Spruce Point targets Ryan Reynolds-backed fintech firm

Only a day after fintech agency Nuvei introduced actor Ryan Reynolds had taken a stake in its enterprise, a short-seller hit the corporate with a report urging traders to promote their shares.

The report by hedge fund and short-seller Spruce Level Capital Administration accused Nuvei of an absence of transparency, buying  a U.S. firm that had exaggerated its progress, and being  linked to failed crypto trade FTX. Spruce Level mentioned in its report that it might quick Nuvei’s inventory—or wager on the inventory to say no—as a consequence of a possible 35% to 50% drop in worth. 

Following the report’s launch, Nuvei’s shares fell about 2%. Its inventory had been up by almost 65% for the reason that begin of 2023.

One of many issues highlighted by Spruce Level included Reynolds’ funding within the firm. It mentioned the funding was introduced whereas Nuvei was nonetheless coping with the aftermath of its ties with FTX being uncovered, suggesting that Nuvei was utilizing the information as a distraction.  

“Its [Nuvei’s] announcement that achieved actor Ryan Reynolds made an ‘funding’ in Nuvei was a well timed promotional endorsement particularly after we discovered damaged hyperlinks tying Nuvei to FTX,” the report mentioned, referring to web hyperlinks that linked a prime Nuvei govt to the FTX fraud. 

“We first seen Nuvei made an unusually massive $25 million restricted inventory grant to an unnamed third-party marketing consultant and didn’t disclose the character of the providers. Nuvei additionally backdated the popularity of the award,” Spruce Level’s founder and chief funding officer Ben Axler instructed Fortune, suggesting that Reynolds might have been given his stake in trade for promotional duties. Axler mentioned the corporate was not being upfront concerning the nature of the Reynolds’ funding and whether or not it got here from his private funds.

“The announcement of the partnership with an actor like Reynolds reinforces our view that Nuvei’s underlying enterprise is struggling,” Axler mentioned.

Nuvei instructed Fortune in an earlier e-mail earlier than the short-seller’s report that it couldn’t disclose particulars about Reynolds’ stake as a result of he’s a personal investor. Nuvei didn’t instantly return Fortune’s request for remark concerning the brand new short-seller report.

This isn’t Nuvei’s first conflict with Spruce Level. In December 2021, the quick vendor launched an identical report with a “promote” advice noting that the fintech firm confronted “40% to 60% long-term draw back danger.” That report highlighted plenty of alleged shortcomings in Nuvei’s enterprise together with prime administration it mentioned shouldn’t have been employed and poor monetary efficiency.  

On the time, Nuvei’s board denied all allegations of wrongdoing. The claims have been all “deceptive, false or unrelated to Nuvei’s enterprise,” the corporate mentioned in an announcement launched every week after Spruce Level’s report. 

“The allegations made towards Nuvei are malicious and unfounded,” CEO Phil Fayer wrote. “We won’t enable the report back to distract us any additional and we stay unwavering in our dedication to drive progress and worth for our shareholders.”

Among the many different issues raised within the newest report is the $1.3 billion acquisition of Paya, an American fintech firm, introduced in January. The deal was Nuvei’s effort to increase its attain to U.S. customers. 

Spruce Level famous that the acquisition would “fail miserably in serving to Nuvei obtain its monetary targets,” including that Paya allegedly solely had 80,000 prospects, after stating in 2020 that its person numbers had declined from 1 million to 100,000. It additionally mentioned that Paya’s progress confronted many hurdles, which might pull Nuvei’s enterprise down, too.

“In our view Nuvei’s management lacks credibility and is undisciplined with spending, but its bankers enable it to conduct continued wasteful actions,” Spruce Level’s report mentioned. “We consider Nuvei’s $1.3bn acquisition of Paya seems to be a wedding between two weak trade gamers and is concealing Nuvei’s underlying natural deterioration.”  

Spruce Level mentioned “Nuvei’s traders, bankers, auditors and analysts are mistakenly supporting a troubled firm.” Axler instructed Fortune {that a} particular committee needs to be set as much as look into the report’s findings together with an impartial forensic agency.

In earlier stories, Spruce Level has attacked different corporations, together with shoe model Skechers and synthetic intelligence firm C3.ai. 

Whereas Spruce Level has an extended monitor document of focusing on corporations, funding financial institution Keefe Bruyette & Woods thinks the report leaves unanswered questions. 

“Like its final report, we consider the short-seller is greedy for irregularities with out citing materials and provable points,” Sanjay Sakhrani, an analyst on the funding financial institution mentioned in a be aware to traders, Bloomberg reported. “Whereas we respect the investor’s investigative method, it’s arduous for us to attach all of the dots and get on board that something is definitely incorrect with the corporate.”

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