Fraud, Vitamins & Reverse Takeovers

Some great news stories hit the press today that I thought would be worth covering.

Twinlabs Reverse Merger

The first comes from Twinlabs, maker of the popular Metabolife supplements just went public again. Details of the transaction as reported by TheDeal.

The reverse merger with San Diego-based shell company Twinlab Consolidated Holdings Inc. was scheduled to close on Sept. 15, according to a Sept. 4 filing with the Securities and Exchange Commission. The shell company was previously known as Mirror Me Inc. before changing its name last month in preparation for the merger. Mirror Me had gone public in May with a stock offering that raised $40,000.

The company has a long history extending back to its founding in 1968. The vitamin supplement company went public by IPO in 1996, raising some $102MM on NASDAQ. The company filed for Chapter 11 about a decade ago and has since received private financing from Capstone Financial Group. When asked why Twinlabs opted for reverse merger over IPO, CEO Thomas Tolworthy cited speed to the public markets as the number one reason. In this game, time is money. Luckily speed doesn’t necessarily equate to greater expense.

AgFeed Fraud & $18MM Settlement  

The second story involves fraud and an $18MM settlement from AgFeed. WSJ reports:

AgFeed Industries Inc. inflated its revenue by $239 million by creating fake invoices for the sale of feed and purported sales of hogs that didn’t actually exist, among other methods, the SEC said when it filed suit against the company in March. The moves boosted the company’s annual revenue over a 3 ½-year period by amounts ranging from 71% to 103%, according to the SEC.

This particular case underscores everything that is touted as being wrong with the reverse merger market and has all the components of your stereotypical fraud with these types of transactions including a Chinese company being involved, and the production of phantom revenues and fraudulent financial statements. Where there is an opportunity cash out big, there is always the temptation of cutting corners and committing crimes. In order for the industry to continue to rise in reputability, these types of transactions need to be avoided. Unfortunately, sometimes the deal makers and advisors–even after doing all they can to filter the people and businesses they feel are legit and above-board–still make bad calls and work on opportunities that unfortunately end this way. While people complain about regulation, there is a good reason we do have the SEC to provide the regulatory oversight to slap, fine and imprison the perpetrators of such crimes.

Micro Focus/Attachmate Deal 

The third story of the day comes from the Micro Focus/Attachmate deal:

The merger, which is expected to occur in November 2014, constitutes a reverse takeover under the rules of the London Stock Exchange, on which Micro Focus is listed, and remains subject to a number of conditions, including the publication of a prospectus, applicable regulatory and antitrust approvals, and Micro Focus shareholder approval.

The deal will see Micro Focus acquire the entire issued share capital of Attachmate, in exchange for the issue of approximately 86.60 million ordinary shares to Attachmate’s parent company, Wizard Parent LLC, an investment group, which will hold Attachmate’s 40 percent share of the new entity.

This deal, listed on the London Stock Exchange (LSE).


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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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