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Short Seller Attacks Solar Company’s ‘Fabricated’ Financials

Eiad Asbahi’s Prescience Point says Enphase Energy should be investigated.

Investment firm Prescience Point Capital Management, best known for identifying short selling candidates, fired off a report on Wednesday asserting that solar equipment supplier Enphase Energy has engaged in financial fraud and recommended shorting the stock to essentially zero.

“We believe the company’s financial statements filed with the SEC are fiction,” the investment firm insisted in the 55-page report, posted on Prescience Point’s website, asserting its price target is “delisted.” 

The firm had issued its first negative report on Enphase in 2018. In its updated report, Prescience Point called for government bodies to investigate Enphase, for its auditor Deloitte to launch an in-depth investigation of the company’s accounting practices, and for Enphase’s board of directors to establish an independent committee to examine the findings and analyses presented in its report.

In response, shares of Enphase, a supplier of micro inverters for solar panels, plunged more than 27 percent, to around $38 per share, cutting its market value to less than $5 billion. It was trading at around $39 late Wednesday afternoon. 

Enphase did not respond to a request for comment on the allegations in the report.

Baton Rouge, Louisiana-based Prescience Point was founded by Eiad Asbahi in 2009. The firm explains on its website that it “employs forensic investigative techniques to unearth significant mispricings in global markets...in order to uncover significant elements of the business that have been overlooked or ignored by others.”

In November 2018, Institutional Investor noted that Prescience Point successfully shorted fraudulent Chinese companies, as well as Warren Buffett holding Chicago Bridge & Iron Co., a construction company with questionable acquisition accounting.

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The firm also made the case against cereal giant Kellogg, whose stock subsequently sank but recently rebounded to the mid-$60s.

It has also made money going long stocks Asbahi believed were unjustifiably targeted by the short-selling crowd, such as Hawaiian Holdings, the parent of Hawaiian Airlines. It also took a controversial long position in MiMedx Group, a heavily shorted medical products company whose top management was forced out in 2018 after the company was accused of channel stuffing.

Last year, Prescience Point’s flagship fund, which manages $67 million, generated an estimated return of 104 percent, II reported earlier this year. 

In the case of Enphase, Prescience estimated that at least $205.3 million of the company’s reported U.S. revenue in fiscal 2019 was “fabricated.”

Prescience Point added that it “appears that the company inflated its international revenue significantly as well,” stressing that this is based on statements provided by former employees and other solar industry participants.

Prescience Point also insisted that the company’s huge increase in its gross margin — from 18.4 percent to 39.2 percent over a three-year period ending in the first quarter of 2020 — “is fiction.”

Prescience Point noted that the company’s stock has increased by 4,653 percent since CEO Badri Kothandaraman was promoted to CEO in 2017. The investment firm pointed out that it has been raising alarms about questionable accounting at Enphase for two years, but lamented that these concerns “fell on deaf ears” as the stock continued to rise.

Prescience Point said its latest investigation included interviews with numerous former employees. 

“Multiple former employees in India independently told our private investigators that Enphase was fabricating figures it reports publicly, and that the company is using overseas operations to help executives perpetrate potential accounting violations,” Prescience Point said in a statement.

Prescience apparently is not the only one to seemingly have concerns about Enphase. Insiders have recently been selling a fair amount of the shares.

In the past six months alone, for example, roughly 26 million more shares were sold by insiders than were purchased, according to Yahoo Finance.

In the past three months, more than 16 million shares were sold by insiders, while fewer than 200,000 shares were bought by insiders, according to Nasdaq.

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