the publicly available material to do this. In many cases, this analysis provides a much clearer picture on what is actualy going on with the company.
Q: Is this information not already public?
A: Yes. But different sources provide only a few aspects and arguments each. News sources usually only focus on the latest developments and sometimes ignore important aspects. Allegations of corporate fraud are accompanied by many rumors and comments. We found that even dedicated case experts often miss crucial information, even in high-profile audit reports and legal filings.
Crucial information is often hidden in hard-to-find corners of the internet, or not correctly paraphrased in the news media.
Q: Who can profit from MetaShort’s reports?
A: When we provide a report to our clients we are uninvested investigators without picking a site or having any financial bet placed related to the company's securities. Our reporting is of high value to investors, legal investigators, auditors, researchers and the companies’ internal investigators.
Q: Brokers already publish detailed expert analyst reports. These are easily available to their clients, for example within the Bloomberg Terminal.
A: Yes. But brokers’ analyst reports often deemphasize fraud allegations. Investment banks have important business relations with companies and are not incentivised to focus on allegations. Often, analysts refer to auditors’ and regulators’ publications as providing the authority view on fraud allegations.
For example, these are average analyst price targets for Wirecard AG. Only one analyst, Miraboud’s Neil Campling gave a price target of 0, which turned out to be appropriate. Among the much more optimistic analysts are representatives of both regional banks and leading global investment banks.
(data source: MarketBeat)Q: Audit firms and government agencies are tasked to and specialized in investigating corporate fraud. Why do we need MetaShort’s reporting?
A: Empirical studies show that audit firms and government agencies do not sufficiently serve in a fraud-preventing role. Wirecard and Enron are only the tip of the iceberg of widespread securities fraud. For comparison, U.S. financial markets operate with an established class action litigation scheme for securities fraud. According to a Stanford University study an average of 362 class action law suits were brought per year between 2016 and 2020, which is an increase of 105% over the five year average before that.
Despite the vast majority of these cases lead to a settlement agreement or a dismissal, these legal activities establish a conflict resolution process outside of the sphere of audit and regulation alone.
A similar scheme is not established to that extend in the E.U. but cases of large-scale corporate fraud seem similarly common in the E.U. as they are in the U.S. Examples include Dieselgate, Steinhoff, Wirecard, the LIBOR-fixing scandal, money laundering incidents in several banks, and bribery scandals in major industrial corporations like Siemens or Airbus.
Q: What about rating agencies? They are experienced in rating a company’s risks of default. They must be competent in evaluating fraud allegations.
A: Indeed, the bond ratings and the broker analysts’ price targets for equity sometimes deviate significantly. However, rating agencies also have a poor track record of detected early fraud-related risks. For example, rating agencies completely misevaluated the risks in the U.S. real estate subprime market, which was deliberately exploited by sellers of structured investment products and led to a global financial meltdown in 2008.
Q: Aren’t you cherry-picking only a few examples where audit firms, rating agencies or government agencies failed?
A: We believe these shortcomings are systematic—incentive structures are effectively tilted towards investment optimism. In other words, a company that seems to be in business will pay bills and taxes, whereas an insolvent entity causes unrest, unemployment, and financial losses. This creates an irrational incentive for politicians and agencies to keep companies alive, even if there are good reasons to believe that they are failing.
Q: What is MetaShort’s moral argument?
A: Fraudulent companies often show metrics of fast growth. They sometimes provide new jobs and tax income. However, from a macro perspective they do more harm than good. They destroy value by wasting investors’ money, public attention, human resources, and subsidies. They often facilitate crimes of others which leverages the harm they cause on society. Large companies that fail with a big revelation, like—Enron or Wirecard—cause enormies reputative harm to the public markets regionally and in general.
On the other hand, if false or misleading allegations of fraud are published, then a company suffers reputational damages, as well as indirect or direct financial damages. A company can become a strategical target of allegations by profiting competitors or securities traders.
Q: Activist investors include short-sellers, who take short positions in companies and then publish allegations. Companies often refute these allegations and regulators suspect market manipulation. How can we trust information from short-sellers?
A: We are experts on investment research and short-selling. We report on track records of publishing fund managers and short-sellers. And we believe that short-sellers, in principle, provide an important service to public markets. But we also warn against misleading activists' reports and deliberate attempts to market manipulation.
Q: Activist reports can be influenced by other interests, such as a company’s competition or other organisations with the intention to cause damage.
A: That is why we carefully check and compare the allegations and track records of the allegators.
Q: How does MetaShort decide which cases to cover?
A: We focus on cases where allegations were published but neither the company’s refutation nor the allegation itself lead to a fully deciding reaction in the equity and debt market. In other words, we focus on cases that are still undecided. We focus on companies with high market capitalization and where we believe competing reports miss important aspects of the story. This is more often the case for companies not listed in the U.S.