The Curious Case of Longfin

  • Author: Anirudh Damani
  • Category:
  • Posted: 24/01/2018

On 18th December, 2017, I had written about the run-up in Nasdaq listed Longfin (Ticker: LFIN) as proof of a crypto bubble. On that day the total market capitalisation of cryptos reported by Coinmarketcap was $587 billion. Since then the crypto market cap has fallen below $425 billion twice and currently sits at $527 billion as I am writing this post. I will write a longer post on my thesis for investing in cryptos or startups who are using cryptos – but what happened to Longfin and its parent company, Stampede Capital?

Stampede Capital has risen 94.67% while LongFin declined 36.21%. The inverse relationship in the movement of their stock price was expected because Stampede Capital is subject to a daily circuit filter of 5%.  It hit its upper circuit filter every day for the past month before a curious correction of ~25% in the past week.

I call it curious because:

  1. Stampede’s market cap as per MoneyControl is Rs. 417 Cr
  2. Longfin’s market cap as per MarketWatch is $3.90 Billion
  3. Stampede owns 37% of Longfin therefore it owns $1.443 billion (Rs. 9235 cr) in Longfin stock
  4. Stampede therefore trades at a mere 4.52% of its holding in Longfin i.e. it should move higher (then why did it fall 25%!?!)

Whether Longfin’s share price is justified, is a hotly debated topic amongst my investment peers. I believe it was grossly overpriced and poised for a big correction – until yesterday.

In a case as curious as its unbelievable stock fluctuation, at 8:35 am on the 22nd of Jan 2018, Longfin announced that a Multibillion Dollar Fund will Invest $52.7 million into Longfin Corp. Just 84 mins later, Longfin issued another press release stating:

“…that journalists and other readers should disregard the news release, “Multibillion Dollar Fund to Invest $52.7 million into Longfin Corp.” issued today”

I was sitting in awe at the PR nightmare that this company was undergoing (maybe I should share a few resumes from my post yesterday?) it issued another press release at 8:35 am on the 23rd of Jan 2018, with the exact same title, Multibillion Dollar Fund to Invest $52.7 million into Longfin Corp. I found it difficult to digest that a Nasdaq listed company could make such a mockery of itself and its investors, so I called the number at the end of the press release to confirm that this in fact was accurate information.

The lady who answered my call not only confirmed the investment but also explained the reason for the retracting the previous release. It had been retracted due to some missing legally required disclosures. However, she refused to name the investor and requested me to look for the 8-K filing that would be available on the SEC website by the end of the day.

You would be right to bet that I was on the SEC website as soon as I woke up today – this story has the makings of a Hollywood blockbuster! I was hoping that the value that this multi-billion-dollar fund had put on LongFin was based on prudent fundamentals and not the current market price. While I was unable to go through all the filings, one-line item in one of the filings left me rubbing my eyes in disbelief.

“Fixed Conversion Price” means, as of any Conversion Date or other date of determination, $38.5493, subject to adjustment as provided herein.

The incoming investor, Hudson Bay Capital Management had given Longfin a conversion price of $38.59 valuing them at $3.45 billion (derived by reducing theMarketWatch market cap by 12%). The investor did put in a price protection clause that allowed them to convert at lower conversion price incase the LongFin stock price fell below $38.59 in the 10 days before they converted. Leaving protection aside, is this conversion price justified for a company whose own CEO went on record to say that the stock price isn’t justified?

Infact, if Hudson Bay with its massive portfolio including companies like Alibaba and Jd.com has such a strong conviction of Longfin’s stock price… why is Stampede Capital’s stock price falling? Why didn’t Hudson directly buy Stampede Capital stock which would have given them a significant discount to their investment price in Longfin? Why didn’t they just invest in the IPO that took place in the month of December at $5.38 per share?

This story has more questions than answers, but one fact is true… Anything is possible in world today!

Disclosure: Some of my friends, family members and I may personally own shares of Stampede Capital.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors are reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

8/2018