Welcome to our weekly reports featuring impactful and unusual disclosures as extracted by Hudson Labs' algorithms.
Filings from the week of October 25-29, 2021
Health Care Red Flags from last week:
CAREDX INC (CDNA) The company recently received an SEC subpoena and DOJ civil investigative demand (False Claims Act investigation) related to business practices for kidney testing and phlebotomy services, precipitating a nearly 30% decline in stock price.
INSMED INC (INSM) The company’s Chief Compliance Officer, John Soriano, resigned based on a disagreement with the company’s COVID-19 vaccine requirement for its US employees.
CENTENE CORP (CNC) The company has reached agreements with the AGs of Arkansas ($15M) and Illinois ($57M) (in addition to previous agreements with Mississippi ($55M) and Ohio ($88M)) related to services provided by their subsidiary, Envolve.
FIRSTENERGY CORP (FE)
10-Q | Market cap: $19B
FirstEnergy has been dealing with a number of legal and regulatory issues stemming from an alleged bribery scheme:
- In July 2021 they entered into a 3-year DPA (including a $230M penalty) for criminal conspiracy to commit wire fraud in conjunction with allegations against former Ohio House Speak Larry Householder [2]
- A number of class action lawsuits
- An SEC investigation (August 2020, April 2021)
- An investigation by the Federal Energy Regulatory Commission (FERC) (Jan and Feb 2021)
The company has not recorded any provision for the FERC investigation although they believe a loss is probable, on the basis that they can not yet reasonably estimate a range of possible results [3].
- “ The cases are stayed pending final resolution of the United States v. Larry Householder, et al. criminal proceeding described above, although on August 13, 2021, new defendants were added to the complaint, including two former officers of FirstEnergy.”
- “On July 21, 2021, FE entered into a three-year DPA with the U.S. Attorney’s Office that, subject to court proceedings, resolves this matter. Under the DPA, FE has agreed to the filing of a criminal information charging FE with one count of conspiracy to commit honest services wire fraud. The DPA requires that FirstEnergy, among other obligations: (i) continue to cooperate with the U.S. Attorney’s Office in all matters relating to the conduct described in the DPA and other conduct under investigation by the U.S. government; (ii) pay a criminal monetary penalty totaling $230 million within sixty days…”
- “While no contingency has been reflected in its consolidated financial statements, FirstEnergy believes that it is probable that it will incur a loss in connection with the resolution of the FERC investigation. Given the ongoing nature and complexity of the review, inquiries and investigations, FirstEnergy cannot yet reasonably estimate a loss or range of loss that may arise from the resolution of the FERC investigation.”
ROBINHOOD MARKETS INC (HOOD)
10-Q | Market cap: $35B
Robinhood’s quarterly statements read like a who’s who of regulatory enforcement.
In October, Robinhood received a request from FINRA for information about the company’s “for you” recommendation feature [1]. This follows a July request relating to the FINRA non-registration of key executives [2], hinting of further possible issues around investment recommendations. The SEC requested documents relating to this feature in May [1].
Other ongoing investigations include:
- Beginning in February 2021 the company has been receiving requests from the SEC’s enforcement division in connection with its investigation into account takeovers and suspicious activity [3]
- March 2021 - the NYDFS notified the company of alleged violation of money-laundering banking requirements and other deficiencies [4]
- The FINRA investigation into early 2021 trading restrictions (GME) was recent resolved, with a $57M fine and $12.6M customer restitution [5]
- In December 2020, the Massachusetts Securities Division filed an administrative complaint alleging non-compliance with Massachusetts securities laws [6]
Check out their filings for a complete list of regulatory investigations and actions.
- “ “For You” Document Request In May 2021, the SEC’s Enforcement Division issued a request to RHM and RHF seeking documents and information related to the “For You” feature, which was available in the past on our website only and is not currently an active product offering on our website or platform, and other features displaying lists of securities to customers. In October 2021, RHF also received a request from FINRA for information about the “For You” feature.”
- “Registration Requirements for Member Personnel In July 2021, RHF received a FINRA investigative request seeking documents and information related to its compliance with FINRA registration requirements for member personnel, including related to the FINRA non-registration status of Mr. Tenev and Co-Founder and Chief Creative Officer Mr. Bhatt.”
- “Since February 2021, RHF has received requests for documents and information from the SEC’s Enforcement Division in connection with its investigation into account takeovers and, more recently, suspicious activity report filings and issues related to the Electronic Funds Transfer Act.”
- “In March 2021, the NYDFS informed RHC of alleged violations of applicable (i) anti-money laundering and New York Banking Law requirements, including the failure to maintain and certify a compliant anti-money laundering program, (ii) notification provisions under RHC’s Supervisory Agreement with the NYDFS, and (iii) cybersecurity and virtual currency requirements, including deficiencies in our policies and procedures regarding risk assessment, lack of an adequate incident response and business continuity plan, and deficiencies in our application development security.”
- “In June 2021, RHF resolved multiple matters with FINRA, on a no admit, no deny basis, including investigations into systems outages, RHF’s options product offering, and margin-related communications with customers, among others. The resolution involved the following components: (i) charges of violations of FINRA rules; (ii) a fine of $57.0 million; (iii) customer restitution of approximately $12.6 million; (iv) a censure; and (v) engagement of an independent consultant.”
- “In December 2020, the Enforcement Section of the Massachusetts Securities Division (“MSD”) filed an administrative complaint against RHF, which stems from an investigation initiated by the MSD in July 2020. The complaint alleges three counts of Massachusetts securities law violations regarding alleged unethical and dishonest conduct or practices, failure to supervise, and failure to act in accordance with the Massachusetts fiduciary duty standard, which became effective on March 6, 2020 and had an effective enforcement date beginning September 1, 2020.”
CLEVELAND-CLIFFS INC (CLF)
10-Q | Market cap: $611B
PPA adjustments related to the ArcelorMittal acquisition resulted in a $344M decrease in goodwill recorded [1].
On September 30, an arbitration panel ruled on an ongoing royalty dispute with Mesabi Trust, awarding $2M in damages to Mesabi, and making a ruling on royalty calculation rules [2].
- “The following is a summary of Goodwill by segment:The decrease of $334 million in the balance of Goodwill in our Steelmaking segment as of September 30, 2021, compared to December 31, 2020, is due to the change in estimated identified goodwill as a result of measurement period adjustments to the preliminary purchase price allocation for the acquisition of ArcelorMittal USA.”
- “On September 30, 2021, a three-member arbitration panel awarded Mesabi Trust $2 million plus interest as damages for 2019 and 2020 and ruled that the royalty agreement requires that, for royalties on intercompany sales, Northshore reference all third-party pellet sales, regardless of grade, and select the highest price arms’ length pellet sale from the preceding four quarters.”
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