Financial Analyst Richard Tullo Calls Foul Over Report On MDC Partners

MDC Partners stock continued to fall in Monday morning trading (it was down more than 4% to $19.41) as the company continues to deal with a scathing research report from short seller Daniel Yu and his Gotham City Research.

The 40-page report, issued Friday, claims, among other things, that the company will be exposed for additional "wrong-doings” by the ongoing SEC probe of the company. Also, that the stock is overvalued by 96% and worth less than a dollar per share. 

Gotham wrote that MDC would be restating several years’ worth of financial results.

But some analysts are now questioning the validity of the report. Richard Tullo, who covers the company for Albert Fried, is going public with his skepticism and believes the report lacks credibility.



"In our strongest opinion based on data and due diligence, we think there is a possibility the Blogger -- Gotham City Research LLC -- is using a pen name and may have attacked other companies under various identities," he says. "We think the media did not properly vet reports on Friday and was used by the blogger who is good at social media." 

Tullo challenges anyone to produce the blogger’s "authenticated name," business address, primary email address, licensed business operating agreement, and validation that the blogger had in fact worked for a “major hedge fund and graduated MIT.”

Gotham City is a bit of a mystery. The Gotham City Research Web site does not have a direct email address or phone number for founder Daniel Yu or anyone associated with the firm. Its “contact us” mechanism essentially bounces back queries without a response.

The firm’s mission seems to be to pursue bad actors in the business world.  Case in point: A Spanish WiFi company called Gowex.

In 2014, within days of alleging that Gowex had cooked its books, the company admitted it was bankrupt and that four years of accounts were worthless, according to a detailed story by The Telegraph. The Wall Street Journal did its own take on Gotham’s critique of Gowex and the Financial Times also wrote about Gotham’s take down of claims processor Quindell.

Yu talked about his work last year at an FT event called Camp Alphaville.

But Gotham isn’t just a disinterested party looking to expose wrongdoing. It’s also a short seller that can make a bundle by issuing reports that convince markets to force down the value of the companies it writes about. That leaves an opening for some to challenge its credibility.

As part of what he calls the first-ever Wall Street crowdsourced challenge, Tullo will donate $500 to Raising Raiders, a charity that helps the families of Marine Special Forces Operators who have died in service who can validate the blogger's identity. 

Tullo also believes the report contains material inaccuracies. One key point in the report was the massive exodus of talent leaving the network. Tullo, however, points out that MDC has roughly 5,970 employees and the referenced “massive exodus” comprises seven departures or less than 1% of MDC's talent base. 

The report stated that MDC paid senior leader Lori Senecal’s husband some $1 million for 5 months’ work. Tullo's group spoke with MDC and was told that William Grogan has actually been with MDC for five years.

MDC, for its part, says it intends to defend itself against Gotham’s "false and misleading accusations," which are "solely focused on destroying the value we are creating for our shareholders." 

The company is expected to further address the controversy during the release of its first-quarter 2016 results on Tuesday. 

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