UPDATED: As Ginkgo looks to clear its name, the feds have come sniffing around on the heels of short sell report
A month and a half after a short sell attack nearly brought Ginkgo Bioworks’ newly public shares to its knees, the company on Monday took its largest step to date toward clearing its name. But it also revealed it’s currently the target of a Department of Justice probe.
Ginkgo received an “informal inquiry” from the DOJ connected to the short sell report, released last month by hedge fund Scorpion Capital, the company said during Monday’s third quarter earnings call. CEO Jason Kelly told analysts Ginkgo is “cooperating” with regulators, suggesting the investigation remains ongoing.
“Shortly after the short seller report comes in, we received a preliminary inquiry from the DOJ, informal,” Kelly said during the call, adding later: “There’s not too much more I’d add at this point on it.”
The disclosure came in the same breath as Kelly saying its self-appointed independent audit found all accusations of wrongdoing in the report to be “unfounded.” In a follow-up email asking for comment, a Gingko spokesperson referred Endpoints News to Kelly’s remarks and the earnings press release.
Through spokesperson Danielle Blevins, the Department of Justice declined to comment.
“As a general matter, the Department does not confirm, deny, or otherwise comment on the existence or non-existence of investigations. We decline to comment further,” Blevins wrote to Endpoints in an email.
Though the probe is ostensibly connected to the report, it’s not yet clear what information regulators sought from Ginkgo or how broad the scope of the inquiry is.
Back in October, Scorpion put out its report alleging Gingko was “a Frankenstein mash-up of the worst frauds of the last 20 years.” The hedge fund claimed there was a pattern of fraud at Ginkgo, with the company faking customer interest and overhyping a platform that’s seen a history of failure without any meaningful IP.
The report could not be confirmed and short sellers — and the reports they put out — have a certain reputation about them. At the time, longtime stock commentator Citron Research pushed back on the most serious claims against Ginkgo, saying the company uses “roundtrip transactions” to boost revenue reports but stopped short of calling it a “scam.”
But it’s similar to what occurred after Scorpion released a separate report on Berkeley Lights, sending that synbio player’s stock tanking as well. And Zymergen, the company Scorpion referred to as Ginkgo’s “Siamese Twin,” blew up in spectacular fashion earlier this year just months after a massive $500 million IPO.
Ginkgo, too, is facing the realities of being a newly public company, having taken the SPAC route and reverse merging with Arie Belldegrun’s blank-check company to raise a record $2.5 billion. The deal set Ginkgo’s market value at $15 billion, though the stock — trading on Genentech’s old $DNA ticker — hasn’t moved all that much since the merger closed in September.
Ginkgo shares were down about 2.5% in early Monday trading and are up about 27.5% since the SPAC process wrapped up.
This article has been updated to include Gingko and the Department of Justice’s responses to Endpoints’ requests for comment.