Nexus Technologies, she began. Ticker symbol NXT. Current market cap 8.2 billion. You've been publicly bullish since Q2. You've made 17 television appearances recommending the stock.
Each appearance correlates with a 3 to 5% price increase. The smirk on Garrett's face flickered. Impressive memory, he said. You can count TV appearances. So what?
Felicia unfolded one of her papers and placed it on the table. Page 43 of their most recent 10Q filing. Footnote 12. She pointed to a highlighted section. Quote, "The company is cooperating with an informal SEC inquiry regarding revenue recognition practices." End quote.
Caroline Hayes leaned forward, frowning. Wait, I didn't catch that in my analysis. Most people don't read footnotes, Felicia said. That's the point. Garrett's jaw tightened.
One footnote doesn't mean anything. You're right, Felicia agreed. So, let's look at three more things. She raised one finger. First, accounts receivable.
Nexus reports that their accounts receivable grew 340% yearover-year, but their revenue only grew 12%. She paused, letting the numbers sink in. Do you know what that means? They're booking sales that haven't actually been paid for. It's called channel stuffing.
They're shipping products to distributors who never ordered them, counting it as revenue, then taking the products back after the quarter ends. It's one of the oldest accounting tricks in the book. The fund managers at the table exchanged uneasy glances. Felicia raised a second finger. Second, insider selling.
Nexus's CFO sold $12 million in stock last month through a 10B5:1 plan. These plans are supposed to be set up months in advance to avoid insider trading accusations, but his plan was filed just 46 days before the sale. The legal minimum is 45 days. She looked directly at Garrett. When a CFO sells that much stock that fast, it means one thing.
He knows something bad is coming and he's running for the exit. Caroline had pulled out her phone, frantically typing. Felicia raised a third finger. Third, the auditors. Peterson and Associates has been Nexus's external auditor for 11 years.
Last quarter, they quietly resigned. No announcement, no explanation, just gone. She let that sit for a moment. Auditors don't resign from 8 billion clients unless they've seen something they don't want their name attached to, something like fraud. The table was silent.
One of the fund managers, a man who'd been laughing loudest at Garrett's jokes, had gone pale. "Holy [ __ ]," he muttered. "I have 20 million in Nexus." Garrett's face had turned red. A vein pulsed in his temple. "This is ridiculous," he snapped.
"She's a waitress. She's reading conspiracy theories off the internet and pretending to be an expert." Felicia looked at him calmly. Then why are you sweating, Mr. Whitmore? Something dangerous flashed in Garrett's eyes.