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Blink Charging: Lingering Control Deficiencies, Penny Stock Scheme Ties, & Hush Money Settlements
The electric vehicle charging company’s CEO is delinquent in SEC mandated disclosure filings, recently sold $22 million in stock, and is overseen by directors compensated at a rate 2X what Amazon pays.
April 6, 2021
In the previous year’s annual report, Blink Charging (BLNK), a provider of electric vehicle (EV) charging equipment and networks, disclosed multiple control deficiencies, including having no formalized accounting policies and procedures at all. In its most recent 10-K, Blink suggests it has made substantial headway:
“...significant progress has been made...”
Investors might disagree if they carefully compare this year’s annual report with the prior year’s. In its 2020 annual report, Blink disclosed the following material weaknesses in its internal controls over financial reporting:
“The Company did not maintain effective controls over the management of logical and administrative access. Specifically, effective controls were not in place to ensure that only authorized individuals with adequate segregation of duties are permitted access to IT systems, resources and facilities or to administer IT applications.”
These control deficiencies aren’t new. They existed the prior year and were listed in the company’s 2019 annual report:
“The Company did not maintain effective controls over logical access management.”
“...effective controls were not in place for: (a) providing access to IT resources and facilities only to appropriate authorized individuals with adequate segregation of duties…”
Even worse, in its 2019 annual report the company suggested that these issue would be resolved in 2020:
“Management expects to remediate and resolve these material weaknesses during 2020…”
One year later though, in its 2020 annual report, Blink acknowledged they still haven’t been fixed despite the aforementioned claims of substantial progress:
“Management expects to remediate these material weaknesses during 2021.”
In its 2020 annual report— while updating investors on its progress in fixing five control deficiencies— Blink says it expects each will be remediated in the first half of 2021. Clearly, Blink’s expectations have not become reality in the past year. Investors giving Blink the benefit of the doubt would be wise to verify the company’s claims in its next 10-Q, which is likely due sometime in May.
Separately, in October 2020, Blink filed a three sentence 8-K saying that the company had settled a lawsuit brought by Blink’s former COO James Christodoulou. The filing reveals Christodoulou’s termination has been reclassified as “without cause” and that Christodoulou was compensated accordingly.
In the latest annual report, Blink includes new details that shed light on why the suit may have been settled only a few months after it was filed:
“Mr. Christodoulou asserted that the Company terminated his employment without cause and in retaliation for his alleged plan to disclose that Company executives had engaged in alleged “questionable business practices.”
Whatever it is Christodoulou had on Blink’s CEO and other executives was worth approximately three times what Christodoulou was owed for being terminated. Blink settled the case for $400,000, of which only $125,000 was related to Christodoulou’s compensation matters. As of this writing, Christodoulou’s LinkedIn profile still says he’s Blink’s President and Chief Operating Officer despite Blink hiring a new COO.
Blink’s founder and CEO, Michael Farkas, is also the CEO of at least two other firms. Though it’s not immediately clear in the annual filing whether Blink does business with Farkas’ other firms, it’s appropriate to point out that one of Blink’s control deficiencies pertains to related party transactions:
“In 2019, we reported that controls over the identification and review of transactions pertaining to related parties needed to be strengthened... During the first half of 2021, the Company needs to complete its full remediation of this deficiency by enhancing procedures for assembling and maintaining complete and up-to-date information on all applicable parties.”
Separately, Farkas is also one of four executive officers or directors owning 10% or more of Blink’s common stock who is delinquent in filing as such. Investors are right to be skeptical when a company’s CEO, CFO, and new COO fail to make disclosures mandated by the SEC. Note the wording Blink uses to disclose the delinquencies:
“...we believe that, during the year ended December 31, 2020, all filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners were complied with, except for late Form 4 filings by Messrs. Engel, Farkas, Rama and Jones, due to administrative delays.”
Blink’s board of directors is presumably in place to provide oversight on matters like unfixed control deficiencies, suspicious legal settlements, and executive non-disclosures. But it may not be in directors’ financial interest to be highly critical of management. Not only is being a director a lucrative endeavor, the position also comes tax free.
The board is comprised of six directors who, according to the annual report, attended at least 75% of meetings held in 2020. Director compensation includes cash, stock awards, and payments Blink makes to cover directors’ tax liabilities. Blink disclosed the total compensation in 2020 for four of its directors in its latest annual report:
-Louis R. Buffalino- $598,734
-Jack Levine- $793,787
-Kenneth R. Marks- $613,482
-Ritsaart J.M. van Montfrans- $898,256
On average, Blink directors received $726,064 in 2020. For comparison, below is average annual director compensation at some of the world’s largest companies:
-Berkshire Hathaway- $2,680
Separately, in 2018, JMJ financial purchased warrants to acquire 147,057 shares of Blink. Two years later, JMJ exercised the notice but says Blink failed to deliver the shares. In December 2020, JMJ filed a lawsuit alleging breach of contract and requested damages of at least $4.2 million. One month later, Blink settled the case and revealed:
“In January 2021, the Company entered into a settlement agreement with JMJ under which the parties exchanged releases and the litigation was discontinued with prejudice. The Company did not make a cash payment in the settlement, but rather delivered 66,000 shares of stock, representing a modification of the initial terms of the warrant grant.”
Blink traded between $43-$63 per share in January suggesting a settlement between $2.8-$4.1 million depending on when the shares were delivered.
Investors may have less sympathy for JMJ when they learn more about its sole proprietor, Justin Keener. Though JMJ is mentioned 59 times in Blink’s annual report with regard to various financial transactions, Keener is mentioned just once. This may be because Keener was charged by the SEC in connection with a penny stock scheme that netted $21 million in profits. Keener is accused of not registering as the SEC argues is required. Registering may have been inconvenient for Keener as this FINRA suspension notice details.
Blink blames much of the volatility in its share price on speculators and hedgers. The company also hints that it believes the price of its stock is artificially high at times. Though shares are approximately 30% off their highs, Blink’s stock has risen more than 2,000% in the last year.
In its 2020 10-K, Blink suggests the rise in its share price may be temporary:
“We believe that the recent volatility in our common stock may be due, in part, to short squeezes that may be temporarily increasing the price of our common stock, which could result in a loss of some or all of your investment in our common stock.”
Blink and its CEO Farkas were the focus of a report recently issued by a short seller.
Blink has been beloved by traders on Reddit’s Wall Street Bets and labeled the biggest EV bubble of them all. Reddit traders might consider following the lead of Blink’s CEO. In January 2021, the company raised $221 million in a public share offering. Blink wasn’t the only seller though. It’s CEO was also a seller at approximately $41 per share, netting an estimated $22 million:
“Our Chief Executive Officer and one other officer participated in the offering by selling a total of 550,000 shares of our common stock from the exercise of the underwriter’s option to purchase additional shares.”
Related: CHPT, BEEM, TSLA, VLTA, RMO
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