From SOS to Ebang, Short Seller Firm Alleges Capital Fraud
Following its episode with SOS Ltd, short-seller Hindenburg Research has opened another chapter of its market scrutiny saying it has taken a short position in shares of Ebang International Holdings based on certain allegations. The forensic financial research outfit alleges that Ebang has not been using the majority of its capital proceeds to develop its business operations as claimed but rather cashed out of the company through opaque deals.
“Ebang claims to be a “leading bitcoin mining machine producer”, yet our research indicates this extraordinary claim is backed by no evidence,” Hindenburg states. “Ebang released its final miner in May 2019 and has since seen its sales dwindle to near-zero, delivering only 6,000 total miners in 1H20.”
Based on the premise of a dwindling mining machine business, the short selling research firm notes that Ebang shifted attention to a cryptocurrency exchange launch called “Ebonex”.
The exchange’s announcement reportedly raked in as much as $922 million to Ebang’s market even when the exchange’s reports “appears to be fictitious volumes” as a new platform with no online presence.
“Ebang is yet another cautionary tale for inexperienced retail investors enthused by anything crypto-related,” the firm states. “As is so common with other ridiculous China-based schemes, the company will likely keep selling shares as long as investors are willing to keep buying them. We think this is a clear one-way street, and the capital isn’t coming back.”
Founded in 2010 but joined the blockchain industry in 2014, Ebang got listed publicly on Nasdaq last June. Hindenburg notes that Ebang immediately diverted proceeds from its Initial Public Offering (IPO) outside of the company in a series of highly irregular transactions. The research firm also claims that Ebang’s miner sales have been in decline Since 2018.
Ebang in its response, refutes all the allegations saying that “the Hindenburg Report contains many errors, unsupported speculations and inaccurate interpretations of events.” they also plan to “further review and examine the allegations and misinformation therein and will take whatever necessary and appropriate actions may be required to protect the interest of its shareholders.”
Hindenburg Research and Culper Research had in February raised concerns ranging from regulatory risk to alleged false claims by SOS Ltd related to its crypto mining operations. Hindenburg called SOS “an obvious China-based shell game” and Culper thinks its shares are “worthless” as its crypto mining purchases and acquisition claims appear to be “extremely problematic.”
Regarding its case against Ebang, Hindenburg concludes that the IPO and secondary proceeds of the mining equipment company are gone and its investors “should recognize that this is mainly a story with not much of a business to support it.” Ebang displays all the classic hallmarks of a capital-raising scheme, the research firm adds pointing that investment in the Chinese company will end on a negative note.
“We don’t expect a dime of the money will come back, but we wish the best of luck to all.”