Orso Sees a Bear. Is AI the Next Big Short?

by | Dec 6, 2023 | FOIA, SEC, Short-Selling, Stock Market

Another Short Seller Hits FOIAengine’s Radar

It gets our attention when a short seller hits FOIAengine’s radar for the first time.  This week, we’re talking about Nathan Koppikar – Nate, for short – and his impactful short-seller fund, Orso Partners.

Orso means “bear” in Italian.  We get it.

Koppikar is 36 years old and was born in Australia, the only son of Indian immigrants.  He caught our attention after he made a Freedom of Information Act request to the Securities and Exchange Commission about Applied Digital Corporation (NASDAQ: APLD).   The company, once considered a hot tech stock, has an interesting back story.  So does Nate Koppikar. 

The SEC logged Koppikar’s FOIA request about Applied Digital on the last trading day of July.  Coincidentally or not, that was when APLD began to tank.

To learn more, we dug into PoliScio Analytics’ competitive-intelligence database FOIAengine, which tracks FOIA requests in as close to real-time as their availability allows.  FOIA requests to the federal government can be a signal of something important about to happen:  bad publicity, litigation to come, uncertainties to be hedged and gamed out.  Or, as was the case with Applied Digital, a high-flying stock about to get crushed. 

Applied Digital builds or buys large data centers, makes sure they’re adequately powered, and then rents out the space to other companies that install their own servers.  On its website, Applied Digital says it’s in the business of “providing solutions to the fields of high-performance computing and artificial intelligence.”  To investors looking for the next big AI stock, that apparently sounded a lot more tantalizing than “real estate developer.” 

In mid-May, Applied Digital’s share price suddenly rocketed upward.  APLD went from  a penny stock – trading at about $2 a share – to a star performer.  Its share price shot up more than 500 percent over a few weeks’ time.

If the stock’s performance looked too good to be true, skeptics could do some research – starting with the S-1 registration statement that the company, then called Applied Blockchain, filed with the SEC in November 2021. 

The S-1 described a complicated corporate history going back to 2001.  Before it was Applied Blockchain, the company was called Reel Staff, a Nevada-based staffing agency for film, video, and television production companies.  Sixteen months later, it merged with another company and renamed itself Flight Safety Technologies.  Six years after that, there was another renaming:  Applied Science Products, which “ceased operations” in 2014. 

“As a result of having no business or revenues from 2015 through May 2021, we are currently deemed a shell company,” the S-1 went on.  “In December 2020, we began investigating opportunities to acquire, or otherwise build, an operating business.  We determined to build a business focused on cryptoassets.”  

The rejuvenated company intended to build data centers for bitcoin mining.   

In other words, its business was in real estate. 

Still, after various incarnations over two decades, it looked like Applied Blockchain might be able to ride the cryptocurrency wave.  The name had buzz. 

 “But with the crypto world crashing that spring [2022], the stock never took off,” Institutional Investor wrote in a story published last August. “Within months, Applied Blockchain pivoted again — renaming itself Applied Digital.  If its previous iteration had been too late to cash in on the bitcoin mining craze, the company wasn’t going to miss the next big one: artificial intelligence.”

“Applied Digital isn’t really an AI company, Motley Fool wrote a few months ago.  “It’s really just a data center developer. . . . Yet Applied Digital continues to promote the idea that it’s an AI company.”

Applied Digital’s stock spiraled upward this summer as the market pushed into bull territory.  Then, just as abruptly, APLD went into a steep decline.  APLD’s fall began almost to the day that the SEC logged Nate Koppikar’s FOIA request about Applied Digital.  The sell-off had begun.

Short selling is a legal trading strategy.  The short seller identifies an overvalued target, borrows shares in that company, and then sells them at the current market price.  Later on, the short seller “covers the short” by buying back the stock at a hoped-for lower price, pocketing the difference.  The goal is to profit from the future decline in the stock price. 

According to Institutional Investor, Koppikar, who the website reported this summer was short APLD, “has a term for what he sees going on.  He calls the phenomenon ‘the grift shift’ — arguing that companies and venture capital funds have pivoted from their losing crypto and tech bets to cash in on the AI moment.”   

Based on data from the website Fintel.io, which tracks short selling, the shorting of APLD appears to be continuing.  On many trading days in the past month, short sales accounted for at least half of the stock’s total volume.  Applied Digital didn’t respond to a request for comment. 

We didn’t find a website for Orso Partners, which has $410 million in assets under management according to its latest SEC filing.  We reached out to Koppikar for comment through his partner, Scott Matagrano  who maintains a presence on LinkedIn.  We didn’t hear back.

Koppikar has reasons to be wary.  In 2017, he and his then-company, Sparrow Fund Management, were sued by a biopharmaceutical company, MiMedx (NASDAQ: MDXG) and its litigious then-CEO, Parker Petit.  Petit accused Koppikar and others of spreading lies about MiMedx in order to drive the MiMedx stock price down and profit as market-manipulating short sellers.  The defendants denied everything and fought back with lawsuits for libel and defamation.  Five years of litigation ensued.  Before it was all over, Sparrow was forced out of business

As it turns out, the short sellers were right.  Petit and MiMedx’s former COO were the real bad guys.  In 2020, both were found guilty of securities fraud by a Manhattan federal court jury.  The two were sentenced to a year each in federal prison.  They were released last year.  Petit, now 84 years old, paid a lobbyist $750,00 in hopes of getting a pardon from Donald Trump.  That didn’t work.  He is still seeking redemption.  MiMedx restated its earnings back to 2012 and moved on with new leadership. 

Meanwhile, APLD continues to show up in FOIAengine.  A month after Koppikar’s FOIA inquiry, another FOIA request was logged on the last trading day of August.  The requester was an analyst at Canary Data, which calls itself “the world’s largest and most comprehensive database of investment risk.”  The request:  “Any investigations that pertain to Applied Digital Corporation since January 1, 2023.”

The SEC quickly replied with a “Denied in Full” response, based on FOIA’s Exemption 7(A), which authorizes the withholding of “records or information compiled for law enforcement purposes.”

To see all the requests mentioned in this article, log in or sign up to become a FOIAengine beta user

Next:  Hedge fund requests to the FDA. 

John A. Jenkins, co-creator of FOIAengine, is a Washington journalist and publisher whose work has appeared in The New York Times Magazine, GQ, and elsewhere.  He is a four-time recipient of the American Bar Association’s Gavel Award Certificate of Merit for his legal reporting and analysis.  His most recent book is The Partisan: The Life of William Rehnquist.  Jenkins founded Law Street Media in 2013.  Prior to that, he was President of CQ Press, the textbook and reference publishing enterprise of Congressional Quarterly.  FOIAengine is a product of PoliScio Analytics (PoliScio.com), a new venture specializing in U.S. political and governmental research, co-founded by Jenkins and Washington lawyer Randy Miller.  Learn more about FOIAengine here.  To review FOIA requests mentioned in this article, subscribe to FOIAengine.    

Write to John A. Jenkins at [email protected].