The Motley Fool

Infamous Short Seller Marc Cohodes Is About to Get Bitten by Badger

Businessman pulling out wooden brick from toppling stack
Image source: Getty Images.

With the Alberta Securities Commission (ASC) standing in the corner of Badger Daylighting (TSX:BAD), it finally appears that the company is about to have its way with the infamous short seller Marc Cohodes, who’s been a major thorn in its side for a considerable amount of time now. Cohodes has attacked the company on multiple occasions, alleging shady accounting practices, executive departures, and a “pattern of illegal dumping of toxic waste.”

After Badger brought on a third-party firm to audit its financial statements, it indeed appears that Cohodes’s claim of fraudulent accounting has been deemed as “baseless,” but what about the other accusations? And with the ASC bringing this matter to the court, why is Cohodes not backing down?

Badger vs. Cohodes

In the heat of the moment, it really seemed like Cohodes had the next big short on his hands, and that kept many prospective investors on the sidelines for well over a year out of fears that his allegations may have been true.

There’s no question that Cohodes’s words have hurt Badger’s stock. And until it’s proven that he’s cried wolf this entire time, I suspect it’ll continue to be a tough road for Badger, as it attempts to sustain a rally past its two-year high in spite of the promising tailwind of higher increased infrastructure spending in North America.

Badger bites back!

Badger is now “pursuing all avenues to bring parties engaged in abusive practices to account” with the hopes of finally putting Cohodes’s short thesis to rest. More recently, the ASC announced its intention to block Cohodes from trading Badger stock with a cease-trade order. If such an order is placed, Cohodes won’t be able to short Badger and will thus have no incentive to continue attacking the firm with seemingly “baseless” accusations.

“It’s a constitutional issue. They can’t tell me to shut up. That’s for sure. That will never happen,” said Cohodes in response to the ASC’s involvement.

Foolish takeaway

Badger looks to be innocent until proven guilty at this point.

Although there’s no evidence of fraudulent accounting has taken place, one can’t help but notice management’s incredibly aggressive accounting choices, most notably the surge in accounts receivables over the years. Although the increase in receivables isn’t ideal, the company has done nothing fraudulent, and as operating cash flows continue to rebound, I think investors may want to consider the name as a play on the strengthening U.S. and Canadian economies.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.  Badger Daylighting is a recommendation of Stock Advisor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.