Tecnoglass Plunges As Hindenburg Alleges Accounting Irregularities, Cartel Connections, Undisclosed Deals

Shares of Tecnoglass fell in pre-market trading on Thursday morning after short seller Hindenburg Research alleged that the company had “cartel connections”, “undisclosed family deals” and “accounting irregularities”.

“We have identified serious red flags regarding management and numerous undisclosed related party transactions that call the company’s reported financial results into question,” Hindenburg wrote on Thursday morning.

In their report, the activist short seller wrote that they “strongly suspect” that Tecnoglass “has faked a significant portion of its revenue.”

The report says: “All told, we have no faith in the company’s financials given management’s background and the irregularities we have uncovered. We encourage its auditor to do a full review of its customer transactions and outstanding balances.”

Hindenburg says its “months-long investigation” included a “review of US and Colombian court records, securities filings, corporate registrations, property records, export records and media reports going back decades.”

The report also ties Tecnoglass to the Cali Cartel: “Following the crackdown on the Cali cartel, family members of individuals responsible for laundering money for a successor cocaine trafficking cartel known for its death squad appear as key early shareholders in Tecnoglass and the Daes’ related manufacturing business. They remained shareholders as recently as 2020.”

You can read the full report here:

NEW FROM US:

Tecnoglass—Cocaine Cartel Connections, Undisclosed Family Deals, And Accounting Irregularities All In One Nasdaq SPAChttps://t.co/Cuk3B9JkHv $TGLS

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— Hindenburg Research (@HindenburgRes) December 9, 2021

The report concludes:

The long, storied list of criminal allegations involving Jose Daes and Christian Daes – the two pillars of the enterprise – speaks for itself.

While the past is crucial for investors to have a comprehensive understanding of Tecnoglass as an investment, we believe an independent auditor should step in to provide the investing public much needed current clarity about Tecnoglass’ subsidiaries, customers, acquisitions, and capital expenditures.

To be clear, Tecnoglass has genuine production facilities and has at least a portion of genuine end-customers for its products. The key issue as we see it is that whatever legitimate business the company is partaking in is buried under a dogpile of opaque entities, related party transactions and questionable customer transactions.

Since the Daes family has a controlling stake in Tecnoglass with ~55% ownership, investors are subject to what we view as a toxic management team no matter what, barring a divestment from the family or ceding of control.

The activist short firm has been quiet for most of the second half of 2021. Recall, at the beginning of the year they made waves after publishing a report titled “The Lordstown Motors Mirage: Fake Orders, Undisclosed Production Hurdles, And A Prototype Inferno,” which led to Lordstown CEO Steve Burns stepping down. 

Hindenburg is probably best known for being the firm that called Nikola an “intricate fraud,” which resulted in founder Trevor Milton facing a federal indictment.

We will update this piece with Tecnoglass’ response, when and if it becomes available.