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ChromaDex stock slide caused by 'baseless' allegations, CEO says

By Hank Schultz

22-Jun-2016
Last updated on 22-Jun-2016 at 21:07 GMT2016-06-22T21:07:55Z

ChromaDex stock slide caused by 'baseless' allegations, CEO says

ChromaDex Corp has been the target of a short seller whose allegations against the company caused the company’s stock price to stagger. CEO Frank Jaksch called the attack ‘baseless.’

The article that started the stock slide appeared on Monday. The article, written by a group or individual calling itself Bleeker Street Research and posted on the investing website Seeking Alpha, alleged that ChromaDex (Nasdaq:  CDXC) had fraudulently engineered the revenue that accounted for its recent rise into profitability via a sweetheart deal with a company that is owned by one of its board members.  The article also cast doubt about the influence of major shareholder Barry Honig, who the article alleged was involved with a stock scam associated with a company called YesDTC (Honig denies responsibility in that case and has not been charged by the Securities and Exchange Commission). 

As a result of the article the company’s stock price slid on Monday from $5 a share to $2.77.  It has since recovered to about $3 a share. As a result of the stock slide, a number of shareholders rights law firms have announced their intent to file shareholder lawsuits.

Jaksch said ChromaDex is in the process of developing a point-by-point rebuttal to the allegations in the article, and because of the threatened legal actions, he had to tread carefully. But he was willing to share a few thoughts with NutraIngredients-USA.

“No one knew about this. It’s a short attack on the company. While I wouldn’t put my company in the same league with Herbalife, this is no different than what (activist investor) Ackman did to Herbalife. These guys took a big short position on our stock before putting out a negative article on the company. The last line of the article, ‘we are short on ChormaDex stock’ should tell you everything you need to know,” he said.

“This is a baseless attack on our company and on me personally,” Jaksch said.  Jaksch said the company is “exploring its options in response to this attack,” but wouldn’t say if that could include action directly against the author of the article.

Large customer not owned by board member

Jaksch was willing to respond to one of the specific allegations in the article, that being that ChromaDex had artificially pumped up its revenue by sending business to company that is owned by one of its board members.  Jaksch said that it is true that ChromaDex has a large customer (whom he declined to name) that accounts for a big slice of its revenue.  But it’s not the same company that is mentioned in the article.

“They allege that we have one customer that represents 27% of our revenue. We do have a large customer, but they are implying that company is owned by one of our board members, Rob Fried. He did start a company to market Niagen (ChromaDex’s branded form of nicotinamide riboside) because he believes in the ingredient. But his company is a very small customer of ours,” he said.

Lengthy vetting processes

Jaksch said that ChromaDex had to go through a couple of lengthy vetting processes recently which he said the company could not have completed successfully if the kind of shenanigans the article alludes to were taking place.  

“We are an audited company and all of our revenue is thoroughly audited as required by the SEC. If any of these allegations were true, there is no way NASDAQ would have approved us for listing on their exchange. That was a 12-month due diligence process on their part. And DSM is an equity partner in ChromaDex, and they put us through a very thorough evaluation process, too,” he said.

The episode raises the question of how the articles that appear on the Seeking Alpha site are vetted. The site's executive editor, George B. Moriarty, said there is a conflict resolution process and the site had not yet received any formal communication disputing the assertions in the article.

“Some of the benefits of being a public company is that this information is open. It’s out there. One of the negatives of being a public company is that something like this can happen,” Jaksch said.

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