Chanos Shorts Firm Behind Obamacare Rollout Glitches

Dec 6 2013 | 12:16pm ET

Legendary short seller Jim Chanos has Canada's CGI Group, the firm behind the glitch-plagued rollout of the Affordable Care Act Exchanges, squarely in his sights.

In a 10-page memo obtained by Reuters, the Kynikos Associates founder gave his reasons for counting the stock (parent company of CGI Federal, the main contractor behind the rollout) among his “largest short positions.” Among them, concern that the PR mess surrounding the rollout “could reduce the likelihood of future government contracts” for CGI and his belief that the company's “growing through acquisitions hides deteriorating fundamentals.”

Chanos also expressed concern about CGI's cashflows, new business bookings and “accounting conventions” that have improved the firm's earnings at least partly by recognizing revenues already counted by Logica, a company CGI acquired in 2012.

The Kynikos founder is also worried that U.S. federal government spending accounts for roughly 14% of CGIs total revenue and that spending may be curtailed by the coming round of budget sequester.

According to the data firm Markit, about 50.8 million shares of CGI's 277.47 million outstanding shares were being shorted as of Tuesday.

CGI Group’s U.S.-listed stock dropped as much as 5.9% after Newsweek first reported Chanos' short early Wednesday.

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