Shares of Nuvei (NASDAQ:NVEI) are in freefall today, plunging 50% so far at the time of writing. The culprit behind this price decline is a short report from Spruce Point. Spruce Point is an investment firm that focuses on short-selling and special-situation investment opportunities. The firm has publicly disclosed that they have a short position in NVEI stock, as well as derivatives that would capitalize on a share price decline.
Nuvei is the largest private and non-bank payment processing company in Canada. Spruce Point alleges that Nuvei’s management engages in shady, fraudulent practices and is dishonest with shareholders when releasing information.
For example, Spruce Point claims that Nuvei CEO Philip Fayer didn’t actually graduate from Concordia University. A 2004 company biography for Fayer’s previous role at PaySystems detailed that Fayer graduated with a Bachelors of Commerce from Concordia. Six years later, Fayer stated in an interview that he never received an undergraduate degree at Concordia.
Additionally, Spruce Point claims Fayer has a history of rebranding companies to avoid backlash. Fayer’s biography states that he founded Pivotal Payments, which is now Nuvei, in 2003. However, the biography fails to mention that Fayer was still running the now defunct PaySystems in 2004. PaySystems was a massive failure that inspired unhappy customers to create websites such as PaySystemsFraud.com. Today, there are several industry reviews that claim Nuvei is just a continuation of Fayer’s shady actions in managing Pivotal Payments and PaySystems.
Furthermore, Spruce Point believes that the current CFO and Chief Corporate Development Officer are hiding their previous involvements with FireOne Group. In a non-prosecution agreement with the Department of Justice (DOJ), FireOne Group’s parent company, Optimal Group, was forced to forfeit $19 million in criminal proceeds for possessing transactions related to illegal gambling.
NVEI Stock Slumps As Spruce Point Questions Nuvei’s Acquisitions
Spruce Point also has challenged Nuvei’s acquisition strategy and the validity of its financial metrics. Nuvei acquired SafeCharge in 2019, despite former SafeCharge employees being in opposition of the acquisition due to potential integration problems. Former SafeCharge employees also believed Nuvei’s processes and technologies to be outdated. However, shortly after the acquisition, SafeCharge’s profit margins increased from 24.5% to 45.1%. Spruce Point alleges that this increase in margins is unrealistic. Therefore, it is calling for Nuvei to explain the increase.
Another acquisition under fire is Nuvei’s purchase of Smart2Pay in 2020. Profit margins for Smart2Pay increased from 28.5% to 49.2% after the acquisition, despite Smart2Pay’s declining financial performance and margins throughout 2019. Spruce Point’s research shows that Nuvei didn’t disclose any material restructuring costs or changes in pricing that could potentially explain the margin increase.
An official response from Nuvei’s team isn’t available yet. However, there are certainly many accusations in Spruce Point’s report that are backed by evidence. Potential investors who may want to capitalize on the price decline may want to wait from an official response from Nuvei before investing.
On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.