Larry Meyers'  Instablog

Citron Research, run by the notorious Andrew Left, has already seen its short-selling attacks on World Acceptance Corporation (WRLD) discredited by this column.  Further insisting on embarrassing himself, Left launches into part three of his character assassination by  demonstrating his ignorance of World's business model, as well as the legislative environment.

Today I'll debunk all his assertions, but also let readers in on the dirty little secrets Left hasn't disclosed about himself which should give any reader pause.

The REAL Regulatory Risks

Left's rubbish begins as it always does -- with fear-mongering.  He cites the overwhelming support of the recent credit card bill, and potential new regulations in the for-profit education industry, as being threatening to World's business model.  What he doesn't mention is that neither are in any way related to what World does.  The goal is to scream that the legislative environment is unfavorable, and World could be next! 

He follows this up by frothing at the mouth -- that World will "unavoidably (in big red letters!) become a target of new regulation that will limit operations of their core installment loan business".

"Unavoidably (in big red letters)"?  Really?  So Citron's opinion is that legislation will happen, period.  No doubt about it.  As sure as the sun rises each day.  Furthermore, Left claims, there are three federal bills that "have widespread support" and that just last week, four bills died in the Texas Legislature's committees.   He states, "for anyone to state there is no legislative risk, they obviously do not have CNN or read a newspaper".  Well, here's all the reasons why Left should stick to sucking lemons and following legislative details more closely, instead of predicting how Congress will behave based on a parochial view of politics.

1) Sen. Tim Johnson (D-SD) is the chair of the Finance Subcommittee. He supports payday and installment loans and understands their value.

2) Durbin is not on the finance committee, and cannot force his bill to be heard.

3) Durbin withdrew the bill as an amendment to the credit card bill, because the votes weren't there to get it passed.  If it didn't pass then, why would it pass on its own?

4) The Senate overwhelmingly voted down an amendment capping credit card rates at 15%. This implies broader concerns Congress has about price controls.

5) The House Subcommittee hearing on Rep. Gutierrez's payday loan bill (April 2) showed that many committee members also understand payday loans and aren't willing to institute a de-facto ban by capping rates at 36%.   If they won't ban payday loans, they won't ban the less-expensive installment loans.

6) Obama is not stupid. He cannot restrict credit in this environment.

7) Once it becomes apparent that the new credit card bill is going to restrict credit (some say as high as $3 trillion, although I think that's too high), this will further work against these bills.

Left admits that none of these bills have passed, but "these risks do exist", and that World's new 10-K must show a change in the disclosure about regulatory risk.   Except they already altered their disclosure in the last quarterly report, reflecting the possibility of legislative changes.   Did Left even read it?

Sure, these risks exist.  And they've already been priced into the stock.  Furthermore, there are risks that many other things could happen.

A meteor could crash into the Earth.

A raging forest fire could kill all living things in Iceland.

Godzilla could rise from the Bermuda Triangle and eat Cuba.

Left could be indicted by the SEC.

As for the situation in Texas, the legislature there meets every other year for only a few months at a time.  And this session is about to conclude.  Furthermore, the bills Left refers to are being pushed by a state senator who has no leverage in the committee he's in, while being up against a very pro-business legislature and governor.  Again, its the details Left doesn't bother to concern himself with.

Lies or Stupidity?

Left is either incapable of reading a balance sheet or is outright lying with respect to his claims regarding tangible book value.   He claims that the market is valuing World at less than tangible book value because World's main asset -- $460 million in loans -- isn't worth anything.

But I've already shot down that argument in my previous articles.   The reason is that the historical loan loss provision for these receivables is about 16% -- meaning $390 million of it is collectible. 

Left closes his article by saying, "Citron strives to present stories detailing business risks, which are, to date, being ignored or denied by the subject company and its analysts, always backing up its opinion with factual links."

First, the links may be factual.  But Left hasn't interpreted them factually.

"It believes caricaturizing critical opinion as 'fear mongering' is foolish, and savvy investors ignore risks at their own peril."

Yes, they do.  Savvy investors also know a hatchet job when they see it.

A Question of Character

Now, as to Left's own personal history, which should give readers some idea about his character.  Back in 2000, the National Futures Association (a regulatory agency watching over the commodities and derivatives markets) found that Left had made "false and misleading statements to cheat, defraud, or deceive a customer".  He was barred from "association with and from acting as a principal of any NFA member for three yeras, ordered him to take an ethics training course, and placed restrictions on his activities..." (Source: NFA Case ID# 0253075)

Oops.

Then there was the little matter of Left being sued for Fraud and Deceit, Negligent Misrepresentation, and Breach of Fiduciary Duty -- a case which he lost and was ordered to pay restitution for.

Double oops.

So, we have a known short-seller with a previous history of ethics violations and check fraud, who has written three articles loaded with false statements that have been completely discredited....and is no longer permitted to post even here at SeekingAlpha.

As my old math teacher once said, "Take a moment to think before following the White Rabbit down that hole".

So just as Left claims to put out his information and let the reader decide, I'll do the same. 

Full Disclosure:  Long WRLD - shortly after Citron's first report