There was a recent crowdsourced IPO for Chicken Soup for the Soul Entertainment Inc. (NASDAQ: CSSE), the company apparently behind the famous series of books with the same name. Right off the bat, you might think that a company that sells actual books, that is highly targeted, would make for a terrible investment. How much revenue could the company actually make?

Well, you’re right. But, in fact, the story is much worse.

CSSE stock isn’t even about books. It has nothing to do with them. It “was formed to create a discrete entity focused on video content opportunities using the Chicken Soup for the Soul brand.” This IPO is solely focused on that video content, and has nothing to do with the books.

Puzzling Company Structure

Not only that, the CEO has total control over the entity, meaning investors have no say in what happens.

But things get even more suspicious as one starts to look into the IPO structure. The CEO, William J. Rouhana, Jr., sits on the board of a charitable entity called the Boniuk Foundation. The Foundation sponsors a Saturday morning television show. That television show is owned by CSSE. The revenue from the show made up almost all of CSSE stock’s 2015 revenue, and almost half of its 2016 revenue.

Meanwhile, CSSE either donated or sold some of its stock to the Foundation.

So, riddle me this: Does it seem legit that the CEO of a newly public company, that sits on the board of the Foundation, which sponsors (meaning provides the revenue for) a television show owned by that same newly public company, also sold or donated shares to the Foundation?

Not to me.

Puzzling Purchases

Next, CSSE made a really bizarre acquisition. On the surface, it seems to make sense. It paid $4.9 million in cash, along with 35,000 shares of CSSE stock, and warrants to purchase CSSE stock at $12 per share, to a company called Screen Media Ventures. Screen Media has licenses to 1,200 TV shows and films, and also owns a streaming media service called Popcornflix.

Magically, an assessment of the value of this entity was made and it was determined to be $25 million. CSSE booked the alleged difference in the assessed value of Screen Media and what it paid for it, as revenue! Never mind that this is as transparently ridiculous a move as a company can possibly make, whether it be legal or not, but there is no way Screen Media Ventures is worth $25 million.

I can say that with a high degree of certainty, having studied and been in television and media for 25 years. Just take a look at the D-level quality content that Screen Media has produced, and that Popcornflix offers on its streaming service.

Outside of a few classic films on Popcornflix, it’s not a service that has any chance of competing in today’s streaming media environment. These are the titles you saw in the very early days of Netflix Inc. (NASDAQ: NFLX) that never got a theatrical release. Popcornflix, by the way is free for users. If someone wants to tell me how that service makes any money, I’m all ears.

A further look at all of the CSSE stock IPO and quarterly reports suggest that CSSE stock has a parent company to which marketing fees, sales commissions and licensing fees get paid. The CEO has a son who apparently offered consulting services to CSSE — and the filing seems to indicate he is being paid close to $200,000.

The final suspicious maneuver came in Tuesday’s earnings release. CSSE has gotten a substantial revolving credit agreement set up with a bank. Simultaneously, it announced a $5 million share repurchase program.

Now, most companies should be repurchasing shares only after a substantial period of growth. Right now, it should be using money to grow the business. I mean, sure, if a new IPO like CSSE has stock selling substantially below its IPO price (in this case, CSSE was $12 a share and is currently at $7.75/share), then it may make some sense to do a modest repurchase.

But a repurchase instead of growing the business? That should tell you something.

The authorization is large enough to repurchase up to 1/3 of the outstanding shares. So the company uses borrowed money to buy back shares of the stock that it sold to the public at $12 each. This seems to me to be an authorization to support the stock’s share price once investors realize that the underlying business is — in my opinion — bunk.

With a float of only 2.5 million shares, it is very easy for the stock to be manipulated higher through buybacks and investors who don’t dig beneath the headlines.

Bottom Line on CSSE Stock

There are two ways to play the stock. If you can find shares to short, I see this entire venture blowing up sooner or later. There appears to be, in my opinion, an awful lot of self-dealing going on here. That doesn’t even touch on the very bizarre accounting choices — never mind the lack of any really viable business model or the fact that all the revenue seems to come from the CEO himself.

Alternatively, with the share repurchase authorization in place and the low float, a few nice press releases could result in a stock rigged to go higher. If you want to play the game of buying a low-float stock with a big buyback authorization, be my guest, but be very careful.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.