That’s not my name - fraud risk and corporate name changes
Featuring FuboTV and Ideanomics
From 2016 through November 9th, 2021, 10,682 companies filed a 10-Q or 10-K (quarterly/annual reports) with the SEC. Of these ~10,000 companies, approximately 14% changed their name during that time. Our research shows that companies with frequent name changes are higher risk.
Read the full post on our blog here.
Why?
Frequent corporate name changes generally mean one of two things:
1) there’s been a “reverse merger” which is a risk factor for the reasons described below OR
2) the company is catering to the whims of the market e.g. by changing their name to include “blockchain” or “AI” without making meaningful changes to their business.
Companies that consistently cater to market hype (category 2) are often “pump and dump” schemes. A “pump” is when a stock gets a boost from someone exaggerating the truth (or just lying). Pumps are followed by the responsible individuals dumping (selling) their shares and abandoning ship.
In unrelated news, Bedrock AI will henceforth be known as DogeRocketNFT.AI.
Ten points to whoever can guess the corporate entity with the most name changes since 2016!
Never mind, I’ll just tell you, it’s FuboTV ($FUBO). You might remember FUBO from us pointing out that we knew that FUBO was a high risk company before the short report, financial statement restatement and the 60%+ drop in stock price.
Here are the various names of the corporate entity now known as FuboTV:
FuboTV merged with FaceBank in March 2020. The original FuboTV corporate entity actually only had one previous name which was “S.C. Neworks, Inc.” Pulse Evolution Group bought FaceBank AG, which at the time was just a holding company. That holding company in turn bought Nexway AG, a German e-commerce company. After that, Pulse Evolution changed their name to FaceBank. This entity referred to themselves as a “developer of hyper-realistic digital humans”. Prior to becoming Pulse Evolution, the company was known as Recall Studios, “an award-winning feature film and television specials production company” that made only $41,000 in revenue in 2017 (the one year they filed an annual report). The name change press release notes that Pulse intended to “build your most knowledgeable teacher, your most trusted advisor, and in a digital world that reveals more possibilities each day, maybe even your best friend.” It’s a somewhat amusing press release and you can read it in full here.
Did you get all that?
The merger of FuboTV and FaceBank resembled a “reverse merger”, a process by which a private company merges with a public one and subsumes it’s operations, management team, strategy etc. Instead of going through an Initial Public Offering (IPO), you can opt to merge with another public company (often a shell) and boom, now you’re a public company. Yes, SPAC deals are a form of reverse merger. In this case, FaceBank wasn’t a shell company but the merger did offer a way for FuboTV to access public markets without an IPO, an alternative that has pros and cons.
Companies that go public through reverse merger tend to be higher risk because they don’t have to undergo the diligence and compliance work associated with an IPO. Here’s the SEC with a much more detailed description - https://www.sec.gov/investor/alerts/reversemergers.pdf. For the Canadian readers, Sino-Forest was famously a reverse merger and scared many investors off foreign reverse mergers for a brief moment in time.
Other companies with an uncanny number of name changes include Ideanomics ($IDEX) and Valaris Ltd ($VAL) plus a few penny stocks. Ideanomics is a company that Hindenburg Research called a “flagrant securities fraud” in June 2020. Bedrock AI algorithms have rated IDEX as high risk from 2019 through today. Ideanomics is currently being investigated by the SEC. Bedrock AI for the win, once again.
Here are IDEX’s previous names for your reading enjoyment:
Not all companies that change their names are frauds; I’m sure we don’t need to tell our enlightened readers something so obvious. Name changes are simply an indicator of underlying risk factors. Do your due diligence and happy investing!
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None of the above is investment advice and we are not investment advisors. Do your own research.
Bedrock AI is software that extracts red flags for all SEC filers and predicts crisis in real-time. Protect your portfolio. Visit bedrock-ai.com to request a demo of our institutional product.