Fun Fact. Did you know the classic stock fraud movie "Boiler Room" outlines a pump and dump scam regarding a retractable syringe fraud stock? For those who need a refresher on the "Boiler Room" movie I strongly suggest you click on this link. It seems trusting investors have repeatedly been abused by egregiously promotional "retractable syringe" fraud stocks in the past (completely unrelated to UNIS)*.
Jim Young (from Boiler Room): "There's an important phrase that we use here, and think it's time that you all learned it. Act as if. You understand what that means? Act as if you are the fu*#ing President of this firm. Okay? Act as if."
In my opinion, Unilife Corp. (TICKER: UNIS) is "acting as if" it has a viable long-term business. Much has been said about UNIS and I do not wish to rehash it all, as this is not meant to be a full report. However, my research has uncovered even more red flags UNIS shareholders are unaware of and need to comprehend or risk losing all their money. I will also expand on the implications of a few crucial red flags previously disclosed, which UNIS shareholders clearly do not understand. Issues explained with all supporting documentation included, cited and linked.
1. Per SEC FOIA request it appears UNIS is subject to an ongoing law enforcement investigation.
2. UNIS insider document alleging multiple frauds posted publicly in entirety for you to read.
3. Even more information on CEO Alan Shortall's involvement with multiple failed companies.
4. Court evidence of UNIS's much-touted partner HIKMA recently losing millions due to failed partner due diligence along with legal and regulatory involvement. Is UNIS next?
5. UNIS shareholders need to understand the UNIS stock pumping scandal could be "Game Over" imminently for the company.
I believe UNIS is in the final innings of a financial disaster as they are forced to take on debt despite struggling to generate meaningful revenue (let alone positive cash flow) while serious issues are closing in on UNIS from all sides. With the new large, high cost debt load from a "loan-to-own" style lender, I expect UNIS shareholders will ultimately be wiped out with shares trading to $0.0001 (or lower) like UNIS CEO Shortall's past failed companies.
1. SEC FOIA request: Evidence UNIS is apparently subject of a law enforcement investigation.
a. This could be absolutely disastrous for UNIS shareholders and I was shocked. Read full FOIA here, presented for the public's good. I believe there are two possible explanations, both of which could be disastrous for UNIS shareholders:
i. Potential Explanation 1: This FOIA could be referencing the SEC investigation UNIS faces, and this indicates to me the investigation is serious because it seems to me to be STILL ongoing! If the investigation is not ongoing how could releasing documents interfere with something that has been resolved? Since it seems to me this is still ongoing, also indicates to me whatever is being investigated could be serious, as the SEC is requiring extensive time to investigate. If this was regarding some small issue why is it taking months and still not resolved? In my view, an SEC investigation requiring months of inquiry and examination could be disastrous when aimed at a company like UNIS.
ii. Potential Explanation 2: Alternately, an even worse explanation is this apparently ongoing current "law enforcement investigation" is related to some other law enforcement agency that is not the SEC, which shareholders have no details on. Is the Department of Justice (DOJ) investigating UNIS? What law enforcement agency(ies) could be involved?
Nobody knows the details here and the document states an investigation is not the same as proof of violations, but one thing is certain in my mind: law enforcement investigations are typically not good news.
iii. Note: This FOIA was filed and received before UNIS was publicly exposed for allegedly using anonymous paid stock pumpers directly prior to UNIS insiders selling $12m of stock via an S-8 filing. Beyond the numerous legal and ethical issues raised, I believe these allegations are likely to result in even more investigations and lawsuits. Will UNIS stock get halted by the SEC like other promoted stocks recently? Will this clearly material issue cause problems with, or repayment of, the recent Orbimed debt deal or past equity financings?
2. The "must read" whistleblower lawsuit from a UNIS insider alleging multiple frauds has NOT been dismissed: full document for you to read HERE. If you read nothing else today, skim pages 5 to 15 of this document to understand what is allegedly going on "behind the scenes" at UNIS. I believe UNIS shareholders have clearly not read this crucial document and so I post it for the public good here where you can read it with one click so you have no excuse if you own UNIS to have not read this.
a. Direct quotes from the suit:
"Another action Unilife took to mislead investors was to run fake production when investors or customers were visiting the facility. On more than one occasion, scrap was run through the machines to make it appear that Unilife was making product when it was not. Product was placed on skids by the warehouse doors to give the false appearance that product was being packaged and sent to customers when it was not."
"Failure to comply with the requirements of the Food and Drug Administration," and "what constitutes mail fraud, wire fraud, bank fraud, securities fraud, fraud against shareholders and/or SEC rules and regulation violations."
b. Allegedly, in a meeting with the CEO, VP of business development and VP of finance, a UNIS internal analysis showed UNIS's cost per syringe would be ~$0.90 per unit while Sanofi was expected to pay just $0.50-0.55 per unit. (Implying UNIS could burn even more cash with negative margins!) CEO Shortall apparently told everyone in the meeting to suppress this analysis. Another internal analysis was ostensibly created showing a cost per unit less than half of the original model. "Mojdeh (UNIS's COO) directed that Finance exclude certain product overhead expenses to create the appearance of a more favorable gross margin. Smith was concerned that Mojdeh's suggestion could be deemed shareholder fraud."
- In contradiction to these internal models, a few months later UNIS CEO Shortall presented to investors to expect profitability with 20% gross margin…
c. UNIS also supposedly falsified documents and test results for FDA validation processes?
d. Unilife COO Mojdeh allegedly directed an employee to purchase one million Unifill components per month:
"with the hope that this information would leak to financial markets."
Assuming Talbot did not blatantly imagine this (I do not believe he did), in my opinion this is an example of stock manipulation while wasting shareholder cash and deliberately misleading UNIS investors.
3. UNIS CEO Shortall Directly Involved In Many Failed Companies. Investors in unproven companies are often betting on management even more than the company. Alan Shortall is one of the worst CEOs I have ever seen, despite burning hundreds of millions of dollars of shareholder cash with repeated failure: "Shortall has been leading a ritzy lifestyle, occupying a mansion in beachside Tamarama which rents for $14,000 a month, has two Mercedes cars and a Bentley." Here is more background on CEO Shortall I believe is not widely understood.
Read below for more background on Alan Shortall.
a. This document includes examples of employees allegedly facing threats and intimidation along with UNIS financings including individuals associated with Ponzi schemes and convicted felons (hat tip Tim321).
i. Read interesting document HERE.
ii. More background on Shortall's history of failure and investor wipeouts.
b. Even the unscrupulous publishers used in Unilife's alleged stock pumping scandal were seemingly uncomfortable with UNIS and CEO Shortall!!
"For example, with Unilife, he (Tech Guru) made it clear that CEO Alan Shortall was a "liar," "a criminal" and a "scumbag." This stands in stark contrast to what he had written in his Unilife articles,"
"Tech Guru was very uncomfortable writing on Unilife because he said that CEO Shortall was putting increasing pressure on the writers to write new articles every week and he wanted ever more grandiose statements "
4. Unilife's Much Touted HIKMA Partner Recently Lost Millions After Failed Due Diligence. UNIS shareholders have been led to believe the HIKMA partnership lends credibility and justifies UNIS as a legitimate company. However, this recent document shows HIKMA has an embarrassingly bad track record of failing to perform even basic, independent due diligence on their "partners" and losing millions as a result. Will HIKMA's partnership with UNIS turn out like the Eagle partnership did? With fraud allegations and legal action?
a. Full HIKMA lawsuit presented HERE.
b. Apparently, last year HIKMA partnered with "Eagle" and bought a drug from Eagle for $3.5m then placed orders for more than $2m in raw materials. At this point Eagle was experiencing internal defect rates "exceeding 90%" that HIKMA seems to have not uncovered.
c. In my opinion, the most basic independent due diligence on HIKMA's part would have detected evidence of these blatant internal failures. Furthermore, HIKMA seems to have blindly accepted Eagle's "significant" sales forecasts that did not materialize. If HIKMA inspected the facility, or hired an outside consultant for independent verification, how did HIKMA not recognize production had 90%+ defect rates?! Did HIKMA really invest $3.5m+ without independent verification? Did HIKMA really just accept, at face value, Eagle's apparently speculative and unreasonably aggressive sales estimates? What kind of due diligence has HIKMA done on UNIS then?
d. Allegedly, HIKMA also demanded Eagle bring these issues to the FDA, but Eagle refused, raising legal and ethical questions around HIKMA's new "partner."
e. Eagle also "cherry-picked" samples of the drug for HIKMA, and HIKMA apparently did not independently verify these.
Does this combination of regulatory issues, unrealistic sales guidance, apparently failing manufacturing facility and HIKMA's due diligence sound familiar to you? In my opinion, these issues are remarkably similar to those alleged to be present at Unilife.
5. UNIS Facing Scandalous Allegations of Anonymous Paid Stock Pumpers Prior to Management and The Company Selling Stock.
a. It is early in this scandal so we can't assume anything but apparently without required disclosures, potentially in violation of SEC Section 17b and 10b(5), anonymous stock pumpers "Tech Guru" and "Stock Whisper" were apparently paid to promote UNIS stock. See article HERE.
At this early stage it is tough to say what will happen and any consequences are speculative and can't be assumed. There are a wide range of potential outcomes, financial, legal and regulatory, and I believe the impact could be devastating to UNIS shareholders. I would like to speculate on a number of potential outcomes and let UNIS shareholders decide for themselves.
i. "Stock Whisper also wrote on Unilife just 2 weeks before its S8 was filed, allowing insiders to sell up to $12 million in stock." I am not an attorney but based on my view, UNIS shareholders seem to have been deceived while UNIS insiders were personally benefiting to the tune of millions of dollars. While it is too early to be precise and nothing can be assumed, if this was in violation of SEC section 17b or 10b(5) there could be very serious consequences. Details HERE.
b. Hat tip to Rick Pearson for some truly incredible work!!
c. UNIS shareholders are missing that this stock pumping shenanigans could be "Game Over" for UNIS as the legal and financial consequences could be very severe.
i. UNIS shareholders are underestimating the risk Orbimed could sue UNIS or force accelerated debt repayment, which could cause UNIS to go bankrupt if they can't raise the capital to make that payment. Debt investors have to account for the equity value when analyzing their risk and safety. If the equity value was deliberately inflated why would Orbimed not feel deceived or manipulated?
ii. What about the people who purchased stock based on these stock pumpers' misleading "research" while UNIS was selling shares? What kind of legitimate investor is going to trust and provide UNIS capital in the future? At best, I believe this stock pumping scandal could make future capital raises for UNIS nearly impossible.
iii. The SEC regulations provide provisions for return of capital raised if it is concluded proper disclosures were not followed. Does UNIS have the >$45mm in cash necessary to pay potential claims should this be proven?
iv. If Orbimed requires debt repayment and UNIS stock gets halted or delisted, I believe the company could go bankrupt virtually instantly.
d. This creates even more serious problems for UNIS in the future. What legitimate company will partner with a management team exposed as doing this? Could UNIS lose important business relationships as partners seek to distance themselves from this scandal?
I made a strong effort to contact UNIS for a response to these issues I have brought up but they did not return any of my calls or seem interested in communicating with investors. I made several attempts to contact UNIS by phone and email, followed by several phone calls and messages left with both their IR firm as well as on the corporate line over the past week and a half. In the end I got zero response from UNIS and so was unable to include their comments or responses.
UNIS CEO Shortall's comments on regarding the state of their manufacturing plant is that the company's system are "exemplary." Given FDA investigator commentary about dozens of issues and products falling apart, I question how anyone could believe "exemplary" is an accurate explanation. When contacted about his past, UNIS CEO Shortall's response to serious questions is "I think you are being very unfair." However, I do not see any allegations being refuted with fact? I see a pattern here…
Cut through the hype: FACTS about UNIS
1. SEC FOIA documents show UNIS is the subject to an investigation from law enforcement agency. FACT.
2. UNIS whistleblower suit NOT dismissed and alleges multiple examples of fraud and deception. FACT.
3. UNIS's internal financial models allegedly show Sanofi's agreement would have negative margins (if it ever happens). FACT.
4. FDA recently investigated UNIS's factory and found products literally falling apart with many issues similar to those raised by the whistleblower. FACT. Details HERE.
5. UNIS's partner HIKMA has lost millions with a demonstrable track record of poor partner choice due to insufficient independent due diligence in situations eerily similar to UNIS. FACT.
6. UNIS CEO has a long history of repeated failures where investors were wiped out. FACT.
7. UNIS connected to potentially illegal, anonymous stock pumpers before management sold stock. This could put an end to UNIS if it threatens the Orbimed debt deal or if UNIS is forced to return capital to investors. FACT.
If we know and can verify the above with public information, what do we NOT know about what is happening internally at UNIS?! In the context of the above, how could it possibly be a good sign the latest CFO resigned suddenly without providing enough notice for UNIS to have a replacement lined up?! UNIS seems to me to be coming unwound from the inside out, with serious issues on all sides, and the sudden CFO resignation is a very, very bad sign.
In my view, it seems clear there is going to be a steady stream of increasingly bad news coming out in the near and medium term future about UNIS. I believe the end for UNIS will be swift and without notice, leaving investors and traders zero opportunity to avoid instant large and permanent loss. Given FDA issues, the law enforcement investigation and now direct evidence of apparently illegal paid stock pumpers, I would not be shocked if UNIS was halted and/or faced serious legal consequences, leaving anyone holdings UNIS shares trapped. Alternately, if some of these recent scandals cause capital to be required to be repaid along with liquidity issues at UNIS, swift bankruptcy could follow. My longer-term expectation is for eventual bankruptcy either way with UNIS stock declining to $0.001, or perhaps lower. I believe UNIS needs to clean up its act to "unclog" the US financial markets.
* I am not saying, insinuating or implying UNIS is a fraud or scam because that is honestly not what I mean to express. Readers can make up their own minds. Boiler Room is a classic movie.
Disclosure: I am short UNIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.