10:59 AM EDT, 10/30/2024 (MT Newswires) -- Baldwin Insurance Group ( BWIN ) shares were down nearly 1% Wednesday after Blue Orca Capital accused Baldwin of acquiring small insurance firms that were already associated with the company prior to the acquisition, which allowed it to move commission costs off the income statement to the balance sheet and artificially inflate adjusted EBITDA and operating cash flow.

The investment firm, which has a short position on Baldwin Insurance ( BWIN ), alleged that the company "has been far more aggressive in disguising agent compensation beyond the undisclosed related-party deals alone....This form of financial engineering artificially inflates operating income, adjusted EBITDA, and operating cash flows."

Blue Orca Capital claims that Baldwin Insurance's ( BWIN ) adjusted EBITDA is heavily manipulated with adjustments, misleading investors about its financial health.

Baldwin Insurance ( BWIN ) presented this inflated non-GAAP metric as its main profit measure, which does not align with actual cash flow, misrepresenting the company's profitability and enriching management, the short seller said.

The company's debt levels are driving up its interest expenses and consuming nearly all operating cash flow, while its debt capacity metric is inflated and is insufficient to cover the true interest obligations, signaling financial instability, according to Blue Orca.

The short seller said that Baldwin Insurance's ( BWIN ) insiders, including its chairman, have been offloading large amounts of stock since 2022, indicating a potential lack of confidence in the company's future.

Baldwin Insurance ( BWIN ) did not immediately respond to MT Newswires' request for comment.

Price: 50.11, Change: -0.38, Percent Change: -0.75