Spruce Point Capital Management, LLC (“Spruce Point” or “we” or “us”), a New York-based investment management firm that focuses on forensic research and short-selling, today issued a detailed report entitled “Fool Me Once, Twice, But Not Three Times” that outlines why we believe shares of Nuvei Corporation (NASDAQ: NVEI) (TSX: NVEI) (“Nuvei” or the “Company”), face up to 40% to 60% long-term downside risk, or $39.00–$58.00 per share. Download or view the report by visiting www.SprucePointCap.com and follow us on Twitter @SprucePointCap for additional information and exclusive updates.
Spruce Point Report Overview
Nuvei is a Montreal-based payment technology solutions provider to merchants and partners, predominantly in North America and Europe. Nuvei claims its business was founded in 2003 in Montreal by Philip Fayer, but the predecessor to Nuvei was Pivotal Payments. Absent from any Company disclosures is the fact that prior to Pivotal Payments, Mr. Fayer ran failed company PaySystems, which collapsed and left many aggrieved merchants without funds and alleging theft and fraud. We also find evidence that Mr. Fayer once claimed to have graduated from Concordia University. Years later, the truth emerged that he left the university and never completed his undergraduate degree. Another old biography states he attended college in West Palm Beach, and we find evidence of a criminal traffic arrest record in Palm Beach County, Florida.
- Evidence of a prolonged period in Nuvei’s history when it experienced limited to no organic growth. Mr. Fayer’s current biography claims that under his leadership, Nuvei has grown organically and through strategic acquisitions without referencing a specific time period. However, we find evidence that between 2010 and 2018, the Company experienced practically no growth. Our research points to challenges in the North American market that engendered mid-double-digit organic revenue decline in 2020 and Nuvei’s push into Europe via acquisitions such as SafeCharge (2019) and Smart2Pay (2020).
- Highly questionable appointments in key financial and business leadership positions. Nuvei hired Allan Lacoste (EVP of North American Partnerships, 2017), David Schwartz (CFO, 2018) and Neil Erlick (Chief Corporate Development Officer, 2020). In 2021, a YouTube exposé and lawsuit alleged that Mr. Lacoste played a role in a $100 million fraud. Mr. Lacoste’s biography curiously disappeared from Nuvei’s website, his LinkedIn profile vanished and no regulatory filings were made related to his apparent departure, despite his being a named executive. Also in early 2021, Nuvei’s Senior Legal Counsel also departed without notification to investors. Additionally, Mr. Schwartz and Mr. Erlick provide public biographies that fail to disclose their previous executive roles at FireOne Group plc, a public company that destroyed tremendous value for shareholders after the U.S. Department of Justice entered into a non-prosecution agreement with its parent company, Canadian company Optimal Group, Inc. (“Optimal”). Optimal agreed to forfeit $19 million in criminal proceeds for processing transactions for illegal internet gambling.
- Confounding financial performance as a public company that has been accompanied by limited disclosures and expanded ecommerce penetration. Since coming public on the TSX in 2020 and listing on the Nasdaq in 2021, Nuvei’s share price has experienced rapid appreciation. However, we believe investors have not been provided adequate disclosures to assess what is driving the improvement. For example, Nuvei fails to provide quarterly disclosures on merchant additions, breakdown of merchants by large and small enterprise, sales by channel or vertical, sales by credit, debit or prepaid cards, and sales by geography. Nuvei discusses increased penetration in ecommerce, primarily coming from North America. The individual driving the Company’s North American ecommerce partnerships is Moe Tassoudji. A background check reveals Mr. Tassoudji was named as a defendant in a case, along with principals of the Fiberline Companies, that the Securities and Exchange Commission (“SEC”) claimed was a boiler room scheme. Furthermore, Mr. Tassoudji has had business dealings with Gary Thomas Vojtesak, whom the SEC charged in a market manipulation and financial fraud case related to Exotics.com. Mr. Tassoudji also appears to have dealings in the adult film industry, and Nuvei has maintained adult film industry clients. Notably, Nuvei acquired Vantage Payments in 2018, a business affiliated with Mr. Tassoudji, which was known to service the adult film industry.
- Highly suspect acquisition strategy and rapid improvement of financial performance post-closing of key European targets, SafeCharge and Smart2Pay. In 2019, Nuvei acquired SafeCharge, a listed company on London’s AIM for approximately $890 million. SafeCharge was founded by Teddy Sagi, who made headlines in Israel in 1994 when he was arrested and charged with manipulating the value of stock in a widespread banking fraud. Nuvei did not provide customary revenue contributions from SafeCharge over the course of one year post-closing. Despite SafeCharge’s CEO describing the market as saturated and former employees describing the SafeCharge acquisition as having challenges, including expectations for integration not being realistic and Nuvei’s processes and technology being outdated, our research shows that SafeCharge’s profit margins materially expanded from 24.5% to 45.1% in the period following closing. We call on Nuvei’s management team to explain in greater detail how this is possible. On May 17, 2020, Nuvei announced its intention to acquire Smart2Pay, a Netherlands-based payment solution provider despite Smart2Pay already marketing itself as “A Nuvei Company” in advance of the purchase agreement being signed. We believe this could suggest that Nuvei either already owned or partnered with Smart2Pay prior to its purchase or pulled forward financial performance earlier than it otherwise should have for the combined company. Our research reveals that Smart2Pay’s financial performance and margins were declining through 2019. We estimate that Smart2Pay’s net profit margins ballooned from 28.5% (pre-acquisition 2019) to 49.2% (post-close 2020). This is despite Smart2Pay having a higher processing cost (cost of revenue) than Nuvei. Furthermore, Nuvei didn’t record or disclose any material restructuring costs, and our research shows no changes in pricing from pre- and post-deal closing that would explain the profit increase. We call on Nuvei’s management team to explain what factors caused Smart2Pay to show materially increased profitability.
- Multiple Nuvei acquisition targets have been purchased from controversial figures tied to Ponzi schemes and fraudulent activity. In 2018, Nuvei acquired Vantage Payments, whose founder has been embroiled in litigation related to TelexFree, described as one the world’s largest Ponzi schemes. In addition, a separate Vantage employee was referenced in a lawsuit as facilitating business for Rex Venture Group, another Ponzi scheme. Vantage also acted as a referral agent for Allied Wallet, which settled charges for assisting fraud schemes and taking $110 million from consumers. Vantage had a relationship with Base Commerce, which Nuvei acquired in 2021 for approximately $97 million. Base Commerce’s co-founder is a former Pivotal Payments executive. He is also referenced in the TelexFree litigation case. Lastly, we observe that in 2016, Nuvei assumed control of an entity called Fifth Manhattan around the time one of its purported founders, John Cooper, was engaging in activity related to the CMGRX fraud case, which resulted in both Cooper and his partner being sentenced to prison.
- Financial restatements and other evidence suggest 40% – 60% downside risk. We believe there are signs of numerous headwinds for Nuvei’s financial performance. In addition to recently adopting a Clawback Policy for financial restatement, Nuvei is now revising revenue, operating and financing cash flows without explanation. This coincides with a new risk factor warning that information received from target acquisitions may not be accurate or complete and that it hadn’t “independently verified the accuracy or completeness of such information.” Nuvei has also twice modified a key investor slide to retract total addressable market and compound annual growth expectations for its “High Growth Verticals.” In addition, it recently removed a physical office presence in China, one of the world’s largest economies. Nuvei trades at a premium valuation to its industry peers at 15x and 34x 2022E sales and EBITDA. We believe it should trade at a discount to reflect our documented findings and concerns. As a result, we could see its share price correct by 40% – 60% ($39.00 – $58.00 per share).
Please note that the items summarized in this press release are expanded upon and supported with data, public filings and records, and images in Spruce Point’s full report. As a reminder, our full report, along with its investment disclaimers, can be downloaded and viewed at www.SprucePointCap.com.
As disclosed, Spruce Point has a short position in Nuvei Corp. and owns derivative securities that stand to net benefit if its share price falls.
About Spruce Point
Spruce Point Capital Management, LLC is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities. Spruce Point Capital Management, LLC is a member of the Financial Industry Regulatory Authority, CRD number 288248.
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