Technology Author: Contributor, Value Walk - Hindenburg Research Apr 23, 2021 07:11 PM (GMT+8)

Hindenburg Research found that the blockchain chip designer directed much of the IPO proceeds out of the company through a series of opaque deals with insiders and questionable counterparties.

Ebang

  • Ebang is a China-based crypto company that has raised around USD 374 million from US investors in four offerings since going public in June 2020.

  • While the company represented that it would use the majority of its numerous capital proceeds to develop its business operations, Hindenburg Research discovered it instead directed much of the cash out of the company through a series of opaque deals with insiders and questionable counterparties.


  • For example, the company directed USD 103 million, representing around USD 11 million more than its entire IPO proceeds, into bond purchases linked to its US underwriter, AMTD, which has a track record including (a) fraud and self-dealing allegations levied against it by one of the largest private equity firms in China and (b) listings that have subsequently imploded.


  • AMTD entered into similar bond transactions with another company it recently took public in January 2020 called Molecular Data. That company is down 70% since then, has seen 6 board members and its co-founder resign, and had its auditor decline to stand for re-election.

  • In November 2020, Ebang tapped the market for its first secondary offering, announcing a USD 21 million raise. It claimed proceeds would go "primarily for development." Around the same time, the company directed USD 21 million to repay related-party loans to Ebang Chairman/CEO Dong Hu's relative.

  • Before going public on NASDAQ in June of 2020, Ebang twice applied for a listing on the Hong Kong Stock Exchange, attempting to raise as much as USD 1 billion. Multiple media outlets reported that Ebang's Hong Kong IPO plans were suspended following involvement in an alleged sales inflation scheme with a company called Yindou.

  • Yindou was a massive Chinese peer-to-peer online lending scheme that defaulted on its 20,000 retail investors in 2018, with USD 655 million "vanish(ing) into thin air." Its ultimate beneficial owner "fled the country," and Chinese prosecutors have been pursuing a criminal case against other suspects associated with Yindou.

  • Ebang claims to be a "leading bitcoin mining machine producer," yet our research indicates this extraordinary claim is backed by no evidence. Ebang released its final miner in May 2019 and has since seen its sales dwindle to near-zero, delivering only 6,000 total miners in 1H 2020.

  • With its mining machine business failing, Ebang pivoted the story to a cryptocurrency exchange launch called "Ebonex." Announcements about the exchange added as much as USD 922 million market capitalization to Ebang.

  • We found that Ebang's exchange appears to be purchased from a white-label crypto exchange provider called Blue Helix that offers out-of-the-box exchanges for as little as no money up-front.

  • Ebonex reports what appears to be fictitious volumes. Despite just launching and having virtually no online presence, Ebonex volume data implies it is one of the largest spot exchanges in the world. Its trading metrics are absent from crypto exchange trackers such as FTX and CoinMarketCap.

  • Ebang is yet another cautionary tale for inexperienced retail investors enthused by anything crypto-related. As is so common with other ridiculous China-based schemes, the company will likely keep selling shares as long as investors are willing to keep buying them. We think this is a clear one-way street, and the capital isn't coming back.


Initial Disclosure: After extensive research, Hindenburg Research has taken a short position in shares of Ebang International Holdings Inc. This report represents the authors' opinion, and they encourage every reader to do their own due diligence. Please see the full disclaimer at the bottom of the original report.

Background: Ebang Is Simply The Latest Chapter In The "China Hustle" Disguised As A Bitcoin Mining Play

Stocks tied to blockchain technology have been on the run over the last few months, swept up in bitcoin's resurgence. Ebang has been able to ride this wave, going public in June 2020 largely based on claims of being a leading global producer of bitcoin mining machines.

Since going public, the company has announced a series of preliminary initiatives, such as setting up various international entities (1,2,3,4), launching bitcoin, litecoin and dogecoin mining businesses, and launching a new crypto exchange.

These preliminary achievements have been enough for investors to award the company a market cap as high as USD 1.5 billion, and have paved the way for a slew of follow-on equity offerings at prices ranging from USD 5.00 to USD 6.10 per unit, including warrants. In total, the company has raised around USD 374 million from investors in 4 offerings over the past 9 months. [Pg. 4, 5 and Pg. 83]

Investors in Ebang likely think they are getting in on the ground floor of an expansive, multi-pronged cryptocurrency technology enterprise. But our research found that while the company represented that it would use the majority of its numerous capital proceeds to develop its business operations, it instead simply directed cash out of the company through a series of opaque deals with entities linked to its Chairman/CEO and its underwriter.

For example, the company directed USD 103 million, representing around USD 11 million more than its entire IPO proceeds, into bond purchases linked to its underwriter, AMTD, which has a track record of (a) fraud and self-dealing allegations levied against it by one of the largest private equity firms in China and (b) listings that have subsequently imploded.

The company then announced a USD 21 million secondary offering, claiming it would use the funds to expand its operations. However, we found that the company directed USD 21 million to a relative of its Chairman/CEO around the same time.

These actions shouldn't surprise investors familiar with Ebang's history and abysmal reputation in China. Prior to going public in the US, Ebang was accused of using cash embezzled from a fraudulent lending scheme in order to inflate its sales in the run-up to its planned Hong-Kong IPO.

The company ultimately failed to list in Hong Kong, twice, owing to customer lawsuits, police investigations relating to embezzlement and other fraud allegations, and public scrutiny over its conduct.

Following these failures, Ebang was finally brought public in the US by underwriter AMTD, with the track record mentioned above.

Rather than an exciting opportunity, we believe Ebang is simply yet another "China Hustle"; the latest in a long list of companies blatantly absconding with US capital, which winds up taking a one-way trip to China as a result of misrepresentations to US investors.

Background: Ebang's Crypto Mining Hardware Business And Recently-Opened Crypto Exchange

Ebang was founded by its current Chairman and CEO, Dong Hu, in 2010. The company initially focused on selling communications network access equipment until around 2014, when it transitioned into the blockchain industry. [Pg. 10]

Ebang launched its first application-specific integrated circuit (ASIC) mining machine, called the Ebit E9+, in December of 2016. [Pg. 119] ASIC machines are specifically built to mine certain cryptocurrencies like Bitcoin, Dash, Litecoin and Zcash. 

This report, 'Ebang: Yet Another Crypto "China Hustle" Absconding with US Investor Cash,' was published originally on ValueWalk by Hindenburg Research. To read the full report, please click here.


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