Bronte Capital (h/t Dutch Book) posted the lawsuit against CCME (and the CEO/CFO) by Hank Greenberg’s CV Starr (& affiliate) funds. Effectively, Starr admits the extent of the diligence behind their 1.5 million+ share (with warrants/etc) investment in CCME was based solely upon information provided by management, either directly and/or through regulatory filings. All-in, if memory serves correctly, Starr’s investment represented >10% of the company, valuing its holdings therein at over $60 million at the peak. One would think it’d be worth spending a few thousand dollars up-front to hire a 3rd party to conduct due diligence (see Roddy Boyd’s great investigative piece for an example) that could, or in this case likely would, have saved Starr tens of millions of dollars, no?
Call me old-fashioned, but there’s no amount nor structure of put-back or make-whole clauses in the world that would convince me to invest a single dollar into CCME based off their latest 10-k. There are so many orange/red-flags just in the public filings I’d be more inclined to buy out-of-the-money puts rather than to get long via the common stock or other method.
Starr can sue for all the money in the world (or all the tea in China, as it were) but as I’ve previously discussed, I’d be surprised if there’s much if any money/assets left. I’m not 100% sure how the U.S./PRC (China) subsidiary structure protects the CEO, his mother, and the CFO, but at first glance, it looks like there’s plenty of opportunity, means, and motive for them to have siphoned-off most of whatever value there was from the China-based operating company(ies) into their pockets, with holders of U.S-listed CCME being none-the-wiser, and certainly none-the-richer.
I look forward to seeing this debacle shake-out, and to sharing the myriad lessons with you. Stay tuned!