By: Sam Koppelman, Jenny Ahn, Matthew Termine, Alex Sternlicht, Michelle Cera

Editor: Jim Impoco

Hunterbrook Media’s investment affiliate, Hunterbrook Capital, has no positions related to this article at the time of publication. Positions may change at any time. See full disclosures on our website.

Something doesn’t add up at Lennar ($LEN), America’s second-largest homebuilder.

The numbers are bad: Margins have cratered, cash flow has dwindled, and the stock has crashed.

But it isn’t just that the numbers are bad — it’s that they are surprisingly bad. For 10 straight quarters, Lennar’s stock fell the day after reporting earnings.1 Wall Street keeps modeling the company’s financials, and keeps getting it wrong.

So what is everybody missing?

Lennar itself raised this question in a statement released around noon yesterday that appeared random to observers of the name — framed as a response to “several analysts and investors” asking the company about its strategy. The contents of the press release were anodyne, but the stock fell to multiyear lows within hours.

“If you’re explaining, you’re losing,” wrote analysts at Evercore in a research note about $LEN.

What Lennar did not mention: Hunterbrook had repeatedly reached out to the company since last week with specific, detailed questions about its accounting and financials. Lennar — which in its statement claimed to be “deeply committed to engaging with investors, analysts, and all stakeholders — ghosted that outreach.

Hunterbrook wrote Lennar again after the statement on Monday. Lennar’s response: Nada. The only answers to Hunterbrook’s questions Lennar provided seemed to be selectively disclosed to analysts at banks, rather than the public. (The corporate equivalent of responding to rumors on your Close Friends story.)

Lennar’s narrative: Its numbers have been disappointing because of soft demand and aggressive discounting amid a widespread housing downturn. Lennar famously slashed home prices further than any peer, a bet on volume over margins that management framed as a deliberate strategy. The company reiterated that margin impact is largely a reflection of the volume-based strategy defended in yesterday’s statement.

But if Lennar’s strategy is working, why the carnage?

Specifically, why has Lennar consistently tripped over Wall Street’s gross margin projections every quarter since 2023? Is it really just the discounting?

To solve this mystery of the vanishing margins and immense cash burn, Hunterbrook Media analyzed proprietary national real estate data, hidden variables across SEC filings, and obscure documents from Lennar counterparties — including the pitch decks that Lennar’s financing partner, Angelo Gordon, presented to a California county pension fund.2 We also spoke with multiple independent accounting experts, investment analysts, a land banker, and investors who have combed through Lennar’s financials.

The evidence pointed Hunterbrook toward an explanation so buried in the books it seems that many of those covering Lennar missed it.

The homebuilder last year completed an ambitious transformation: moving 98% of its pre-construction land off its books and into third-party “land banks.” Executives projected this “land-light” strategy would cost just 1 percentage point of gross margin.

But Hunterbrook’s analysis indicates Lennar’s pivot to land banking has locked the company into paying Wall Street firms more than $2 billion a year in annual fees just to maintain options on land it used to own, according to Hunterbrook’s estimates. That figure now rivals the company’s entire net income.

These fees are generally paid monthly or accrued over time until Lennar takes delivery of the properties. Either way, most fees seemingly aren’t immediately showing up as expenses. Instead, Lennar appears to be capitalizing some of these disbursements — recording billions in accumulated spending as though it is an asset.

“It’s delaying the inevitable,” said JP Krahel, chair of Loyola University Maryland’s accounting department. “Seems a little nuts.”

The costs have already begun to creep into margins, though they appear to be masked by aggressive cuts to construction expenses. But the worst is likely still ahead for Lennar. The land bank portfolio has grown every year since 2020, and the average lot likely sits in the bank for roughly two years before Lennar takes delivery.3

That means the income statement today seemingly reflects only the earlier, smaller vintages of land bank deals.

The later vintages — carrying years of accumulated fees — haven’t hit yet. And Lennar’s sales pace suggests some of the land is sitting in the banks significantly longer than originally planned, silently accruing fees until Lennar takes delivery.

In the meantime, Lennar’s leadership appears to be heading for the exits. The co-CEO, general counsel, head of IR, and several other executives, including ones tied closely to land-banking, have recently departed.

“A number of long-term Lennar associates have chosen to retire … and let the next generation shine,” said CEO Stuart Miller, who has been dropping guarded hints about how expensive the land deals have been. The asset-light transformation, he told analysts on the most recent call, is “getting more interesting by the day.”

“Interesting” is likely not the word Lennar homeowners would use to describe what has happened to their homes during the company’s push to save money wherever it can. In 2025, Hunterbrook published an investigation into quality issues from Lennar and other homebuilders — ranging from severe mold infestations to cracked foundations to violations of building codes, according to interviews with 22 Lennar homeowners.

“It’s like they give you the impression that they’re rapidly building because they have such a high demand,” a Lennar homeowner who asked to be referred to only by her last name, Marks, told Hunterbrook. She said Lennar sold her a “lemon” home full of defects in 2024. “Then once you buy and move in, you realize nobody’s moving into those other homes.”

Those empty homes may be signs of a broken business model.

The industry affectionately called Lennar’s volume-based growth engine the “Lennar Machine.” But the machine has become a treadmill that Lennar no longer controls: The company appears to be churning out more and more homes from the option pipeline to stop the fees from accruing while the land sits in the bank. But in order to sell these homes in a weak housing market, Lennar is slashing effective prices, inclusive of incentives, destroying margins already buckling under the weight of the fees.

It’s a lose-lose for both Lennar and for the people like Marks surrounded by empty lots, watching their home values — and the stock price of the company that sold them the dream — plummet.

How’d Lennar get here?

The Big Bet

Lennar no longer owns the land it plans to build on — not until the moment it’s ready to start construction.

Over the past seven years, the company has executed on an extreme version of a big bet made by many major homebuilders — selling or transferring nearly all of the land it once owned to land developers or financial firms. In place of the land itself, Lennar contracted with these firms for options to purchase land. With remarkable speed, Lennar pulled off this “land light” strategy, going from owning roughly 75% of its land in the fourth quarter of 2018 to just 2% in the fourth quarter of 2025, with the rest controlled through options.

Optioning land allows homebuilders to free up massive amounts of capital that would otherwise be tied up with owned land. By keeping these properties in what is called a “land bank,” builders can secure a pipeline of land to buy when they need it, just in time for home construction. They don’t have to own all that land while they develop it or wait until the market is right.

Experts told Hunterbrook that the idea was to make Lennar’s balance sheet look more like that of NVR ($NVR), a smaller rival that Wall Street rewards with a higher multiple for keeping its books light. In March 2025, Miller told investors the land-light strategy would only carry a cost of roughly 100 basis points, or 1 percentage point, of margin — a small price to pay for a Wall Street makeover and attendant higher valuation.

But that’s not what happened.

Unlike NVR, which options land from local developers in a network that took decades to build, Lennar wanted a faster, more institutional setup. It turned to private equity firms like TPG’s Angelo Gordon and spun off its legacy land into a real estate investment trust (REIT) named Millrose Properties ($MRP). Miller called the company’s transition “a strategic national process,” though he later admitted, “We’ve put these things together pretty quickly.”

The main issue is that institutional land banks aren’t cheap. First, Lennar pays those firms deposits — about 5% to 20% of the land’s value — pretty standard for builders who option land from developers.

Second, what’s notable about the institutional land banks that Lennar borrows from is that they also charge option fees, which essentially amount to interest payments. To Millrose, Lennar pays an average of 8.5% annually. The number is likely higher for other counterparties like Angelo Gordon, which reported a 15% internal rate of return on its first Lennar land bank, according to a document obtained by Hunterbrook.

Contrast this with the NVR model Lennar seems to be emulating. NVR largely enters into land purchase contracts with developers for finished lots and pays a one-time deposit at roughly 10% of the land’s purchase price, which goes toward the principal. And the company doesn’t appear to pay recurring option fees. Which means, essentially, NVR’s cost to option land beyond interest is simply the impairment write-downs of the initial deposit if the builder decides not to purchase the land. In all of 2025, NVR paid $75.9 million total in impairments, nowhere near the amount Lennar may owe in fees.

Hunterbrook estimates those option fees will cost Lennar billions annually upon maturity, rivaling the company’s entire net income.4 The 1-percentage-point margin drag management promised appears to be way off.

Delaying the Inevitable

There seem to be two ways Lennar pays option fees. 1) With Millrose, Lennar pays in regular monthly installments — 8.5% on the value of the finished land. 2) With Angelo Gordon, the deals may be structured more like a PIK loan5 — with the option fees rolling into the purchase price when Lennar finally takes delivery of the lot, or when Lennar abandons the project, according to Angelo Gordon’s pitch decks, master agreement, and a video of Angelo Gordon’s presentation to a California county pension fund in 2024.6

It’s not clear precisely how these deals work, as the details surrounding them are largely kept private. But Hunterbrook’s reporting suggests this structure enables Lennar to pull off an accounting two-step.

During the period in which Lennar is paying out options fees, the company does not appear to expense them. Instead, Lennar seems to be parking these costs on the balance sheet under “deposits and pre-acquisition costs” until they purchase the lot — or take an impairment on it if they decide to walk — at which point these expenses eventually flow through to Lennar’s COGS.

This approach — which may be perfectly legal! — enables Lennar to present better earnings today, at the expense of worse COGS tomorrow.

Why do we think this?

One seemingly reasonable assumption is that if the deposit and pre-acquisition costs line really reflects money Lennar puts down to genuinely purchase land, then deposits would rise and fall roughly in step with the number of homesites Lennar controls. More land, more deposits and pre-acquisition costs. Less land, fewer deposits and pre-acquisition costs.

That’s how it works at NVR, the company Lennar reportedly models itself after. Its deposits track homesites almost perfectly. Over the course of 2025, NVR’s controlled homesites ranged from 155,000 to 169,250. Its deposit line moved roughly in lockstep: from $727 million to $851 million, holding steady at roughly $4,700 to $5,000 per homesite. No mystery.

At Lennar, the two numbers have decoupled.

Between February 2025 and February 2026 — the four quarters following the Millrose spinoff — Lennar’s controlled homesites fell by roughly 47,000, from 533,000 to 486,000. At Lennar’s average deposit and pre-acquisition costs — of roughly $12,900 per homesite as of November 2025 — that reduction theoretically should have pulled the deposit line down by approximately $600 million.

Instead, the deposit line grew by $1.6 billion — from $5.2 billion to $6.8 billion.

That’s a $2.2 billion gap between what the deposit line theoretically “should” have done and what it actually did. Even accounting for normal churn — Lennar continuously options new land to replace lots it takes down — a gap of that magnitude points to something other than new deposits driving the growth, likely a combination of capitalized option fees, infrastructure spending, and other pre-acquisition costs. (After all, the number of homesites are down!)

Now, there may be reasonable explanations for the gap.

Lennar develops the lots while they sit in the bank. Laying roads and utilities. Grading. Permitting and entitlements. These costs could add up quickly, depending on how raw the land was when Lennar optioned it.

That’s what Evercore offered as a possible explanation: infrastructure costs. In Texas, for instance, Municipal Utility Districts (MUDs) require builders to fund infrastructure upfront and later reimburse them through bond issuances; analysts at Evercore ISI, in the note published the same day as Lennar’s statement, estimated MUD spending alone accounts for over $300 million of the deposit line’s recent growth. (Lennar’s MUDs raise their own series of questions.)

But even Evercore’s own analysis said the “concerns around capitalized” options fees are “not without merit,” noting that Lennar’s non-Millrose land bank exposure is two to three times the size of its Millrose exposure and that the margin headwind could be well above the company’s 100-basis-point estimate. Evercore called on Lennar to provide more disclosure about what’s in the line — a request the company has so far declined to fulfill, though its next SEC filing, a 10-Q, which appears to be imminent, may offer answers.

And experts who spoke with Hunterbrook believe the most plausible primary source for the unexplained billions of dollars in this line item over the years is the capitalized option fees Lennar has been paying out to its land banking partners. Lennar’s management also confirmed to at least one investor — and seemingly the sell-side — that the deposit line includes option maintenance fees.

Krahel and other accountants interviewed by Hunterbrook questioned Lennar’s approach. “I don’t capitalize an electric bill because the second I stop paying it, the lights go out,” said Krahel, the chair of the accounting department at Loyola University Maryland.

He offered a second analogy: a pawn shop. If you pay $50 a month for a shop to hold your watch, those payments don’t reduce the ultimate price you pay. “Those monthly payments don’t offset the value of the gold watch when I come buy it back,” he said. “That’s rent expense. That’s really what this is.”

The issue, Krahel explained, is that the option fees Lennar is capitalizing aren’t actually an asset. They’re not paying down principal and reflecting the value of new land ownership. They’re just expenses, like interest. The money leaves Lennar and goes to other firms. Period. He described the accounting rules governing these kinds of transactions as “fundamental principles,” but it’s unclear whether Lennar is following them.

“Generally speaking, you cannot capitalize an expenditure if you’re spending it on something you don’t control,” Krahel explained. But if Lennar indeed does “control” the properties on which it is paying management fees, Krahel argued, then that land shouldn’t be off its books. “They’re trying to eat their cake and have it too,” Krahel said. “If they control it, it should be on their balance sheet.”

To be clear: Lennar’s accounting may be permissible. Under GAAP, payments to obtain an option on real property can be capitalized, and Lennar could argue that because the fees become part of the eventual lot purchase price, they are properly recorded as pre-acquisition costs. Reasonable accountants disagree on where the line falls — and Lennar said in its statement that its disclosures and accounting treatment “have been carefully vetted.”

But the financial consequences are the same regardless of how the fees are classified.

Whether Lennar records them as an asset today or an expense today, the cash has already left the building. And when the lots are finally taken down, the accumulated cost should hits the income statement either way. The accounting treatment determines when investors see the damage — not whether the damage exists. In the meantime, reported earnings look relatively intact, the balance sheet line keeps growing, and investors are left evaluating a company that appears to earn $2.1 billion a year but is quietly spending what appears to be a comparable amount to maintain its land pipeline.

Then, when Lennar takes down a lot from a land bank, the accumulated fees don’t get paid back. They become a cost, flowing straight into cost of goods sold and cutting directly into gross margins. And if Lennar abandons a lot, it takes an impairment instead.

“You’re feeding everybody on the pathway to the takedown moment thinking everything’s better than they are,” Krahel said. “And then — hello, surprise — here are expenses that were sitting on the balance sheet instead of having flowed through the income statement.”

The Inevitable: Cost Recognition

That “surprise” is no longer theoretical. Hunterbrook’s reporting indicates that it has started to bleed onto Lennar’s income statement as the first wave of optioned lots have been taken down — even if these fees were once marked as an asset.

It’s not immediately clear where these fees show up in Lennar’s earnings, because the company does not itemize them in its cost of goods sold (COGS).

But you can roughly back into the option fees as part of those COGS — and margin hit — through a few different, if imperfect, proxies.

One is through a comparison with D.R. Horton.

D.R. Horton, which targets very similar buyers at around the same price points, had comparable cost structures as Lennar from from 2020 to 2022. And both companies significantly cut down on their construction costs, which, in theory, should have reduced their COGS.

But starting in 2023, Lennar’s COGS as a share of revenue began pulling away, culminating in a roughly 2.8 percentage point gap in FY2025 — approximately $800 million to $1 billion in extra costs. That’s almost certainly a reflection of Lennar’s rising land costs, not construction costs (land and construction costs are the two most important homebuilding costs), because Lennar’s construction costs haven’t only been falling; they’ve been doing so at nearly twice the rate of D.R. Horton.7

This is, perhaps, an explanation for why Lennar appears to be among the only major homebuilders that actually almost lost money in the last 12 months.

And this may only be the beginning, because much of the fees Lennar has accumulated likely haven’t reached the income statement yet. The land-bank portfolio has grown every year since FY2020, with vintages growing over time — from 119,283 controlled homesites to 496,250 by FY2025. That means, assuming Lennar’s optioned land sits roughly two years in the bank before takedown, the income statement today reflects just the carrying costs on the earlier, smaller vintages. Meaning, the large tranches optioned in recent years — including over 100,000 homesites Lennar added to its portfolio last year alone — are still accruing fees in the background.

Based on this vintage approach, Hunterbrook estimates that last year, Lennar paid about $1.5 billion in option fees, or an average of roughly $20,000 per home sold.8 In an extremely simplified calculation, Hunterbrook assumed that the option rate on all the lots was 8.5%, the rate Millrose charges — almost certainly an underestimate given the higher market rates that Lennar likely paid to third-party lenders before Millrose was created in 2025. (This model also assumes Lennar has been taking down all homesites according to schedule; it doesn’t take into account a potential reality where Lennar’s takedowns have actually skewed toward the end of the term or renegotiated past the original term — events which would add to the accrued option fees.9)

If our analysis is right, as the portfolio matures and Lennar begins taking down lots with the full weight of accumulated carry costs, option costs as share of revenue will continue to climb. By FY2028, option costs on its portfolio could be roughly $2.5 billion or more, Hunterbrook estimates, potentially bringing down margins to a level barely enough to clear Lennar’s overhead. (Note: These truly are just estimates. The company provides very little information on this, so we backed into it. If you have a better way to calculate it, let us know at ideas@hntrbrk.com.)

The upshot is Lennar may end up taking a much bigger gross margin hit than the company telegraphed when it pivoted to the land-banking model — and Lennar’s margins are already much worse than peers.

In 2025, Lennar previewed just 100 basis points of margin as the cost of optioning land. That may have been true if you were just looking at the 2024 estimated takedown numbers, reflecting a little over half of Lennar’s current portfolio. Option fees net of the cost of owning land — using its corporate debt rate of around 5% as a proxy — would have gotten you close to that 100 bps spread. But by the time Lennar’s current portfolio matures, that spread will have increased to 300 bps, we estimate.

And while a few hundred basis points doesn’t sound like much — a small price to pay for the perks of a land-light strategy, an easily absorbable margin cost if you can keep your sales prices and volume pace healthy — that doesn’t tell the whole story.

The fundamental problem with Lennar’s new model is that slowing down has gotten much more expensive. When Lennar owned its land, the cost of delaying construction was roughly 5% interest. Now it’s at least 8.5% — and the land bank contracts don’t wait. Lennar seemingly had to renegotiate as much as $2.4 billion worth of options last year, and was “compelled to takedown” an additional $663 million from option land in 2025 — even as it sat on roughly 5,000 completed homes it couldn’t sell, a 72% increase from the year before.10 To move those homes, Lennar has needed to slash prices, squeezing margins already buckling under the option costs.

Stijn Van Nieuwerburgh — a real estate and finance professor at Columbia Business School — described the model to Hunterbrook as involving layered, and partly hidden, leverage. On the balance sheet, he argued, a “land-light” strategy can look less risky, but the economic exposure can end up resembling the older model that homebuilders such as Lennar are trying to move away from.

“It’s leverage on top of leverage,” Van Nieuwerburgh said. “In an upcycle, leverage helps you; in a downcycle, it can be devastating.”

“The optionality is supposed to reduce risk. But if the contracts embed enough financing and enough effective commitments, it can end up doing less risk reduction than advertised.”

But Lennar can renegotiate or walk, right? Isn’t that the point of the “land-light” model?

At least according to the terms Hunterbrook reviewed, there doesn’t seem to be a lot of wiggle room built into Lennar’s arrangement — although “flexibility” was supposed to be a key feature of the land-light structure.

Lennar’s portfolio with Millrose is based on a “cross-termination pooling” structure that keeps Lennar from being able to walk away from a bad community in one geography without triggering forfeitures across an entire pool of communities. Meaning, Lennar likely has to sit on optioned lots for a long time in markets where it makes little sense to start building — say in Florida, where home prices have dropped as much as 16% in some parts.

Angelo Gordon deals don’t look much more flexible for Lennar either.

According to Angelo Gordon’s pitch decks, the project cycle is limited to a 40-month period where Lennar has to takedown a certain number of lots each month on a rigid schedule. If Lennar falls behind that schedule, Angelo Gordon has the right to immediately terminate, keep the deposit, and sell the fully improved lots to a competing builder.

“There’s really no flexibility,” Angelo Gordon managing director Bryan Rush assured SBCERA, San Bernardino County employee’s pension fund, in 2024. SBCERA later approved a $150 million investment in Angelo Gordon’s land bank.

Angelo Gordon’s leash?

Angelo Gordon considers Lennar’s 19.9% upfront deposit — nearly twice the 10% Millrose charges — “first loss,” meaning Lennar’s deposit would take the first hit if deals go south. It’s another way Angelo Gordon seems to protect its downside, while leaving Lennar with the risks of forfeiting the entire deposit if projects stall, according to Angelo Gordon’s pitch to the pension fund.

And, presumably, those protections really matter for California. Because that state has seen what can happen when it doesn’t have them.

In January 2007, the massive state pension fund CalPERS invested roughly $970 million for a 62% financial interest in a Lennar land venture near Los Angeles.

Seventeen months later, the joint venture filed Chapter 11 bankruptcy. CalPERS lost its investment: $922 million, one of the worst single losses in the pension fund’s history.

Today, Angelo Gordon is channeling money from another California public pension fund, SBCERA, to fund the Lennar land acquisition.

But this time, in the event of a crisis, it seems like the role of bagholder would be reversed. It is Lennar, not the pension fund, that posted the first-loss deposit.

Asked how she would feel if Lennar had to take billions worth of impairments on its land bank investments, Marks — the resident who claims she was sold a “lemon” by Lennar — was blunt.

“Good,” she said, “lose money, like the rest of us homeowners.”

Authors

Jenny Ahn joined Hunterbrook after serving many years as a senior analyst in the US government. She is a seasoned geopolitical expert with a particular focus on the Asia-Pacific and has diverse overseas experience. She has an M.A. in International Affairs from Yale and a B.S. in International Relations from Stanford. Jenny is based in Virginia.

Matthew Termine is a lawyer with nearly five years of experience leading the legal team at a mortgage technology company. In 2017, Matt was credited by the Wall Street Journal, among others, for identifying suspicious mortgage loan transactions that led to several successful criminal prosecutions, including that of a prominent political operative and the chief executive officer of a federally chartered bank. He is a graduate of Trinity College and Fordham University School of Law.

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a B.A. in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Alexandra Sternlicht is an award-winning journalist and Columbia Business School MBA candidate. She previously reported on technology at Fortune, where her investigations were cited by the U.S. Supreme Court, lawmakers and major media outlets. She’s also worked at Forbes and The New York Times. Alexandra is an alum of Columbia Journalism School’s Knight-Bagehot Fellowship and graduated magna cum laude from the University of Pennsylvania.

Michelle Cera trained as a sociologist specializing in digital ethnography and pedagogy. She completed her PhD in Sociology at New York University, building on her Bachelor of Arts degree with Highest Honors from the University of California, Berkeley. She has also served as a Workshop Coordinator at NYU’s Anthropology and Sociology Departments, fostering interdisciplinary collaboration and innovative research methodologies.

Editor

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a master’s in Chinese and Japanese History from the University of California at Berkeley.

Graphic

Dan DeLorenzo is a creative director with 25 years reporting news through visuals. Since first joining a newsroom graphics department in 2001, he has built teams at Bloomberg News, Bridgewater Associates, and the United Nations, and published groundbreaking visual journalism at The Wall Street Journal, Associated Press, The New York Times, and Business Insider. A passion for the craft has landed him at the helm of newsroom teams, on the ground in humanitarian emergencies, and at the epicenter of the world’s largest hedge fund. He runs DGFX Studio, a creative agency serving top organizations in media, finance, and civil society with data visualization, cartography, and strategic visual intelligence. He moonlights as a professional sailor working toward a USCG captain’s license and is a certified Pilates instructor.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

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Nine months before Iran reportedly began mining the Strait of Hormuz, a U.S. Navy director responsible for mine countermeasures delivered a candid assessment before an audience of international naval observers: The Navy’s next-generation mine-hunting systems suffered from unreliable unmanned vehicles, critical single-point failures, and sonar that couldn’t see.

Hunterbrook Media has obtained a copy of that briefing and its associated slides.

The picture they paint is harrowing. The U.S. stares down the barrel of a bleak scenario: a trio of flawed ships responsible for keeping open a global shipping artery that carries one-fifth of the world’s oil supply.

It wasn’t always this way.

In January, the U.S. Navy loaded four decommissioned Avenger-class minesweepers onto a heavy-lift cargo ship in Bahrain and sent them home for scrap. The wooden-hulled ships had spent the entire post-Cold War era keeping the Persian Gulf’s sea lanes clear — the only vessels in the American fleet at the time purpose-built to find and destroy naval mines. Their fledgling replacements — modern Independence-class Littoral Combat Ships appended with new unmanned mine countermeasures — had just arrived in theater. The transition was complete.

Two months later, Iran is reportedly laying mines in the Strait of Hormuz. For the United States, the artery is blocked.

And the U.S. Navy has three ships that haven’t been battle-tested standing between an Iranian minefield and the passage responsible for much of the world’s oil, fertilizer, and other critical products.

The current American mine countermeasures force positioned near the Persian Gulf is made up of Littoral Combat Ships the USS Canberra, USS Tulsa, and USS Santa Barbara. All three are Independence-class vessels — aluminum-hulled trimarans originally designed as multi-mission platforms, now carrying the Navy’s new Mine Countermeasures Mission (MCM) package in a largely fixed configuration. The modular concept that was supposed to be the LCS’s selling point — swap packages in, swap them out, reconfigure the ship for whatever the mission demands —has been quietly abandoned.

What each ship brings to a minefield: one MH-60S Seahawk helicopter carrying an airborne mine detection system using lasers and a mine neutralization system; two unmanned surface vehicles that can tow either the AN/AQS-20 side-scan and volume-search sonar or the unmanned influence sweep system; and the crew to run it all.

On paper, the package covers the full kill chain — find, classify, identify, neutralize.

The system reached initial operational capability in September 2022, but reportedly did not deploy on an actual ship until Canberra and Santa Barbara sailed in February 2025. Tulsa followed in May. Kansas City received its package that same month. The entire operational history of the LCS MCM mission package, from first deployment to today’s crisis, is measured in months.

For comparison, the ships they replaced had been doing this work for decades.

The Avenger class entered service in the 1980s. Their fiberglass-coated wooden hulls were designed specifically to reduce magnetic signatures — a basic requirement when you’re driving over mines that detonate based on what they sense passing above them. The LCS is a metal ship, and is significantly larger than an Avenger-class vessel, limiting how close it can safely operate in known or suspected minefields. In return, it sports a slightly more capable self-defense suite against surface and air threats, equipped with a 57 mm gun and a SeaRAM launcher. But it still needs escort protection during the slow, exposed work of sweeping and hunting. At the moment, as Reuters reported, the Navy has refused to provide escorts in the Gulf.

The Washington Institute estimated years ago that clearing the Strait of Hormuz of mines could require “up to 16 MCM vessels.” The Navy has seven. Iran has an estimated 5,000 to 6,000 mines and, according to U.S. intelligence in conversations with CNN, still retains “80% to 90% of its small boats and miners.”

The brief covered a recent MCM Advanced Tactical Training program, the final pre-deployment mine warfare assessment for LCS crews.

Some key findings:

Unreliable unmanned systems. Each Fleet-class USV mission requires over four hours of “pre-mission maintenance” and “1.5 hours of GPS/sonar calibration once launched,” according to the presentation. Multiple hunt missions were conducted where the sonar simply failed to record data — and crews didn’t know until the post-mission analysis. This is especially damaging during reacquire-and-identify missions, exactly the kind of work needed to clear a minefield.

Operators have responded by shortening mission times, which defeats the purpose of using unmanned vehicles in the first place. One pre-deployment exercise with the USS Tulsa off the coast of San Diego resulted in a runaway MCM USV near Mexico’s territorial waters that could not be recovered by the mothership LCS. “Literally, the practice minefield I use is 1 mile north of the US-Mexico maritime border, and there’s a good chance that that UUV drifts or decides to go off on its own. I’m going to get demarched by the Mexican government,” said the leader of the U.S. Navy’s Mine Countermeasures Technical Division. The USVs themselves act as a handicap to minesweeping, with a short bandwidth range forcing the mothership LCS to operate near or inside minefields to maintain visual range to the USV’s antennas.

Visual identification doesn’t work. U.S. MCM doctrine requires a camera to visually confirm mines — the AQS-20 has to drive directly over a bottom mine. But even the relatively clear waters off Southern California have defeated this approach. In the turbid, shallow, current-swept waters of the Persian Gulf, the problem would be far worse. The officer’s conclusion: The Navy needs to adopt high-granularity sonar identification, as other navies already have.

Critical single-point failures. The platform lift between mission bay and hangar, the BIT test laptops for the USV/ALMDS/AMNS, the twin boom extensible crane, and the payload handling systems are all single-point failures with no spares or redundancy aboard. If any one of these breaks, operations stop. When describing the deployment arm, the Navy mine countermeasures lead said, “It is a troubling system. It is highly complex for what it does, and when it breaks, I’m out of a job, I’m out of a mission.”

Multi-mission dilution. The LCS was designed as a multi-mission platform. The addition of Naval Strike Missiles and pressure to support visit, board, search, and seize operations means crews have less time to build and maintain MCM proficiency. “So now my ship with an LCS mission package may not necessarily be practicing MCM.” The LCS platform is also being experimented on as a long-range strike platform. The director’s own conclusion: The LCS will always struggle to match a dedicated MCM vessel.

Meanwhile, Hunterbrook sent a source Philadelphia to check out the old minesweepers — where the only war they are proximal enough to intervene in now is the cheesesteak rivalry between Pat’s and Geno’s.

The Pentagon declined to comment.

Authors

Blake Spendley joined Hunterbrook from the Center for Naval Analyses (CNA), where he led investigations as a Research Specialist for the Marine Corps and US Navy. He built and owns the leading open-source intelligence (OSINT) account on X/Twitter, called @OSINTTechnical (over 1 million followers), which also distributes Hunterbrook Media reporting. His OSINT research has been published in Bloomberg, the Wall Street Journal, and The Economist, among other top business outlets. He has a B.A. in Political Science from USC.

Carter Johnston is a second-year undergraduate student at George Washington University studying International Affairs and National Security. He is a freelance defense journalist covering the Air Force and Navy for The Air Current and Naval News since 2024.

Editor

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a B.A. in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please contact ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work opportunities, and press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

Authors: Jenny Ahn, Blake Spendley, Sam Koppelman

Editor: Jim Impoco

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is long $HIMX and short a basket of comparable securities at the time of publication. Positions may change at any time. See full disclosures on our website.

Until that moment, it had been a sleepy earnings call.

After detailing the inventory levels of car dashboards and the “seasonal softness” of tablet displays, Himax CEO Jordan Wu sprinkled breadcrumbs that lead straight to the center of the AI revolution.

For over 20 years, Himax Technologies ($HIMX) has been a quiet semiconductor play — a reliable manufacturer of low-margin chips that tell pixels what color to display. To the market, Himax is a relic of the liquid crystal display (LCD) era: the firm that powered the digital photo frame on your grandmother’s mantle and the Face ID on the iPhone X.

But on February 12, Wu signaled a massive opportunity years in the making.

He described an optical product for “the GPU market” that Hunterbrook’s research indicates could one day eclipse his company’s entire $832 million revenue base. He also confirmed a mass-production ramp for a “leading brand’s” smart glasses entering the market this year.

He named neither customer, but the breadcrumbs may be enough.

At Hunterbrook Media — with the help of Citrini Research — we followed a trail of patents, investments, and supply chain shifts. The upshot: The two customers Himax did not name appear to be the two most powerful technology companies in the world. NVIDIA and Apple.

And while investors are still apparently pricing Himax like a commoditized component supplier, the company appears to be emerging as a supplier of a critical optical component powering the next generation of AI data centers.

Getting Light Off the Chip

Last March, Jensen Huang told the world that the networking fabric inside a million-GPU AI factory would consume an amount of electricity rivaling GPUs themselves.

“Energy is our most important commodity,” the NVIDIA CEO said.

Today, fiber optic connections between a network switch and GPU servers rely on a pluggable transceiver, a separate converter box that translates electrical signals to light. A network switch — think of the router in your home, but for AI data centers — routes data between GPU servers.

Each box burns roughly 30 watts. A million-GPU factory requires roughly six transceivers per chip, consuming 180 megawatts of power. To put that in perspective, before a single AI calculation, the networking alone consumes enough electricity to power 150,000 homes.

Huang’s proposed fix: co-packaged optics, or CPO. That’s an optical engine that converts electrons to photons right in the network switch. This eliminates the need for an external transceiver, slashing the power needed for networking by about two-thirds.

The optical engine is made of silicon chips produced by TSMC ($TSM), the same company that manufactures NVIDIA’s AI chips. The engine doesn’t generate light itself. Instead, it encodes data on a continuous laser beam from an external source. The external laser source modules are built by companies like Lumentum ($LITE) and Coherent ($COHR).

Earlier this month, NVIDIA put its money where its mouth was. The company announced $4 billion in investments split between laser suppliers Lumentum and Coherent, with multibillion-dollar purchase commitments attached. Huang called this investment essential to building “gigawatt-scale AI factories.”

The problem: The optical engine emits its data-carrying light straight up — for one, because it’s easier to test that way.

So something then has to bend each laser 90 degrees — and couple the light into dozens of fibers thinner than a human hair that carry data sideways across the data center.

That something is a prism and a grid of tiny lenses that catch each beam and directs it into the fiber.

Until this point, it has been unclear who would build NVIDIA’s essential light-bending devices.

Our reporting indicates it’s Himax.

How Himax Bends Lasers

Rather than grinding each lens one at a time, Himax stamps batches of them onto a glass wafer in one shot — like pressing a waffle iron into batter — in a process called nanoimprint lithography. Lenses on one side, prisms on the other, all perfectly aligned, according to Himax’s manufacturing patents Hunterbrook reviewed. Himax also uses the same batch process to make the baseplates with grooves shaped like a V that holds each fiber in place.

This isn’t the only way to do it, but “really the best method for doing it,” according to a former Lumentum engineer, referring to the lens-prism scheme. That’s because when you’re dealing with dozens of fibers packed tightly together, mechanically aligning each one becomes a nightmare, he explained to Hunterbrook.

Himax’s array of microlenses and prisms and V-groove baseplates are then integrated into a finished fiber array unit (FAU) by a Taiwanese manufacturer Fiber Optic Communications (TPEX: 3363), according to a FOCI patent Hunterbrook reviewed. FOCI also engineers the intricate connection between the FAU and the optical engine.

This joint Himax-FOCI design and manufacturing process will allow Himax and FOCI to enter the supply chain for TSMC’s COUPE architecture, the optical engine that will power NVIDIA’s CPO platform, according to legendary Apple analyst Ming-Chi Kuo of TF International Securities writing on Medium in December 2024.

Himax and FOCI are finalizing this process “in close collaboration with our anchor customer,” Himax CEO Wu said in a recent earnings call. Wu added Himax is able to manufacture them at mass scale already, and FOCI recently raised $100 million to buy equipment to prepare for mass production.

Shortly after Kuo published his analysis, Digitimes cited TF analysts — without naming them — as confirming Himax as the sole microlens array supplier for COUPE’s first and second generations.1

FOCI and Himax are not entirely independent: In June 2024, Himax invested $16 million for a 5.3% equity stake in FOCI. That stake is now worth around $90 million after a roughly 400% appreciation in FOCI’s share price.

But while FOCI’s valuation has multiplied, Himax’s has largely stagnated — with investors seemingly unaware of its critical role in NVIDIA’s pipeline.

“I think it’s 0% in the stock,” said the physician-turned-investor behind the new Substack Latent Value, which debuted with deep dive research about Himax.

He pointed to Himax’s history of sharp re-ratings once a new product cycle starts. $HIMX hit over $15 during the Google Glass cycle, then surged again on Microsoft HoloLens news.

“It’s at the bottom of the cycle just on the legacy stuff. So that’s what makes it really compelling — even on the legacy business,” he said.

If the Nvidia partnership is confirmed, he says, “the numbers get silly.”

He compared Himax to other companies in NVIDIA’s supply chain like Lumentum and Coherent, similar photonics stocks that have multiplied in value. “Once you’re proven to be in the supply chain for AI, as we’ve seen, stocks can easily 10x and 20x.”

The Patent Trail

The physical evidence goes beyond analyst conjecture.

Four patents — two filed by Himax, one by FOCI, one by TSMC — describe what appears to be the same FAU design and manufacturing process for CPO application. The documents were first unearthed by Latent Value.

A Himax patent published in January details the nanoimprint lithography process for manufacturing the fiber array.2

Then there is TSMC’s December 2025 patent for a FAU inspection tool built specifically for CPO application. The patent describes the schematic of the part being tested — without naming any supplier. But it’s the exact geometric structure that Himax describes: a prism/mirror on one face, microlenses on the other, sitting above a baseplate with fibers. The shape matches. And TSMC’s decision to build a dedicated inspection system for this specific component suggests it’s planning to use it at scale.

And then there is a FOCI patent, filed in late 2024, that adds the finishing touch to what the FAU-COUPE integration might look like.

It describes how to assemble the components of the FAU — the lens array, the prism that bends light, and the V-groove plate — all things that Himax makes. More critically, it describes exactly how the FAU will connect to the COUPE.

The connection is done through the “chip end lens group,” which has a lens part that:

• Sits at the bottom of the FAU assembly (chip-facing side)

• Can “change the path of the light beam through total reflection” and makes it “reflect and travel upward”

• “Can be connected to a chip.”

That’s exactly the way TSMC describes its CPO-FAU integration in a recent research paper (also on its website) explaining the optical plumbing on its COUPE platform.

The paper describes a component called COIT — short for Complimentary Optical Interconnect at Top — inside the FAU, equipped with the “high efficiency 90-degree beam deflector” that “couples light to fiber arrays” in the FAU. This is in line with Himax’s design. And, according to TSMC, the COIT is optically coupled with microlenses inside the COUPE.

The paper also says that this method is preferable to the alternative in which the beam is emitted from the side of the optical engine — suggesting TSMC’s decision to choose the light-going-up version was not made in a vacuum, but with a specific FAU in mind to make this version work.

The former Lumentum engineer interviewed by Hunterbrook reviewed the patents — and came away with the conclusion that “there is a high probability that Himax and FOCI are part of the FAU supply chain.”

He cited three main benefits of its technology.

First: “It is a batch process. There are multiple units on a glass wafer that can be processed together.” Second, this process has a lower cost than the traditional lithography process. Third, he added, the optical block using prisms also has higher precision than a mechanical process.

He suspects Himax “is also making some of those microlenses being used in the FAU. That’s why they wrote the wafer level testing patent.”

The patents also reveal intriguing — if speculative — clues to the Himax, FOCI, TSMC supply chain centering on what may be a custom FAU with an unusual specification: a 22-lens array.

In Himax’s January manufacturing patent, a figure illustrating the setup shows the optics block with exactly 22 lenses, if you count the circles representing the lenses.

And a separate patent filed by Himax for testing its prisms says the prism under test “may also be equipped with multiple lenses, such as 16, 22, or 50 lenses, but the number is not limited thereto.”

Twenty-two is an strange number in fiber optics, suggesting it might be custom design. Fiber counts are standardized around specific multiples like 12 or 16; both are numbers you’d see in product specs. Higher-density arrays generally scale in increments of those base units — 24, 32, 48, 72.

But there it is again, in the TSMC’s patent — the closest thing to a smoking gun, though still speculative. TSMC’s inspection schematic explicitly depicts 22 channels, labeled “ch1” through “ch22.”

Twenty-two channels appearing in both patents may be a coincidence. But it’s interesting because it appears to describe the same part being inspected at two points in the supply chain: by Himax before shipping, and by TSMC after assembly, before it reaches a GPU.

Another plus factor: The company’s short distance from TSMC, as it flexed on a skyline photo of its wafer fab campus posted on its website, suggests the parts wouldn’t be traveling very far. FOCI is just a seven minute drive away as well.

How big is the opportunity?

Morgan Stanley projects 5,000 next-generation NVIDIA Rubin Ultra racks shipping in 2027 and 28,000 in 2028.

Even using conservative pricing assumptions, the FAU market scales from hundreds of millions in 2027 to billions of dollars in 2028, according to Citrini Research’s analysis. And NVIDIA’s Feynman architecture — the generation planned for after Rubin — is expected to multiply the unit count further.

The Apple Opportunity

On the earnings call last month, Wu, the Himax CEO, disclosed that a top smart glasses brand would enter mass production by the end of 2026.

Himax has described three core technologies that could become essential to this space: its WiseEye AI sensing processor, its tiny projection display known as LCoS microdisplay, and its compatibility with waveguide — the optical layers that make see-through displays possible.

Wu has not named the smart glasses brand. He might not have needed to.

DigiTimes reported in early February that Apple’s expected smart glasses entry is reshaping the Taiwanese augmented reality (AR) optics supply chain, with multiple suppliers increasing capex in anticipation. The Apple analyst Ming-Chi Kuo, known for predicting the company’s releases, anticipates mass production beginning soon en route to a 2027 launch, a similar timeline to the one reported by Bloomberg.

Kuo projects Apple’s first smart glasses will ship 3 million to 5 million units in the launch year. These would likely be audio only, not requiring extensive purchases from Himax. And then, the potential transformative opportunity would arrive in 2028, when Kuo says Apple is expected to launch display-equipped AR glasses using LCoS microdisplays and waveguides. That’s where Himax would come in.

Himax’s relationship with Apple would not be new.

In 2017, Himax was reported (see this, this, this, and this) as a key supplier of the wafer-level optics that power Face ID on the iPhone X — the tiny dot-projector lenses that map a user’s face in three dimensions.

In the smart glasses supply chain, Himax may occupy a specific niche.

Karl Guttag is a former Texas Instruments Fellow with 40 years of experience in display technology, who founded an LCoS company and now runs KGOnTech, a popular independent technical blog in the AR/VR industry. He’s tracked Himax since the Google Glass era, when his identification of Himax as its LCoS supplier allegedly moved the company’s market cap by more than $100 million in a single day.

He described Himax to Hunterbrook as “a little bit the McDonald’s of the LCoS world” — not the highest quality, but able to produce massive volume. “They’ve never had the best LCoS,” Guttag said. “They’re kind of the low-cost guy.”

Historically, Himax has partnered with top companies on microdisplays, including the original Microsoft HoloLens and Google Glass and other AR platforms. More recently, at CES 2026, Himax and smart glasses maker Vuzix ($VUZI) unveiled an optical reference design pairing Himax’s ultra-compact Front-lit LCoS microdisplay with Vuzix’s waveguide.

If involved with Apple, Himax would “probably” be supplying “the LCoS and the waveguide,” Guttag conjectured. Himax’s wafer fab facilities — the same ones that fabricate microlens and V-groove baseplates using nanoimprint lithography — have already churned out thousands of waveguide displays in the past, and Wu recently talked on earnings calls about using its facilities for fabricating waveguide optics for other companies’ designs. But Guttag also questioned the fit: “Himax has never demonstrated the highest quality LCoS nor the highest quality waveguides,” he told Hunterbrook.

Guttag noted that Apple may be driven by capacity goals: Himax is “in the best capacity situation” among LCoS makers, he said. He suggested Apple’s choice may reflect pragmatism over perfectionism: “Maybe they’re more controllable, or they had the capacity.”

Although there is no direct confirmation that Himax has once again partnered with Apple, there’s circumstantial evidence — including on LinkedIn.

One profile of interest allegedly belongs to someone describing themselves as a Himax senior product manager with the title “Advanced Optics & NPI Integration | Apple Project Lead.” This individual — whose identity is labeled as “verified” on LinkedIn — claims to have previously led the Meta Quest 3 lens program, scaling production to over 7 million units.

Their recent posts describe shipping ahead of customer deadlines and resolving late-stage manufacturing defects, language consistent with a program approaching production ramp.

Then, as Hunterbrook prepared to publish this article, they posted again: “Visiting Apple Park this week for technical discussions and collaboration.”

Hunterbrook geolocated the image and tracked the aircraft, EVA’s B-16716, revealing that the senior product manager appears to have flown from Taipei to San Francisco on Monday, March 9.3

Asked whether it could confirm its relationships with Apple and Nvidia, Himax did not respond to Hunterbrook’s request for comment, and TSMC declined to comment. The purported employee on LinkedIn who posted the flight did not respond to direct messages. And Hunterbrook has not been able to match their identity on any other social media platforms — though we did find a master’s thesis on a Taiwanese academic research database from a student of the same name from the same graduate school at the same rough time period this purported Himax employee lists on LinkedIn. LinkedIn also claims the account was “verified” with a government ID.

And on Monday, the employee posted again: “Day 1 at Apple Park — a full day of technical discussions and collaboration, from 11am to 9pm. Productive start to the week.”

One of the images attached to the post? A selfie in front of Norman Foster’s signature Apple Park design, including the internal arbor of the headquarters, known as “the spaceship.” This area is closed to the public.

We geolocated the image. It’s clearly inside of the secure perimeter.

“I’m amazed that somebody would post something like that,” said Guttag.

Authors

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets. He has a B.A. in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Jenny Ahn joined Hunterbrook after serving many years as a senior analyst in the US government. She is a seasoned geopolitical expert with a particular focus on the Asia-Pacific and has diverse overseas experience. She has an M.A. in International Affairs from Yale and a B.S. in International Relations from Stanford. Jenny is based in Virginia.

Blake Spendley joined Hunterbrook from the Center for Naval Analyses (CNA), where he led investigations as a Research Specialist for the Marine Corps and US Navy. He built and owns the leading open-source intelligence (OSINT) account on X/Twitter, called @OSINTTechnical (over 1 million followers), which also distributes Hunterbrook Media reporting. His OSINT research has been published in Bloomberg, the Wall Street Journal, and The Economist, among other top business outlets. He has a B.A. in Political Science from USC.

Editor

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a master’s in Chinese and Japanese History from the University of California at Berkeley.

Graphic

Dan DeLorenzo is a creative director with 25 years reporting news through visuals. Since first joining a newsroom graphics department in 2001, he has built teams at Bloomberg News, Bridgewater Associates, and the United Nations, and published groundbreaking visual journalism at The Wall Street Journal, Associated Press, The New York Times, and Business Insider. A passion for the craft has landed him at the helm of newsroom teams, on the ground in humanitarian emergencies, and at the epicenter of the world’s largest hedge fund. He runs DGFX Studio, a creative agency serving top organizations in media, finance, and civil society with data visualization, cartography, and strategic visual intelligence. He moonlights as a professional sailor working toward a USCG captain’s license and is a certified Pilates instructor.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please contact ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work opportunities, and press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Michelle Cera, Sam Koppelman, Andrew Ford, Laura Wadsten

Editor: Jim Impoco

Hunterbrook Media’s investment affiliate, Hunterbrook Capital, does not have any positions related to this article at the time of publication. Positions may change at any time. Full disclosures on our website.

When Hunterbrook Media reported that RadNet ($RDNT) appeared to artificially inflate its same-center sales growth, the company didn’t dispute the findings. It just stopped releasing the number altogether, according to its latest annual SEC filing, released on Monday.

In December 2025, Hunterbrook published a deep dive led by Bethany McLean into RadNet, the radiology roll-up that has repositioned itself as an AI growth story. A central finding: The company’s same-center sales growth — a metric Wall Street pointed to as evidence of RadNet’s special sauce — appeared inflated by the undisclosed consolidations of nearby imaging centers.

This week, RadNet released its latest annual report. The same-center metric … disappeared altogether.

The contrast is stark. In RadNet’s 2024 10-K, “same-center” or “same center” showed up 18 times. This phrase appears a grand total of zero times in RadNet’s 2025 10-K filing.

Notably, RadNet’s most recent unaudited statement, provided in a press release, does still refer to same-center procedure volumes — reporting 9.6% growth in advanced imaging and 4.5% overall in the fourth quarter.1 But those numbers do not allow investors to quantify how much revenue the company is generating year over year on a center-by-center basis.

The change raises an obvious question: If RadNet’s same-center growth were as strong as management repeatedly told investors, why stop reporting it?

It’s the latest example of a company whose accounting practices Hunterbrook has found to be creative — and, potentially, concerning. And now, Hunterbrook’s findings are being corroborated from the inside.

We spoke with multiple former RadNet accounting employees who described an accounting department under pressure to present favorable numbers — and a leadership team whose goal, as one former employee put it, was ”to present a better financial picture than what’s truly accurate.”

Radnet did not reply to Hunterbrook’s request for comment. But at an investor conference this afternoon, RadNet’s CFO Mark Stolper was explicitly asked for his response to allegations in an unnamed report — presumably Hunterbrook’s — that scrutinized same-center growth.

“So just give me your perspective on that report, and just anything you’ve done to maybe change how you present information, to make yourself, inoculate yourself from future [inaudible] on that front,” the moderator said.

Stolper did not address the changes in RadNet’s 10-K and tried to brush aside the concerns raised by Hunterbrook.

“If we do close down a center and we move that volume to an existing center, we keep that volume in the prior period. So we’re not gaming the system at all, which I think was the concern from that report that came out,” Stolper replied.

“So we feel very, very comfortable in how we look at same center performance, and it’s been done consistently with the same team since the beginning of time,” he said. “And ultimately, you know, our GAAP revenue, our audited GAAP revenue and financial statements reflect that growth.”

How RadNet Juiced Its Numbers

Our original investigation reconstructed RadNet’s shifting footprint with archived web data, SEC filings, and independent financial analysts.

The reporting found that RadNet had been closing imaging centers located within a 15-minute drive of other RadNet sites, likely consolidating patients into surviving locations. These closures were excluded from the same-center calculation — but the revenue that transferred to nearby RadNet locations was not.

The result was a metric that made RadNet look like it was growing organically at 6% to 10% per year. A financial analysis shared with Hunterbrook estimated that after removing the artificial boost from consolidations, real same-center growth was closer to 2.5% to 3% — roughly in line with what RadNet’s own CFO, Mark Stolper, described as “normalized” growth before the company’s AI rebrand.

@hunterbrookmediaTwo imaging centers on paper but only one dot on the map. We followed the trail through RadNet’s financials—and its AI narrative isn’t the only thing that raises questions. Read our investigation at the link in the bio

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On this week’s earnings call, RadNet was asked by an analyst about its growth outlook.

Stolper responded by citing “same-center” performance, claiming it is typically modeled at 3% to 5% — and citing a long-term baseline of 2% to 4%, which often jumps higher.

But he never provided the same-center revenue growth metric RadNet just deleted from its 10-K.

“A Dumpster Fire”: Inside RadNet’s Accounting Department

Since the December investigation, Hunterbrook has spoken with multiple former RadNet accounting employees who worked in the company’s Los Angeles headquarters. Their accounts paint a picture of an accounting department with a chaotic internal culture and a leadership team focused on optics over accuracy.

A former accounting manager who worked at RadNet for two years described “adjustments made on a quarterly basis” to management estimates to make the company’s financial picture look better than it was.

The former employee said that on one occasion, when a manager refused to book a $2.1 million entry to cover underestimated audit fees, leadership simply bypassed them to find a more compliant manager. “Management estimates shouldn’t be changed whenever they feel like it,” the former manager said, adding that estimates were changed “quite frequently and quite drastically.”

The same former employee described a top-down corporate culture where financial statements would change because “adjustments would come through from the highest of the high up and then we just had to book them.”

“And there would be no questions asked…it would get booked and then the numbers would change with no other reason or cause,” they added.

Asked how RadNet’s practices compared to what they’d experienced at another public company, the former employee called it “night and day.” At RadNet, they said, there were “last-minute adjustments to get things to work.” They described the overall tone from leadership as “atrocious,” adding, “They have a goal and that’s to keep the company going, but they also will do whatever it takes to have that happen.”

Another former employee in RadNet’s accounting department, who worked closely with the Digital Health team, described the transactions between divisions as deeply confusing.

“There were so many intercompany transactions that I didn’t even know how they were even reconciling it,” they said. Invoices were miscoded, expenses were booked to closed imaging centers, and managers were rotating so quickly that institutional knowledge was lost, according to the interview.

“Nobody really knew what to, like, do,” they said, adding, “It was a dumpster fire.”

They recalled confusion around imaging centers closing and being absorbed, as well as pressure to cater to directors and VPs. “We were sometimes bullied into doing things that we didn’t particularly think was right,” they said, noting that directors finagled reports in an effort to “roll up better.”

This former employee also described being asked to make minor adjustments to run rates: “I remember actually the VP was saying, telling me, we have to get this right because our share price is kind of going down, too.”

They also described being told to reclassify certain expenses as capitalized assets — a move that would reduce reported expenses and increase reported assets. “Assets going up and expenses going down sounds like a great thing to have happen,” they said, adding that the Digital Health team “always wanted it to be like these things aren’t expenses but capitalized assets.”

The former employee said that at the executive level, leadership “did not care about how it was done as long as it was getting done. They don’t care that it was done right. They just cared that it was being done beneficially for the company … or maybe the best presentation for the company.”

Both former employees recounted a mass exodus of accounting staff, including managers, in 2025.

The Story That Doesn’t Add Up

The decision to quietly drop same-center reporting fits a pattern Hunterbrook has documented: a company whose disclosures shift in ways that make independent verification harder, not easier.

RadNet’s 2025 10-K does show Imaging Center segment revenue of approximately $1.99 billion, up 10.9% from $1.79 billion in 2024 — but investors can no longer see how much of that growth came from existing locations versus acquisitions and consolidations. The company attributes growth to higher fees per procedure, increased procedure volumes, and incremental volumes from acquired centers. But without quantified same-center data in audited financials, it’s impossible to distinguish organic performance from roll-up math.

The same-center question is just one thread in a broader pattern our December investigation uncovered. RadNet’s much-hyped Digital Health division — the foundation of the company’s AI rebrand — generated less than 5% of total revenue in 2025. A former accounting employee was skeptical of this rebrand: “Especially when a company’s kind of touting that they’re going to be the revolutionary change for AI,” they mentioned, questioning whether RadNet “is even capable of implementing something like that in a way that is per generally accepted accounting principles.”

Hunterbrook also reported that RadNet’s disclosures around its center count were riddled with inconsistencies. Its 2024 10-K said 44 centers were opened through internal development; the earnings release said nine. One quarterly filing reported 398 centers; a later filing restated the same period at 375, with no explanation.

Before its AI rebrand, RadNet traded at roughly 8 to 10 times adjusted EBITDA, in line with peers. It now trades at around 18 times — and closer to 24 times once stock compensation and non-capitalized R&D are factored back in. If you strip out the core imaging business at even a generous multiple, the implied valuation of the Digital Health unit tops $3 billion — a staggering price for a division whose products are struggling to find buyers outside of RadNet’s own walls.

Authors

Laura Wadsten is an investigative journalist specializing in healthcare. She began her career reporting on antitrust and healthcare as a Correspondent for The Capitol Forum, a premium financial publication. Laura was a Hodson Scholar and Editor-in-Chief of The News-Letter at Johns Hopkins University, where she earned a B.A. in Medicine, Science & the Humanities.

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a B.A. in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life. Sam is based in New York.

Andrew Ford is an investigative journalist who exposed systemic flaws and prompted reforms in healthcare, business, policing, and state government. His reporting was published by ProPublica, USA Today, The Arizona Republic, Asbury Park Press, and Florida Today. He holds a journalism bachelor’s from the University of Florida and received a data analytics master’s from Georgia Institute of Technology. He is based in Phoenix, AZ.

Michelle Cera trained as a sociologist specializing in digital ethnography and pedagogy. She completed her PhD in Sociology at New York University, building on her Bachelor of Arts degree with Highest Honors from the University of California, Berkeley. She has also served as a Workshop Coordinator at NYU’s Anthropology and Sociology Departments, fostering interdisciplinary collaboration and innovative research methodologies.

Editor

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a master’s in Chinese and Japanese History from the University of California at Berkeley.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

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1) Hunterbrook Media’s Blake Spendley is doing extraordinary work covering the news in Iran — follow him on X at @OSINTtechnical.

2) The new CTO of Big Bear AI announced his resignation over the weekend, weeks after a Hunterbrook Media story on his increasingly vitriolic LinkedIn posts amid competition from OpenAI, Anthropic, and xAI. Read our reporting.

By: Jeremy Arnold

Editor: Jim Impoco, Sam Koppelman

Hunterbrook Media’s investment affiliate, Hunterbrook Capital, has no positions related to this article at the time of publication. Positions may change at any time. Our contributor has made extensive filings with the SEC and FINRA for potential securities fraud and anti-touting violations. If you’re an affected investor or former employee of any of these companies and want to tell us about it, write ideas@hntrbrk.com.

For the version of the article with detailed footnotes, read it on our website.

In 2012, Congress and the Securities and Exchange Commission passed a law that would open the doors to equity crowdfunding. For the first time, buying shares in private startups wasn’t just for the wealthy and financially sophisticated. Restrictions designed to protect amateur investors were relaxed as part of a mission to “democratize” finance. No longer would ordinary people be forced to watch from the sidelines as the next SpaceX or Instagram rocketed to the moon.

Or so the sales pitches went. What actually followed was exactly what skeptics predicted: a parade of failing companies raising hundreds of millions from unsuspecting investors through campaigns built on misdirection and deceit. Success stories proved rare. Disasters became routine.

A Hunterbrook Media investigation reveals how a network of distressed startups, a hungry marketing firm, and some of America’s most trusted financial media brands — wittingly or not — ended up separating small investors from their money. A remarkable number of respected outlets, from blue-chip financial newsletters to The Wall Street Journal, appear to have hosted misleading or downright false ads, calling into question their due diligence and adherence to disclosure obligations. The result looks like an unhappy masquerade: troubled companies partnering with slick marketers to hide their rotten balance sheets behind the prestige of reputable mastheads, and news outlets indirectly promoting the very companies they should have been scrutinizing.

The little guy finally had his seat at the table. The game was rigged.

By following the trail from the narrative factory to the newsletter inbox, a clear pattern emerges of how these companies manufactured the appearance of success to mask the reality of failure.

Here’s how it worked:

• Manufacturing the pitch. DealMaker Marketing Services , an arm of financial firm DealMaker, collected fat fees for helping early-stage companies — including Boxabl, HeartSciences, EnergyX, M2i Global, Pacaso, RAD Intel, and Miso Robotics — craft ads and landing pages that stretched the truth, sometimes beyond the breaking point.

• ‘Trust-washing’ These ads appeared in premium slots in newsletters with millions of subscribers — like Morning Brew, Robinhood’s Sherwood News, and The Wall Street Journal’s 10-Point.

• Last ones in the pool. While readers were frequently told that they’d be investing alongside venture capital firms and other financial professionals, these companies largely turned to retail investors after deteriorating circumstances forced their hands. The amateurs essentially bailed out the pros, buying heavily-restricted shares at jaw-dropping and opaque valuations.

While we’re publishing now to call attention to the scale of the problem, we believe we’ve captured here only a fraction of all concerning cases. In our review of additional examples, we struggled to find any that didn’t exhibit similar concerns.

Pay-to-Print Coverage

Hunterbrook approached all eight media outlets named here for comment. Only two replied. Their statements are included below.

Intermediaries like DealMaker didn’t — and couldn’t — pull this off alone. Instagram ads and landing pages can only go so far. Media legitimization is crucial.

Say you’re reading your morning newsletter from a trusted source. There’s a section titled “Presented By” that otherwise looks the same as the rest. Is this an ad? Who wrote it? At the least you might assume that the outlet in question did meaningful due diligence on your behalf — as some of them claim to do.

Few outlets count on this simple trust more than Morning Brew. A hotshot daily newsletter network with over 4 million claimed subscribers, its rapid rise led to an acquisition by publishing giant Axel Springer, parent company of both Politico and Business Insider. Hunterbrook’s analysis found that Morning Brew ran these crowdfunding ads in 165 editions of their flagship newsletter in 2025 alone. It also continued to run them regularly even after we approached for comment — to which we still have yet to receive a reply.

But it wasn’t just them. We found dozens of concerning examples across newsletters from Sherwood News (operated by a subsidiary of investment company Robinhood), The Wall Street Journal, 1440 (over 4.6 million claimed subscribers), TLDR (1.6 million) and Tangle News (460,000).

Tangle, an independent publication, provided Hunterbrook with a long and earnest response. Its founder affirmed that it did conduct both internal and referral-based due diligence. This doesn’t appear to have extended to comparing the provided ad copy to issuers’ disclosure documents. Tangle is reviewing its policies.

Benzinga, which boasts about 25 million monthly readers, went even further with a promotional post, seemingly presented as its own independent research, that was mostly just the fundraising company’s marketing boilerplate. Exec Sum, a financial newsletter run by Twitter/X personality Litquidity, did the same for its more than 350,000 subscribers.

In response to a request for comment, Benzinga shared the following statement: “We value Hunterbrook’s reporting on a variety of investigative topics like insider trading and other financial improprieties. We always endeavor to improve practices in conjunction with our legal teams, regulators, issuer clients, and general public inquiries.”

The effect of this legitimatization is evident in the numbers: Of the $75 million that startup EnergyX raised in 2024, DealMaker attributed “over $50 million” to these sponsored ads.

The pitches tended to follow a common theme: making small investors feel like they were joining something larger than just an investment. In a panel interview with DealMaker’s CEO and three fundraising founders, Morning Brew’s cofounder Alex Lieberman waxed poetic on this point:

“There are a lot of times where the word community is used but it isn’t necessarily authentic community,” he said. “Making retail investors part of your community, via investment in your business, [that] is the purest form.”

Two Truths and Some Lies

Note: We’ve included three short explainer sections as an investing and legal crash course. Seasoned market players can skip down to the deal profiles.

There are two classic ways to raise money: sell a better mousetrap or tell a better story. But what happens when you only have the story — and it’s not an especially good one? What if growth has stalled, losses have piled up, and professional investors have pulled back?

It’s no crime to fail in business. Startups should try hard things, with informed investors buying as much risk as they can stomach. What matters is what companies do after things go awry. If they turn to retail investors for a bailout, what story do they tell them?

We found that these companies’ legal disclosure filings were largely honest and typically painted a bleak picture of their position and prospects. But placed between investors and these unwieldy documents were layers of ads and landing pages — written in plain English, with far rosier outlooks, and, sometimes, outright falsehoods.

Regulatory Primer

U.S. securities law divides investors into two classes:

• Accredited investors, who meet special criteria around wealth, income, and financial licenses. The government assumes they have more investing experience, along with more loss cushion.

• Non-accredited (“retail”) investors, who may individually have deep financial expertise, but who on aggregate are considered a class worth protecting from potentially predatory deals.

In light of historical grift, the government has long restricted non-accredited investors from buying certain securities — like penny stocks and most private company shares — without special waivers or certifications. Uncle Sam prefers at least some guardrails.

The JOBS Act, passed in 2012, partially reversed this trend by permitting companies to directly approach retail investors with Kickstarter-style campaigns offering shares instead of early products. This legislation — including later amendments — gave companies two new options to mix-and-match:

• Regulation CF campaigns can raise up to $5 million per rolling year

• Regulation A+ campaigns can go as high as $75 million per rolling year

Because these campaigns target less affluent and sophisticated audiences (who can invest up to certain caps), the ads that issuers and their paid partners may run for these campaigns are subject to disclosure requirements and other restrictions:

• Ads for offerings made pursuant to Reg CF give the issuer a choice: They can either provide the details of the offering, but then only extremely limited factual details about the company and its business; or they can describe the business, but not the specific terms of the offering.

• Though Reg A+ campaign ads may include sales copy alongside offering terms, they are of course subject to general anti-fraud rules, such as Section 17(a) of the Securities Act, which prohibits “obtaining money or property” by means of false or misleading statements.

• Under either program, the content must make clear that it is a paid promotion, and, according to at least one lawyer we spoke to, must also include the amount of compensation received.

Dozens of the ads we reviewed for this investigation seemingly failed to follow the first and second rules, and, while most contained some marker identifying them as paid content, the level of clarity of those disclosures varied widely. And no ads disclosed the specific compensation received for their placement.

Brenda Hamilton, a securities lawyer and founder of Hamilton & Associates Law, described this shortcoming to Hunterbrook bluntly: “The public is entitled to know the information was bought and paid for and for how much.”

A Scorecard

To illustrate what these investors were truly buying, each deal profile covers a few key metrics.

1. Revenues

Did the company have meaningful paying customers yet?

While startups are often unprofitable in their early days, it’s important to know if they’re actually serving customers at all. Many of these marketing campaigns relied heavily on projections, obscuring multiple years of operations with little or zero sales traction.

2. Book Value

How much was the company worth on paper?

Accountants use the term “net tangible book value” to capture what a company’s hard assets are worth, minus all its financial liabilities. While this is always an incomplete picture — as it doesn’t factor expected growth — it provides a useful baseline.

3. Offered Valuation

What true price were new investors buying in at?

The SEC doesn’t require these companies to give investors a straight answer here. While their full legal disclosures must provide the raw inputs, investors are left to do the math themselves. This number is far more crucial than the offered price per share, as comparing a company’s offered valuation to its book value uncovers how much of a markup investors are paying for uncertain growth.

While infant startups still building their foundations can reasonably charge substantial markups, higher multiples become harder to justify with each passing year that a company burns cash without getting closer to that growth materializing — or, as in some cases here, after revenues fall sharply.

Deal Profiles

Each of the deal profiles below proceeds in three sections — first, we provide our scorecard metrics; second, we describe the company and the content of its crowdfunding ads; third, we identify examples of false or misleading claims made either in those ads or related marketing materials. Hunterbrook approached all seven featured companies regarding its findings. Only one replied. Its comments have been included below.

Methodology: All book values were calculated as of the start of each company’s 2025 financial year. As none are turning a net profit, these figures largely reflect the cash they’ve accumulated from investors. The listed offered valuations are pre-money and don’t factor bonus shares.

#1 – Boxabl

Stats: 2024 Revenues: $3.4 million. Book Value: $52.6 million. Offered Valuation: $3.5 billion. Markup: 66.6x.

Boxabl makes modular homes that can be collapsed for shipping like hulking IKEA boxes. The company claims to build each base-model Casita in “nearly four hours” using its “advanced assembly line” system, and boasts a reservation list of more than 190,000.

The company’s legal filings, however, tell a less optimistic story. Only 7,732 of those deposits are backed by cash deposits of any size, and few depositors have ever actually completed a purchase. Boxabl sold just eight Casitas over the first nine months of 2025, all while writing off an additional 68 of its hundreds of stuck inventory units as either too damaged or now obsolete.

The company’s early operations also ran into a critical snag: It hadn’t secured required state approvals. Even today it can only deliver standalone units to 15 states , some of which require further local permissions.

The company nonetheless still plans to go public via a SPAC merger at a $3.5 billion valuation.

Concern #1

• Claim: Boxabl sold recent investors on a “first of its kind” 2022 partnership with homebuilding giant D.R. Horton, which allegedly included a “phase 1 order for 100 Casitas.”

• Reality: No Boxabl SEC filings reviewed by Hunterbrook have listed D.R. Horton as a delivery recipient. As a Hunterbrook analysis only identified 15 total units shipped to unlisted buyers, this order appears to have been either cancelled or heavily trimmed. And not for lack of inventory, as over 60% of Boxabl’s built homes remain unsold.

Concern #2

• Claim: Potential investors were told that Boxabl had delivered over 600 units by early 2025.

• Reality: According to its own SEC filings, through Nov. 10, 2025, Boxabl had delivered only 293, of which 207 went to two early buyers in 2022.

#2 – HeartSciences

Stats: 2024 Revenues: $4,000. Book Value: -$1.4 million. Offered Valuation: $5.0 million. Markup: ∞.

HeartSciences ($HSCS) has partnered with multiple hospital research teams to bring AI into the business of ECG heart readings. The company was founded in 2007 and has yet to commercialize its technology.

When will it finally go to market? Despite telling investors as late as September 2025 that it was still targeting initial FDA approval “this year,” it had yet to even file its application when those statements were made. It only did so in mid-December, months too late for a possible 2025 approval.

Concern #1

• Claim: “Wall Street just raised its price target. Some analysts were projecting a $14 one-year share price target for HeartSciences (Nasdaq: HSCS). Now, they think it’ll hit $15.”

• Reality: HeartSciences’s website lists three analysts that cover its stock. All three work for firms that have had financial relationships with the company. Of 12,135 Wall Street analysts evaluated for their prediction quality, the trio rank 11,978th, 12,068th, and 12,066th. Also, none of them raised their target to $15 as claimed. That was an old evaluation, which had been downgraded five months before this ad went out.

Concern #2

• Claim: “With one-year price targets as high as $14, buying our investment unit for $3.50 gives you over 500% upside potential at that target.”

• Reality: Beyond the controversial nature of the target-setting, this math includes a basic error: At a $14 share price, the potential net return (factoring the included warrant) was about half of the quoted 500%. Though this is also academic, as the alluded-to analyst has since trimmed his target to $9.20 — which is still more than three times higher than the stock’s current trading price.

#3 – RAD Intel

Stats: 2024 Revenues: $1.2 million. Book Value: -$1.8 million. Offered Valuation: $149.7 million. Markup: ∞.

RAD Intel, “the ChatGPT of marketing,” spent $2.9 million on its own sales and marketing in 2024. The payoff? About $1 million in revenue over the first half of 2025 — on which it lost $6.2 million. The company operates without a permanent office and appears to make most of its money from selling shares to new investors.

Up to $11.8 million of its current fundraising will go to cashing out existing shareholders, including significant holdings from the company’s CEO, president, and board of directors.

(Captured from Morning Brew’s Nov. 10, 2025 edition.)

Concern #1

• Claim: RAD Intel’s investor portal included a press quote that it sourced to Rolling Stone. It also used the magazine’s logo next to a broader claim about “buzzing” press coverage.

• Reality: The unlinked excerpt quotes from sponsored editorial content, not actual reporting. Rolling Stone itself has seemingly never written about RAD Intel. A separate glowing snippet from Fast Company was similarly from a paid advertorial.

Editor’s note: Though RAD Intel never replied to Hunterbrook’s request for comment, it subsequently made quiet changes to its current offering website to clarify where it was quoting from advertorials.

Concern #2

• Claim: Multiple crowdfunding ads claimed that RAD Intel was “backed” by both Adobe and Fidelity Ventures.

• Reality: Adobe gave the company an $8,000 grant to fund design work, but is neither an investor nor backer. Fidelity Ventures, a former venture capital firm, also never invested. Rather, two funds managed by Fidelity Investments Canada, which is not a venture capital firm, joined a 2018 bridge round for a Canadian startup that was later folded into RAD Intel.

Editor’s note: The company similarly updated this language after Hunterbrook’s reachout.

#4 – M2i Global

Stats: 2024 Revenues: $0. Book Value: -$2.5 million. Offered Valuation: $105.1 million. Markup: ∞.

Mineral Metals Initiatives (M2i Global) is more a constellation of ideas than a company. Originally an app development firm, its only reported revenues — around $4,400 total — came from “AI generated tattoo ideas.” It now has vague plans of helping America pull together a critical mineral stockpile.

Though M2i co-released a press release in August 2025 announcing “a transformative public-private initiative to develop and operate the United States’ first Strategic Minerals Reserve,” its CEO clarified a day later, in a YouTube video, that this wasn’t “a done deal.” Months later, it still had yet to sign a storage lease.

M2i ($MTWO), which currently trades as a penny stock, has filed for an NYSE American listing via a reverse merger with an aviation company that, rather poetically, claims to be developing AI for evaluating financial filings. This merger may be complicated by the fact that, in December 2025, M2i lost to a default judgment in a lawsuit it claimed to have not known about. The court awarded the plaintiffs $18 million and 100 million of the company’s shares. That same month, M2i withdrew its Regulation A+ offering after raising $723,000.

Concern #1

• Claim: “Now, backed by federal partnerships and a recent $850m deal, this move sets M2i Global up for national scale.”

• Reality: Hunterbrook found no evidence that M2i has any observable federal partnerships. Additionally, the “$850m deal” was a right for M2i to buy copper offtake up to a fixed amount. It’s also likely moot: M2i’s counterparty, NT Minerals, announced the sale of its interests in the underlying mining area almost seven weeks before this ad went out.

Concern #2

• Claim: “We project our scrap and recycling operation will grow revenue from $3.5M to $8.3M within two years.”

• Reality: While web archives show this claim circulating as early as Jan. 21, 2025, the company’s total 2025 revenues through Nov. 30 were $0. It also continues to own no such operation.

#5 – Pacaso

Stats: 2024 Revenues: $126.5 million. Book Value: $60.3 million. Offered Valuation: $1.5 billion. Markup: 24.9x.

Pacaso sells real estate units that it stresses aren’t timeshares. Its “fractional ownership” solution merely allows buyers to acquire one-eighth shares in vacation homes that Pacaso manages on their behalf.

From a revenue standpoint, this business peaked in 2022. As for profitability, that depends on whether you place weight on Pacaso’s emphasized gross profits (over $120 million to date) or its actual bottom line ($214.8 million in accumulated net losses over the past 4.5 years, with an ongoing cash burn of about $1 million every eight days.)

Over the first six months of 2025, Pacaso spent $9.4 million on ads convincing retail investors to buy in — all while its revenues fell by $23.6 million compared to the same period in 2024.

Concern #1

• Claim: “2024 was a record setting year for Pacaso, reaching a total of over $110M in gross profits and 41% YoY growth.”

• Reality: Beyond the misleading nature of gross profit headlines for a cash-incineration business, this $110 million-plus figure is (non-obviously) cumulative. Pacaso only booked $21.5 million in gross profits in 2024 itself, which was not a record. It also turned this gross profit into a net loss of $31.4 million.

Concern #2

• Claim: “Meet $PCSO. They aren’t publicly traded, but Pacaso just reserved their Nasdaq ticker, $PCSO.”

• Reality: Hunterbrook found that The Wall Street Journal ran this line seven times in its 10-Point newsletter. What’s omitted: Tickers are reserved via a free online form and indicate neither concrete plans to pursue a public listing nor likely success in doing so. Investors were buying illiquid shares in a company with crashing revenues and mountainous losses, not advance tickets for a traditional IPO.

#6 – EnergyX

Stats: 2024 Revenues: $385,000. Book Value: $64.6 million. Offered Valuation: $2.1 billion. Markup: 32.4x.

EnergyX is one of several firms racing to develop direct lithium extraction (DLE) technology to replace traditional brine pool evaporation. The company’s first demonstration plant entered pilot operations in the fourth quarter of 2024.

Though EnergyX’s CEO, Teague Egan, claimed in late 2023 that the company would alternate its fundraising between crowdfunders and professionals, it has raised just $262,000 through isolated private sales since, compared to over $100 million from three retail campaigns.

A 2025 DealMaker case study quotes Egan as having spurned venture capitalists who’d argued for lower valuations. This can be read as a self-believing founder fighting for a vision that only he could see. It can also be read as professional money managers being more skeptical of his projections.

Retail investors aren’t experts in industry due diligence. When they read in a Morning Brew ad that EnergyX is a good buy because General Motors alone expects to need “414,469 tons” of lithium carbonate to meet its 2035 EV target, they’re unlikely to realize that this is enough for roughly 7 million EVs. Or that GM — excluding its Chinese joint venture — sold under 4 million total vehicles in 2025, an estimated 5% of which were EVs. They might also not notice that the price of lithium carbonate remains roughly 70% below its 2022 highs.

Concern #1

• Claim: “EnergyX’s patented tech extracts lithium 300% better than conventional methods.”

• Reality: This doesn’t seem mathematically possible. Lithium recovery rates for modern evaporation ponds start at 40% and average about 50%. While yields are lower in unusually magnesium-rich fields in Bolivia, EnergyX’s bid to operate there was rejected in 2022 in favor of competing firms also using DLE technologies. Even if the company extracted at 100% efficiency, doubling the typical 50% baseline would be a maximum improvement of 100%, not 300%.

Concern #2

• Claim: In an October 2025 investor webinar, Egan hyped EnergyX’s steady share price performance: “We went from $8 to $9 and then $9 to $9.50. The shares are at $10 today.” A few minutes later he added that early crowdfunding investors had gotten in at 41 cents per share.

• Reality: There’s a subtle bait-and-switch here. EnergyX “arbitrarily” increased its own valuation in between some of its fundraising rounds, then used share splits to smooth out the impact to its share price. For example, its earliest crowdfunders paid $4.90 per share. Those shares were then split 12-to-1, leaving investors with 12 shares for each one they initially purchased. This is how Egan arrived at a retroactive 41-cent price. But when discussing the more recent increase from $9.50 to $10, Egan left out that those who paid $9.50 ended up with twice as many shares after the March 2025 split. So those paying $10 at the time of the webinar were effectively paying more than double per share, not just 50 cents more. The selective disclosure strategy seems to have worked. Per a DealMaker case study, these webinars raised several million dollars in new investments.

#7 – Miso Robotics

Stats: 2024 Revenues: $384,676. Book Value: $5.5 million. Offered Valuation: $282 million. Markup: 51.6x]

Miso Robotics makes robot arms that fry fast food on behalf of human workers. Its sole marketed product today is the Flippy Fry Station.

“It looks like their main business operation is fundraising and not robot development,” said Tim McLaughlin, a Miso investor. Hunterbrook reviewed an email he sent the company in 2024 to cancel his investment. Miso wasn’t obligated to refund him, and he said the firm never replied. It has gone on to raise over $35 million more since.

Concern #1

• Claim: “Demand for the new third generation of our AI-powered Flippy Fry Station robot is real. Our first production run sold out in a week.”

• Reality: Miso didn’t sell the Flippy Fry Station at the time. It leased the units, with “no upfront costs.” It also had a maximum of three in the field when this sell-out claim first circulated. Over a year later it still had just 14 of these units deployed. It also announced that its pilot with Jack in the Box ended last November with the removal of its final remaining unit.

In a detailed statement, Miso’s CEO, without disputing Hunterbrook’s analysis of the number of units, argued that “sold out” was appropriate given lease commitments for “all available inventory.”

Concern #2

• Claim: In the “2025 onwards” section of its roadmap, as a separate item from its Flippy expansion, Miso’s Innovation Lab was listed as “expanding experimental products for future growth.”

• Reality: While asking investors to credit it for this “future growth” potential, the company simultaneously disclosed in its legal filings that it had discontinued all non-Flippy Fry Station products and R&D for cost discipline. For emphasis, it added that it would only reconsider if and when “a restaurant partner [commits] to also sharing the development costs of a specific product.”

In his statement, Miso’s CEO outlined incremental technical and support improvements being made to and for the Flippy Fry Station, which Hunterbrook understands to be a single, already-existing product.

The Connecting Thread: DealMaker

In 2018, two corporate fundraising attorneys decided to spin up a new firm, DealMaker, to focus on these new crowdfunding programs. They saw a future in helping startups tell their stories better, especially to retail investors looking for difference-making companies that might notice and value them. As its CEO, Rebecca Kacaba, put it, “People want to make investments in companies that they believe in, that they believe are making a great difference in the world.”

While this is a lovely sentiment, DealMaker makes no bones about who the company actually serves. DealMaker’s customers are the startups, and if those customers want funding then it’s the firm’s job to help. Kacaba was clear on this in a 2024 interview: “We’re not an investor-focused platform.” The firm’s job is to appeal to investors, not to advocate for them.

DealMaker’s strategy worked, with over $2 billion raised for their clients to date across all offering types, including from “hundreds of thousands of individuals and families.”

One key to DealMaker’s success: slick ads. In 2022, it acquired Austin-based agency Ridge Growth, which now operates as its in-house marketing arm. All clients that use DealMaker for their fundraising campaigns have the option of paying extra for help crafting their campaign content — from website copy to email pitches to the sponsored ads supplied to media partners like Morning Brew.

Editor’s note: DealMaker Marketing Services was contracted by all the above issuers, with DealMaker Securities also serving as a broker-dealer.

While DealMaker itself routinely disclaims responsibility for the accuracy of the campaigns it designs, its own client contracts suggest it is deeply involved with the content of the materials:

Again quoting DealMaker’s CEO:

“Our digital marketing team … they do this stuff all the way down to the analytics. They’re monitoring the reactions on the first emails you send, and tweaking the messaging and understanding how to position it to get that deal done.”

But how far did the team tweak? It’s one thing to put your client’s best foot forward, and another entirely to misrepresent key claims to an audience you know is mostly unsophisticated investors.

Especially when you know how ugly the returns are likely to be.

A Legacy of Losses

When the SEC finalized the new rules for these crowdfunding programs in late 2015, DealBook coverage from the New York Times included a dark assessment:

“Ninety-nine percent of these deals will prove to be unprofitable,” said Andrew Stoltmann, a lawyer who specializes in securities fraud. “This is a disaster waiting to happen.”

Young companies need efficient pathways to raise money. There was nothing wrong with giving them more and better options. The foreseeable disaster was adverse selection: Why would a healthy company want the hassles of crowdfunding — e.g., slow financing, bad industry optics, and unwelcome public disclosure requirements — if professional investors were fighting to give them checks? And if the best companies were unlikely to have interest, which companies would?

We saw the same pattern over and over again in our investigation: a company started off with a credible idea, raised money from sophisticated investors, and then failed to deliver results. It was often only then that they found a sudden interest in giving retail investors a seat at the table.

Some of these companies may yet turn the corner and return some money, though history indicates that most will not. Crowdfunding investors can typically only sell their shares when a company goes public or gets acquired, which only 1.2% of all issuers had done as of April 2024.

Even these exceptions are still mostly unhappy stories. To avoid cherrypicking, Hunterbrook analyzed a list from a University of Southern California researcher of Regulation A and CF startups that had filed for a public listing by the end of 2022. Some never crossed the finish line, and those which did all fared poorly. The best of them saw its valuation collapse by 90% before a late crypto pivot partially reversed its fortunes.

DealMaker itself has a similar record. Its two self-touted public listings from 2024 — Sky Quarry ($SKYQ) and Autonomix ($AMIX) — are now down 87.7% and 99.6% respectively from their debut prices. Hunterbrook was only able to identify four other DealMaker issuers that went on to have an exit event. Newsmax ($NMAX) is already trading down 40.5% from its 2025 IPO, Knightscope ($KSCP) and Trust Stamp ($IDAI) are both down over 99%, and Monogram was acquired for a loss of 44.3% along with a promise of uncertain future payments. Despite its name, DealMaker appears to still be chasing a deal that proves successful for its investors.

Of course, staying private doesn’t necessarily mean failure. What about the companies that haven’t gone public or been acquired but really have met their loftiest growth expectations? A recent Morning Brew ad for Pacaso leveraged just such a success story, celebrating a “400x buyout offer” for early crowdfunding investors in the fintech startup Revolut.

While Revolut wasn’t a DealMaker client, there’s a larger issue with this reading: These lucky few investors didn’t actually get to sell all their shares. They were stuck with largely paper gains for years as professional investors and company insiders sold ahead of them. They learned the hard way that most of these deals are like lobster traps: While everyday investors don’t need to wait to get in, they must often wait a long time to get out — if they ever can.

Authors

Jeremy Arnold is the publisher of The Save Journalism Committee, a newsletter focused on journalism reform. He has also worked as a communications consultant for Silicon Valley startups that fundraised on their real merits. He went to school in Canada “and got very good grades.”

Additional research by Daniel Ptashny.

Editors

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a B.A. in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life. Sam is based in New York.

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a master’s in Chinese and Japanese History from the University of California at Berkeley.

Graphic

Dan DeLorenzo is a creative director with 25 years reporting news through visuals. Since first joining a newsroom graphics department in 2001, he has built teams at Bloomberg News, Bridgewater Associates, and the United Nations, and published groundbreaking visual journalism at The Wall Street Journal, Associated Press, The New York Times, and Business Insider. A passion for the craft has landed him at the helm of newsroom teams, on the ground in humanitarian emergencies, and at the epicenter of the world’s largest hedge fund. He runs DGFX Studio, a creative agency serving top organizations in media, finance, and civil society with data visualization, cartography, and strategic visual intelligence. He moonlights as a professional sailor working toward a USCG captain’s license and is a certified Pilates instructor.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

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• Hercules Capital ($HTGC) is among the most software-exposed business development companies (BDCs), yet it trades at some of the richest valuations. About 35% of the value of the company’s loan portfolio — roughly $1.5 billion — is in software debt, meaning that after accounting for leverage, 70 cents of every dollar of net asset value is backed by software. Despite billions worth of such debt across the industry falling into distressed territory, as of its most recent filings Hercules still marks its software book at100 cents on the dollar. And true software exposure may be higher than 35%. Hunterbrook Media found the firm categorizes companies like Houzz and AppDirect outside of software despite their products being explicitly software-based.

• A growing share of income is phantom. Income from a type of debt called payment-in-kind (PIK) loans doubled in two years to $55.9 million in 2025, while the actual cash collected on PIK loans collapsed 73% year over year to just $4.9 million. PIK loans enable borrowers to “pay” interest by adding debt, but the lender does not actually receive interest payments along the way: The outstanding PIK receivable at Hercules has nearly tripled in recent years to $109.1 million — interest that has never been paid in cash by borrowers.

• The dividend’s real cushion is thinner than it appears. Full-year NII of $1.91 per share covers the $1.60 base distribution at 119%, but Hercules also pays a $0.28 supplemental drawn from a finite reserve of past earnings. Including the supplemental, total distributions of $1.88 leave just three cents of margin. On a cash basis — stripping out PIK and other noncash items — Hercules’ own figures show the base distribution is covered at only 105.7%. If Hercules takes write-downs, even the base dividend may come under pressure.

• Hercules runs a premium-dependent flywheel that could reverse catastrophically. Like Strategy (formerly MicroStrategy) with bitcoin, Hercules issues stock above NAV that funds accretive growth. The premium has already compressed from about 60% to about 25%. If it hits zero, equity issuance turns destructive, loan growth can stall, and the dividend may come under pressure — the same kind of doom loop that hit competitor TriplePoint ($TPVG).

• The portfolio doesn’t cycle as fast as management claims. Despite describing 18-to-24-month turnover — assuaging fears surrounding the terminal value of its borrowers — Hunterbrook found that a significant share of funding events since 2022 went to existing borrower relationships, based on an analysis of 16 quarters of earnings-call disclosures, including some relationships that have lasted almost a decade. Hercules told Hunterbrook in an email that 63% of new fundings went to new portfolio companies.

• A former Hercules finance team member described an overstretched valuations process. A team responsible for preparing valuations that fed directly into financial statements consisted of just four people in a single reporting line responsible for dozens of companies, they said, with few checks or cross-team review — a contrast to the multilayered processes the same employee now sees at another public company. Another former employee described an ad hoc deal sourcing process, in which Hercules would follow name-brand VCs into deals — a process the former employee likened to the swarm around Sam Bankman-Fried’s FTX.

• The company’s headline credit metric may be an invention that flatters its track record. Hercules’ cumulative net realized loss rate of 3 basis points nets equity and warrant gains from IPO-era exits (DocuSign, Palantir, Pinterest) against loan losses. We couldn’t identify any other major BDCs using this methodology.

• Hercules Capital provided Hunterbrook Media with a written response to questions. The company said that its portfolio valuations as of December 31, 2025, do not reflect 2026 volatility; that its PIK exposure is at the median of similarly sized BDCs; that its base dividend coverage is among the highest in the industry at 119%; that the majority of new fundings since 2022 went to new portfolio companies; that its valuations process is “rigorous and cross-functional” involving PwC audits, SOX compliance, and board oversight; and that its credit metric is required by GAAP. Hercules’ responses are incorporated throughout this article.

SaasPocalypse: Now

The software sector has lost an estimated trillion dollars in market value so far in 2026. It’s the largest, fastest destruction of software market cap in years. And private-credit firms — like Blue Owl Capital ($OWL) and Ares Management ($ARES) — have fallen with the borrowers of their managed funds.

“Private Credit Is Headed for a Software Shock,” read a Bloomberg headline on February 2. Three weeks later, the shock penetrated the public consciousness when Blue Owl — one of the largest private-credit managers in the world, with over $300 billion in assets under management — halted quarterly redemptions at one of its retail-focused business development corporations.

BDCs lend money to mid-sized and smaller companies, often companies that can’t easily access traditional bank financing. The BDC’s shares can be publicly traded, giving everyday investors access to private credit.

According to a Bloomberg index, $18 billion in broadly syndicated software loans have plunged into distressed territory — trading below 80 cents on the dollar — in a matter of weeks. UBS recently estimated private-credit default rates could soar to 15%. KKR’s BDC just cut its dividend earlier in the week.

But according to the books of lender Hercules Capital ($HTGC), everything is … totally fine?

The firm values its software loan portfolio, comprised of loans to smaller, often unprofitable startups, at more than 100 cents on the dollar — even in its 10-K released on February 12.

In a written response to Hunterbrook Media, Hercules stated that its figures are as of December 31, 2025, and “therefore do not reflect any potential pricing volatility that may have occurred in 2026.1”

Hercules describes itself as the largest nonbank venture lender in the United States. The firm has committed over $25 billion since launching in 2003. The founder, Manuel Henriquez, resigned as CEO in 2019 after being charged in the college admissions fraud Operation Varsity Blues.2 Hercules has been led since by Scott Bluestein, who also serves as its chief investment officer.

In total, Hercules has software debt valued at $1.5 billion on its books, according to its financial statements: roughly 35% of the value of its total loan portfolio. That means 70 cents on every dollar of its net asset value (NAV) is backed by a software loan — because Hercules, like other BDCs, uses leverage to fund its portfolio, in its case at roughly a 1:1 ratio.

According to JPMorgan’s recent assessment of the sector, this makes Hercules the most software-exposed lender of any meaningful size in America. And these numbers likely underestimate true exposure. Hunterbrook Media analyzed each loan Hercules disclosed in its most recent annual report and found that the firm assigns certain businesses that describe themselves as software companies to categories outside of software.

Take Houzz, which declares on its homepage that it offers, “Powerful software for construction and design.”

Another company that Hercules classifies as unrelated to software is AppDirect. That company describes itself as “the leading platform for selling, buying, and managing recurring technology services.” In other words: It’s a middleman for software companies, as the company lays out pretty clearly on its website.

And Hercules has grown more exposed to software over time.

In the firm’s 3Q25 investor deck, on a slide about rebalancing risks based on market conditions, Hercules reveals it has gone from 24% software exposure to 35% software exposure — a nearly 50% increase — in just four years. Its next-largest category: Drug Discovery & Development.

And yet Hercules trades at around a 25% premium to book value — the highest of any software-exposed BDC in the country depicted in a recent JPMorgan North American Credit Research report.

Charting premium and software exposure, Hercules sits alone in the upper-right corner: where substantial software concentration and a significant premium intersect.

A graph of premium to NAV (a proxy for valuation) relative to software exposure based on the JPM coverage universe. Note: BDCs JPM categorizes as having 0% software exposure — such as $MAIN — were excluded. Price per share data as of February 26, 2026.

Hunterbrook found every other BDC with more than 20% software concentration in its loan portfolio in the JPMorgan coverage universe trades at a discount to NAV or a far smaller premium. TriplePoint Venture Growth ($TPVG), a smaller venture lender, trades at an approximate 35% discount to NAV.

Why is one of the most exposed lenders the most expensive? And what happens if it loses its premium to NAV?

The Saylor Spiral

The inherent risk of the Hercules valuation is perhaps best explained by the Infinite Money Glitch of Michael Saylor’s Strategy (née MicroStrategy).

Here’s how it worked: Strategy traded at a massive premium to the value of its bitcoin holdings — at one point, investors were reportedly paying nearly $2.80 for every $1.00 of bitcoin on the balance sheet. That premium was the engine. Because the stock traded above the value of the underlying asset, every time Saylor issued new shares, he was effectively raising capital at a massive markup. He’d sell the expensive stock, buy more bitcoin, increase the bitcoin-per-share, and the stock would go up — which widened the premium — which let him issue more stock. Flywheel. Magic. Infinite money glitch.

Then bitcoin cracked. The premium vanished. By November 2025, Strategy fell below its net asset value. The stock, which peaked above $450, cratered 70% — the worst performer in the entire Nasdaq 100 in 2025. And here’s the doom loop: Once the premium disappears, the flywheel reverses. Issuing stock below NAV destroys value for existing shareholders. So you can’t issue stock as easily. So you can’t buy as much additional bitcoin. So the growth narrative dies. So the stock falls further. So the premium compresses more.

Hercules runs the same flywheel — just with software loans instead of bitcoin.

When Hercules trades at 1.25x NAV, every dollar of new equity it raises comes at a 25% premium to book value. That’s accretive to existing shareholders and provides cheap capital for new loans. Premium stock price → cheap equity → fund new loans → generate income → support dividend → maintain premium. Elegant.

Hercules noted to Hunterbrook that it has “conservatively raised less than $250 million of new public equity per year since FY22” and has also raised nearly $940 million in unsecured debt to fund growth since 2024. The company emphasized that as an internally managed BDC, “Hercules shareholders do not pay a management fee and Hercules management does not earn more by simply increasing Hercules’ asset base through the issuance of new shares.” Hercules said it primarily issues equity to maintain a conservative debt-to-equity ratio within regulatory limits and below levels required by its four investment-grade ratings. The company also pointed to the growth of Hercules Advisor-managed private funds as an additional source of capital for growth.

But as at Strategy, the flywheel spins in both directions.

If Hercules stock falls to NAV or below, the company can’t issue equity. And without equity issuance, Hercules can fund fewer new originations and extensions to existing portfolio companies, because BDCs are statutorily limited in how much leverage they can take on relative to the cash on their balance sheets.

This is the precise sequence that hit one of Hercules’ closest competitors. TriplePoint Venture Growth lost its premium and then cut its dividend. Hercules has maintained both its dividend and a premium to NAV — but the premium has narrowed from about 60% to about 25% in under a year.

If it hits zero, the Saylor spiral could begin.

The Marks Haven’t Caught Up

Hercules values its $1.5 billion software portfolio at around par — which is to say: The company doesn’t expect meaningful losses. But the borrowers behind those loans operate in a sector that has just experienced a systemic pullback.

And nobody knows what software companies will be worth when the debt comes due.

As JunkBondInvestor, a widely followed buy-side credit analyst, wrote this week: “What is a software company worth in five years? Not what it earns today or next quarter. Not what the sponsor paid for the business. What it’s actually worth when the AI labs are telling their investors they plan to replace Salesforce, Workday, and Adobe … Nobody can answer that question. Nobody.”

And the collateral underlying these loans — software code, brand equity, customer relationships — could ultimately be worth essentially nothing.

When Hercules’ software borrower Khoros hit a rough patch, Hercules was forced to write a $61 million loan down to $18 million. With software companies, generally, there is no factory to liquidate, no meaningful real estate to foreclose on. The collateral is code and customers. When the latter evaporates, the former can be rendered worthless.

Historically, the majority of Hercules’ portfolio companies have repaid their debt. But amid the sector decline, a borrower-by-borrower review of Hercules’ debt positions in 55 software firms as disclosed in Hercules’ most recent financials reveals a portfolio with pockets of pressure.

• Sisense, a business intelligence platform, has cut its workforce in half, suffered a severe data breach, and doesn’t seem to have publicly raised external funding since early 2020.

• Marigold Group’s debt is structured as a payment-in-kind (PIK) loan at a very high rate — Hercules collects zero cash interest — after the company already sold off its enterprise business.

• Ceros, a no-code content platform, faces existential AI disruption. Similar names, like Wix and GoDaddy, have been killed in the public markets, each down more than 50% in the last year.

There are strong companies on the Hercules books as well.

Armis, the cybersecurity platform, is being acquired by ServiceNow for $7.75 billion in cash — a deal expected to close in the second half of 2026 that will almost certainly result in full loan repayment plus a meaningful return on the firm’s $2 million equity investment. Carbyne, a 911 emergency communications platform that Hercules helped fund, is being acquired by Axon for $625 million, with the deal expected to close in early 2026. AlphaSense, the AI-powered market intelligence platform, raised $650 million at a $4 billion valuation in 2024.

But the sourcing process for those deals was not exactly scientific, according to a former Hercules analyst who worked on deal sourcing.

“I got into the meeting with my manager and I was like, ”How do you do sourcing? Like, what’s the juice? Like, what’s your secret sauce?’ And he was like, ‘Go on the website for Google Ventures and just see what they invest in and just copy it. I don’t want anything else.’”

“That’s actually a really bad way to do your due diligence,” they added. “And that’s actually a way that a lot of these, you know, like, FTX and all these things, that’s how it happens because once these companies get one brand name on their investor list, right? Like Sequoia or something like that? Everybody else just freaking flocks to them.”

And once Hercules makes the loans, the valuation process itself may warrant scrutiny. A former member of Hercules’ finance team w described a small, overstretched team with few checks in place.

“There wasn’t a whole lot of fail-safes or backup checks,” they said. “We would have kind of one stream of resources and backups,” compared to other public companies where “there are multiple streams and cross-checking and cross-team development.”

According to this former employee, a team responsible for preparing certain valuations that fed directly into the financial statements consisted of four people arranged in a single reporting line — an analyst, a senior, a manager, and a director — handling an important subset of valuations for Hercules.

“I don’t think the team got the support that it needed,” they said. “It was a small team and it was stretched quite thin.”

Review was concentrated at the manager level. By the time work reached the director, the former employee recalled seeing few comments or corrections. The former employee, who now works in a similar role at another public company, described a starkly different environment.

“There is a strong push to do things the right way, to reinvent, to make sure that we’re double-checking, triple-checking.” Not so at Hercules.

Hercules told Hunterbrook that the valuations in its February filing are as of December 31, 2025, and don’t reflect volatility in the first quarter of 2026 — leaving open the possibility that the numbers will look different when it files for Q1. It also described its valuations process as “a rigorous and cross-functional exercise involving our deal teams responsible for portfolio origination and monitoring, credit team and finance team, who re-underwrite each position in the portfolio on a quarterly basis.”

The company noted it is subject to an integrated external audit by PwC, internal audit under SOX regulations, an annual SOX review, and has adopted Investment Company Act Rule 2a-5 for valuation governance. Hercules said its independent board of directors approves all fair value marks, and that the company uses two external valuation specialists each quarter to independently value a rotating portion of the portfolio, as “overseen by the Audit Committee.”

A Metric That May Mask the Truth

The secret sauce of Hercules’ investor pitch is an interesting statistic: a cumulative net realized loss rate of only 3 basis points across $21.6 billion in total commitments since inception.

Hunterbrook reporting suggests this metric may be an invention unique to Hercules. It nets equity and warrant gains — windfalls from IPO-era exits like DocuSign, Palantir, and Pinterest — against loan losses. It is as if a bank reported its mortgage default rate after subtracting gains from its stock portfolio. We couldn’t identify any other major BDCs using this methodology.

Ares Capital — the BDC affiliate of Ares Management, which holds a portfolio almost seven times the size of Hercules — reports its equity gains as a separate line item and leads with standard credit metrics like nonaccrual rates and interest coverage ratios.

Strip out the warrant gains and the picture changes meaningfully.

The company’s cumulative net realized loss position was negative $134.7 million through 3Q25.

And the safety net that made the metric work is nearly gone.

The warrant and equity portfolio has shrunk from 11% of total assets in 2020 to about 4% today. Going forward, debt losses hit the bottom line with virtually no equity gains to soften the blow.

The former member of the finance team called the practice of using this metric “quite odd.”

“I don’t think that they should be netting that against their equity and warrants,” they said, adding that as a public company, Hercules should be able to articulate “a good rationale as to why they are doing that” if it diverges from how peers in the industry handle the same reporting.

Hercules said it is required by the Investment Company Act of 1940 and GAAP to report net realized gains and losses on investments including equity and warrants, and that “excluding these equity gains and losses from the calculation would not be in compliance with GAAP.” The firm said it has used consistent methodology under independent accounting oversight for more than 21 years.

A Growing Share of Income Is Phantom

Then there’s the rising tide of “phantom income.”

In 2025, Hercules booked $55.9 million in payment-in-kind interest income. It collected $4.9 million in cash — an amount equal to roughly 9% of the PIK income booked during the year, compared to 36% the year before.

Payment-in-kind interest, or PIK, is a mechanism that allows borrowers to defer cash interest payments by capitalizing the interest owed onto the loan’s principal balance. The lender records it as income. But the cash may never arrive. For a venture lender concentrated in software, rising PIK is a credit canary: When borrowers stop paying in cash, it often means they can’t.

Hercules’ PIK income has more than doubled in two years, from roughly $24.7 million in 2023 to $55.9 million in 2025. It now accounts for 11% of total interest and dividend income, up from approximately 5.7% just two years ago.

More important than the annual run rate is what’s piling up on the balance sheet: The outstanding PIK receivable — accumulated interest sitting on Hercules’ books — reached $109.1 million as of Dec. 31, 2025. That’s nearly triple the $38 million balance at the end of 2023.

And the 10-K’s own rollforward table reveals a telling detail: Hercules collected just $4.9 million in actual cash payments on PIK loans during 2025, a 73% collapse from the $18.3 million collected in 2024.

In the firm’s disclosure, “Payments on PIK loans are normally received only in the event of payoffs.”

Translation: This cash comes in only when a borrower gets acquired, IPOs, or refinances — events that are scarce in a venture downturn. Until then, the receivable just keeps growing.

This means Hercules is now owed more than $109 million in deferred interest payments subject to the same credit risk of the underlying loans, and the rate at which it’s actually collecting that cash has cratered. This phantom income inflates dividend coverage ratios used to justify the valuation.

Management attempted to contextualize the PIK exposure on a recent earnings call, noting that approximately 86% of Q4 PIK income was attributable to original deal underwriting rather than credit-related amendments, and that 91% came from loans rated highly on the company’s internal scale.

In its written response to Hunterbrook, Hercules said its PIK exposure relative to revenue was “approximately the median of similarly-sized BDCs and is below several of our direct competitors.” The company attributed approximately 86% of its 4Q25 PIK income to PIK that was “part of the original underwriting and not a result of any credit or performance-related amendment,” adding that nearly 91% of PIK income in the quarter came from loans it had rated as less risky. Hercules said lower cash collections on PIK loans in 2025 versus 2024 reflected “a higher volume of prepayments of loans with a PIK component in 2024 versus 2025,” noting that PIK payments are collected at contractual maturity or upon prepayment.

In its 10-K, Hercules noted that PIK receivable represented approximately 3% of total debt investments as of year-end, up from 2% a year earlier.

But this framing obscures the core issue: Regardless of whether PIK was baked into the original deal or added later, or whether 2024 saw higher prepayments than 2025, it remains noncash income owed by cash-burning borrowers. The fact that PIK was part of the original underwriting simply means Hercules is intentionally structuring more loans with deferred cash payments — which is itself a competitive concession that increases credit risk.

The Portfolio Can’t Cycle Out as Fast as Hercules Claims

When asked about software concentration risk, management often points to turnover — the idea that the portfolio cycles quickly enough that exposures can simply be rotated out. CEO Scott Bluestein has even described the portfolio as turning about every 18-to-24 months.

The implication: If software goes bad, Hercules can simply cycle out.

But that framing appears to count loan amendments and extensions as completed cycles and obscures the fact that most borrower relationships last far longer than 18 months.

A quarter-by-quarter read of Hercules’ own earnings-call disclosures shows why the distinction matters. On call after call, Hercules shares that the majority of its new fundings were to existing borrowers.

Hercules disputed these figures in aggregate, stating that “since 2022, 63% of all new fundings have been to new portfolio companies” according to its public financial statements.

Since 2022, the company has repeatedly told investors how many companies it funded in the quarter and how many of those were new borrower relationships. Across the last 16 quarters (1Q22 through 4Q25), we estimate Hercules funded 408 companies — but only 147 of them (about 36%) were new relationships. In 14 of those 16 quarters, new relationships were the minority of deals, meaning most capital deployment went to companies already in their portfolio.

The pattern tracks the cycle. In 2023, as venture funding tightened, only 30 out of 105 funded-company events (29%) were new relationships — and in 4Q23, just five out of 27 (19%) were new. In 2024, the skew persisted (3Q24: four new relationships out of 21 fundings). Even in 2025, when originations re-accelerated, three of the four quarters still had a majority of fundings going to existing borrowers (e.g., 3Q25: 24 funded companies, only seven new; 4Q25: 33 funded, only 12 new).

In other words, the capital deployment that investors see in quarterly disclosures is largely repeat lending inside the same borrower set, not a steady refresh.

The result is a credit ecosystem where “no default” may be able to coexist with slow-motion impairment. Maturities get pushed and cash interest is replaced with PIK payments — all while relationship concentration persists because the same borrower names keep receiving incremental capital.

This pattern — where borrowers who would have repaid instead amend, extend, and pile on PIK — is playing out across the software credit universe, not just at Hercules.

“The concentration of software loans maturing in 2026-2027, the largest sector cohort in the near-term maturity bracket, is overwhelmingly going to get resolved through amend-and-extend transactions, not through bankruptcy filings,” wrote JunkBondInvestor. “When a borrower can’t refinance at par but isn’t in operational distress, the playbook is familiar: the sponsor and the existing lender group negotiate an extension. Lenders get a fee, a spread bump, maybe some incremental covenant protection. The company gets two or three more years of runway. No default. No restructuring. Everyone claims victory.”

“But this has implications for loan investors that aren’t being processed,” he explains. “And here’s the part that should keep loan investors up at night: the amend-and-extend process is where creditors get coerced, and in this market, they will be. Sponsors know that a fragmented lender base facing a maturity wall has limited options. You can either extend on the sponsor’s terms, which often means PIK toggles, covenant stripping, and priming risk from new money tranches, or you can watch the loan trade down as the maturity approaches without a resolution. Each extension that adds PIK, strips covenants, or pushes maturities without meaningful deleveraging is a slow-motion impairment that never shows up in the default statistics. The risk isn’t default but extension at terms that are incrementally worse for lenders while the [terminal value] question remains unresolved.”

The Dividend Is Thinner Than It Looks

Hercules frames its payout as conservative. In 4Q25, the company reported net investment income (NII) of $0.48 per share, which it says provided 120% coverage of the base distribution of $0.40. That sounds like a healthy cushion — until you look at what shareholders actually receive.

The total cash distribution for Q4 was $0.47 per share: the $0.40 base plus a $0.07 supplemental. Against $0.48 of NII, that’s roughly 102% coverage — a cushion of a penny. For the full year, the math is equally tight: $1.91 of NII per share against $1.88 in distributions paid. Three cents of breathing room for the entire year. That’s tight.

Hercules disagreed with this perspective in a written response to Hunterbrook Media, calling it “incorrect” to measure dividend coverage against the combined distribution. The company noted that the supplemental distribution is paid from its undistributed earnings spillover of $149.9 million ($0.82 per share as of December 31, 2025 — not from NII). Even excluding all PIK and additional noncash transactions, Hercules said cash NII covered the base distribution at 105.7%. The company added that it “maintains near the high end of base dividend coverage across the entire BDC universe.”

Hercules provided the following figures:

Hercules’ distinction between the base and supplemental distribution is technically correct: The supplemental is paid from a spillover account, not directly from current-quarter NII. To maintain its status as a regulated investment company (RIC), Hercules, like every BDC, must distribute at least 90% of its taxable income to shareholders annually. The IRS allows RICs to maintain an undistributed earnings spillover — a reserve of prior taxable income not yet distributed — from which supplemental payments are drawn.

But this framing, while accurate as a matter of accounting, does not change the economic reality facing shareholders. The total cash leaving the building each quarter is $0.47 per share. The total NII coming in is $0.48. A penny of coverage. The distinction between “base” and “supplemental” is a labeling exercise: Shareholders receiving $1.88 per year in distributions are relying on a combination of current earnings and a finite savings account.

And the savings account, while substantial at $149.9 million ($0.82 per share), is not self-replenishing. If NII declines — whether from falling rates, rising defaults, or slowing deployment — the spillover gets drawn down rather than built up. At the current supplemental rate of $0.28 per year, the reserve covers roughly three years of supplemental payments before it is depleted, assuming no further accumulation.

More importantly, a meaningful slice of the $1.91 in NII is phantom. With PIK accounting for approximately 11% of investment income, the dividend is being supported in part by interest that has never been paid in cash. Even by Hercules’ own figures, cash NII (excluding PIK and other non-cash items) covers the base distribution at 105.7% — a tighter cushion than the headline 119% suggests, and one that leaves virtually no room for credit deterioration before the base distribution itself comes under pressure.

Hercules’ cash balance allows management to keep mailing extra checks even when quarter-to-quarter coverage is razor-thin. But it is not evidence that the portfolio’s current earnings power is expanding. It’s a savings account.

Then there’s dilution. Hercules has been steadily increasing its share count through its at-the-market equity program, selling stock at a premium to NAV and using the proceeds to, among other activities, fund new loans. In 4Q25, the company’s basic weighted-average shares were 180.8 million, up from 165.1 million in 4Q24. Shares outstanding rose to 182.7 million on December 31, 2025, from 170.6 million a year earlier.

That dilution shows up directly in per-share earnings: The full-year 2025 NII per share of $1.91 is lower than 2024’s $2.00 — even though the total NII dollars increased. The company acknowledges that NAV per share benefited from at-the-market issuance above book value, a tailwind that exists only as long as the stock trades at a premium. If the premium disappears, the accretive math flips to destructive. Hercules ended the year with 18.8 million shares still available under the program, having sold stock in 4Q25 and again in January 2026.

The result is a wobbly architecture: a dividend with a penny of coverage, inflated by noncash income, and sustained by drawing down a legacy savings account — all while ongoing share issuance dilutes a story that only works as long as the market pays a premium.

The Competitive Moat That Isn’t

The competitive landscape reinforces the problem. When asked what differentiates Hercules, CEO Bluestein said in a 2025 earnings call, “We have the best team in the business. The team is incredibly experienced. The team has been together for a long time. The team knows how to pick the right companies.”

That may be true. But “we have good people” is a convenient claim for a lender to make when they have no structural moat in a largely commoditized sector. The venture lending market has swollen from a handful of specialists to dozens of publicly-traded BDCs, and SVB — reborn under First Citizens Bank — still commands roughly a third of the venture banking market. Spreads across the sector have fallen significantly, quarter after quarter, for two years running.

If Hercules were truly cornering the market on the best risk-adjusted loans, you’d think competing capital might be swarming those same deals. If it’s winning deals because other lenders don’t want them — extending credit to software companies at terms that more conservative shops walk away from — then the portfolio suffers from adverse selection.

And beyond the competitive dynamics, the former finance team member described a culture with significant “time pressure,” where decisions can end up feeling rushed under tight deadlines. They also noted a “very big culture of wealth and opulence and power and ego and status,” a description that aligns with the Hercules founder’s role in the college admissions scam.

But the story of Hercules is less about culture than it is about the numbers.

Return to the Infinite Money Glitch. When Hercules trades above book value, every dollar of new equity is accretive — cheap capital that funds new loans, generates income, supports the dividend, and sustains the premium. Strategy ran the same machine with bitcoin. TriplePoint ran it with venture loans. In each case, the cycle was elegant on the way up and devastating on the way down. When the premium vanished, equity issuance turned destructive, loan growth stalled, and the dividend followed.

Hercules has long been the exception to the rule — but the exception is narrowing. The premium has been cut in half in a matter of months. The software sector that backs 70 cents of every dollar of NAV is in its worst downturn in years. The income is increasingly phantom. The full dividend cushion is a rounding error. The warrant portfolio that once absorbed losses has shrunk to a fraction of what it was. And the markets still have not meaningfully moved — at least not yet.

Authors

Matthew Termine is a lawyer with nearly five years of experience leading the legal team at a mortgage technology company. In 2017, Matt was credited by the Wall Street Journal, among others, for identifying suspicious mortgage loan transactions that led to several successful criminal prosecutions, including that of a prominent political operative and the chief executive officer of a federally chartered bank. He is a graduate of Trinity College and Fordham University School of Law.

Michelle Cera trained as a sociologist specializing in digital ethnography and pedagogy. She completed her PhD in Sociology at New York University, building on her Bachelor of Arts degree with Highest Honors from the University of California, Berkeley. She has also served as a Workshop Coordinator at NYU’s Anthropology and Sociology Departments, fostering interdisciplinary collaboration and innovative research methodologies.

Sam is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Editor

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a Master’s in Chinese and Japanese History from the University of California at Berkeley.

Graphic

Dan DeLorenzo is a creative director with 25 years reporting news through visuals. Since first joining a newsroom graphics department in 2001, he has built teams at Bloomberg News, Bridgewater Associates, and the United Nations, and published groundbreaking visual journalism at The Wall Street Journal, Associated Press, The New York Times, and Business Insider. A passion for the craft has landed him at the helm of newsroom teams, on the ground in humanitarian emergencies, and at the epicenter of the world’s largest hedge fund. He runs DGFX Studio, a creative agency serving top organizations in media, finance, and civil society with data visualization, cartography, and strategic visual intelligence. He moonlights as a professional sailor working toward a USCG captain’s license and is a certified Pilates instructor.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Sam Koppelman, Till Daldrup, Andrew Ford, Blake Spendley

Editor: Jim Impoco

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is long $GNRC and short a basket of comparable securities at the time of publication. Positions may change at any time. See full disclosures on our website.

You can get a backup generator for your house in a week. But if you’re building a billion-dollar data center, you might wait over two years — unless you buy from Generac ($GNRC).

And now, states — whose grids are being tested by an AI buildout with a seemingly insatiable appetite for power — are starting to require hyperscalers to install them.

Generator lead times from major players like Caterpillar, Cummins, and Rolls-Royce can stretch as much as 107 weeks. The companies constructing the most expensive AI infrastructure in history are scrambling for alternatives.

Enter: Baudouin — a French engine brand owned by Chinese conglomerate Weichai Group. Baudouin makes the engines that are the key component of multi-megawatt backup generators like those used in major data centers, and in the United States, they are distributed most prominently as part of the new integrated generator systems put together by Generac.

One of Baudouin’s customers?

The Stargate data center in Abilene, the crown jewel of the $500 billion AI buildout from SoftBank, OpenAI, Crusoe, and Oracle. This is according to an obscure section of a Texas air permit reviewed by Hunterbrook. Buried on pages 42 and 43: 28 emergency backup generators powered by Baudouin.

The Stargate permit doesn’t name the company set to package the Baudouin engines into finished generators — but there aren’t many options. Baudouin has a sparse distribution network in the United States, consisting largely of marine engine shops: a small LLC in Washington State, a boat repair company in Florida, you get the idea.

The only two Baudouin distributors to data centers identified by Hunterbrook are IGSA Power — a relatively small Mexico-based manufacturer with an office in Laredo, Texas — and Generac.1

Based on reporting by Hunterbrook Media, it appears that IGSA may be supplying at least some of the 28 Baudouin units at the Abilene site, potentially through an intermediary.2

But the bigger story is what may come next.

The Stargate buildout alone envisions nearly 10 gigawatts of capacity, even with recent reporting from The Information indicating OpenAI won’t lead the build out itself. The backup generation required to support that — thousands of large-megawatt units — is well beyond what a small company like IGSA has demonstrated it can deliver.

Which raises the question: Who scales Baudouin in America?

The answer, almost certainly, is Generac — the $13 billion Wisconsin company known to Wall Street as the stock that dips and rips around hurricanes. The almost 70-year-old company is the “Kleenex” of backup power, a name synonymous with those gray, suitcase-shaped boxes sitting in suburban backyards that hum to life during a storm.

Whereas IGSA manufactures around 2,000 units per year, across various generator sizes and engine brands, Generac sells an estimated 800,000 generators annually.3

And as the AI boom turns electrical power into a scarce commodity, Generac’s suburban and rural identity is undergoing a metamorphosis. Generac has struck a major deal with Baudouin to partner on data center generators — launching a new product line last April; building a $400 million backlog in under a year; and racing to double its manufacturing capacity. The company has redesigned its plant in Oshkosh, Wisconsin, specifically to build its data center generator lineup and moved production of some smaller generators to a new facility in Beaver Dam.

For all these reasons, Generac seems to be on its way to becoming by far the largest U.S. distributor of the Baudouin brand — while other generator manufacturers are already booked out for years.

In a podcast, Ricardo Navarro, Generac’s senior VP & general manager of global telecom and data centers, said the company is moving much faster than competitors. Generac delivers certain offerings within around 30 weeks. “If you compare that to the current supply of existing OEMs, it’s one third of that lead time,” he said. “Everyone is interested in that.”

Trade data supports Navarro’s description of demand. In recent months, Weichai’s shipments to the United States have soared — amid what Andrew A. Chien, a computer science professor at The University of Chicago who studies data center infrastructure, described as a “power rush” in an interview with Hunterbrook.

Of the hyperscalers, Chien said: “They’re probably trying to get everything they can get.”

Investing in backup generators, in particular, may soon become a legal necessity for data center operators across the United States.

Look at Texas, which passed a law that has transformed backup power into a cost of doing business.

Last June, the Lone Star state – now poised to be the largest data center market in the country, enacted Senate Bill 6, requiring new or expanded facilities drawing 75 megawatts or more from the grid to be prepared to curtail their loads or activate on-site backup generation during emergencies.

Facilities that connected after Dec. 31, 2025 must install remote-disconnect equipment allowing the grid operator, ERCOT, to cut them off. (Asked about Stargate, ERCOT declined to comment on any specific ongoing project.)

The law was tested almost immediately.

During Winter Storm Fern in January, the Department of Energy issued an emergency order authorizing ERCOT to direct data centers to fire up their backup generators. The practical effect is that major data centers in Texas now need to curtail load when the grid is pushed past its limits — potentially threatening active training runs — or turn on a fleet of large-megawatt generators like the ones produced by Generac. For companies that can deliver those generators faster than anyone else, the demand is structural.

And Texas is just the beginning.

U.S. data centers consumed roughly 25 gigawatts of power in 2024; by 2030, that figure is expected to reach somewhere between 50 and 100 gigawatts. As the Generac CEO put it in an interview on CNBC: “That’s like adding 20 New York Cities.”

Six states — including New York, Virginia, and Georgia — have introduced moratorium bills to pause new data center construction, and local governments in at least 14 states had enacted their own moratoriums by the end of 2025.

The political message is clear: Data centers must bring their own power and stop burdening the grid. That could be very good news for backup generator manufacturers like Generac.

The Permit

The discovery of OpenAI’s embrace of Baudouin generators comes five months after Hunterbrook Media and Citrini Research flew a drone over the Stargate data center campus in Abilene, Texas. The footage went viral, revealing a facility the size of Lower Manhattan rising from the red Texas clay: eight massive AI computing halls, backed by natural gas turbines from GE Vernova and Caterpillar.

What the flyover didn’t capture — because none of the emergency backup generators appear to have been delivered yet — was Baudouin’s presence.

The January operating permit lists 62 emergency generators at the Longhorn Data Center: 34 Caterpillar units and 28 Baudouin units, providing roughly 170 megawatts of total backup capacity. The 28 Baudouin generators, listed as GEN-35 through GEN-62, are each rated at 2.8 megawatts and classified as Tier IV emergency units. Together they represent approximately 78 megawatts of backup power — enough for 60,000 average homes or nearly half the emergency generation capacity outlined in this permit at one of the most closely watched AI infrastructure projects in the world.

This aligns with the specs of Generac’s generators — which launched back in April. The company released a full lineup of five models, ranging from 2.25 to 3.25 megawatts, all built on the Baudouin M55 engine platform.

One discrepancy: Generac’s published spec sheet for the SD2750/MD2750 lists the Baudouin engine as EPA Tier 2, rated at 2,750 kW — while the permit classifies the Baudouin units as Tier IV at 2,800 kW. But this gap may not be meaningful. Generac’s own product materials describe the lineup as “ready for use with compliant Tier 4 aftertreatment systems,” meaning the same base engine can meet different emissions tiers depending on configuration. (IGSA, for its part, is also labeled as Tier 2, indicating that isn’t a barrier to entry.) And based on Baudouin documents, each of their engines can power up from the name-plated capacity.

The Caterpillar fleet at the same site demonstrates the same pattern — 3516 engines appear in the permit in both Tier II and Tier IV variants.

All in all, it’s a modest amount of backup power, according to Chien, the computer science professor. “I heard a rumor that they were going to go with less than full backup power at that site,” he said. “Normally, if they have a gigawatt of IT equipment, they’ll have a gigawatt of backup. But … that might be because they can accept the unreliability — because it is pretty rare that the grid goes down — or they couldn’t get the generation.”

Still, Stargate could pose environmental concerns, according to Damian Pitt, associate professor of urban and regional studies and planning at Virginia Commonwealth University.

“Whenever they are running, they will be producing air pollution in the form of nitrous oxide, particulate matter, carbon monoxide, sulfur dioxide, and so on that would diffuse into nearby neighborhoods,” Pitt said. “And if there are people living in those areas, then they could be exposed to air pollution impacts.”

And the existing permits may only be for a fraction of what ends up being the total number of generators needed at Stargate. So far, the designated area for generators — according to public plans — remain empty, according to a review of recent satellite and aerial imagery.

Scale

TD Cowen has described Generac as having “exclusive U.S. access” to Baudouin engines for data center applications. But that characterization may overstate the arrangement — IGSA Power also sells Baudouin-powered generators in the U.S. and appears to have placed units at least one Texas data center. Late last month, IGSA shared a pair of images mentioning a major installation at a new data center project in Texas.

Hunterbrook analyzed the images IGSA shared and geolocated them not to Stargate, but to a multi-unit generator installation at Serverfarm’s CTX2 data center in Houston. By comparing tree lines, concrete pads, and distinctive wall structures across more than 20 newly built or recently commissioned data centers in Texas, we found a clear match to footage previously released by Serverfarm in a promotional video last year.

Generac did not respond to repeated requests for comment on the scope of its Baudouin distribution rights.

While boutique vendors may fulfill individual orders, the sheer magnitude of the Stargate buildout requires an industrial muscle that only a company of Generac’s size can provide. IGSA has between 200 and 500 employees, according to LinkedIn. Generac has roughly 9,000 — and they are working on building out the capacity to produce more than a billion dollars worth of data center generators annually starting next year.

On its earnings call last week, Generac described 2026 as an “inflection point” for its data center business. CEO Aaron Jagdfeld said to investors: “We further developed partnerships in the quarter with multiple hyperscalers, including progressing to the pilot phases of our relationships with two specific customers as we prepare for potential significant volumes in 2027 and 2028.”

Jagdfeld told analysts the $400 million backlog was built almost entirely from orders placed by colocators and developers — meaning these estimates exclude any potential revenue after the hyperscaler pilots.

If those convert to long-term supply agreements, the implications are substantial. Jagdfeld has estimated the total addressable market for large-megawatt generators at $15 billion annually and has set a target of capturing 10%-15% of that market — implying at least $1.5 billion in annual data center revenue alone, which would roughly double the company’s current commercial and industrial business.

To support this, Generac is scaling manufacturing capacity aggressively. Jagdfeld acknowledged on the Q4 call that the company took a bit of a “risk” expanding ahead of signed hyperscaler contracts — but said projected volumes for 2027 and 2028 could take them “easily above” $1 billion in capacity.

Jagdfeld projected that order intake would “accelerate over the next several quarters,” adding: “We are making progress with other data center colocators and developers.”

What Generac didn’t say on that earnings call: The most prominent data center buildout in the world has already permitted for the exact generator engines they sell.

Authors

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Till Daldrup joined Hunterbrook from The Wall Street Journal, where he focused on open-source investigations and content verification. In 2023, he was part of a team of reporters who won a Gerald Loeb Award for an investigation that revealed how Russia is stealing grain from occupied parts of Ukraine. He has an M.A. in Journalism from New York University and a B.S. in Social Sciences from University of Cologne. He’s also an alum of the Cologne School of Journalism (Kölner Journalistenschule).

Andrew Ford is an investigative journalist who exposed systemic flaws and prompted reforms in healthcare, business, policing, and state government. His reporting was published by ProPublica, USA Today, The Arizona Republic, Asbury Park Press, and Florida Today. He holds a journalism bachelor’s from the University of Florida and is based in Phoenix, AZ.

Blake Spendley joined Hunterbrook from the Center for Naval Analyses (CNA), where he led investigations as a Research Specialist for the Marine Corps and US Navy. He built and owns the leading open-source intelligence (OSINT) account on X/Twitter, called @OSINTTechnical (over 1 million followers), which also distributes Hunterbrook Media reporting. His OSINT research has been published in Bloomberg, the Wall Street Journal, and The Economist, among other top business outlets. He has a B.A. in Political Science from USC.

Editors

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a master’s in Chinese and Japanese History from the University of California at Berkeley.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please email ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work, or press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Till Daldrup, Michelle Cera, Evan Comen

Editor: Sam Koppelman, Jim Impoco

Hunterbrook Media’s investment affiliate, Hunterbrook Capital, does not have any positions related to this article at the time of publication. Positions may change at any time. Full disclosures on our website. If you’ve been impacted, and have a story to tell, each out at ideas@hntrbrk.com.

Note: Shout out to our new newsletter subscribers — who found us via The Compound and Friends. We plan to publish our next financial markets focused story later this week.

TLDR:

• Indorama Ventures pledged to be a responsible neighbor. Documents obtained by Hunterbrook show the opposite: The Thai petrochemical company has exposed thousands in Texas to carcinogens, violated environmental permits, and concealed toxic leaks from regulators.

• According to Texas Commission on Environmental Quality (TCEQ) records, Indorama has emitted several thousand pounds of ethylene oxide and other hazardous air pollutants in violation of its permits. The documents show a pattern of accidents and leaks at the plant that have exposed thousands of local residents to toxic chemicals.

• The TCEQ also found that the company didn’t notify regulators and the public of several toxic releases at its facility. At least two large emissions of harmful substances were discovered more than a year after the fact.

• Jefferson County, where the Indorama plant is located, has the highest breast cancer mortality among women under the age of 50 in Texas, according to National Cancer Institute data. Long-term ethylene oxide exposure is linked to a higher rate of breast cancer in women.

See the full, interactive graphic — and information on the methodology behind it — on our website.

The air in Port Neches, Texas, is thick, even in December. A pungent smell permeates the city — schools, parks, restaurants, hospitals, and grocery stores. The odor is reminiscent of burning plastic mixed with the smell of a gas station pump. Some locals say they stopped noticing it a long time ago.

This region in southeast Texas is known as the Golden Triangle because of the wealth generated by the massive oil boom in the early 1900s. But today, some residents say the economic opportunities the petrochemical industry has offered them and their neighbors have come at a high personal cost.

“You live here, you’re gonna get cancer,” a local mother said. She prefers not to be named because of her relationships with people who work in the oil and chemical industries.

Timothy, her son, is an ICU nurse. Both of them grew up in the Golden Triangle. They have another name for the region: cancer alley, reminiscent of the nickname for an 85-mile stretch of petrochemical plants and refineries along the Mississippi River in Louisiana.

He said he has personally treated countless locals with various cancers, including numerous cases of patients with lung cancer who never smoked.

For Timothy and his mother, the flames, the smoke, the never-ending smell of chemicals coming from refineries and petrochemical plants are a fact of life. So are the sirens that go off during the day. And the eerie orange glow in the sky at night, from the lights on machinery at the plants.

Residents feel “helpless to do anything about it,” Timothy’s mother said. And the plants and refineries are the economic lifeblood of the region. “You weigh the risks of living in the area with the good living wages that you get.“

Inside Indorama’s Chemical Footprint in Texas

About 600 people in this area work for Indorama Ventures ($IVL), a $3.8-billion Thai petrochemical company. In 2020, it bought a complex in Port Neches that borders Groves and Nederland. Indorama referred to the plant as a “large flagship site on the US Gulf Coast.”

Documents obtained by Hunterbrook Media through public records requests show that the company has exposed residents of all three cities to high levels of a cancer-causing chemical.

Indorama’s plant produces ethylene oxide (EtO), a colorless, flammable gas used to make antifreeze, detergents, and textiles, and as a sterilizing agent for medical devices. It is also a ruthlessly efficient carcinogen. In 2016, the EPA in a revised toxicity assessment concluded it is 30 times more carcinogenic than previously thought. Ethylene oxide is linked to blood cancers like leukemia, non-Hodgkin lymphoma, and multiple myeloma, as well as breast cancer. In 2024, the EPA issued stricter rules that require commercial medical sterilizers and large chemical plants to reduce their ethylene oxide emissions.

A former Indorama employee who specialized in ethylene oxide at the Port Neches plant emphasized the extreme danger the gas poses. Malfunctions could “wipe out Port Neches,” they told Hunterbrook.

Given the highly hazardous nature of the chemicals it handles, Indorama has publicly stressed its responsibility to the surrounding communities.

“It’s a question of what you have to do right,” Chad Anderson, at that time Indorama’s vice president of manufacturing, told local media in 2021, “and that falls down to being responsible and abiding by our environmental permits, keeping employees and clients happy and maintaining our civil engagement.” That was shortly after the company took over the plant.

Yet, Texas Commission on Environmental Quality records show that Indorama has repeatedly failed to contain the carcinogen. The plant has emitted several thousand pounds of ethylene oxide and other toxic chemicals without TCEQ authorization. The records show a pattern of accidents and leaks at the plant that have exposed thousands of local residents to hazardous air pollutants.

During six record reviews in 2024, the TCEQ found Indorama had exceeded its permitted emission limits several times in 2022 and 2023 and hadn’t notified regulators or the public of large chemical releases at its facility.

In one previously unreported incident, Indorama in September 2023 emitted roughly 1,880 pounds of ethylene oxide during a mere three-minute leak caused by defective tubing.

This brief emission alone would have made Indorama one of the top 20 emitters of ethylene oxide in the United States in 2023, according to the EPA’s Toxics Release Inventory database.

For context, in 2023, Sterilization Services of Tennessee, a medical sterilization company, announced it would shut down its plant following months of community advocacy against its EtO emissions. It had released 2,000 pounds of ethylene oxide that year. Indorama released nearly that same amount in 180 seconds.

What’s more, the records show that Indorama did not report three releases to regulators until a TCEQ investigator discovered them during a record review. Two of these leaks were uncovered over a year after the fact. According to Texas regulations, facilities like Indorama’s are required to notify authorities of large emissions events within 24 hours.

Jefferson County — which includes Port Neches, Groves, and Nederland — has the highest breast cancer mortality among women under the age of 50 in Texas, according to the latest available National Cancer Institute data. Long-term ethylene oxide exposure is linked to a higher rate of breast cancer. The county also has the second-highest incidence of lung and bronchus cancers among people under 50 in the state, as well as one of the highest death rates from stomach cancer.

A 2021 ProPublica analysis calculated the cancer risk caused by industrial pollution across the United States based on emissions data and identified the area around Indorama’s facility as a major national hotspot. The estimated cancer risk around the facility is 1 in 53 — meaning that for every 53 residents, 1 is likely to develop cancer solely due to toxic exposure.

Indorama’s plant is not the only polluter in the area. Several nearby refineries and petrochemical facilities are also adding to the toxic cocktail that residents are exposed to daily.

But an ethylene oxide emitter of that size in such close proximity to several communities is rare, according to a Hunterbrook review of large EtO emitters. The only plant that released more ethylene oxide than Indorama’s Port Neches facility in 2023 was Dow Chemical’s ethane cracker in Plaquemine, Louisiana. But while Dow’s facility is located next to a relatively sparsely populated strip of land, Indorama’s plant is located less than 1,000 feet from Groves Middle School. Port Neches Primary School is less than one and half miles from the facility.

And it’s not just ethylene oxide. Indorama released more than 7,300 pounds of volatile organic compounds (VOCs) and 1,500 pounds of nitrogen oxides (NOx) between July 7 and July 10, 2023 — in violation of its permits, according to the TCEQ. An incident report shows this was due to an equipment malfunction.

Volatile organic compounds can cause various health issues, from eye and throat irritation and headaches to liver, kidney, and central nervous system damage. Some can cause cancer. Nitrogen oxides like nitrogen dioxide can aggravate respiratory diseases, particularly asthma, leading to symptoms like coughing, wheezing, or difficulty breathing.

Indorama did not respond to a request for comment.

“It’s very hard on my asthma,” Timothy said of the plant’s emissions. “I’ve been on the bathroom floor vomiting from coughing so hard.”

He and his mother had never heard of these accidental releases and were unaware of the thousands of pounds of carcinogenic ethylene oxide that Indorama emitted in violation of its permits in recent years. “We don’t know that,” Timothy said. “They hide that from us.”

Cindy and Don Colwell said the same — and they live directly across the street from Indorama. “We’ve never heard anything,” Cindy said. They mentioned they had never seen or heard anything about the releases during their time living in Groves — nothing in the news, no phone alerts, and no written notifications.

“It would be nice to know what we are breathing,” Cindy said.

Their wood-paneled living room is filled with photos of their family. Their rescue animals, two dogs and three cats, lay by their feet. The Colwells have gotten used to the flares, they said, and the noises from the plant that sound like airplanes.

But they are also aware of the risk. Several of their loved ones have died from cancer. Cindy listed all of the cancers that had plagued her family and friends: breast cancer, lung cancer, stomach cancer, liver cancer, mesothelioma, and more.

While the Colwells are deeply concerned about their young grandchildren, for them, the tragedies that come with the oil and chemical industry in southeast Texas are part of the trade-off. “Well, I’m gonna die of something,” Cindy joked. “You can live as healthy as you want, it’s not gonna stop carcinogenic things from tearing into your body.”

But the health data is impossible to ignore. Jefferson County has the highest breast cancer mortality rate among women under 50 in the state. Its mortality rates for heart and long-term lung disease are respectively 38% and 46% above the state average, according to data from the National Center for Health Statistics (NCHS).

A Hunterbrook analysis using National Oceanic and Atmospheric Administration plume models shows that the single three-minute leak in September 2023 dispersed ethylene oxide as far as Louisiana.

The EPA models cancer risks for some air pollutants based on continuous exposure over a 70-year lifespan, so it’s difficult to estimate the increased cancer risk from acute exposure. For ethylene oxide, the agency considers a continuous lifetime exposure above 0.02 micrograms per cubic meter an “unacceptable” cancer risk. After the release at Indorama’s facility, ethylene oxide concentrations peaked at levels over 6,000 times higher than that on one residential block close to the plant.

New EPA rules for chemical plants would have required Indorama to set up fenceline monitoring by July of this year, with an action level for ethylene oxide set at an annual average of 0.2 micrograms per cubic meter. Exceeding this threshold would have triggered a root cause analysis and corrective actions. But Indorama received a presidential exemption for its Port Neches plant in July 2025, which granted the company a two-year extension of compliance deadlines set in the EPA rule.
Ethylene oxide concentrations peaked at more than 600 times the action level after the three-minute release at Indorama’s facility. Almost 5,000 people were exposed to concentrations five times the threshold for at least an hour.

And documents reviewed by ProPublica suggest that ethylene oxide levels around the facility have at least periodically been above the EPA threshold in recent years: When the agency asked Indorama to temporarily set up fenceline monitors in 2023, the ethylene oxide concentration was seven times higher than the action level, according to ProPublica’s investigation.

“Too Big to Fail”

For some residents, the cycle of leaks and lenient fines has bred a deep cynicism.

“Because of their contribution to the economy, they all enjoy the ‘too big to fail’ pass,” said Bill Johnson.

He and his wife Alicia live in Port Neches near the Indorama plant with their teenage daughter. They said the “deafening” sounds from the facility and the pollution are a part of their daily lives. The Johnsons were also unaware of the dangerous emissions from Indorama in recent years.

“If I am responsible for an accident that causes damage to 60,000 homes in the area,” Bill said, giving a figurative estimate, “I’m going to prison for eternity, right? I’m gonna be fiscally liable. But because of their contribution to the economy, they get a pass.”

He worked in the industry for many years. Risk has been a constant in his working life, something he learned to live alongside rather than fear.

“It’s become such a fact of life around here,” Bill said. “I don’t wanna be living across from a refinery for the rest of my life … but there isn’t really an option.”

Moving is more of a fantasy than a plan for him and his family. “It does kinda feel like the big bad wolf is the plant, and in the end it’s them saying, ‘If you don’t like it, you can move’ … but I don’t have millions of dollars. Y’all do,” Bill said.

Alicia agreed. “Who can afford to just pack up and move?”

Like nearly every other local who spoke to Hunterbrook for this story, their lives are intertwined with illness. A friend of theirs who grew up in Port Neches developed cancer and was told by doctors that it was environmental. Bill and Alicia understood the connection but also the futility of confronting it.

To the Johnsons, Indorama is not just a neighbor; it’s a company that defines everything around them. Bill described the plant as “swallowing up the town.”

“This is Port Neches, not Port Indorama,” Bill said.

The penalties the TCEQ proposed for the various violations it identified at Indorama’s plant in Texas add up to almost $75,000, according to the documents Hunterbrook obtained. For a company that recorded $15.4 billion in revenue in 2024, that’s barely a rounding error.

Two of the proposed orders with penalties totaling around $43,000 were adopted by the Commission on January 28. Another, carrying a penalty of about $10,000, was signed by the TCEQ’s executive director earlier that month. One other order is still pending approval.

The Commission is also working on enforcement cases for five other air emissions incidents at Indorama’s facility involving ethylene oxide releases between 2021 and 2024, according to a TCEQ spokesperson.

Broken Promises and Suspicious Emissions Numbers

Forty miles east of Port Neches, in Westlake, Louisiana, Indorama operates another facility with a similarly troubling record. The area surrounding the plant here is much like its Texas counterpart — a persistent toxic stench, smoky skies, and schools and homes close by.

After it bought the facility in 2015, Indorama made the same pledge to be a good neighbor in Louisiana that it had made in Texas. Then-Governor Bobby Jindal welcomed the company with a 1.5 million grant as well as a tax subsidy worth at least 73 million over 10 years, according to calculations by the nonprofit Together Louisiana. Indorama pledged to “meet or exceed all environmental regulations.” The company did not keep its promise.

The problems began as soon as Indorama started up the plant, which had been closed down in 2001.

Repeated mechanical failures led to emergency flaring at the facility in 2019. The flare belched black smoke into the community, roaring with such violence that it rattled the windows of nearby homes.

“It was like a 300-foot flame, and it went on for weeks,” said James Hiatt, director of a Lake Charles nonprofit called For a Better Bayou, at the time. “People couldn’t sleep at night.”

According to a Louisiana Department of Environmental Quality document, the vent flare of the facility burned for a total of 2,256 hours — or 94 days — in 2019.

The issues forced Indorama to shut the plant down in June 2019 before starting back up again. As it turned out, the company was also missing certain key permits for its facility.

Indorama quietly settled various environmental and compliance violations related to the bungled ethane cracker startup with the Louisiana Department of Environmental Quality this year and paid $175,000, according to a document published on the department’s website. The company was finally able to restart the ethane cracker in January 2020.

Roishetta Sibley Ozane lives less than a mile from Indorama’s Westlake facility. She is a mother of six and is concerned about the links between petrochemical plants and maternal health, including premature births and infant death. Ozane had a stillborn baby and several of her children have asthma.

“Indorama is a serial polluter,” she said. “I’m starting to realize that it’s my close proximity to these facilities and constantly breathing in this polluted air,” Ozane said about her and her children’s health issues.

She decided to purchase a special camera to show pollution that can’t be seen with the naked eye. “And it showed that Indorama was polluting way more than we even expected.”

Ozane said that she doesn’t understand why companies like Indorama only have to pay small fines when they release toxic chemicals that affect residents and the environment. “These facilities get to come here and pollute our air and our water, kill our children, cause us to have cancer and all these other different respiratory issues, and they’re not paying their fair share,” she said.

And emissions from Indorama’s plant are getting worse, a Hunterbrook data analysis shows. The company’s releases of known or probable carcinogens at the facility were four times higher in 2024 than in 2021, its first full year of operation. Emissions of 1,3-butadiene — a chemical linked to cancers of the stomach, blood, and lymphatic system — have increased tenfold.

The analysis also shows that the company kept violating its permits once the facility finally opened: Fugitive benzene releases were above emissions limits not only in 2020, but also in 2022 and 2023.

Fugitive emissions are the industry term for leaks that escape through valves, cracked seals, and loose connectors rather than being filtered through controlled smokestacks. In Louisiana, state data shows that large amounts of Indorama’s toxic releases come from these hard-to-track sources.

But a forensic review of the company’s filings suggest these numbers may be little more than fiction. For two consecutive years — 2022 and 2023 — the company submitted identical fugitive emission figures. Then, in 2024, the data became even more improbable: Indorama reported emitting exactly the same amount its permits allowed across a wide range of chemicals, down to the single pound.

A comparison with neighboring facilities underscores the anomaly. While similar plants in the area reported emissions with decimal-point precision, Indorama’s figures remained suspiciously static, despite the company enjoying permit limits significantly higher than those of competitors.

If Indorama indeed calculated its emissions inaccurately, surrounding communities would be left in the dark about the amount of toxic chemicals they are breathing in — and the company could potentially dodge fines for permit violations.

The Louisiana Department of Environmental Quality did not respond to a request for comment.

Residents in Louisiana are fighting back. Ozane decided to start organizing her community. She brought neighbors to city council meetings and police jury meetings, and even took a trip to Washington, D.C., to meet with the Federal Energy Regulatory Commission.

“We are literally fighting for our lives, trying to ensure that our children can breathe clean air and drink clean water,” she said.

“Dont Mess With Our Economy”

In Port Neches, however, speaking out against the petrochemical industry is sometimes viewed as civic betrayal. While a number of residents were happy to meet and share their stories with Hunterbrook for this article, others pushed back and defended Indorama vigorously.

“Ms New York, dont mess with our economy,” one resident wrote under a Hunterbrook reporter’s post on Facebook. “Somebody will run you out of town,” another wrote. “Go back to NY,” a third person commented under another Facebook query.

When a reporter knocked on the doors of homes near Indorama’s plant to talk about living in such close proximity to the facility, one resident threatened to call the police.

For many locals, raising concerns about Indorama isn’t simply about pollution or health risks; it’s about threatening the foundation of a city whose identity and livelihood are tied to the plant.

“It is the main economy,” Timothy’s mother said.

As an ICU nurse, Timothy’s livelihood doesn’t depend on Indorama. He dreams often of leaving Texas — of finding a place where the environment isn’t a daily hazard.

But for now, he stays for her.

He turned to his mother, the smell of the plant hanging thick outside.

“Do you know how nice it would be to wake up to clean air in the morning?”

Authors

Till Daldrup joined Hunterbrook from The Wall Street Journal, where he focused on open-source investigations and content verification. In 2023, he was part of a team of reporters who won a Gerald Loeb Award for an investigation that revealed how Russia is stealing grain from occupied parts of Ukraine. He has an M.A. in Journalism from New York University and a B.S. in Social Sciences from University of Cologne. He’s also an alum of the Cologne School of Journalism (Kölner Journalistenschule). Till is based in New York.

Michelle Cera trained as a sociologist specializing in digital ethnography and pedagogy. She completed her Ph.D. in Sociology at New York University, building on her Bachelor of Arts degree with Highest Honors from the University of California, Berkeley. She has also served as a Workshop Coordinator at NYU’s Anthropology and Sociology Departments, fostering interdisciplinary collaboration and innovative research methodologies.

Evan Comen is currently the senior data editor at U.S. News & World Report, where he focuses on government rankings and accountability reporting. He has worked as a data journalist since 2015, covering climate change, urban economics, and public policy. Evan has a B.A. in economics from the University of North Carolina at Chapel Hill and is based in New York.

Editors

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a B.A. in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life. Sam is based in New York.

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a master’s in Chinese and Japanese History from the University of California at Berkeley.

Graphic

Dan DeLorenzo is a creative director with 25 years reporting news through visuals. Since first joining a newsroom graphics department in 2001, he has built teams at Bloomberg News, Bridgewater Associates, and the United Nations, and published groundbreaking visual journalism at The Wall Street Journal, Associated Press, The New York Times, and Business Insider. A passion for the craft has landed him at the helm of newsroom teams, on the ground in humanitarian emergencies, and at the epicenter of the world’s largest hedge fund. He runs DGFX Studio, a creative agency serving top organizations in media, finance, and civil society with data visualization, cartography, and strategic visual intelligence. He moonlights as a professional sailor working toward a USCG captain’s license and is a certified Pilates instructor.

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By: Sam Koppelman, Blake Spendley

Editor: Wendy Nardi

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short $BBAI at the time of publication. Positions may change at any time. See full disclosures on our website.

Five military branches just adopted an internal Pentagon AI product partnered with Google and OpenAI. Who lost out? BigBear, which had just spent the equivalent of over half its cash acquiring a military AI tool offering a very similar product. BigBear’s newly named CTO took to LinkedIn to call the Pentagon’s move “stupid, wasteful and moronic.”

“BREAKING NEWS! The Pentagon just announced they’re adding ChatGPT and Grok to GenAI.mil.

Sounds great right? WRONG.”

So says Nicolas M. Chaillan, who was named the Chief Technology Officer of BigBear.ai ($BBAI) after announcing he would sell the defense contractor his start-up, Ask Sage, for $250 million in November. Twenty nine days after BigBear’s acquisition was announced, the Pentagon launched a free alternative that seemingly does much of the same thing.

In a comment, Chaillan called the launch “beyond stupid, wasteful and moronic,” admonishing the Pentagon’s CTO for being “as technical as my dog.” The federal government is responsible for the majority of BigBear’s revenue.

The timing was, admittedly, tough for BigBear.

BigBear publicized the acquisition of Ask Sage on November 10 — agreeing to pay a quarter billion in cash for a generative AI platform tailored to the military. It was, apparently, BigBear’s largest-ever acquisition.

Just weeks later, on December 9, the Pentagon launched its competing platform, GenAI.mil — with Defense Secretary Pete Hegseth issuing a top-down mandate instructing all 3 million Department of Defense personnel to use it.

As of February 2, five out of six military branches have formally designated GenAI.mil as their enterprise AI platform, sidelining legacy tools that include Ask Sage, according to the military news outlet DefenseScoop.com. The sixth is the Coast Guard, which is piloting a separate product. The new GenAI.mil platform has allegedly already surpassed 1.1 million unique users.

Then, this week, the Pentagon announced it will add OpenAI’s ChatGPT to GenAI.mil, joining Google’s Gemini. xAI’s Grok is also reportedly in the mix. (Anthropic is, reportedly, hesitant to agree to the government’s “all lawful uses” clause.)

For BigBear.ai, this came at a difficult moment.

The company announced the Ask Sage deal alongside a third-quarter earnings report that showed revenue down 20%, margins compressing, and full-year guidance cut by as much as $40 million from its original outlook. But investors seemingly supported the Hail Mary acquisition, so the stock temporarily popped.

BigBear had essentially bet its future on Ask Sage, spending the equivalent of half the cash on its balance sheet to purchase Ask Sage at 10 times the startup’s 2025 annual recurring revenue.

“We look to our acquisition of Ask Sage to support accelerating our growth into 2026 and beyond,” said BigBear’s CEO, who highlighted Ask Sage’s over 100,000 government users.

The problem: At the time, it was not publicly known that the Pentagon itself would be releasing a competitor to Ask Sage, in partnership with some of the biggest companies in the world.

A month later, GenAI.mil reportedly already has about 11 times as many people on its platform. And Chaillan — Ask Sage founder, newly named BigBear CTO — is, apparently, Big Mad.

Chaillan has repeatedly posted about GenAI.mil on LinkedIn — lamenting that the platform did not integrate various models as effectively as Ask Sage.

“Over a million DoD personnel deserve better than a tabbed interface where they have to start from scratch every time they switch models,” he wrote.

“But hey, at least they’re moving. Just… in the wrong direction.”

One commenter replied: “LinkedIn needs to add a sad face emoji,” prompting another to lament: “and a scared astonished one.”

Chaillan’s response? “Indeed.”

A different commenter implied Chaillan — and, consequently, BigBear — was being punished for not bribing the administration.

“@Nicholas M. Chaillan you forgot to contribute to the new West Wing project is my guess.”

Chaillan didn’t reply to this comment — but he did like it.

Around this same time, Reddit observers pointed out that Chaillan appears to have removed BigBear from his LinkedIn job title. Asked for an explanation, BigBear declined to provide Hunterbrook with a comment. Nor did Chaillan himself, who ghosted a Hunterbrook reporter on LinkedIn, despite clearly being, ah, quite active (!) on the platform.

What BigBear.ai Bought — and Why

When BigBear.ai announced its agreement to acquire Ask Sage, the company framed the deal as transformational. CEO Kevin McAleenan called it an accelerant that would position BigBear.ai for “leadership in our core national security market.”

Chaillan — the former first chief software officer of the U.S. Air Force — founded Ask Sage in 2023. The startup built its brand around serving the defense AI market. The platform’s key selling points: It was branded as model-agnostic, running multiple large language models under the hood to cross-check answers. And it claimed to hold an authorization called FedRAMP High, plus an ability to handle DoD Impact Level 5, IL6, and Top Secret information.

The crown jewel was Ask Sage’s role in powering the Army Enterprise LLM Workspace, launched under a $49 million, five-year IDIQ contract. The Pentagon’s Chief Digital and Artificial Intelligence Office awarded Ask Sage an additional $10 million in June 2025 to expand the platform to combatant commands, the Joint Staff, and the Office of the Secretary of Defense.

Between the two contracts, it wasn’t much revenue — $60 million total over five years — but BigBear paid $250 million for Ask Sage anyway. And on paper, it wasn’t necessarily crazy: It looked like a floundering company making an expensive purchase to buy its way into a burgeoning defense tech growth vector.

Then, BigBear’s primary customer, the Pentagon, partnered directly with the LLM providers powering Ask Sage, including Google, to create what is essentially a competitor.

The Pentagon’s Internal Competitor

A month after BigBear.ai announced the Ask Sage deal, the Pentagon launched GenAI.mil, a centralized platform to deliver commercial AI models directly to the entire Department of War workforce.

“For the first time ever, by the end of this week, 3 million employees, warfighters, and contractors are going to have AI on their desktop, every single one,” Pentagon Chief Technology Officer Emil Michael — also known for threatening a journalist and her family as an exec at Uber — announced at the launch.

Defense Secretary Hegseth followed with a directive ordering personnel to “log in, learn it, and incorporate it into your workflows immediately.”

Google’s Gemini for Government was the first model to go live for handling sensitive but unclassified data. The Pentagon holds $200 million contracts with each of four frontier AI companies — Google, OpenAI, Anthropic, and xAI. On Monday, the Department formally announced its partnership with OpenAI to bring ChatGPT to GenAI.mil.

The adoption velocity has been impressive. Within two months, GenAI.mil hit 1.1 million unique users, according to DefenseScoop, and achieved what the Pentagon claims is 100% uptime since launch.

Five of Six Branches Using GenAI.mil

On February 2, DefenseScoop reported that five of six military branches had formally elevated GenAI.mil as their enterprise AI platform. The service-by-service breakdown of their reporting paints a stark picture of how quickly Ask Sage’s addressable market is eroding.

The Navy went furthest, with a spokesperson telling DefenseScoop that the sea service “has designated GenAI as the mandated platform for mission owners and all Department of the Navy users.” That word — mandated — is tough for any competing platform.

The Marine Corps officially designated GenAI.mil as its preferred LLM platform, authorized for all Marines, civilians, and contractors. The service’s AI lead called it “the first true enterprise solution for Marines to use generative AI.”

The Air Force sunset its homegrown NIPRGPT chatbot — which had over 700,000 users across the DoD — on December 31 in favor of GenAI.mil. Users were given just three weeks to transition. The Air Force and Space Force have both formally adopted GenAI.mil as their enterprise platform.

The Army declared itself an “AI-first” organization turning to GenAI.mil, though it has said it will not completely cut off access to preexisting AI tools — which includes the Ask Sage-powered Enterprise LLM Workspace.

The Coast Guard is apparently the sole holdout, developing its own prototype called “Ask Hamilton,” which does not have any apparent relationship with Ask Sage.

The military did not respond to Hunterbrook’s request for comment.

Ask Sage Hanging On

Ask Sage may retain some defensible territory — for now.

Its alleged authorization at Impact Level 6 and Top Secret gives it access to classified environments that GenAI.mil, limited to IL5 as of two months ago, cannot yet reach. And its “Ask Sage Edge” product purportedly serves disconnected, degraded, and intermittent environments — forward operating bases and maritime command centers where cloud-based platforms can’t operate.

The Army’s decision to maintain access to its existing AI tools, including the Ask Sage-powered Enterprise LLM Workspace, provides a near-term revenue backstop. The $49 million IDIQ contract runs for five years, and existing task orders don’t vanish overnight, though they, alone, don’t explain a $250 million valuation.

And Chaillan, for one, isn’t acting like all is well and good.

In a totally separate LinkedIn post, he accused the Air Force of retaliating against him: “A DISGRACE!”

The retaliation, he argued, was for publicly resigning from the Air Force in 2021 with a blistering public letter warning that the Pentagon was too slow to adopt new technology.

The irony: Four years later, the Pentagon moved fast enough to create an alternative to his product before the acquisition ink was dry.

Authors

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Blake Spendley joined Hunterbrook from the Center for Naval Analyses (CNA), where he led investigations as a Research Specialist for the Marine Corps and US Navy. He built and owns the leading open-source intelligence (OSINT) account on X/Twitter, called @OSINTTechnical (over 1 million followers), which also distributes Hunterbrook Media reporting. His OSINT research has been published in Bloomberg, the Wall Street Journal, and The Economist, among other top business outlets. He has a B.A. in Political Science from USC.

Editor

Wendy Nardi joined Hunterbrook after working as a developmental and copy editor for academic publishers, government agencies, Fortune 500 companies, and international scholars. She has been a researcher and writer for documentary series and a regular contributor to The Boston Globe. Her other publications range from magazine features to fiction in literary journals. She has an MA in Philosophy from Columbia University and a B.A. in English from the University of Virginia.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please contact ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work opportunities, and press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Blake Spendley, Sam Koppelman, Jenny Ahn, Andrew Ford

Editor: Jim Impoco

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short $UI and long a basket of comparable securities at the time of publication. Positions may change at any time. See full disclosures on our website. Our affiliate Hunterbrook Law is in conversations with litigation firms regarding potential private litigation.

The jury is out on whether Jeffrey Epstein was working with Russia. But they apparently shared a loyalty to the same wireless supplier: Ubiquiti.

Emails and photographs from the Epstein files reviewed by Hunterbrook Media reveal that Ubiquiti ($UI) equipment was integral to the communications and surveillance infrastructure on Epstein’s notorious private island, Little St. James, in the U.S. Virgin Islands.

Epstein appears to be part of a specific consumer class: bad actors who put a primacy on privacy and are drawn to Ubiquiti’s local control architecture. That seemingly includes the Russian military fighting in Ukraine, as Hunterbrook recently revealed in an investigation that has since reached millions.

Also apparently a Ubiquiti fan: Sean Combs, known as P. Diddy. This assumption is based on a Department of Justice image from a separate investigation depicting what Hunterbrook has identified as a Ubiquiti device photographed inches away from some of the “Mo Money Mo Problems” artist’s notorious collection of baby oil and sex toys.

Evidence of Ubiquiti’s role on Epstein’s island is starker, with photos pointing also to a surveillance system supported by Ubiquiti.

One photograph taken from the island by the FBI shows a box of what appears to be a UniFi Video G3 — Ubiquiti’s surveillance camera. Another photo of a storage area shows what appears to be the same camera — with Ubiquiti’s “U” logo on it — mounted near the ceiling. The FBI also seized a UniFi Video Recorder from the server rack, according to an FBI log of items collected from Little St. James.

The hardware visible in these photos goes beyond what would be needed for a simple island internet hookup. This is an enterprise-grade communications operation, according to Steven Burgess, a court-recognized expert on digital forensics. He reviewed six images of Ubiquiti equipment from the Epstein files.

“It’s more than you would need to bring the internet to it, but it’s probably not more than what you would need to coordinate several hundred devices,” Burgess told Hunterbrook, estimating the setup could support 800 to 1,000 devices — what one might expect for large gatherings or dignitaries traveling with security details.

As for what data may have been stored on the servers: “Anything and everything. Pictures, communications, emails, documents, whatever,” Burgess said. He said that there likely was a log of devices that interacted with Epstein’s Wi-Fi network, such that if a visitor were carrying a smartphone, that connection to the Wi-Fi would be recorded.

The documents show that the tech staff at Epstein’s island specifically sought out Ubiquiti products for Wi-Fi coverage, network switching, and security camera systems beginning in late 2017 and continuing through at least 2019, the year Epstein was arrested on federal sex trafficking charges.

The paper trail apparently began in December 2017, when Jermaine Ruan, who seemingly worked for Epstein on the island property known as “LSJ,” said he reached out to Ubiquiti for a quote.

“I have approach Ubiquiti network solutions … to quote me their recommendation for equipment for the wifi,” Ruan wrote in a December 28, 2017, email to Epstein.

The email thread reveals an island struggling with significant infrastructure challenges: “Areas that don’t have internet due to fiber damage … will be set up with a wireless bridge to bring them back online.”

By January 2018, Ruan was compiling detailed procurement lists for network equipment. In response, Epstein wrote, “order today,” referring to an email list labeled “LSJ AMAZON LIST” that included multiple Ubiquiti products.

The installation appears to have continued through March 2019. “I will be scheduling myself to be on LSJ from Wednesday to Friday … to install, configure, and setup the new incoming equipment to the island,” Liston Thomas, a tech contractor, wrote in a March 15, 2019, email. Further back in the email chain is a UPS delivery confirmation on the same day from Ubiquiti to Jeffrey Epstein.

Privacy Primacy: Why Not Google?

Perhaps unsurprisingly, the preference for Ubiquiti may have been driven by a need for privacy and local control. When discussing home Wi-Fi options for a separate property in Connecticut in July 2018, a technology consultant named James Ce explicitly warned against Google’s mesh Wi-Fi products.

“Software wise, it’s even worse,” Ce wrote of Google Wi-Fi in a July 20, 2018, email. “Google manages the configuration of the routers and the traffic on their servers remotely. Besides the privacy nightmare scenario there — they literally can use every site you visit to build profiles of you — if their servers go down, so does your internet.”

Ce instead recommended Ubiquiti’s consumer mesh product: “The Ubiquiti Labs Amplifi HD wireless mesh system should be perfect for your home.”

Unanswered Questions

Hunterbrook found no evidence Ubiquiti knew about the end use of its equipment on Epstein’s island. The company’s products are widely used in commercial and residential deployments. Other than the UPS confirmation on a delivery from Ubiquiti, there is no indication the company had knowledge of its recording devices being used by a sex offender. (Which, you know, was probably kind of the point!)

The documents don’t reveal what specific footage was captured by the camera systems, but they indicate that the storage devices themselves have been seized by the DOJ as potential evidence.

Ubiquiti did not respond to multiple requests for comment.

Authors

Blake Spendley joined Hunterbrook from the Center for Naval Analyses (CNA), where he led investigations as a Research Specialist for the Marine Corps and US Navy. He built and owns the leading open-source intelligence (OSINT) account on X/Twitter, called @OSINTTechnical (over 1 million followers), which also distributes Hunterbrook Media reporting. His OSINT research has been published in Bloomberg, the Wall Street Journal, and The Economist, among other top business outlets. He has a B.A. in Political Science from USC.

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a B.A. in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Jenny Ahn joined Hunterbrook after serving many years as a senior analyst in the US government. She is a seasoned geopolitical expert with a particular focus on the Asia-Pacific and has diverse overseas experience. She has an M.A. in International Affairs from Yale and a B.S. in International Relations from Stanford. Jenny is based in Virginia.

Andrew Ford is an investigative journalist who exposed systemic flaws and prompted reforms in healthcare, business, policing, and state government. His reporting was published by ProPublica, USA Today, The Arizona Republic, Asbury Park Press, and Florida Today. He holds a journalism bachelor’s from the University of Florida and is based in Phoenix, Arizona.

Editor

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a master’s in Chinese and Japanese History from the University of California at Berkeley.

Graphic

Dan DeLorenzo is a creative director with 25 years reporting news through visuals. Since first joining a newsroom graphics department in 2001, he has built teams at Bloomberg News, Bridgewater Associates, and the United Nations, and published groundbreaking visual journalism at The Wall Street Journal, Associated Press, The New York Times, and Business Insider. A passion for the craft has landed him at the helm of newsroom teams, on the ground in humanitarian emergencies, and at the epicenter of the world’s largest hedge fund. He runs DGFX Studio, a creative agency serving top organizations in media, finance, and civil society with data visualization, cartography, and strategic visual intelligence. He moonlights as a professional sailor working toward a USCG captain’s license and is a certified Pilates instructor.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please contact ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work opportunities, and press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Sam Koppelman, Till Daldrup

Editor: Wendy Nardi

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short $SOC at the time of publication. Positions may change at any time. See full disclosures on our website.

This morning, Sable Offshore ($SOC) disclosed that it had received subpoenas from both the U.S. Attorney’s Office for the Southern District of New York (SDNY) and the Securities and Exchange Commission (SEC).

The disclosure — buried in a prospectus dated February 2 for a $250 million stock offering — confirms the Exxon spinout is now facing federal scrutiny over “issues raised in an October 31, 2025 report by Hunterbrook Media.”

The Hunterbrook investigation revealed apparent incidents of potential selective disclosure of material information to certain investors including the legendary lefty golfer Phil Mickelson, among other issues at Sable.

Sable announced in November that members of its board had formed a special committee to independently investigate the claims made in the Hunterbrook investigation — and now says it is “providing documents and cooperating with the Government Requests.”

“If the SEC or SDNY were to conclude that an enforcement action is appropriate, the SEC could impose civil penalties and fines, and other sanctions against us or against our current and former officers and directors,” the company wrote. “The SDNY could impose criminal penalties.”

Sable has been seeking to relaunch an idled pipeline that runs through Santa Barbara, California. The relaunch has become the focus of civil and criminal charges, as well as a flashpoint between the Trump administration and the California attorney general. You can read Hunterbrook’s update on Sable from January here.

Sable’s prospectus revealed the company had about $98 million in cash as of the end of 2025, after conducting a separate offering in November.

Sable could not be reached for comment by time of publication.

Authors

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Till Daldrup joined Hunterbrook from The Wall Street Journal, where he focused on open-source investigations and content verification. In 2023, he was part of a team of reporters who won a Gerald Loeb Award for an investigation that revealed how Russia is stealing grain from occupied parts of Ukraine. He has an M.A. in Journalism from New York University and a B.S. in Social Sciences from University of Cologne. He’s also an alum of the Cologne School of Journalism (Kölner Journalistenschule).

Editor

Wendy Nardi joined Hunterbrook after working as a developmental and copy editor for academic publishers, government agencies, Fortune 500 companies, and international scholars. She has been a researcher and writer for documentary series and a regular contributor to The Boston Globe. Her other publications range from magazine features to fiction in literary journals. She has an MA in Philosophy from Columbia University and a BA in English from the University of Virginia.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please email ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work, or press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Sam Koppelman

Editor: Wendy Nardi

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short $RR and long a basket of comparable securities at the time of publication. Positions may change at any time. See full disclosures on our website.

After Richtech ($RR) stock added more than $370 million in market cap on the announcement of a “collaboration” Tuesday, the company announced a dilutive fundraise the next morning. Microsoft tells Hunterbrook Media the engagement was a “standard” customer program with “no commercial element.” This comes after Richtech missed its 10-K deadline, hampering its ability to raise money through at-the-market offerings.

Beep, boop, fraud?

Shares of Richtech Robotics ($RR) surged more than 40% on Tuesday after the company announced a “collaboration” with Microsoft through the tech giant’s AI Co-Innovation Labs. On the back of that pump, the following morning, Richtech announced a $38 million dilutive fundraise.

But Microsoft tells Hunterbrook Media that Richtech is just a customer.

“Richtech participated in an AI Co-Innovation Lab engagement, which is a standard customer engagement focused on exploring and prototyping AI solutions using Microsoft technologies,” a Microsoft representative told Hunterbrook. “There is no commercial element in this lab engagement.”

Specifically, Richtech appears to have participated in a program Microsoft describes on its website as being available to “any customers/partners looking to implement Microsoft’s AI tools,” including “startups.” (You can apply right here — and who knows, maybe you, too, can add $370 million in market cap to your name! Expect a response in “3-5 business days.”)

This strikes a very different tone from Richtech’s press release, which cited a “close collaboration” between Richtech and Microsoft.

“By working closely with the Microsoft AI Co-Innovation Labs, our teams were able to jointly develop and deploy intelligent capabilities that strengthen reliability, enhance customer interactions, and support scalable automation across physical environments,” said Wayne Huang, founder and CEO of Richtech Robotics.

The market, at least, seemed to think this implied a meaningful relationship between the two companies — the day of the announcement, $RR saw its steepest daily percentage increase in market cap in over a year. But based on Microsoft’s statement to Hunterbrook, no material partnership appears to exist.

And to the extent Richtech actually achieved anything with this press release, its signature accomplishment appears to have been convincing the market that an ordinary, complimentary customer training session amounted to some kind of partnership. (Sherwood News, owned by Robinhood: “Richtech Robotics soars after announcing partnership with Microsoft.” Benzinga: “Richtech Robotics Stock Surges On Microsoft AI Partnership.” And so on.)

In reality, Microsoft’s AI Co-Innovation Labs are described on the company’s website as offering “one-week long complimentary, personalized development sprints for engineering teams.” In other words, the “collaboration” Richtech announced appears to be participation in a free prototyping program available to Microsoft customers — not a commercial partnership.

In response to a request for comment, Richtech directed Hunterbrook to its delayed 10-K, filed over a week prior to this press release, in which the company disclosed that it had entered a “non-commercial technology collaboration” with Microsoft. When Hunterbrook followed up to ask why Richtech didn’t specify the relationship was “non-commercial” in its press release, the company did not reply.

Richtech has been under scrutiny for months.

In September 2025, short seller Capybara Research published a report labeling Richtech a “China Hustle” and opining that it was “riddled with fraud” and “uninvestable.” The report alleged a range of misconduct including insider self-dealing, ties to individuals under active DOJ prosecution and SEC investigation, fabricated enterprise partnerships, and claims that the company simply rebrands off-the-shelf Chinese robots and resells them at massive markups. Capybara also cited a lawsuit from a former partner alleging Richtech’s robots were “defective and could not operate as promised.”

Richtech did not publicly respond to the report.

Missed SEC Deadline Raises Questions

The Microsoft announcement came just one week after Richtech finally filed its delayed 10-K with the SEC on January 20, 2026, even missing its extended deadline.

Richtech’s fiscal year ended September 30, 2025. As a smaller reporting company, it had until December 29 to file its annual report. Instead, the company filed an NT 10-K (notification of late filing), claiming “additional time is needed to finalize the financial statements.” That extension seemingly granted Richtech until January 13 to file. The deadline came and went with no filing.

Failing to file timely reports, as required by Nasdaq Listing Rule 5250(c)(1), triggers an automatic deficiency notice. Once Nasdaq’s Listings Qualifications Department issues that notice — which may already have happened behind closed doors — Richtech has just four business days to publicly disclose its deficiency notice via an 8-K filing.

A review of Richtech’s SEC filings shows no such 8-K was filed between the January 13 deadline and the January 20 10-K filing. Did Richtech receive a deficiency notice and fail to disclose it? Richtech did not answer this question in its reply to Hunterbrook’s request for comment.

The Morning After: Richtech Raises $38.7 Million in Private Offering — Taking Advantage of Stock Pump for Liquidity

Even without the fraud allegations, Richtech’s numbers are bleak.

The 10-K filing included Richtech’s financial figures, which reveal a cash-burning machine. Fiscal year 2025 revenue totaled $5.045 million, with a net loss of $15.754 million — nearly double the prior year’s $8.14 million loss. After the Microsoft announcement, the company now has a market capitalization of more than $1 billion.

Without substantial revenue, to fund its operations, Richtech has repeatedly diluted shareholders by raising money through the issuance of new shares. But missing its 10-K filing deadline limited its options to secure more cash.

To use the Form S-3 process — the streamlined registration that enables fundraising approaches like shelf offerings and ATM programs — companies must have filed all required SEC reports on time for the preceding 12 months. SEC Rule 12b-25 allows a 15-day grace period for late filers, during which the filing is “deemed” timely. Richtech missed that deadline. The 10-K officially became delinquent, and barring some departure from standard policy, the company should have lost S-3 eligibility.

That means Richtech cannot tap its shelf registration or ATM program until it has 12 consecutive months of timely filings — so the earliest it could regain eligibility is January 2027. For a company burning over $20 million a year on $5 million in revenue, losing easy access to capital markets may be an existential problem.

So Richtech found another way to raise money.

On Wednesday morning — one day after the Microsoft announcement sent shares soaring — Richtech announced a $38.7 million private placement, selling millions of shares to an institutional investor “priced at the market under Nasdaq rules.” Unlike ATM offerings, private placements under Regulation D don’t require S-3 eligibility.

The timing could be problematic. Under Nasdaq rules, the “Minimum Price” for a private placement is the lower of the closing price or trailing five-day average immediately preceding the signing of the binding agreement. We don’t yet know when the agreement was signed — that will be disclosed in the 8-K filing.

If the deal was signed after Monday’s 44% surge, part of the pump would be baked into the Minimum Price calculation, allowing the company to raise capital at a higher price than would have been possible days earlier, while the investor would still be able to buy Richtech stock meaningfully below market price.

But if the deal was signed before the Microsoft announcement, it’s even more striking: The institutional investor locked in shares at a price based on the pre-pump stock, and then the very next day, a “collaboration” announcement sent the stock soaring — meaning the institution is now sitting on immediate paper gains while retail investors bought in at the top.

The playbook, in other words, seems to be: Miss your 10-K deadline, limiting your ability to fundraise; announce a “close collaboration” that in reality appears to be a one-week program open to just about anybody; watch the stock surge 44%; then disclose a private placement the next morning, allowing institutional investors to buy shares at a cheaper price than retail.

We may never know what Richtech learned about software engineering at the Microsoft Innovation Lab. But what seems clear is these guys could teach a course of their own on financial engineering.

Author

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life. Sam is based in New York City.

Editor

Wendy Nardi joined Hunterbrook after working as a developmental and copy editor for academic publishers, government agencies, Fortune 500 companies, and international scholars. She has been a researcher and writer for documentary series and a regular contributor to The Boston Globe. Her other publications range from magazine features to fiction in literary journals. She has an MA in Philosophy from Columbia University and a BA in English from the University of Virginia.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please email ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work, or press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Jenny Ahn, Blake Spendley, Andrew Ford, Till Daldrup, Michelle Cera

Editor: Jim Impoco, Sam Koppelman, Wendy Nardi

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short $UI and long a basket of comparable securities at the time of publication. Positions may change at any time. See full disclosures on our website. Our affiliate Hunterbrook Law is in conversations with litigation firms regarding potential private litigation on behalf of Ukrainians impacted.

• Ubiquiti radio bridge antennae serve a critical communications need for the Russian military in Ukraine, including for drone operations, according to our investigation. A Ukrainian communications officer estimated 80% of Russian radio bridges they’d observed on the battlefield were made by Ubiquiti. “Ubiquiti is made for regular people — basically plug-and-play. Tons of tutorials on YouTube,” the officer explained. “There is no alternative,” a Russian vendor told Hunterbrook. The U.N. has called Russia’s drone attacks against civilians crimes against humanity.

• Hunterbrook identified at least nine Russian military units accused of war crimes, or individuals associated with those units, that use Ubiquiti equipment in Ukraine, based on a review of Telegram posts and open-source materials. One fundraising group that said it had donated Ubiquiti antennae to Russian forces is run by a terrorist convicted of the 2015 bombing of a Ukrainian government building.

• Hunterbrook tested how easily export-banned Ubiquiti equipment could reach Russian forces. Posing as a Russian military procurement officer, a reporter contacted Russian vendors and multiple official Ubiquiti distributors worldwide. Nearly a dozen agreed to sell export-banned equipment. One vendor even shared thank-you letters they said were for providing Ubiquiti equipment to the Russian military. Official distributors, including U.S.-based Multilink Solutions, agreed to ship to third countries like Turkey for pickup even after the customer identified as being based in Russia — a known sanctions evasion tactic flagged by U.S. authorities.

• The total value of Ubiquiti shipments crossing the border into Russia surged 66% after the invasion despite U.S. and EU sanctions and export controls, according to Hunterbrook’s analysis of trade records. Shipments include the latest Ubiquiti models released after the ban, suggesting ongoing access to the company’s supply chain.

• Official Ubiquiti distributors appear to have continued supplying Russia after the invasion, sometimes rerouting shipments through intermediaries in high-diversion-risk countries like Turkey and Kazakhstan, trade records show. Some appear to have used intermediaries later sanctioned by the U.S. for export control evasions.

• Russian vendors use Ubiquiti’s trademarked name and logos despite Russian intellectual property laws that would allow quick takedowns and potential criminal prosecution for infringers. In 2025, Ubiquiti filed to protect its stylized “U” logo in Russia with the Russian federal intellectual property agency — and won — but took no apparent action against these Russian vendors.

• Ubiquiti’s global distribution network is riddled with compliance red flags beyond Russia. In Paraguay, the founder and president of Flytec Computers — once responsible for 13% of Ubiquiti’s revenues — has been accused of smuggling, massive tax evasion, and money laundering in Brazil, and of involvement with the illegal housing of a large-scale bitcoin mining operation. In Mexico, Ubiquiti distributor SYSCOM was quietly acquired in 2021 by Hikvision, a Chinese state-owned company the U.S. designated that same year as part of China’s military-industrial complex.

• More than a decade after Ubiquiti was fined for “reckless disregard” for sanctions obligations when its products ended up in Iran, Hunterbrook found Ubiquiti products may be still flowing there. A current official distributor listed on Ubiquiti’s website, Yemen-based Alfa Tech, may be operating branches in Shiraz and Tehran, according to its own Persian-language advertisements. In 2014, U.S. regulators fined Ubiquiti after at least $589,000 worth of prohibited equipment was diverted to sanctioned Iranian entities. CEO Robert Pera told Forbes at the time, “It can’t happen again. If it does, I’ll be in a lot of trouble.”

• Ubiquiti openly admits “we do not have any visibility” over purchases from its distributors, but legal experts told Hunterbrook that’s not a viable defense. U.S. export controls and sanctions operate on a strict liability basis — meaning, even unwitting violations are still violations. “Ignorance is not really a practical excuse, or rather, a legal excuse,” a former senior State Department sanctions official told Hunterbrook. A sanctions compliance lawyer added, “You, doing very little effort, were able to determine that it’s available for purchase by the Russian armed forces. … The company’s compliance team should be taking additional steps to prevent that.”

• Industry experts told Hunterbrook that Ubiquiti likely has the technical means to trace products appearing inside Russia — and may already be doing so. As of September 2025, Ubiquiti appeared to have placed an IP-based ban on firmware updates for Russian users, based on complaints on a Russian forum, suggesting the company can identify device locations. Experts said Ubiquiti could even trace specific hardware back to the original distributor through serial numbers and MAC addresses. Ubiquiti shut down a user forum discussion raising concerns about its Russia business with the message, “Your post violates community guidelines.”

• Ubiquiti did not respond to repeated requests for comment.

Read the full version of our investigation on our website, where you will find eye-opening photos and graphics, as well as footnotes outlining our methodology.

A Russian soldier climbs a tower, carrying an antenna, a recent Russian newsclip shows. On the antenna is the logo of Ubiquiti ($UI), a $34 billion American tech company.

In the segment, a Russian signalman describes the importance of their job: “A break in communications means total loss of control over combat operations.”

The reporter agrees, “No communication, no front.”

Around the world, Ubiquiti’s products are so popular, they made its CEO the youngest owner of an NBA team, the Memphis Grizzlies, in 2012.

And Hunterbrook has thank-you letters supplied by a Russian Ubiquiti vendor in which members of the Russian military express their gratitude for the technology.

A monthslong Hunterbrook Media investigation found that Ubiquiti radio bridge antennae — devices used to extend Wi-Fi signals across long distances — serve a critical communications need of the Russian military, including in drone operations. The U.N. has called Russia’s drone attacks against civilians crimes against humanity. There is no adequate alternative to Ubiquiti, multiple sources, including soldiers on active duty in the war zone, told Hunterbrook.

Despite U.S. sanctions and export controls designed to keep them out of Russian hands, Ubiquiti products appear readily available. A Hunterbrook reporter, posing as a Russian army procurement officer, found nearly a dozen Russian stores standing ready to supply Russian combat troops with Ubiquiti equipment. Hunterbrook also found numerous social media posts by Russian fundraising groups and military officials seeking or reporting on Ubiquiti donations to various military units fighting in Ukraine, including some units accused of war crimes.

Enabling the supply chain is Ubiquiti’s dense network of distributors, despite layers of sanctions and export controls designed to prevent those flows.

Ubiquiti did not respond to Hunterbrook’s repeated requests for comment — but the company has said in the past that it doesn’t know where its products end up. Experts told Hunterbrook that’s no excuse.

There Is No Alternative

The newsclip was shared with a Hunterbrook reporter — posing as a Russian officer seeking to purchase Ubiquiti equipment for the Russian military — by Nina Kuznetsova. Kuznetsova has multiple Russian storefronts with domain names like ubiquiti.ru that openly sell Ubiquiti products banned from export to Russia since the war.

A representative at Kuznetsova’s store also shared thank-you letters they said were for providing Ubiquiti equipment to the Russian military.

“Radio bridges are necessary to provide wireless connection over long distances and to provide high-quality communication in hard-to-reach areas,” one letter said.

Another thanked Kuznetsova for the radio bridges “sent to the combat zone.”

Ubiquiti was founded in 2005 with a focus on “democratizing network technology on a global scale.” Its revolutionary idea — offering affordable, easy-to-use, high-quality networking equipment with local control and privacy — helped Ubiquiti spread internet connectivity to remote areas around the globe.

But that same model appears also to have made Ubiquiti the equipment of choice for the Russian military’s frontline communication needs, Hunterbrook Media found.

“There are no stable, inexpensive alternatives to this manufacturer,” said a message forwarded from Kuznetsova by her staff. “95 percent of the shipments for the SVO are Ubiquiti gear,” one of her representatives chimed in. “SVO” is an acronym for “special military operation,” the Russian euphemism for the war against Ukraine.

Ukrainian sources echoed those claims.

“They simply have no alternative,” a Ukrainian communications officer who uses the call-name Django told Hunterbrook in an interview from the war zone.

Django estimated about 80% of Russian radio bridges observed on the front line are Ubiquiti, adding he has yet to spot rival products like Mikrotik’s.1 Radio bridges are antenna-based devices that wirelessly connect two distant locations so they can share the same internet or data network.

“Ubiquiti is made for regular people — basically plug-and-play. Tons of tutorials on YouTube,” he explained. Competitor brands, like Starlink, can be disabled remotely or, like Mikrotik, are difficult to use, another Ukrainian signalman told Hunterbrook.

Hunterbrook discovered numerous Telegram posts showing aerial footage of Russian bridge antennae identified by Ukrainian experts as Ubiquiti’s on the battlefield. In one Ukrainian drone video obtained by Hunterbrook, a church steeple is seen housing over a dozen antennae with features consistent with Ubiquiti radio bridges.2

A post by Serhii “Flash” on June 19, 2024, on his Telegram channel showing what appears to be drone footage of an antenna, next to a photo of a Ubiquiti PowerBeam. “We are recording the appearance of such antennas in all directions,” the post says (translation by Hunterbrook). Source: Telegram

The Russian war effort is heavily crowdfunded, according to multiple reports, and troops frequently post on social media requesting or expressing thanks for donated gear like Ubiquiti’s intended for Russian troops on the war front — including specifically for drone operations.

“We thank the people’s militia assistance group for providing communications equipment in the form of Ubiquiti antennae,” a soldier said in a video posted on Telegram. “Reliable communications are the key to success. The enemy will be defeated — victory will be ours.”

A September 15, 2024 Telegram post by the LPR People’s Militia Assistance Group showing a photo of a drone and communication devices, including Ubiquiti bridge radios, that the group called “a parcel for the team’s UAV operators.” Source: Telegram

Nine of the military units that received Ubiquiti gear, or individuals associated with those units, have been accused in various news outlets of having committed war crimes, Hunterbrook found.

In a recent Telegram post, “Ghost_of_Novorossia” — a fundraising group run by a terrorist convicted for organizing the 2015 bombing of a Ukrainian government building — claimed to have donated Ubiquiti antennae to the 76th Guards Air Assault Division. This division was accused of looting villages in Kherson Oblast and massacring civilians in Bucha in 2022.

Among the Russian communication needs they serve, Ubiquiti’s radio bridges provide communication links to pilot drones, transmit live video, and find targets, Django said. Hunterbrook also found Russian social media posts, such as this one, indicating Ubiquiti antennae serve as a communications backbone for drones.

The cost of this connectivity can be measured in blood.

Russian drones, including “kamikaze” drones that carry explosives and are designed to crash into a target, now account for 60%-70% of casualties on the battlefield, The New York Times reported. In some areas, the drones intentionally hunt and kill Ukrainian citizens to spread terror, according to Human Rights Watch. The U.N. Independent International Commission of Inquiry on Ukraine recently called these acts crimes against humanity and war crimes.

When asked, Django agreed that there would be fewer casualties if it weren’t for Ubiquiti antennae.

“If their supply is disrupted, I believe that coordination between intelligence and FPV operators will be disrupted, and thus there will be fewer sorties and fewer casualties, both among the military and the civilian population,” he said. FPV, or first-person view, refers to drones that allow pilots to see through the drone’s camera in real time.

In Kherson, a Ukrainian city bordering occupied Crimea, drone attacks on residents have been so frequent, they’ve earned the gruesome moniker “human safari,” according to the Ukrainian monitoring group Tochnyi. “5364 civilians hit” by Russian drones since December 2023, the group said.3

And one of the largest Russian units that has been deployed to Kherson — Russia’s 18th Combined Arms Army — had, as of October 2025, received Ubiquiti bridge antennae from a Russian fundraising group, Hunterbrook found. The Telegram group going by the name “Brotherly Aid” posted in October that it had sent two Ubiquiti antennae to the “Kherson communications team” — a reference to the 18th CAA. In a separate post, the group claimed it had “repeatedly assisted” the 18th CAA in the past.

“They just mercilessly shell this poor city and poor people,” Oleksandra Ishchenko, a former resident of Kherson, told Hunterbrook. Ishchenko said she hasn’t been back to her hometown in years but hears of the drone attacks from family and friends who remain there.

“No one is protected from this.”

Ubiquiti’s Tolerance of Its Impersonators

In October 2025, Hunterbrook went undercover to test how hard it would be to obtain Ubiquiti equipment on the Russian market. Posing as a Russian military officer procuring goods for the Russian troops fighting in Ukraine, a Hunterbrook reporter contacted over a dozen Russian e-commerce sites like Kuznetsova’s openly selling Ubiquiti items in Russia.

Many of the Russian Ubiquiti vendors — including ubiquiti.ru, ubnt.ru, ubiquiti-russia.com, ru-ubiquiti.ru — have “Ubiquiti” in their domain name. Their sites look like official Ubiquiti outlets, and some brandish the Ubiquiti name, logos, product images, and styling. Ubiquiti technical resources are sometimes virtually identical (see here and here). Some of these vendors even claim to be Ubiquiti’s “official” distributor in Russia.

Certain vendors, Hunterbrook found, are suppliers to sanctioned entities. According to Russian government procurement records, UbiRussia.ru, for example, is a supplier to the Moscow Power Engineering Institute, subject to U.S. sanctions for its reported ties to the Russian military’s missile program.

At least one vendor is itself sanctioned. According to a privacy disclosure on its website, ubiquiti-Russia.com belongs to a company named Elecom, which was sanctioned by the U.S. in 2024 for conveying restricted electronics into Russia.

Hunterbrook gave each shop the same proposition: Our military unit needs Ubiquiti equipment for operations in occupied Ukrainian territories.

The reporter asked for popular Ubiquiti wireless bridges — items like Ubiquiti’s airMax PowerBeam and airMax NanoStation.

The items are classified by U.S. export authorities as sensitive dual-use goods requiring a license for export to most countries under normal circumstances.4 Immediately following Russia’s invasion, however, the U.S. effectively placed a blanket ban on their export to Russia, labeling them as high-priority tech items that Russia needs for its “brutal attack on Ukraine.5” Moreover, U.S. sanctions laws prohibit U.S. companies from sales of any kind to Russian-occupied territories in Crimea, Donetsk, and Luhansk.

Nearly a dozen Russian dealers confirmed our shopping list and promised to deliver the items to military units in the occupied territories.

One vendor, Comptek, had a condition, however: a minimum order of at least $100,000.

Why?

“You want sanctioned equipment. We carry orders starting at $100,000,” a company representative said.

When asked, two of the vendors told Hunterbrook that they no longer have an official relationship with Ubiquiti, and that they receive their products through “parallel import” — a term to describe sourcing goods outside authorized distribution channels, often to bypass Western export controls.

But the exact nature of their ongoing relationship is murkier. Unlike its competitors Cisco, Fortinet, Siemens, and HPE/Aruba, Ubiquiti did not announce it would leave Russia after the 2022 invasion. Ubiquiti’s website no longer contains a list of its official distributors and resellers in Russia and Belarus, but an archived snapshot of the site taken in 2014 shows a long list of historic Russian distributors, many of which still operate and sell Ubiquiti products in Russia.6

And aside from tweaking its website, Ubiquiti appears to have done little to distance itself from its former Russian partners that continue to claim ties to the company.

Ubiquiti’s intellectual property policy explicitly bans its distributors from using its trademarked names and logo without written authorization. Russia’s IP protection laws should allow Ubiquiti to take down sites bearing its domain name, with infringers facing potential civil, administrative, and criminal prosecution. In fact, in 2025, Ubiquiti moved to further secure its stylized “U” logo in Russia, filing a patent application with Russian federal intellectual property agency Rospatent, and won.

And yet, the Russian websites containing imitation Ubiquiti logos were up and running as of publication. That includes ubiquiti.ru — whose proprietor is not exactly trying to hide what she is doing. Kuznetsova resides in an apartment on the iconic Leninsky Avenue in Moscow, according to a Hunterbrook review of Russian business records. Her business partner — and based on their names, presumably her son — Andrey Kuznetsov has spent the last few years frequently traveling across Europe and Asia, even posting about about it on social media.

Charting Ubiquiti Supply Routes to Russia

Amid the layers of sanctions and export controls, how is Russia getting its hands on Ubiquiti gear?

To find out, Hunterbrook also reached out to dozens of official Ubiquiti distributors — third-party global partners contracted to market and distribute Ubiquiti goods on its behalf. Ubiquiti relies heavily on nearly 600 third-party distributors and resellers worldwide rather than internal sales teams for marketing and distribution.7

Posing as a Russian customer, a Hunterbrook reporter asked them for Ubiquiti bridge antennae.

One company, ITsupport, based in Armenia, agreed to ship the U.S.-export-controlled items directly to Moscow. Two companies refused to sell at all, consistent with U.S. export policies on Russia.

Most of the others that responded refused to ship the goods directly to Russia, but agreed to deliver them to an address in their own country or to a third country for pickup — sometimes after having heard the end user was the Russian military fighting against Ukraine.

That practice — known as “transshipment” — struck close to home when a U.S. company, Multilink Solutions, agreed to ship 450 Ubiquiti devices after learning they were ultimately destined for Russia.

Initially, a Multilink representative said they could deliver the items directly to Russia.

Soon after, however, they followed up with a message that they couldn’t ship Ubiquiti devices to Russia, after all.

But they were able to work out a solution: a delivery address outside of Russia. After the reporter provided an address in Turkey, Multilink sent an invoice confirming the delivery was possible.

Multilink did not respond to Hunterbrook’s request for comment on these interactions, its compliance policies, and its relationship with Ubiquiti.

Routing products through intermediaries such as companies in third countries is a known diversion tactic, according to U.S. authorities.8

Yet, trade records suggest this is indeed how a lot of Ubiquiti products are ending up in Russia.9

After Ubiquiti halted direct shipments to Russia following the invasion, Ubiquiti products continued to flow into the country from dozens of intermediaries, according to Hunterbrook’s analysis of trade data.10

In fact, the total value of Ubiquiti shipments to Russia surged 66% after the invasion, even accounting for any spike in shipments immediately before Russia’s invasion, possibly as distributors rushed their shipments to Russia in anticipation of export bans.11

And that number may not capture the true scale of the transfer of Ubiquiti products, as some companies falsify or omit identifying information like the country of origin, brand, and volume or value of the shipments to hide their tracks. For example, nearly $4 million of Ubiquiti shipments recorded after the U.S. export ban lacked the shipper’s name.

The items shipped include the latest models of Ubiquiti devices that were released for the first time after the ban, suggesting ongoing access to Ubiquiti’s central warehouses by these networks.

Among the exporters that supplied Russia with Ubiquiti goods after the invasion are about half a dozen official Ubiquiti distributors, with little apparent effort to obfuscate their activity.

Others appear to have halted direct shipments to Russia after the invasion but rerouted their shipments to Russia through intermediaries in third countries like Turkey and Kazakhstan, Hunterbrook’s review of trade data suggests.

Sometimes, their intermediaries were caught by Western governments for sanctions and export controls evasions, confirming their transshipment tactics. At least 10 intermediaries in countries like Turkey, the UAE, and China that were identified in the trade data as exporting Ubiquiti products to Russia have since been sanctioned by the U.S., Hunterbrook found.

Discomp: Distributor Playbook for Keeping Ubiquiti Flowing Into Russia

A closer look at Discomp S.R.O., a longstanding Ubiquiti distributor based in the Czech Republic, illustrates these tactics, according to Hunterbrook’s analysis of trade data.

Discomp shipped $1.8 million worth of Ubiquiti goods to Ivan Ionov Vladimirovich, a Russian client and owner of IT equipment wholesaler WiFiMag, for more than two years after Russia’s invasion — and after Discomp disclosed a notice from Ubiquiti warning its distributors against selling its products to Russia.

WiFiMag was an official Ubiquiti reseller as of 2014 and still claims to be one on its website. When contacted by a Hunterbrook reporter posing as a Russian military end user, a WiFiMag sales representative confirmed the availability of Ubiquiti equipment.

By mid-2023, Discomp appeared finally to have stopped its direct shipments to the Russian client. But it found another way.

Later that year, Discomp appears to have begun rerouting its shipments through a Turkish company called Olimpik Gama. Russian customs records show, however, that those shipments were destined for the same Russian client, with Olimpik Gama merely serving as a freight forwarder.12

The shipments stopped in March 2024, shortly after Olimpik Gama was sanctioned by the U.S. Treasury Department for evading sanctions. Discomp then began using another Turkish company, Unico Tekstil, to continue its shipments to Russia.

Discomp’s apparent routing of shipments destined for its Russian customer through Turkish entities contrasts sharply with its disclosures to Czech regulators. In its 2024 financial statement, the company wrote that it had “coped with the consequences of geopolitical events in Russia and Ukraine” by managing to replace the losses in those markets with customers in other markets.

Discomp did not respond to Hunterbrook’s request for comment as of the time of publication.

Simple Solutions, Kazakhstan: Another Window into Distributors’ Transshipment Tactics

A closer look at Simple Solutions, an obscure IT company in Kazakhstan, provides another glimpse into how re-exporters in third countries may be obtaining Ubiquiti equipment from official distributors to supply the Russian market after the export ban.

Multiple clues point to Simple Solutions being a shell company with the sole job of facilitating transshipments to Russia.

Simple Solutions was founded on March 11, 2022, according to Kazakh corporate intelligence site kompra.kz, in a small town in northwest Kazakhstan 80 miles from the Russian border. Hunterbrook couldn’t find an active website or online customer-facing presence associated with Simple Solutions that would suggest a commercial operation in Kazakhstan; the contact email listed in Kazakhstan’s business registry uses mail.ru, a Russian-owned email service. The company appears to be registered at the same address as Wireless Communications13, a Kazakh IT company that describes itself as an authorized Ubiquiti reseller, according to its Instagram page.

Shortly after its founding, Simple Solutions began importing Ubiquiti products from three official Ubiquiti distributors — Latvia-based Getic, Poland-based Batna, and China-based Joint Harvest, trade records show.

During the same period, 100% of Simple Solutions’ outward shipments went to a Russian IT company called Wireless Networks.

Wireless Networks owns an e-commerce site, WMD.ru, which was also once Ubiquiti’s official distributor. A WMD representative agreed to sell Ubiquiti equipment for military units fighting in Ukraine, telling Hunterbrook that their “resellers work with foundations and volunteer organizations” — a likely reference to volunteer groups that organize donation drives for the military.

Wireless Networks is also a supplier to ru-ubiquiti.com, another Russian Ubiquiti reseller that confirmed with Hunterbrook that it has provided Ubiquiti equipment to Russian military units, including a strategic missile force academy.

Before the invasion, Wireless Networks had received the majority of its Ubiquiti shipments directly from Ubiquiti, with Euro DK, Getic’s former name, making up the rest — or about 25%.

Unlike Discomp, however, Getic immediately halted direct sales to Russia in 2022, according to trade records. A Getic sales representative contacted by an undercover Hunterbrook reporter also flatly refused to sell to a Hunterbrook reporter posing as a Russian customer, explaining that “in accordance with existing restrictions, our products cannot be sold or transferred — either directly or through intermediaries — to the Russian Federation.”

In email responses to Hunterbrook’s request for comment, Getic CEO Igor Dekteryov said the company complies with “all legal and regulatory requirements applicable to our professional activities” with “the utmost care and diligence,” and that the company considers the military use of its products “unacceptable.” Dekteryov told Hunterbrook that it conducted due diligence on Simple Solutions and found nothing alarming.14

Batna responded to Hunterbrook’s request for comment, saying it complies with applicable sanctions regimes with “utmost diligence,” including by making their customers aware of the obligation to comply with export bans. Joint Harvest did not respond to Hunterbrook’s request for comments as of the time of publication.

Under EU sanctions law, EU-distributors like Getic and Discomp are not allowed to ship even to third countries like Turkey and Kazakhstan if they have reason to believe diversion is likely. In 2023, the EU passed a series of anti-circumvention mechanisms to hold EU companies legally liable for such exports that end up in Russia.

Simple Solutions’ new role in the Ubiquiti network is just one example. Trade records show, for example, just one Turkish exporter shipping a total of just $195,416 worth of Ubiquiti goods into Russia in the 26 months before the U.S. export ban. In the same time period after the ban, those numbers jumped to 18 Turkish exporters shipping about $3 million worth of Ubiquiti product — over a 1,000% increase.

Similarly, there are no records of the export of Ubiquiti goods from Kazakhstan, the UAE, Hong Kong, or Kyrgyzstan before the ban in the trade data Hunterbrook reviewed — those shipments appear for the first time only after the ban (see Case Study below for another example of how Ubiquiti distributors are rerouting shipments to Russia).

Ignorance Is No Excuse

The permissive nature of Ubiquiti’s distribution ecosystem is no accident. Ubiquiti’s reliance on third-party distributors is part of the lean cost model that’s been credited as key to its impressive margins — and which helped fund founder and CEO Robert Pera’s reported $377 million purchase of the Memphis Grizzlies in 2012, allowing him to become the youngest owner of an NBA team at the time.

It’s also a model that limits Ubiquiti’s control over its distribution. The company openly told its investors in its latest annual SEC filing, “We do not have any visibility on the location or extent of purchases of our products by individual network operators and service providers from our distributors.”

But that’s not a defensible excuse for violating export control and sanctions laws against providing sensitive goods to prohibited end users, legal experts told Hunterbrook.

“Ignorance is not really a practical excuse, or rather, a legal excuse, in most circumstances,” Richard Nephew, senior research scholar at Columbia University, told Hunterbrook. Nephew has served as the principal deputy coordinator for sanctions policy at the State Department.

That’s because U.S. export controls and sanctions regimes apply “strict liability,” Nephew explained, echoing other experts who also emphasized this point.

“Even if you have no knowledge that you’ve engaged in a violation … it’s still a violation,” Trevor Schmitt, a sanctions compliance lawyer at Arnold and Porter, told Hunterbrook. Strict liability is a legal principle that holds a party responsible even when there is no clear indication of negligence or intent to cause harm.

Even just having had a reason to know, or willfully avoiding knowledge, could be grounds to hold a company liable, experts explained. U.S. export laws define “knowledge” broadly to include even an awareness of a high probability and willful avoidance of knowledge.15

That definition may be difficult for a $34 billion global IT company to argue its way around.

How Much Does — Or Should — Ubiquiti Know?

Ubiquiti claims “we do not have any visibility” over the distribution network. But in a 2014 earnings call, the CEO admitted it was able to monitor its channels, specifically to Russia.

“We know that there’s a couple other guys that more than likely move some products into Russia,” CEO Robert Pera said, referring to Ubiquiti’s distributors. Ubiquiti hasn’t held an earnings call since 2018.

And a company like Ubiquiti could have the technical means to trace its products appearing inside Russia — possibly even back to the specific distributors or resellers involved — according to three industry experts Hunterbrook interviewed.

As of September 2025, Ubiquiti appeared to have placed an IP-based ban on firmware updates, based on complaints on a Russian user forum, suggesting Ubiquiti is able to identify a product’s location and deny service if the product user seeks an update.16

IP-based blocking is an inexact science and unreliable as an enforcement tool, experts told Hunterbrook. Russian users posted messages on the forum identifying simple workarounds like using a VPN to mask their location when connecting to Ubiquiti’s servers.

But IP-based detection is possible, and virtually impossible for a company like Ubiquiti to miss, industry experts told Hunterbrook.17

Large companies monitor IP flows on their cloud backends and can identify when something happens in a restricted region, especially if the users don’t turn on a VPN, Jim Salter, a veteran network-infrastructure analyst and an IT magazine contributor, told Hunterbrook. “Yeah, that’s instantly going to light up,” he said. “It’s going to look like a flare going off.”

And even when a user is trying to mask it, companies have ways to approximate the true location, according to the CEO of a U.S. smart-home integration firm that extensively deploys Ubiquiti products.

“If they chose to go digging, you can usually see, hop-to-hop-to-hop, this isn’t really in London — this is probably originating closer to Russia,” the CEO said.

Ubiquiti could even identify the specific hardware pinging Ubiquiti’s servers and trace it back to the original shipper. “From the serial number or the MAC address, you’d be able to see what unit that is and who it was originally sold to,” Lennert Buytenhek, a Lithuania-based networking engineer and author, told Hunterbrook.

But instead of prodding its distributors, applying its channel analytics for compliance, and exercising its technical controls to identify prohibited end users in Russia, Ubiquiti seems to have looked the other way.

In a post criticizing Ubiquiti’s alleged “doing business in Russia” on its online user community, an administrator shut down the discussion with a line:

“Your post violates community guidelines.18”

Ubiquiti’s Famed Efficiency: At the Expense of Compliance, Lives Lost

If a company could, should, or does know of potential diversions, what should it do to take responsibility and demonstrate compliance?

Hunterbrook asked 10 legal and sanctions experts.

The expectation isn’t for a company to prevent every violation along its supply chain, but rather for it to demonstrate that it took reasonable measures to prevent such violations, experts told Hunterbrook. Companies “can’t possibly know where every one of their devices ends up,” Doug Jacobson, trade attorney and an associate professor at American University, told Hunterbrook.

That doesn’t mean companies are off the hook. “There is an affirmative obligation for the company to conduct due diligence on end users,” Schmitt told Hunterbrook.

Similarly, Nephew said: ”The U.S. has set a pretty high bar on you have to know your customer.”

While there are no hard and fast rules on what those due diligence standards and processes must look like, experts offered concrete examples of typical measures that regulators expect from large companies involved in high-risk areas, such as using AI-enhanced screening software for anything Russia related; requiring distributors to submit end-user statements; and conducting field visits to countries like Turkey.

Detailed guidance from the U.S. Treasury Department on effective sanctions compliance includes conducting due diligence on customers, the supply chain, and any intermediaries through a compliance team led by a dedicated compliance officer; written policies and procedures; routine training; and auditing.

An effective compliance system should detect — as Hunterbrook did — when distributors openly export prohibited products directly to Russia or through identifiable transshipment routes.

“The conclusion is,” Schmitt told Hunterbrook, “that you, doing very little effort, were able to determine that it’s available for purchase by the Russian armed forces. … The company’s compliance team should be taking additional steps to prevent that, and should be identifying distributors that are the bad actors here.”

It’s unclear if Ubiquiti has implemented any of these practices. Ubiquiti did not respond to multiple Hunterbrook requests for comment on detailed questions regarding its compliance practices.

Ubiquiti’s Questionable Compliance Culture

Ubiquiti says it’s committed to compliance. But none of the policy documents Hunterbrook found — not the company’s Code of Business Conduct, a 2022 warning to a distributor, a 2019 information sheet, “U.S. Export Controls on Ubiquiti Products,” or a 2015 guide to U.S. export controls — described concrete mechanisms to enforce that commitment.19

A former Ubiquiti employee who oversaw product distribution provided a concerning glimpse of the company’s compliance culture.

The source, requesting anonymity to protect his professional reputation, described the company’s compliance department as a one-man shop, without an automated system to monitor compliance and identify red flags.

“All those processes that you would see at a large scale business don’t really solve the problem,” the source said. “The CEO of Ubiquiti recognizes that and just doesn’t care about all of the extra garbage.”

Ubiquiti’s operating structure seems to reflect a lack of emphasis on compliance. With just 1,667 total employees, 71% of the workforce is dedicated to R&D, leaving just 480 employees to staff all other departments running Ubiquiti’s global sales and operations, including compliance. That’s for overseeing $2.6 billion annual sales and nearly 600 distributors and resellers worldwide.

Fast-Forward, Repeat: Ubiquiti’s Ongoing Compliance Problems Globally

Ubiquiti’s lean, R&D-focused model had no compliance program, U.S. authorities announced in 2014, leading to prohibited Ubiquiti equipment worth at least $589,000 to be diverted to Iranian entities from 2008 to 2011.

U.S. authorities slapped a relatively modest $504,225 fine on Ubiquiti for the violations, taking into account the fact that the company had no history of violations and “took remedial action.”

“If violations should occur in the future, the response of regulators may be more severe in light of prior compliance concerns,” Ubiquiti told investors in their 2014 10-K filing.

“It can’t happen again,” the company’s CEO, Robert J. Pera, said in a 2011 Forbes article. “If it does, I’ll be in a lot of trouble.”

Over 10 years later, Ubiquiti’s compliance posture may not have improved much: Hunterbrook’s investigation suggests a Ubiquiti distributor may once again be supplying Iran.

UAE-based Alfa Tech, which Ubiquiti lists as an official distributor on its website, may be running branches in Iran, according to its Persian-language advertisements archived by Hunterbrook in May last year. The ads list Alfa Tech’s website and emails associated with Alfa Tech for contact, including the same email address associated with Alfa Tech’s domain name.

On Alfa Tech’s Telegram channel, which Hunterbrook archived in April last year, the first contact number listed is for the company’s Shiraz office, in Iran. The channel no longer contains references to an Iran branch. Alfa Tech did not respond to Hunterbrook’s request for confirmation whether the company maintains offices in Iran.

And Ubiquiti’s dealings with suspect partners don’t stop there, Hunterbrook found.

In South America, Osni Arruda, founder and president of Flytec Computers, a Paraguay-based Ubiquiti distributxor once responsible for 13% of Ubiquiti’s revenues, has been accused of smuggling, massive tax evasion, and money laundering in Brazil, and of involvement with the illegal housing of a large-scale bitcoin mining operation in Paraguay. Hunterbrook also found that, as of September 2025, Arruda also appears to own a building now occupied by IT distribution company Tecnotropolis, according to the Florida state corporate registry and Google Maps.20 Tecnotropolis has been accused of abetting a more than $1 billion money laundering operation tied to narcotrafficking, court records show.

And in Mexico, Ubiquiti distributor SYSCOM, which has a subsidiary that operates in the U.S. that is also an official Ubiquiti distributor, was quietly acquired by a Chinese state-owned IT company Hikvision in 2021, according to Hikvision’s annual report. That same year, the U.S. designated Hikvision as part of China’s military-industrial complex and banned the importing of communications equipment from Hikvision into the U.S.

The Cost of Noncompliance in Dollars … and Blood

The civil — and potentially criminal — liability a company faces for these types of compliance failures can be significant. The U.S. government warns that companies face administrative penalties including the “denial of export privileges, and placement of individuals and entities on lists that restrict or prohibit their involvement in export and reexport transactions,” as well as monetary penalties up to “twice the value of the transaction.”

Legal experts told Hunterbrook, however, that a criminal case usually requires evidence of the company’s explicit knowledge of diversion and willful violation.

That evidence may be hard to obtain without a formal government investigation with subpoena authority.

In the EU, enforcement can be uneven across jurisdictions, with some countries applying stricter definitions of EU laws to prosecute violations, Alex Prezanti, a UK-based lawyer specializing in international law and sanctions enforcement, told Hunterbrook. “Different member states have completely different standards for how they enforce EU legislation,” he said.

Beyond potential penalties for violating export controls and sanctions, Ubiquiti’s actions — or inactions — could expose the company to human-rights litigation in U.S. courts, according to Martin Flaherty, a law professor at Columbia University.

Flaherty raised the possibility of an Alien Tort Statute lawsuit in U.S. federal court by Ukrainian civilians who were harmed in Russian drone attacks. Such a case would rest on a theory that Ubiquiti — a U.S. corporation — aided and abetted Russian war crimes by providing connectivity for the Russian military to operate drones to kill civilians.

But the real cost of Ubiquiti’s compliance failures can’t be measured in regulatory fines or litigation damages. It’s the risk to Ukrainian lives — soldiers and civilians alike — killed in Russia’s brutal campaign in Ukraine, made possible in part by Ubiquiti technology.

Oleksandr Yasenchuk, an activist helping arm Ukraine’s defense, had a plea for the American tech giant: “I would ask them, if possible, to stop the sale of their technology to Russia.”

“They must understand,” he said, that the company’s money carries “the blood of Ukrainians.”

Oleksandra Ishchenko, a former Kherson resident, also urged Ubiquiti to just “look at all the materials” publicly available, to see “how much harm this brings, how many human lives it has taken.” Not doing so, she said, “equals supporting war and the murder of Ukrainians.”

“We are not stupid people, and we understand that this whole process is possibly not difficult for a large company to trace where their products are.”

“I think it’s a choice,” she added.

Appendix / Case Study: A Deep Dive into the Network Supplying Ubiquiti Goods to NAG, a Major Russian Distributor

A deep dive into the import routes of one Russian IT equipment seller, NAG, helps show how the Russian market may be obtaining prohibited Ubiquiti goods through various trade routes that evade export controls and sanctions — and how Ubiquiti official distributors may be abetting those tactics.

NAG was once Ubiquiti’s official distributor, according to the latter’s archived webpage. Among its government customers were PJSC Rostelecom and Russia’s Federal Security Service, according to clearspending.ru, an open-source portal for Russian government data. Rostelcom is Russia’s largest internet service provider and a state-owned company sanctioned by the U.S. The FSS, the U.S.-sanctioned successor to the KGB, is Russia’s main domestic intelligence service. NAG also holds a license with the FSS to develop and supply cryptographic equipment for the service, according to Russian corporate registry records retrieved from the Federal Tax Service of Russia.

NAG also owns a 49% stake in a company called Nagtech, which was founded in 2021 expressly to support the Russian government’s policy of import substitution for key telecommunications equipment, according to its own website.

When contacted by a Hunterbrook reporter posing as a Russian customer seeking to purchase Ubiquiti devices for the Russian military in the occupied territories in November 2022, NAG confirmed that the items were in stock and promised to deliver them via local postal services. According to U.S. export control laws, the requested items are prohibited from export to Russia.

Hunterbrook’s analysis of trade records suggests that Discomp, NAG’s historic supplier of Ubiquiti goods, may have continued to supply NAG after the invasion, but obscured the shipment routes by removing its name from customs declarations or using intermediaries in third countries.

In the year prior to February 2022, NAG imported all of its Ubiquiti products from Discomp, valued at nearly $1.8 million, Russian customs records show. From February 2022 to April 2023, NAG imported nearly $4 million worth of Ubiquiti products, but the supplier’s name was removed from the shipment records. On some of the records, however, the location of loading was marked as Pilsen — a city in the Czech Republic where Discomp is headquartered.

Discomp may also have used a Turkish intermediary to continue supplying NAG.

From July 2022 to April 2023, Discomp exported about $2.2 million worth of Ubiquiti products to a Turkish locomotive parts company called Ervacan Makina; Ervacan was added to the Commerce Department’s Entity List in February 2024 for violating U.S. export controls on Russia. Discomp also shipped at least $1.9 million worth of Ubiquiti goods to Ervacan through a Lithuanian logistics company called Customs Warehouse UAB Didneriai.21 In many of the shipment records, the destination country was marked as Russia rather than Turkey — another sign of Ervacan’s likely role as a freight forwarder.

During nearly the same period, Ervacan supplied NAG with $6.1 million worth of largely tech equipment and parts, suggesting an active pipeline between Ervacan and NAG, although none of the shipments were labeled specifically as “Ubiquiti” brand.

NAG also used its subsidiary based in Kazakhstan to receive shipments from another Ubiquiti official distributor based in Poland, Batna.22 After the invasion, Batna exported over $530,000 dollars worth of Ubiquiti goods to NAG Kazakhstan, according to Kazakhstan trade data. During the same time frame, records show NAG Kazakhstan was exporting $1.3 million worth of networking equipment back to NAG and Nagtech, though the items were not labeled by their brand.

NAG is affiliated with Russian IT equipment sellers that also relied on transshipment routes — until the intermediaries were caught.

Beginning in July 2023, a Turkish logistics company called MBK Lojistik shipped a total of $960,000 worth of Ubiquiti goods to two customers in Russia, customs records show: about $60,000 was to NAG, and the rest was to another Russian company called Vostochny Put, a NAG partner company incorporated in June 2023.23

That shipment route ended around February 2024, when MBK Lojistik was sanctioned by the U.S. for sanctions evasions. It’s unclear who was supplying MBK Lojistik with Ubiquiti products.

NAG is also partnered with the New IT Project LLC, owner of Russian IT distributor 3Logic Group, a New IT Project representative told an undercover Hunterbrook reporter. Trade data shows that after the 2022 invasion, New IT Project imported over $5 million worth of Ubiquiti goods from Hong Kong-based AFox Corporation — until AFox was designated by the U.S. for sanctions evasions in support of Russia’s military industrial base in August 2023. It’s unclear who AFox’s suppliers were.

Banta told Hunterbrook in an email that it complies with applicable sanctions regimes with “utmost diligence,” but did not respond to Hunterbrook’s specific questions on our findings regarding NAG. Discomp did not respond to Hunterbrook’s request for comments as of the time of publication.

Authors

Jenny Ahn joined Hunterbrook after serving many years as a senior analyst in the US government. She is a seasoned geopolitical expert with a particular focus on the Asia-Pacific and has diverse overseas experience. She has an M.A. in International Affairs from Yale and a B.S. in International Relations from Stanford. Jenny is based in Virginia.

Blake Spendley joined Hunterbrook from the Center for Naval Analyses (CNA), where he led investigations as a Research Specialist for the Marine Corps and US Navy. He built and owns the leading open-source intelligence (OSINT) account on X/Twitter, called @OSINTTechnical (over 1 million followers), which also distributes Hunterbrook Media reporting. His OSINT research has been published in Bloomberg, the Wall Street Journal, and The Economist, among other top business outlets. He has a BA in Political Science from USC.

Till Daldrup joined Hunterbrook from The Wall Street Journal, where he focused on open-source investigations and content verification. In 2023, he was part of a team of reporters who won a Gerald Loeb Award for an investigation that revealed how Russia is stealing grain from occupied parts of Ukraine. He has an M.A. in Journalism from New York University and a B.S. in Social Sciences from University of Cologne. He’s also an alum of the Cologne School of Journalism (Kölner Journalistenschule).

Andrew Ford is an investigative journalist who exposed systemic flaws and prompted reforms in healthcare, business, policing, and state government. His reporting was published by ProPublica, USA Today, The Arizona Republic, Asbury Park Press, and Florida Today. He holds a journalism bachelor’s from the University of Florida and is based in Phoenix, AZ.

Michelle Cera trained as a sociologist specializing in digital ethnography and pedagogy. She completed her PhD in Sociology at New York University, building on her Bachelor of Arts degree with Highest Honors from the University of California, Berkeley. She has also served as a Workshop Coordinator at NYU’s Anthropology and Sociology Departments, fostering interdisciplinary collaboration and innovative research methodologies.

Editors

Jim Impoco is the award-winning former editor-in-chief of Newsweek who returned the publication to print in 2014. Before that, he was executive editor at Thomson Reuters Digital, Sunday Business Editor at The New York Times, and Assistant Managing Editor at Fortune. Jim, who started his journalism career as a Tokyo-based reporter for The Associated Press and U.S. News & World Report, has a Master’s in Chinese and Japanese History from the University of California at Berkeley.

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Wendy Nardi joined Hunterbrook after working as a developmental and copy editor for academic publishers, government agencies, Fortune 500 companies, and international scholars. She has been a researcher and writer for documentary series and a regular contributor to The Boston Globe. Her other publications range from magazine features to fiction in literary journals. She has an MA in Philosophy from Columbia University and a BA in English from the University of Virginia.

Graphics

Dan DeLorenzo is a creative director with 25 years reporting news through visuals. Since first joining a newsroom graphics department in 2001, he has built teams at Bloomberg News, Bridgewater Associates, and the United Nations, and published groundbreaking visual journalism at The Wall Street Journal, Associated Press, The New York Times, and Business Insider. A passion for the craft has landed him at the helm of newsroom teams, on the ground in humanitarian emergencies, and at the epicenter of the world’s largest hedge fund. He runs DGFX Studio, a creative agency serving top organizations in media, finance, and civil society with data visualization, cartography, and strategic visual intelligence. He moonlights as a professional sailor working toward a USCG captain’s license and is a certified Pilates instructor.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please email ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work, or press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2026 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Laura Wadsten, Andrew Ford

Editor: Sam Koppelman

Hunterbrook Media’s investment affiliate, Hunterbrook Capital, does not have any positions related to this article at the time of publication. Positions may change at any time. Hunterbrook Media and its affiliate Hunterbrook Law are working with a litigation firm that may bring potential legal claims based in part on our reporting. See full disclosures on our website.

Just weeks after Hunterbrook published a yearlong investigation into PBM GPOs, members of Congress grilled the CEOs of Cigna Group, UnitedHealth Group and CVS Health about our findings that their companies diverted billions of dollars in revenue away from patients and health plans.

UnitedHealth’s Stephen Hemsley, Cigna’s David Cordani and CVS’ David Joyner were called to Washington Thursday to appear before the House Committees on Energy and Commerce and Ways and Means.

The hearings covered healthcare affordability, ranging from enhanced Affordable Care Act subsidies to the focus of Hunterbrook’s reporting: so-called Group Purchasing Organizations (GPOs) established under the conglomerates’ Pharmacy Benefit Managers (PBMs).

During the Energy and Commerce hearing, legislators repeatedly cited Hunterbrook’s findings on the shell subsidiaries created by healthcare giants to get around a crackdown on PBMs pocketing rebates from pharmaceutical companies.

Cigna created Ascent in Switzerland, CVS created Zinc in Minnesota, and UnitedHealth created Emisar in Ireland. The companies dubbed these entities “GPOs” — group purchasing organizations — but our investigation suggested the new label was just that: a label.

“The big three health insurance corporations, knowing that PBM reform is around the corner, needed a different way to retain profits while still – on paper – complying with new requirements and the coming requirements of PBM reform,” said Rep. Jake Auchincloss, D-Mass.

Auchincloss asked UnitedHealth CEO Hemsley about his company’s subsidiary Emisar, which Hunterbrook reported to be largely a shell. In response, Hemsley claimed Emisar had “several thousand” employees.

Did Helmsley lie under oath?

Our reporter visited the Dublin office of Emisar and found it empty. Only about a dozen cubicles were in the room, tucked inside the Irish headquarters of UnitedHealth’s PBM Optum.1

Hunterbrook also scraped LinkedIn and company databases and identified only 29 possible Emisar employees.

Hunterbrook repeatedly sent inquiries to the CEOs companies seeking clarity on their PBM GPOs over several months. None of them have answered questions. If United has evidence of the “several thousand” people purportedly employed by Emisar, Hunterbrook wants to see it.

Auchincloss was one of several members of Congress to ask about the Hunterbrook report.

Representative Dr. Mariannette Miller-Meeks, a Republican from Iowa, displayed a flowchart from Hunterbrook’s January 6 article mapping how money moves between entities. She blasted the CEOs for the secretive scheme.

“So a health plan might be getting 100% of the rebates the PBM received, but the plan has no idea if the rebate got everything the GPO earned or how much money the GPO may have kept,” she said, reiterating a key finding from Hunterbrook’s reporting. “It begs the question, are PBM GPOs just to cover for the Big Three to say in a contract that they pass through 100% of the rebates they get and also a way to keep anyone else from being able to fully access brand drugs?”

Rep. Erin Houchin, R-Ind., also cited Hunterbrook by name. She pressed the executives on the astonishingly lucrative entities — whose tiny headcounts make them look like some of the most profitable companies in human history, at least on paper.

“How is it so profitable to have a GPO? How are they profiting $50 million in revenue per employee, on the backs of American patients?”

In response to her questions, the Congresswoman was met with silence. “No answers? Okay.”

Billionaire Mark Cuban, who owns an alternative to PBMs called Cost Plus Drugs, shared a clip of the exchange. “Great question. Easy to answer. No answer given”.

The hearings added to mounting calls for national leaders to address the skyrocketing costs of American healthcare.

“What we heard this week was no surprise. Patients are struggling to afford their medications even when they have insurance,” Merith Basey, CEO of the bipartisan patient advocacy group Patients for Affordable Drugs Now (P4AD Now), told Hunterbrook.

“Any serious effort to lower health care costs must tackle the root causes of high drug prices and savings must actually reach patients, not just move between other actors in the system,” she continued, referencing schemes like PBM GPOs.”

Watch our investigation:

Authors

Laura Wadsten is an investigative journalist specializing in healthcare. She began her career reporting on antitrust and health care markets as a Correspondent for The Capitol Forum, a premium subscription financial publication. Previously, she was Executive Director of the nonprofit Moving to Value Alliance, where she produced the MTVA Unscripted Podcast. Laura was a Hodson Scholar and Editor-in-Chief of The News-Letter at Johns Hopkins University, where she earned a B.A. in Medicine, Science & the Humanities.

Andrew Ford is an investigative journalist who exposed systemic flaws and prompted reforms in healthcare, business, policing and state government. His reporting was published by ProPublica, USA Today, The Arizona Republic, Asbury Park Press, and Florida Today. He holds a journalism bachelor’s from the University of Florida and is in his final semester of a data analytics master’s from Georgia Institute of Technology. He’s based in Phoenix, AZ.

Editor

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets — and occasionally volunteers on a fire speech for a good cause. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

Please email ideas@hntrbrk.com to share ideas, talent@hntrbrk.com for work, or press@hntrbrk.com for media inquiries.

LEGAL DISCLAIMER

© 2025 by Hunterbrook Media LLC. When using this website, you acknowledge and accept that such usage is solely at your own discretion and risk. Hunterbrook Media LLC, along with any associated entities, shall not be held responsible for any direct or indirect damages resulting from the use of information provided in any Hunterbrook publications. It is crucial for you to conduct your own research and seek advice from qualified financial, legal, and tax professionals before making any investment decisions based on information obtained from Hunterbrook Media LLC. The content provided by Hunterbrook Media LLC does not constitute an offer to sell, nor a solicitation of an offer to purchase any securities. Furthermore, no securities shall be offered or sold in any jurisdiction where such activities would be contrary to the local securities laws.

Hunterbrook Media LLC is not a registered investment advisor in the United States or any other jurisdiction. We strive to ensure the accuracy and reliability of the information provided, drawing on sources believed to be trustworthy. Nevertheless, this information is provided “as is” without any guarantee of accuracy, timeliness, completeness, or usefulness for any particular purpose. Hunterbrook Media LLC does not guarantee the results obtained from the use of this information. All information presented are opinions based on our analyses and are subject to change without notice, and there is no commitment from Hunterbrook Media LLC to revise or update any information or opinions contained in any report or publication contained on this website. The above content, including all information and opinions presented, is intended solely for educational and information purposes only. Hunterbrook Media LLC authorizes the redistribution of these materials, in whole or in part, provided that such redistribution is for non-commercial, informational purposes only. Redistribution must include this notice and must not alter the materials. Any commercial use, alteration, or other forms of misuse of these materials are strictly prohibited without the express written approval of Hunterbrook Media LLC. Unauthorized use, alteration, or misuse of these materials may result in legal action to enforce our rights, including but not limited to seeking injunctive relief, damages, and any other remedies available under the law.

By: Till Daldrup, Jacob Hutt

Editor: Sam Koppelman

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short $SOC at the time of publication. Positions may change at any time. See full disclosures on our website.

Exxon spinoff Sable Offshore faces seven barriers to restart its pipeline, idled since a major oil spill in 2015. One of those approvals needs to come from the California Coastal Commission, which Sable CEO Jim Flores criticized for its “Teflon” “eco-Nazi attitude” in a leaked call recording newly obtained by Hunterbrook. Because of these barriers — and despite Trump Administration intervention — Sable’s project, originally scheduled to go online in Jan 2024, may never sell oil. At least not under the ownership of Sable ($SOC), which is quickly running out of cash.

Hunterbrook Media has reported on Sable since early 2024. These investigations have scrutinized Sable's effort to restart a project responsible for one of the biggest oil spills in California history. The articles have been covered by Bloomberg, Politico, the Wall Street Journal, and several other publications. The findings were also cited in Santa Barbara’s decision to deny the transfer of key permits to Sable from Exxon, the pipeline's prior owner. When Hunterbrook published its first article on Sable, the company had already delayed its launch timeline to Sept 2024. That launch has still not occurred as of Jan 2026. Sable is once again teasing an imminent restart. Here's our reporting on why that remains a long-shot.

This article includes detailed analysis by a recent federal law clerk engaged to clarify the complex array of litigation involving Sable. Nothing here is legal advice. Other sections were led by Hunterbrook’s reporters. Please contact ideas@hntrbrk.com to reach the reporting team.

And check out the version of this investigation on our website, which includes an infographic that adds clarity to a confusing legal landscape.

“It’s much harder to stop us once we’re in production than the status quo being off production,” Sable Offshore CEO Jim Flores told investors in a leaked audio recording newly obtained by Hunterbrook.

“And the big key thing is we don’t need to publicize.”

He added: “We’re keeping it strictly within the investment community.”

Flores was laying out a stealth strategy to restart the pipeline responsible for one of California’s worst oil spills — pump first, deal with regulators later. Once oil was flowing, he reasoned, it’d be harder for the state to shut him down.

“Then, if the judge wants to come in and do something crazy, the status quo is production.”

There were a few problems.

Among them: Flores needed approval from a range of California government authorities, including the California Coastal Commission (CCC) — which Flores criticized on the call for what he called its “eco-Nazi attitude.”

That call took place on April 15, last year. At the time, Flores said: “Our target is June 1 to start putting oil into 324, 325,” referring to Sable’s onshore Las Flores pipelines, formerly known as Plains Lines 901 and 903.

As of this January, the quiet restart Flores had promised investors still hasn’t happened — nine months after that audio recording and two years after the company initially said its project would be online.

In the meantime, with the pipeline still dormant, California has done what Flores seemed to fear: launching a wave of legal and regulatory attacks to keep it that way, putting a labyrinth in Sable’s path.

In other words, for now at least, it looks like the “eco-Nazis” are winning.

In a court appearance earlier this month, Sable’s lawyers confirmed the Exxon spinoff had not filled its pipelines — and conceded the company cannot restart while a preliminary injunction remains in place.

“This is costing us millions of dollars every day,” Sable’s attorney told Judge Donna Geck of the Superior Court of Santa Barbara County, pleading for an accelerated legal timeline.

Sable now pins its hopes on the Trump administration, which only has limited authority over the project.

In December, the federal Pipeline and Hazardous Materials Safety Administration (PHMSA) asserted jurisdiction over one aspect of the pipeline’s approval process: safety. PHMSA approved that aspect of the restart plan despite California’s objections. In court, the company trumpeted this as a breakthrough.

But as evidenced by Sable’s failure to fill its pipeline, federal backing isn’t enough. PHMSA’s authority does not cover regulatory areas beyond safety, such as mitigating coastal effects in California. Those aspects are still delegated to state authorities.

In recent weeks, Hunterbrook has reviewed the relevant laws, precedents, and court proceedings — speaking with experts in state and federal environmental regulations. This reporting has revealed that Sable, whose only asset is this project, faces at least seven independent legal barriers to restart, several of which could keep the pipeline offline indefinitely.

Without additional funding, Sable appears set to run out of cash before it clears them all, if it ever does. The company has an estimated less than $100 million in the bank if spending hasn’t meaningfully slowed in recent months.

“There’s still a lot of legal obstacles in the way and a lot of opportunity for opponents to try to tie things up,” said Deborah A. Sivas, the Luke W. Cole Professor of Environmental Law at Stanford Law School.

Those remaining barriers include:

• A federal consent decree put in place after the 2015 oil spill. The decree explicitly requires approval from California’s Office of the State Fire Marshal (OSFM), not the federal PHMSA, before restart can occur. The requirement remains legally binding and enforceable by the California Attorney General, whose office has previously sued Sable. Earlier this month, the AG office said it was exploring its options to defend state jurisdiction over Sable’s pipeline. Under significantly changed circumstances, a consent decree can be updated by requesting modification from the federal court that entered it. But Sable has yet to make any request for the court to do so — presumably because case law states the executive branch can’t unilaterally create a change that justifies departure from the terms of an agreement to which it bound itself.

• A court injunction requiring Sable to obtain “all necessary approvals and permits” before restarting the pipeline. That includes approval from OSFM, which Sable has conceded it does not have. At the next hearing in the case where the injunction was entered, scheduled for Feb. 27, the court will consider Sable’s argument that federal law preempts state authority to regulate the pipeline — including the injunction — now that PHMSA has claimed jurisdiction. According to our analysis, the active consent decree will make it hard for the judge to side with Sable that it no longer needs to obtain approval from OSFM, as OSFM still has authority under that agreement. The California AG office, who represents parties both to this case and to the consent decree, has stated it is exploring its options to protect OSFM’s authority, indicating that reconsideration of the injunction could be a drawn out process.

• A second court injunction surrounding coastal work. Judge Thomas Anderle of the Superior Court of Santa Barbara is barring Sable from any “development” activities on the pipeline. Excavation. Grading. Pipeline infrastructure work. Placement of materials on the seafloor. The injunction lasts until Sable obtains Coastal Act authorization from the CCC. Without the ability to maintain the pipeline, operating it would mean massive liability risk, including potentially for Exxon. Sable relies on Exxon’s permits in the absence of its own. Sable appealed this injunction, with briefing completed on Jan. 9. A hearing on a separate motion for reconsideration in the trial court is set for Feb. 18.

• A state parks easement that expired in 2016. The easement cannot be renewed until California State Parks completes environmental review under the California Environmental Quality Act, a process with no overall defined timeline. California State Parks informed Sable it would begin an “initial study” on Nov. 13, which appears to be ongoing, the first step in a process that typically takes months at a minimum.

• An expiring federal emergency special permit that PHMSA granted to waive certain corrosion remediation requirements. The emergency special permit runs out on Feb. 21 and can only be renewed through a formal process requiring public notice and an opportunity for a hearing. PHMSA recently announced a policy not to enforce special permit requirements under certain circumstances, indicating PHMSA likely won’t hold Sable accountable if it operates with an expired permit during the period of renewal. But the legality of PHMSA’s policy may be challenged in court, as was PHMSA’s issuance of the emergency special permit in the first place, in a case before the Ninth Circuit. Briefing is scheduled to be completed in March. But even if Sable is successful in the Ninth Circuit, experts say it won’t impact the ongoing state and local disputes between Sable and various California regulators. The Ninth Circuit litigation concerns only whether PHMSA followed proper process in issuing its permits. It has no bearing on the lawfulness of actions by state regulators.

• A denied county permit after Santa Barbara County’s Board of Supervisors found Sable has “a record of non-compliant or unsafe operations systemic in nature.” On the leaked call, Flores suggested a workaround: operating under Exxon’s permits on Exxon’s behalf. But this approach carries its own risk: Sable likely couldn’t push forward with a rogue restart while relying on Exxon’s permits without Exxon’s (at least tacit) approval. Experts say Exxon is unlikely to approve in the face of two preliminary injunctions and a consent decree that could expose the oil giant to billions in potential liabilities. “They’re too big of a company to do something that stupid,” one former Department of Interior executive said.

• A federal Coastal Zone Management Act review that doesn’t appear to have begun, after the CCC sent a Dec. 23 letter to PHMSA. In the letter, whose substance was disclosed in a Dec. 31 update on a California government website, the CCC asserts that it never received required notice of Sable’s applications and has not waived its right to review the federal agency’s actions. CZMA review can last over six months.

Also, perhaps most challenging for Sable, the CCC can now enforce new state law SB 237, which California implemented on Jan. 1.

The bill has a section designed to stifle Sable, requiring any oil project that has been idled, inactive, or out of service for five years or more to obtain a new coastal development permit — a process that can take years. It may take even longer for a company that has compared the CCC to eco-Nazis and owes the commission $18 million in unpaid fines.

“I’d say it’s unlikely that the commission is going to grant the permit, and then if it denies the permit, then Sable can sue them and say you’ve wrongfully denied our permit, but that’s a process,” said Sivas, the Stanford professor. “Having litigated those coastal development permits, those take a few years to litigate.”

Sable is already suing in court to block the application of SB 237. The company claims the project has been “active” since resuming oil production offshore in May 2025. But petroleum has not flowed through the pipeline since the 2015 spill.

That May activity has also been dismissed by the State of California in a letter obtained by Hunterbrook.

“These activities do not constitute a resumption of commercial production or a full restart of the [Santa Ynez Unit]. Characterizing testing activities as a restart of operations is not only misleading but also highly inappropriate — particularly given that Sable has not obtained the necessary regulatory approvals to fully resume operations,” wrote the State Lands Commission in a May 23 letter.

In fact, the Senate Rules Committee digest for SB 237 specifically cited Sable, as the company pointed out in a recent lawsuit seeking a declaration that the statute doesn’t require it to secure a new coastal development permit from the CCC.

“I think they’d have a hard time making the case that the pipeline was active,” said Elmer Danenberger, a former chief of offshore regulatory programs at the federal Department of the Interior. “They did some well testing, and flowed a little oil to shore, probably in storage there. I don’t think any oil was ever sent into the pipeline that would transmit it.” For that reason, Danenberger claims, Sable is facing an uphill battle.

But more than any particular California regulation, Sable seems to have been stifled by its own actions — which have led to criminal charges.

As Assemblymember Gregg Hart from Santa Barbara told Hunterbrook about Sable’s proclaimed restart: “Sable’s announcement last May shows that the company will go as far as misleading the public and regulatory agencies about their operations to make their shareholders happy. It is reminder for us all that we can’t trust Sable to do the right thing and stay true to their word.” (Hart authored key text incorporated into SB 237).

Sable did not respond to Hunterbrook’s request for comment.

In court, Sable’s lawyer said “there is no doubt now that this is a federally regulated pipeline system. That is not in question.” The company also claimed, in the event Judge Geck lifts her injunction, “we can go forward with our restart plan.”

The Legal Maze

Sable faces an overlapping web of court injunctions, regulatory requirements, and statutory mandates.

On the leaked investor call from early in 2025, Flores breezed through the regulatory landscape with characteristic confidence. “We got them on the run,” he said of environmental opponents.

What has happened since tells a different story.

Nine months after that call, Sable — which originally promised an early 2024 launch — is still not online.

And since going public via SPAC, Sable has diluted shareholders by about 60%, issuing tens of millions of new shares across multiple offerings to stay afloat.1

“My guess is that they are not going to be successful in actually getting this going,” said Sivas.

Here are the obstacles in Sable’s path:

Court Injunction #1: Center for Biological Diversity v. California Department of Forestry and Fire Protection

In Center for Biological Diversity v. California Department of Forestry and Fire Protection, Judge Donna Geck enjoined Sable from restarting the Las Flores pipeline “until 10 court days following the filing and service of notice by [Sable] that Sable has received all necessary approvals and permits for restarting the Las Flores Pipelines and that Sable intends to commence such restart.”

The injunction is unambiguous: Sable cannot restart until it has necessary approvals from OSFM, notifies the court, and waits 10 additional days, during which other parties can challenge Sable’s assertion.

Sable has moved for reconsideration, arguing the case is now moot because the federal PHMSA has taken over regulatory authority from California’s OSFM. The hearing on that motion is set for Feb. 27.

The injunction remains in force until then at the earliest. In court filings, Sable has conceded it cannot restart while this injunction is in place.

In fact, in its motion for reconsideration and at a hearing considering whether to expedite review of that motion, Sable’s lawyers seemingly acknowledged they could not start the 10-day countdown to restart without approvals from OSFM — not PHMSA. Having made that concession, Sable now presumably has no legal basis to claim PHMSA approval satisfies the injunction’s requirements.

So Sable’s only way to escape the injunction is seemingly to get the court to reconsider its original order.

But winning reconsideration is far from guaranteed. Three major problems stand in Sable’s way:

The Consent Decree

When the Las Flores pipeline ruptured in 2015, spilling over 120,000 gallons of crude oil onto the Santa Barbara coast, it triggered years of litigation. Plains All American Pipeline, the operator at the time, was convicted on nine criminal counts and paid millions in penalties. But the legal fallout didn’t end there.

In 2020, the federal government and California reached a settlement with Plains — formalized in a consent decree filed in federal court. A consent decree is essentially a court-supervised agreement: The parties negotiate terms to resolve a dispute, and a federal judge enters those terms as a binding court order. Unlike a private contract, a consent decree is backed as a court order, which can lead to civil or even criminal contempt charges if a party violates it.

Violating a consent decree means violating a court order.

The consent decree in U.S. v. Plains All American Pipeline, L.P. and Plains Pipeline, L.P., No. 2:20-cv-02415, a case in the U.S. District Court for the Central District of California, governs how and when the pipeline can return to service.

It explicitly states that restart shall not happen until OSFM — not PHMSA — approves a restart plan.

The specific language:

“All outstanding corrective actions in PHMSA’s closed Corrective Action Order (CAO), CPF No. 5-2015-5011H, as amended, are hereby merged into this Consent Decree, as outlined below, and subject to the sole regulatory oversight of the OSFM… If Plains seeks to restart Line 901, Plains shall develop and submit, at least 60 days in advance of a scheduled restart, a written Restart Plan for Line 901 to the OSFM for review and approval. Once approved by the OSFM, the Restart Plan shall be incorporated by reference into this Consent Decree … If Plains seeks to restart the Gaviota-to-Pentland segment of Line 903, Plains shall develop and submit, at least 60 days in advance of a scheduled restart, a written Restart Plan for the Gaviota-to-Pentland segment of Line 903 to the OSFM for review and approval. Once approved by the OSFM, the Restart Plan shall be incorporated by reference into this Consent Decree.”

When Sable acquired the pipeline from Exxon in 2024, it stepped into Plains’ shoes. The consent decree didn’t disappear with the change in ownership. Sable’s predecessor is a party, making Sable bound by its terms.

“You can’t just violate a consent decree. You have to go back to the court and get permission to somehow get out of it or undo it,” said Sivas. “That’s another fight.”

The other parties to the decree include the United States and California representing multiple agencies: the Department of Fish and Wildlife, the Central Coast Regional Water Quality Control Board, California State Parks, the State Lands Commission, and OSFM itself. The Regents of the University of California are also parties.

Any of these parties can enforce the decree. The California Attorney General, representing the state agencies, can seek a court order at any time holding Sable to the requirement that OSFM — not PHMSA — must approve restart.

Environmental groups have already cited this requirement in their filings in the case before Judge Geck.

“While PHMSA may issue permits related to pipeline safety, the consent decree makes clear that authorization to restart Line 901 rests with California’s Office of the State Fire Marshal,” said Assemblymember Hart. “I have full confidence in Attorney General Rob Bonta and his office to evaluate the facts, uphold the consent decree, and take appropriate action if necessary.”

The California Attorney General’s office, which sided against Sable’s accelerated timeline for its reconsideration motion before Judge Geck, has said it is actively considering how best to defend OSFM’s jurisdiction over the pipeline.

For her part, Judge Geck may conclude that regardless of PHMSA’s assertions, OSFM approval remains required under the consent decree — at least until or unless the consent decree is updated — and decline to lift the injunction.

In the meantime, PHMSA and Sable have no authority to unilaterally substitute federal for state oversight in the terms of the consent decree. Nothing in the agreement provides for such a substitution.

The decree says what it says, and it has the force of a federal court order. As the Ninth Circuit has explained, “Although a party may ask the district court [which entered a consent decree] to issue an order clarifying, enforcing, or modifying a decree and suggest a favored interpretation, a party — whether a private or public entity — cannot dictate the meaning of the decree to the court or relieve itself of its obligations under the decree without the district court’s approval.”

In other words, to escape the decree’s OSFM requirement, Sable or the United States would need to go back to the federal court that entered it — the U.S. District Court for the Central District of California — and seek modification under Federal Rule of Civil Procedure 60(b). This is the legal mechanism for asking a court to change a prior judgment — but it’s designed to be difficult, because courts want their orders to be final.2

Rule 60(b) has six sub-provisions under which a party can seek to modify a consent decree — only one really potentially applies here.3 Under Rule 60(b)(5), relief requires a showing that “applying [the judgment] prospectively is no longer equitable.” The Supreme Court has interpreted this to mean the moving party must demonstrate “a significant change in circumstances.”

Here’s the problem for Sable: There has been no change in the underlying law or facts.

The only argument Sable and PHMSA can muster is that PHMSA now considers the pipeline “interstate.” That doesn’t create a change in law. The Ninth Circuit has “reject[ed] the notion that the executive branch of the government can unilaterally create the change in law that it then offers as the reason it should be excused from compliance with a consent decree.”

So PHMSA and Sable must demonstrate there’s been a change in factual circumstances warranting Rule 60(b)(5) relief — after the decree was signed. They must also show that the change wasn’t anticipated when the decree was signed. And they don’t seem to have offered evidence that anything material has changed about the pipeline since the consent decree was signed in 2020. It appears to be the same pipeline constructed to transport oil from the same place. So the same facts that underlie PHMSA’s new “interstate” determination are the ones that were available to the parties when the consent decree was signed in 2020.4

A unilateral relabeling, by one of the parties to the decree, when the underlying facts have not changed, does not constitute the kind of changed circumstances courts generally require for Rule 60(b)(5).

The Missing Permits Problem

Environmental groups have raised that Sable cannot satisfy the injunction’s requirement of “all necessary approvals” because it lacks:

• A new coastal development permit, now required under SB 237 (more on this later).

• An easement from California State Parks for pipeline maintenance in Gaviota State Park (the previous 30-year easement expired in 2016).

• The transfer of Final Development Permits from Exxon, which Santa Barbara County denied in December.

Under the literal terms of the injunction, Sable cannot restart until it has “all necessary approvals.” These are conceivably necessary approvals. Judge Geck may conclude the injunction remains in force regardless of PHMSA’s position — and regardless of whether OSFM maintains authority over the project.

The Interstate vs. Intrastate Problem

Leaving aside the consent decree, whether PHMSA or OSFM regulates the Las Flores pipeline depends on if the pipeline is considered “interstate” rather than “intrastate.” Under 49 U.S.C. § 60105(a), as a default matter, state authorities — not federal regulators — have jurisdiction over safety standards for intrastate pipelines.

PHMSA claims the pipeline is interstate because it originates on the Outer Continental Shelf. But as the California Coastal Commission explained in a letter to PHMSA, the pipeline may actually originate at the Las Flores Canyon facility onshore, not at the offshore platforms. Subsequently, the California Attorney General and environmental groups left open that they, too, might challenge PHMSA’s assertion of jurisdiction based on the pipeline being “interstate.”

If Judge Geck determines the pipeline is intrastate, the motion for reconsideration likely fails — because it follows that, even without the consent decree, OSFM retains regulatory authority under federal law. And regardless of what Judge Geck ultimately decides, this factual dispute may require additional evidentiary proceedings, extending the litigation further.

Court Injunction #2: Sable Offshore Corp. and Pacific Pipeline Co. v. California Coastal Commission

In Sable Offshore Corp. and Pacific Pipeline Co. v. California Coastal Commission, before Judge Anderle of the Superior Court of California, County of Santa Barbara, Sable has been enjoined from engaging in any further “development” in violation of the CCC’s existing cease and desist order on the pipeline.

Under the injunction, the California Coastal Act, and the Santa Barbara County Local Coastal Program, “development” is defined broadly. It includes:

• Excavation

• Removal of major vegetation

• Fill of wetlands

• Grading and widening of roads

• Installation of metal plates over water courses

• Dewatering and discharge of water

• Removal, replacement, and reinforcement of pipeline and pipeline infrastructure

• Placement of sand and cement bags on the seafloor below and adjacent to offshore pipelines

• Other development associated with returning the Las Flores pipelines to service

The CCC’s cease and desist order does not permit new development until Sable:

(a) Secures a new, final, operative coastal development permit specifically covering the work to be performed;

(b) Secures another final, operative, valid form of Coastal Act authorization for the work; or

(c) Secures a final, formal determination that the work is exempt from the Coastal Act’s permitting requirements.

This injunction does not explicitly bar introducing oil into the pipeline. But it makes operating the pipeline nearly impossible. Sable cannot perform any development to maintain the pipeline without facing massive liability exposure. A pipeline cannot be safely operated if you cannot legally maintain it.

Sable has moved for reconsideration, arguing the injunction was only intended to address past repair activities and that compliance interferes with PHMSA’s regulatory requirements. That hearing is set for Feb. 18.5

Sable has also appealed the grant of that preliminary injunction with briefing having been completed Jan. 9.

Given SB 237’s new requirements — which explicitly mandate a new coastal development permit for any oil project inactive for five years or more — this motion and appeal may be beside the point. That’s because, regardless of whether Sable checked the boxes of its last coastal development permit, it may need a fresh one.

SB 237: The New Statutory Barrier

California’s SB 237 took effect Jan. 1.

One aspect of the bill impacting Sable amends the Coastal Act to require that “repair, reactivation, and maintenance of an oil and gas facility, including an oil pipeline, that has been idled, inactive, or out of service for five years or more shall be considered a new or expanded development requiring a new coastal development permit consistent with this section.”

The legal weight of SB 237 appears to have caused some confusion among Sable investors, including on social media. Parts of the bill modify California’s Pipeline Safety Act, which focuses on intrastate pipelines, but Section 9 — the section impacting Sable — amends Section 30262 of the Public Resources Code, part of the Coastal Act, which isn’t focused on safety, covers both intrastate and interstate pipelines, and therefore isn’t superseded by PHMSA. (As PHMSA writes on its website: "The PSA [Pipeline Safety Act] does not preempt rules or regulations that are not related to pipeline safety.")

The statute provides that “development associated with the repair, reactivation, or maintenance of an oil pipeline that has been idled, inactive, or out of service for five years or more requires a new coastal development permit.”

At Judge Geck’s hearing, Sable claimed its pipeline had been active since last May, but admitted it had not yet introduced oil into the pipeline. That ostensibly means the pipeline qualifies as “idled, inactive, or out of service for five years” under the statute — triggering the coastal development permit requirement.

Along these same lines, Sable filed a lawsuit in Sept seeking a declaration that its pipeline is active for purposes of SB 237 because of its ongoing maintenance activities.

“In my view, Sable’s well-testing activities did not constitute a restart of oil production,” said Assemblymember Hart, who helped write the key language in SB 237. “Sable, and any other oil operator looking to restart aging and dangerous oil infrastructure, should be required to get a permit. It’s the responsible thing to do.”

Sable has also argued that the law only applies to pipelines that are idled, inactive, or out of service for five years starting after Jan. 1, 2026 (so the earliest a pipeline could be inactive would be Jan. 1, 2031). Given the broad language of the statute and the fact that the legislature enacted SB 237 with Sable in mind, the company’s legal argument faces a steep climb.

“I think the state is going to take the position that that law absolutely applies,” said Sivas, the Stanford Law professor. “And I say that because that piece of that law was written for this project, basically.”

Now, PHMSA stated in a letter to Sable that the company’s pipeline is considered “active” under its regulations. But whether the pipeline is “active” under federal regulation is a different matter than whether it’s “idled, inactive, or out of service” as a matter of state law. PHMSA only differentiates between “active” – and therefore fully subject to all safety regulations – and “abandoned” status. “Abandoned” means that the pipeline is permanently and irreversibly removed from service. It’s not coextensive with pipelines subject to SB 237’s new requirements.

Pipelines that are “idled, decommissioned, or mothballed” still fall in the “active” category, because they have “potential for reuse at some point in the future.” This is to hold pipeline owners accountable for lines that may no longer be used, but haven’t been properly sealed off and could still contain oil or gas. And it makes importing the federal active/abandoned distinction an ill fit for determining whether Sable’s pipeline is subject to SB 237.

In order to get around SB 237, said Paasha Mahdavi — Associate Professor of Political Science at the University of California, Santa Barbara — Sable “would have had to admit that they’ve been lying to someone, whether it’s their investors, whether it’s the court, whether it’s the county of Santa Barbara, because there’s no ever indication that they said that they’ve transferred oil from the processing facility to the pipeline.”

And Sable’s lawyers are unlikely to have told such a lie under oath.

If the company or its attorneys lied in state court proceedings, they may have opened themselves up to sanctions or even contempt or perjury charges, depending on the context. The same goes for the Ninth Circuit proceedings — sanctions as well as contempt and perjury charges are all possible in that scenario. Sable’s attorneys would have committed an ethical violation subject to discipline if they knowingly lied to a tribunal.

Assuming SB 237 applies, if Sable restarts — or threatens to restart — without a coastal development permit, the CCC can:

1. Send notice of the violation.

2. Give Sable time to “respond in a satisfactory manner” (the CCC has previously given Sable as little as one day).

3. Issue an executive director cease and desist order, effective for up to 90 days.

4. Hold a public hearing for a permanent cease and desist order and administrative penalties.

5. Issue a permanent cease and desist order and administrative penalties.

6. Seek court orders for injunctive relief and civil monetary penalties for violating the Coastal Act.

Alternatively, the Commission might simply rely on the existing injunction issued by Judge Anderle, which already bars development activities without Coastal Act authorization.

Either way, SB 237 has fundamentally changed the legal landscape.

Sable will have difficulty claiming its decades-old permits suffice. The law now requires a new permit — and obtaining one through the CCC that Flores compares to “eco-Nazis” may not be a quick process.

The Ninth Circuit Case and “Preemption”

There’s been a lot of buzz from Sable’s supporters about a recent win for the company in the Ninth Circuit, which did not issue a stay against Sable. But it offers little hope for the company’s ultimate prospects.

Claiming to have wrested jurisdiction from OSFM, in December, PHMSA “approved” Sable’s restart plan and granted Sable an emergency special permit waiving certain requirements for evaluation and remediation of corroded pipeline segments.

Environmental groups petitioned the Ninth Circuit for review of the emergency special permit in Environmental Defense Center v. U.S. Department of Transportation, No. 25-8059. They argue PHMSA failed to meet the statutory requirements for an emergency special permit (which requires finding that the permit serves the public interest, is not inconsistent with pipeline safety, and addresses an emergency involving pipeline transportation). Instead, the groups argued, PHMSA had to issue a regular special permit following notice and comment procedures, and was required to conduct environmental review under the National Environmental Policy Act. PHMSA failed to do both.

On the last day of 2025, the court denied a motion to stay PHMSA’s approval of Sable’s restart plan and the grant of an emergency special permit. That was neither a final judgment nor a ruling on the merits. Specifically, the court found environmental groups hadn’t made the necessary showing for a stay — which requires demonstrating not only a likelihood of success on the merits but also irreparable harm absent a stay, a balance of equities in their favor, and that the public interest supports a stay.

The court offered no reasoning for its decision, which could rest on the environmental groups having failed to meet any one of these criteria. So, for example, the court could have concluded the petitioners didn’t demonstrate they would suffer irreparable harm absent a stay because they didn’t show the pipeline would operate without one. (The pipeline does remain idled, despite the stay being denied).

But there’s also reason to doubt the Ninth Circuit will ever rule on the case’s merits.

The Ninth Circuit has scheduled briefing in the case to conclude in March, meaning it won’t rule before then at the earliest. But emergency special permits are only valid for 60 days. So Sable’s permit, which runs out on Feb. 21, will expire before the Ninth Circuit has a chance to make a decision.6 That may make the case moot. And assuming the case becomes moot, the Ninth Circuit will lose jurisdiction before making a merits-based judgment.7

A new case could emerge if PHMSA renews the emergency special permit. But renewal is not automatic. Under federal law and implementing regulations, renewal of an emergency special permit requires public notice and an opportunity for a hearing.

“I think they’d have to allow at least 30 days for public comment. I think that would be the minimum,” said Danenberger, the former chief of offshore regulatory programs at the Department of the Interior. “Now, they may under their law or under their regulations … try and do it in like one week or two weeks, but then that just opens the door to further legal action and makes a farce out of the whole process.”

A case challenging any renewal won’t be ripe until permit approval occurs — adding more delay. There’s no guarantee the Ninth Circuit will even get a new case; it would have to be brought by a person or group, like the environmentalists, harmed by the renewal of the permit. These organizations might be reluctant to bring another case after the adverse ruling on their stay motion — and given the range of state-level protections seemingly blocking Sable from restarting its project regardless of what PHMSA does.

A Note on Preemption

Sable’s attorney has claimed that the company faces a “constitutional quandary.” The company seems to be arguing that the state court injunctions must be lifted now that there is a federal case ongoing. “We cannot have a federal court saying we are permitted to restart the pipeline and a state court order saying the opposite.”

This, as a matter of black letter law, is incorrect.

Preemption is a doctrine about when a court will find federal and state law conflict such that federal law supersedes state law. It goes to the merits of a dispute before a court, not to which court can hear the case.

Preemption does not give federal courts the power to disregard or stay the orders of state courts. Under the Anti-Injunction Act, federal courts generally cannot stay state court proceedings except in narrow circumstances that don’t apply here (“expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments”). Neither Sable nor PHMSA has sought a stay of any state court proceedings from the Ninth Circuit, almost certainly because the case before it doesn’t afford an opportunity for such a drastic remedy.

State and federal courts routinely hear overlapping cases involving the same parties and related legal issues. This is not a constitutional crisis. It’s normal. As the California Attorney General’s office said in Judge Geck’s court: “The fact that state courts and federal courts deal with overlapping issues happens all the time.”

At the outset of litigation, claims arising under federal law can be removed from state court to federal court within 30 days of the complaint. But the proceedings before Judges Geck and Anderle are (1) not “arising under” federal law in the technical sense required for removal and (2) well past 30 days from the complaints.

If state courts get federal law questions wrong, the remedy is appeal through the state court system, potentially up to the U.S. Supreme Court. As the Supreme Court itself has repeatedly explained, because of the “fundamental constitutional independence of the States, Congress adopted a general policy under which state proceedings ‘should normally be allowed to continue unimpaired by intervention of the lower federal courts, with relief from error, if any, through the state appellate courts and ultimately th[e Supreme] Court.’” The lower federal courts cannot simply intervene in state proceedings.

As a matter of California law, if another court, like the Ninth Circuit, decides an issue before a state court rules on it, and that issue (1) is identical to the one before the state court, (2) was actually litigated in the prior proceeding, and (3) was necessarily decided in that prior proceeding for a final judgment on the merits, the state court may be bound to follow that decision.

The prior proceeding must also have been litigated by the party whom the decided issue is being used against in state court or at least a party who is in “privity” with that disadvantaged party. Different parties in different suits can only be in “privity” if they have interests so similar to each other that the party to the first proceeding acted as the second party’s “virtual representative” there. Even if these showings are met, public policies like “preservation of the integrity of the judicial system,” “promotion of judicial economy,” and “protection of litigants from harassment by vexatious litigation” must favor holding a party to the resolution on a previously decided issue. This doctrine is referred to as collateral estoppel or issue preclusion.8

There are several reasons why it’s unlikely any issues in the Ninth Circuit case will have a preclusive effect in the state court proceedings. First, per above, there’s been no final judgment on the merits. The Ninth Circuit’s denial of a stay of the emergency special permit was neither a final judgment nor a ruling on the merits. And there’s a strong reason to believe that the Ninth Circuit will never rule on the merits. That’s because the Ninth Circuit won’t rule until after the emergency special permit expires. So the case will seemingly be moot by then.

Second, even if the Ninth Circuit were to rule on the merits, the issues that are being litigated are not the ones that are going to influence the state court judgments. For example, key issues in Judge Geck’s courtroom are whether the Las Flores pipeline is properly classified as “interstate” or “intrastate” under federal law and whether Sable still needs approval from OSFM. These are not issues raised in the Ninth Circuit case, which is about whether PHMSA followed proper process in issuing emergency special permits, not whether it had jurisdiction in the first place over OSFM.

Finally, even if the Ninth Circuit were to decide issues relevant to Judge Geck and Judge Anderle’s cases, the decision couldn’t be used against parties not party to the Ninth Circuit suit. So it couldn’t be used against the CCC in Judge Anderle’s case or the California Department of Forestry and Fire Protection in Judge Geck’s case. Neither of these agencies are in “privity” with the environmental groups, PHMSA, and Sable, who are parties to the Ninth Circuit case. They have distinct interests as state organs.

Any preemption issues will be ruled on by state court judges in their respective state court cases.

“I think that Sable might raise the argument that somehow the local and state permitting requirements are preempted by the Pipeline Act, but I don’t think that’s going to be successful,” said Sivas.

The Missing State Parks Easement

Sable needs an easement from California State Parks for a four-mile section of pipeline that runs through Gaviota State Park. The previous 30-year easement expired in 2016.

On the leaked investor call, Flores described the easement situation with characteristic optimism. “We are very close to getting an agreement there,” he said, nine months ago.

But on Nov. 13, State Parks notified Sable that it would need to complete an environmental review under the California Environmental Quality Act before any easement could be granted. It would start the process by preparing an “initial study.”

CEQA review has complicated timelines. It can take months or years depending on the complexity of the project and whether environmental groups challenge the review. Given the history of litigation surrounding Sable’s project, expect a challenge to the agency’s determination however it comes out.

On the investor call, Flores described a temporarily workaround of the easement: “We worked around this because of the two-week delay, we actually were able to pump water into our pipeline and do a volumetric hydro test around on the pipeline and we got water all the way around past the parks.”

But hydrotesting the pipeline is different from operating it commercially. Sable may have completed testing, but it cannot operate the pipeline through Gaviota State Park without an easement. And it cannot get an easement without completing CEQA review.

The Denied County Permits

On Dec. 16, Santa Barbara County’s Board of Supervisors voted to deny the transfer of Final Development Plan Permits from Exxon to Sable.

The Board’s finding was damning: “Sable reflects a record of non-compliant or unsafe operations systemic in nature for the Facilities being considered for operatorship, and therefore does not have the skills, training, and resources necessary to operate the permitted Facilities in compliance with the applicable permits and all applicable county codes.”

On the leaked call, Flores suggested a workaround: “We have a deal with Exxon to do an operating agreement with Exxon, operate on their behalf if we don’t get [the permits] preproduction.”

But this arrangement — Sable using Exxon’s permits on Exxon’s behalf — raises its own legal issues. And it doesn’t solve the fundamental problem: The County found Sable lacks the capability to operate safely.

Flores told investors he expected the County to come around. “We put a lot of pressure this week on them,” he said. “Hopefully we’ll get a resolution.”

The resolution came: The Board said no.

Now, Sable may still try to operate under Exxon’s permits — but experts say the oil and gas giant is unlikely to go along with a restart in defiance of two injunctions and without required coastal development permits in place.

“I don’t think Exxon defies the courts, and they’re too big of a company to do something that stupid,” said Danenberger.

Exxon did not respond to a request for comment.

The Coastal Zone Management Act

The federal Coastal Zone Management Act gives state coastal management agencies — in California, that’s the CCC — the right to review federal actions affecting coastal resources.

In a Dec. 23 letter to PHMSA (copying Sable), the CCC preserved its right to invoke this process. The CCC stated that both PHMSA’s approval of the restart plan and any special permit applications are “unlisted federal license or permit activities” subject to CZMA review.

Here’s how the CZMA process works, and why it could create a delay:

Step 1: Notice

Under federal regulation, the CCC has 30 days from receipt of notice of Sable’s applications to notify PHMSA, Sable, and the director of the National Oceanic and Atmospheric Administration’s Office for Coastal Management (formerly the Office of Ocean and Coastal Resource Management) that it is exercising its right to CZMA review. If the CCC doesn’t notify within 30 days of proper notice, it waives its right.

The CCC claims in its letter that it had not received proper notice — and, therefore, that the 30-day clock hadn’t started. Notice must be written notice sent directly to the state agency or published in an official federal notification document or through a state clearinghouse. There’s no indication PHMSA provided such notice.

Step 2: Director Review

Once the commission gives notice it’s requesting review, PHMSA and Sable have 15 days to comment to the Office for Coastal Management director. And the director has 30 days to approve or disapprove the commission’s request based on whether the activity’s coastal effects are “reasonably foreseeable.” The director can extend this deadline.

If the director disapproves the request, the CCC could sue, arguing the director exceeded their discretion. If the CCC loses or doesn’t sue, the CZMA process ends and the permits are approved.

Step 3: Consistency Certification

If the director approves the CCC’s review request (or if Sable voluntarily agrees to undergo certification, which it is unlikely to do), Sable must amend its applications with a “consistency certification” and provide the CCC with all necessary data and information.

Step 4: Commission Review

The CCC has at least the later of six months from its original receipt of notice or three months from the submission of the consistency certification to object. If it doesn’t object within that window, federal regulations conclusively presume the commission concurs with PHMSA’s approvals.

Step 5: Secretary of Commerce Appeal

If the CCC objects, Sable can appeal to the Secretary of Commerce within 30 days. The Secretary can override the CCC’s objection and give PHMSA the go-ahead to approve Sable’s permit(s) only if they find that the activity is “consistent with the objectives or purposes of the [Coastal Zone Management] Act” and is “necessary in the interest of national security.” Even if Sable is successful, the appeals process can take a couple months to nearly a year.

If the Secretary overrides, the permits are issued (though the CCC could sue arguing the Secretary exceeded his discretion). If the Secretary doesn’t override, the permits aren’t issued.

The Timing Problem

PHMSA purported to approve Sable’s restart plan without completing CZMA review.

The CCC’s Dec. 23 letter makes clear the CCC has not waived its CZMA rights. If PHMSA refuses to engage with the CZMA process, the commission could sue to vacate the approvals as procedurally defective. That would add months of uncertainty to the pipeline project.

And in the best case for CCC, where PHMSA and the Office for Coastal Management director cooperate with the commission, the process can still take up to six months, while CCC reviews Sable’s operations. If the commission objects and Sable appeals to the Secretary of Commerce, that would add many months.

The CCC’s letter also reserves the right to review Sable’s activities under a different CZMA pathway — for outer continental shelf (OCS) exploration, development, and production activities.

This pathway involves other review requirements, including submission of OCS plans to the Department of the Interior with consistency certifications, and a six-month commission review period with various notification requirements.9

Additionally, the CCC writes that it is reviewing whether PHMSA’s determination that the pipeline is “interstate” is itself a federal agency action with reasonably foreseeable coastal effects subject to consistency review. If so, that opens yet another procedural track for CCC to delay pipeline approval.

The CCC declined to comment.

The Financial Reality

As of Sept. 30, Sable reported just $41.6 million of cash and cash equivalents.

Less than two months later, presumably with even less cash in the bank, Sable found a lifeline, issuing $250 million in equity at $5.50 per share.

But the problem is the burn.

Based on Sable’s cash flow statements, it spent $253.6 million in operating cash over the first nine months of 2025 and $323.1 million on capital expenditure over the same period.

That’s more than double what the company projected in a Nov. 2024 investor presentation, where Sable said it expected capex to be somewhere between $110 and $130 million over the entire year. (What makes this especially notable: At the time Sable made these projections, the company was claiming it would restart early in the year. Which is to say, Sable ended up spending more than three times as much as projected, without even needing to incur the expenses required to operate the project.)

And Sable currently has no revenue. The Santa Ynez Unit is its only asset. “It’s not a company. It’s just an idea at this point,” said Clark Williams-Derry, an energy finance analyst at the Institute for Energy Economics and Financial Analysis.

In the third quarter of 2025, the company’s burn was around $80 million per month. If Sable is still burning cash at anything like that third-quarter pace, its raise only bought the company roughly three months of runway. Counting from the Nov. 12 close date, that model implies Sable has less than $100 million in cash as of mid-January, and would hit the wall in roughly mid‑to‑late February — right around (or even before) the next major court dates.

Sable is also required to maintain a cash balance of $25 million under its loan agreement with Exxon, meaning the date by which Sable would need to raise cash could come even sooner.

“There’s a reason that nobody wanted to buy the Santa Ynez Unit. Exxon loaned Sable the money to buy it, because nobody else wanted to do that,” said Williams-Derry. “And so adding additional cost to a product that was already unwanted, unloved, financially stressed? I think that’s a possibility, but in terms of a long-term financial plan, you’re basically throwing good money after bad.”

Absent a dilutive raise, legal obstacles outlined above suggest restart is essentially impossible before Sable runs out of money. The Geck hearing isn’t until Feb. 27. Even if Sable prevails, it still faces the Anderle injunction, the CZMA process, the permit issue, the CEQA review for the State Parks easement, and the consent decree’s OSFM requirement.

And even if Sable manages a restart, its project may not be as profitable as it once thought. In its Nov. 2024 investor presentation, the company calculated the estimated cash flows from its oil resources based on a price of $83 per oil barrel. Oil is now around $60 per barrel.

Meanwhile, Sable’s debt is enormous.

As of quarter-end, Sable disclosed $896.6 million of outstanding debt. And its balance sheet showed $53.3 million in accounts payable, or $163.7 million if you include accrued liabilities.

The cost of its debt is also rising: After the October amendment became effective, Sable’s term loan with Exxon accrues at 15% per year (compounded annually). Sable can elect to “pay” interest by adding it to principal. On roughly $897 million of debt, that’s approximately $135 million per year — about $11 million per month — piling onto the balance. (This is in addition to the $4 million per month Sable owes Exxon due to its failed permit transfer.)

“I don’t think Sable survives without more money from Exxon or Exxon further deferring their obligations and adding to them,” said Danenberger.

Any new capital Sable raises will likely come with unfavorable conditions.

“The cumulative risk profile is of a company that is waving every red flag,” said Williams-Derry. “You could wave it to the capital markets, and that doesn’t necessarily mean that they won’t get money, but it means that they’ll pay for it.”

And there’s still the cliff-edge in the underlying Exxon deal structure.

The Exxon purchase agreement gives Exxon a free reassignment option: If Sable fails to “restart production” by Mar. 31, Exxon can demand reassignment of the assets within 180 days, “without reimbursement of any Purchaser costs or expenditures.”

In other words: Exxon can just take back the asset. For free.

And if Sable’s regulatory pathway is really just delayed, not denied — as Sable claims — that may be a more appealing proposition for Exxon than it once was.

Or, perhaps, Exxon will decide to retire the project, recognizing the Sisyphean path to production. (Exxon already took a $2.5 billion write-down as part of exiting offshore operations in California.)

Either way, for now, Sable is doing what it often has: promising investors a restart is imminent.

Maybe this time will be different, and after years of blown timelines, “Big” Jim Flores will finally live out his Daniel Plainview dreams of liquid gold. But so far, at least, the “Teflon” “eco-Nazis” remain ahead.

And the “status quo,” as Flores put it, is that Sable’s pipeline remains a pipe dream.

Authors

Jacob Hutt contributes to Hunterbrook following a clerkship with the Honorable Robin S. Rosenbaum of the US Court of Appeals for the Eleventh Circuit. He is a licensed attorney barred in the District of Columbia, has interned for the US Attorney’s Office for the Southern District of New York, and completed a summer associateship with Sullivan & Cromwell LLP. He has assisted with drafting amicus briefs before the Supreme Court and coauthored on the evolving legal landscape during the COVID-19 pandemic. He has worked on cases involving constitutional law, statutory interpretation, civil rights, voting rights, criminal prosecutions, health care, employment discrimination, consumer protection, and more. He holds a BA from Yale University in political science and a JD from Yale Law School.

Till Daldrup joined Hunterbrook from The Wall Street Journal, where he focused on open-source investigations and content verification. In 2023, he was part of a team of reporters who won a Gerald Loeb Award for an investigation that revealed how Russia is stealing grain from occupied parts of Ukraine. He has an M.A. in Journalism from New York University and a B.S. in Social Sciences from University of Cologne. He’s also an alum of the Cologne School of Journalism (Kölner Journalistenschule).

Editor

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life.

Hunterbrook Media publishes investigative and global reporting — with no ads or paywalls. When articles do not include Material Non-Public Information (MNPI), or “insider info,” they may be provided to our affiliate Hunterbrook Capital, an investment firm which may take financial positions based on our reporting. Subscribe here. Learn more here.

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We had a big year. Now we want to scale our impact. So we need your help in two categories:

Reporters: The newsroom is hiring — especially for journalists in energy, healthcare, and technology, as well as social media savants. Send anyone exceptional our way. Contact: talent@hntrbrk.com

Stories: Hunterbrook exposes wrongdoing, features overlooked companies, and breaks news that impacts entire sectors (see this week’s viral investigation and podcast with Mark Cuban that hit the PBM businesses of UnitedHealth, CVS, and Cigna). Who should be investigated? Featured? What stories are missed with newsrooms shuttering across the country? Contact: ideas@hntrbrk.com

@hunterbrookmediaNEW: Insurance giants are hiding billions meant to lower Americans’ drug costs. Our year-long investigation details how CVS, UnitedHealth, and Cigna created shell companies to evade reform efforts and hide payments received from drugmakers. Cc: @Mark Cuban

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In 2025, Hunterbrook Media published dozens of investigations, driving impact across healthcare, housing, and the environment. (See below!)

No ads or clickbait. No exclusive paywalls. No donors or high-dollar events.

I am excited to report: Our radical new approach to funding journalism — which I wrote about for the Nieman Journalism Lab — proved profitable within 18 months of launch.

We did this with two businesses: a fund, Hunterbrook Capital, which can invest based on Hunterbrook Media’s reporting; and a litigation firm, Hunterbrook Law, which can use our reporting as the basis of lawsuits against bad actors.

But really, our business model is simpler than that.

We get paid to be right, to be rigorous. Because if the reporting is wrong, the investment or the lawsuit fails. And the reverse is also true. Markets and courts, while severely flawed, are still fairly good at getting to the truth — eventually.

And equally important, because our model doesn’t depend on how many eyeballs we reach, we can tell overlooked stories that matter to specific communities, geographies, or sectors — never resorting to clickbait for ad dollars.

To those who have supported us with stories, talent, or even just the time you’ve spent engaging, thank you again for your early conviction in a new way to drive accountability and awareness. You were right.

We had a hypothesis we could do this. You helped us prove it. Now: growth.

So please do send us your best story ideas and reporters — and help us build a platform proving that, even today, the truth still has value.

Here are some highlights from the newsroom:

We uncovered, in collaboration with Pablo Torre, that a Harvard-linked startup working with elite athletes just so happened to be secretly funded by the Chinese Communist Party...

... and that a medtech giant was selling inaccurate blood sugar monitors to people with diabetes, despite warnings from the FDA —

— and we published both those stories in the same week.

The former triggered a Congressional probe. The latter catalyzed multiple lawsuits and a major decline in share price, forcing the company to take action.

We also educated Santa Barbara County on the stakes of potentially transferring a pipeline responsible for a major oil spill from Exxon to a sketchy spinoff named Sable Offshore. The deciding vote on the municipal board that ultimately refused to permit the pipeline transfer, often an ally of the fossil fuel industry, switched sides here: “The final straw for me was a Hunterbrook article, which was as disturbing as anything I’ve read.”

We worked with human rights groups on an investigation revealing that over 200 Western companies have enabled precision strikes on Ukrainian hospitals, schools, and shopping centers. An airborne division of the Ukrainian army sent us this signed flag:

We then published an investigation identifying kidnapped Ukrainian kids on Russian adoption sites. The evidence disappeared from the web — but only after we’d already sent it to prosecutors.

And we plan to have our biggest story about the Russian invasion of Ukraine running later this month.

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We’re especially proud of the range of our reporting — which spanned from a literal “How The Sausage is Made” deep-dive about a toxic factory in rural Illinois and a leukemia cluster in the Nebraska birthplace of Kool Aid to a bustling Jumia warehouse in Nigeria and a Restoration Hardware outpost near London with more deer than people.

We also published an investigation into how eggs became so ridiculously expensive. The same week we released our story, the DOJ opened a probe. Egg prices have since plummeted and Hunterbrook’s reporting has been cited in multiple antitrust lawsuits.

We don’t believe our reporting was causal, but it was well-timed!

In recent months, we ramped up our reporting on another national story: companies using AI hype to fool investors, from abandoned oil wells to radiology (in an investigation led by Bethany McLean).

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And in collaboration with ProPublica, we showed how certain Americans — three cabinet secretaries — hypocritically game the system on their mortgages.

But the newsroom didn’t just expose wrongdoing this year. Our reporters also found hidden, exciting, positive stories.

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Or when the FDA finally approved a new life-saving medication after years of monopolization, a story Hunterbrook first broke in 2024.

These are just a few examples of the newsroom’s scoops.

We scooped the news that a Chinese drone giant stopped blocking flights over airports and military bases; the company is now banned from the U.S.

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We reported on a tragic death at a Pennsylvania steelmaker, after an investigation into its practices last year, forcing its new parent company to pledge to improve conditions (we’ll be watching).

And we quickly debunked an insane fake news story planted by a Dubai-based market manipulation operation claiming that a pizza chain would be acquired.

Notably, we also broke the news of the massive American military deployment to the Middle East. Weeks later, we reported one of the biggest stories of the year: that B-2 stealth bombers had taken off from Missouri en route to Iran. We published that news before the jets had even left the state, hours before any major media outlet. The next day, the jets bombed Iran’s nuclear sites.

Months later, back in August, we first posted about a similar military build up — this time, within striking distance of Venezuela.

Throughout 2025, the newsroom’s reporting reached boardrooms, investment committees, and government agency offices. We gave our reporting teeth. We forced executives, board directors, shareholders, and regulators to act.

We’ve also learned change doesn’t happen all at once.

It took a year after our initial UWM investigation for the Ohio Attorney General to charge the mortgage giant for alleged deceptive practices. Just as long for the U.N. to demand answers on a toxic copper smelter in Namibia. Weeks before Permian Resources even acknowledged a gas leak Hunterbrook exposed — eventually admitting the incident had happened to regulators.

That’s why, in 2026, we need your help identifying more stories and talent.

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We’re doing it every day. And only just beginning.

Thank you,

Sam Koppelman

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©2026 Hunterbrook Media LLC. All rights reserved.

All information presented are our opinions based on our analysis and are subject to change. Except where otherwise indicated, the information provided herein is based on matters as they exist as of the date of preparation and not as of any future date and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof. Hunterbrook assumes no duty to update this copy of the letter to reflect information that subsequently becomes available, or circumstances or changes after the date hereof.

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Editor: Sam Koppelman, Wendy Nardi

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Three mysterious entities. Tens of billions in revenue.

Our multinational investigation reveals how CVS, UnitedHealth, and Cigna created new subsidiaries to divert billions of dollars from health plans and patients.

All three tried to keep it secret. None answered repeated questions. CVS sued to stop evidence getting out. Cigna called the police on a reporter.

And the cost isn’t just higher drug prices. People have died.

Visit our website for the full animation accompanying this article and the (extensive!) footnotes adding more context.

Vacant again.

Reception: empty. Offices: deserted. This time, mail piled by the door.

Multiple visits found no activity at the ghost headquarters in Minnesota. There was a logo on the wall: a company with no apparent website, contact email, or phone number.

An entity whose address only appeared in lawsuits.

Zinc Health Services.

Across the ocean in Ireland, the same phenomenon.

A security guard escorted a Hunterbrook Media reporter through a building in Dublin to the offices of a company supposedly headquartered within.

Emisar Pharma Services.

Again, no website, email, or number.

A dozen or so cubicles. Fluorescent lights illuminating empty chairs.

No one there.

A third company occupied a one-floor headquarters in the scenic Swiss town of Schaffhausen, known as a haven for luxury watches and tax avoidance by American companies.

Ascent Health Services.

This one has a website.

There were a half-dozen employees in the office, and dozens of others apparently work remotely.

But after Ascent called the Swiss police on a Hunterbrook reporter observing from a neighboring kebab shack, two executives refused to answer questions or even share contact information for the company — despite a request from the Polizei.

Three supposed headquarters. Three countries. Three entities that seem to barely exist, relative to their purported revenue.

According to financial records, lawsuits, and dozens of interviews, these three entities — Zinc, Emisar, and Ascent — may be among the most lucrative companies in the world, bringing in tens of billions of dollars for their parent conglomerates.

If you’re reading this investigation from the United States, there’s about a nine-in-ten chance that one of these corporations plays a role in what you pay for healthcare.

So what are these companies? And how do they appear to generate 25 times the revenue per employee as companies like Apple or Nvidia?

The Middlemen of Medication Coverage

Who decides what drugs your insurance covers — and how much you’ll pay for them?

It’s not your doctor or employer. It’s not even your insurer.

It’s a middleman: a Pharmacy Benefit Manager (PBM).

Over 80% of America’s prescription drug market is reportedly controlled by the “Big Three” PBMs: Optum Rx, CVS Caremark, and Evernorth Express Scripts. Their parent companies UnitedHealth Group ($UNH), CVS Health ($CVS), and Cigna Group ($CI) are some of the largest corporations in the world, ranking third, fifth, and 13th, respectively, on the Fortune 100 list in 2025.

These three companies grip every corner of healthcare, from the drugmaker to the doctors who write prescriptions to the pharmacies that dispense drugs.

PBMs originally emerged in the 1960s to process insurance claims for prescriptions. Since then, they’ve evolved into complex intermediaries with enormous market power.

The premise is straightforward.

By combining the buying power of health insurance plans, PBMs are meant to secure better deals for those plans from drugmakers. These discounts often take the form of “rebates” — payments from drugmakers to PBMs, typically a percentage of the product’s list price. Rebates are supposed to reduce the cost of medication for health plans and their members.

Really, it often looks more like a quid pro quo: Drugmakers pay rebates for favorable placement on the list of drugs covered by a given health plan, called a “formulary.”

PBMs design those formularies, determining which drugs make it on the list and how they’re covered. Because PBMs historically keep a cut of the rebates they negotiate for each health plan as compensation, drugmakers offer bigger rebates in exchange for PBMs giving their products the best spot on a formulary.

Over time, PBMs began to keep a greater and greater slice of rebates for themselves.

Eventually, scrutiny metastasized.

Red and blue states alike began to regulate PBMs.

State attorneys general, President Trump’s first administration, and Lina Khan’s Federal Trade Commission each shined a light on PBMs.

Efforts to crack down on the middlemen gained broad bipartisan support.

Clients started wising up to the scheme, demanding that 100% of rebates negotiated by PBMs be passed through to the health plans the PBM was acting on behalf of. Employers insisted that they should receive the discounts on drugs paid for by their health plans for their employees, not PBMs.

The days of rebate profiteering seemed numbered — at first.

The Middlemen’s Middlemen: Big Three Create Secretive “PBM GPOs”

With their cash cow at risk, the Big Three PBMs pivoted.

To keep more of the money while technically fulfilling promises to pass through all rebates, PBMs created secretive new subsidiaries.

The PBMs branded these new backroom entities PBM “Group Purchasing Organizations” (PBM GPOs).

The FTC, by contrast, calls them “rebate aggregators.”

These entities in Minnesota (Zinc), Dublin (Emisar), and Schaffhausen (Ascent) are little known and have faced limited scrutiny.

Hunterbrook interviewed executives and former staffers from each entity and their parent PBMs; spoke with health plans, drugmakers, and other industry experts; analyzed insurance, healthcare, and employee data; visited offices from Ireland to Switzerland; applied to job posts; and reviewed thousands of pages of contracts and court records.

The takeaway: PBM GPOs appear to generate astronomical revenue with skeleton staff — making Zinc, Emisar, and Ascent among the world’s most lucrative enterprises on paper, even though they appear barely to exist in the real world.

“A lot of the functionality of PBMs has shifted away from the nucleus into its surrounding rings. If you look at a GPO level, the truth is that we’re looking at around 95% of all claims transactions that are running through three companies,” said Antonio Ciaccia, co-founder and CEO of the prescription drug data analytics nonprofit 46brooklyn Research and president at 3 Axis Advisors, a health care consulting firm.

A few health plans have caught on to the scheme through reviews of their own financials. These health plans have recovered tens of millions of dollars from PBMs and their GPOs, according to public audit reports and court filings.

Health insurance benefits are often a company’s second-largest expense behind payroll. Rising awareness of the PBM problem has some employers looking beyond Caremark, Optum, and Express Scripts.

But thanks to the GPOs, switching PBMs doesn’t necessarily free companies from the grip of the healthcare oligopoly: Other PBMs go through Zinc, Ascent, or Emisar to negotiate with drugmakers, industry insiders told Hunterbrook.

These Big Three have extracted and retained billions in rebates and other fees from drugmakers, while purportedly acting on behalf of thousands of health plans operating in the U.S.

Industry insiders confirmed Hunterbrook’s findings about PBM GPOs.

“They are covers for the Big Three to say in a contract that they pass through 100% of the rebates they get,” the billionaire Mark Cuban, co-founder of Cost Plus Drugs, told Hunterbrook.

Dr. Steve Miller had helped create Ascent while chief clinical officer at Cigna and Express Scripts, where he successfully challenged Pfizer and other drugmakers to lower the price of medicines ranging from statins to the antiparasitic whose price was jacked up by Martin Shkreli. Miller explained that PBM GPOs “double-, triple-dip on fees.” He said that at first, health plans and their consultants didn’t know about it.

Kent Rogers, who helped create Emisar while senior vice president at UnitedHealth’s Optum, confirmed that the PBM GPOs bring in “tens of millions, if not close to $100 million, per employee.”

PBMs claim that PBM GPOs receive these payments from drugmakers for services they provide, like data processing and rebate negotiation.

But according to Hunterbrook’s visits to these companies’ ostensible headquarters, as well as its review of employment websites and interviews with numerous industry experts including former employees, few people work at Zinc or Emisar. While Ascent boasts a larger team, it is still one of the most lucrative companies in the world, relative to its actual size.

The Big Three and their affiliates were functionally unresponsive to this investigation. Hunterbrook sent repeated inquiries to CVS Health/CVS Caremark (the owner of Zinc); Cigna Group and Evernorth Express Scripts (the owner of Ascent, which was also repeatedly contacted directly); and UnitedHealth Group and Optum Rx (the owner of Emisar) seeking clarity on the PBM GPOs. None answered Hunterbrook’s questions and a couple even took steps to interfere with the investigation.

Multiple industry stakeholders said the situation felt like smoke and mirrors.

“We reached out to PBMs and we said, ‘Hey, can you explain to us what these GPOs do?’ They said the GPOs are going to negotiate with the drug companies to get the very best deals, because they are going to aggregate all of the covered lives that we have, for all of our customers. And we said, ‘That doesn’t make any sense, because that’s exactly what a PBM is supposed to do! So what exactly is the GPO going to do?’ They gave us a Cheshire Cat grin, and no more information,” James Gelfand told Hunterbrook.

Gelfand is president of the ERISA Industry Committee (ERIC), a lobbyist group that represents large, self-funded employers on health and benefit plans issues.

“The way the scam is intended to work, the PBM farms out what used to be the PBM’s job to the GPO … The entire thing was a scam in order to be able to do that fee function that we just described as a way of hiding that money so it is never disclosed to the plan sponsor,” he added.

According to a former Zinc executive, the work PBM GPOs allegedly do for pharmaceutical companies is largely a mirage.

“It was all on paper and it was all transactional money flowing through contracts. There was nothing I had to send to you or to sell to you,” they said, asking to remain anonymous due to what they described as a pattern of “retaliation” from the Big Three.

“The Stuff They’re Hiding”

UnitedHealth Group’s then-CEO Sir Andrew Witty had promises to keep.

“This morning we are committing to a full 100% pass-through of all rebates we negotiate at the PBM back to the payer, the state, or the union,” he proclaimed on his January 2025 earnings call.

It was the first earnings presentation since the killing of Brian Thompson, CEO of the insurance division that provided three-quarters of the conglomerate’s more than $400 billion in 2024 revenue.

Witty’s pledge responded to a question from a JPMorgan analyst: How would UnitedHealth navigate efforts to outlaw the lucrative rebates drugmakers paid PBMs?

But it wasn’t a particularly hard promise to make.

Because by then, Optum and its peer PBMs had spent years moving money around: Optum was receiving payments from the pharmaceutical industry through its PBM GPO, Emisar.

“The pharma companies aren’t paying less, they’re paying differently,” hypothesized Michael Sherman, former chief medical officer of the nonprofit Harvard Pilgrim Health Care system.

“By categorizing as fees not rebates, and laundering through the GPOs, they don’t have to pass through the rebates, they’re somehow carving it out.”

Miller corroborated Sherman’s speculation. Drugmakers “were reducing rebates to pay Ascent more,” he told Hunterbrook.

Rogers echoed Sherman and Miller in testimony to the FTC. “The industry feared that the rule would make the rebate system illegal,” he said, referring to the first Trump administration’s “rebate rule,” which removed rebates from a regulatory safe harbor that had protected drugmakers and PBMs from prosecution under the Anti-Kickback Statute.

“The intention of the G.P.O. is to create a fee structure that can be retained and not passed on to a client,” Rogers told The New York Times in 2024. (Years after the emergence of PBM GPOs, this article from the NYT appears to be the first time the PBM GPOs received substantive media scrutiny).

Cigna recently made the same promise as UnitedHealth Group. In its latest earnings call, an executive all but admitted the commitment to rebate pass-through was performative.

“You should think of this as not meaningfully changing from today in terms of client level earnings contributions, meaning that we would expect comparable earnings contributions from our rebate-free model as we have today in our existing solutions,” said Brian Evanko, president and chief operating officer of Cigna Group.

In an interview with Hunterbrook, Rogers said PBM GPOs were a necessary solution to replace the lost revenue stream from rebates.

He blamed hospital markups and other parts of the pharmacy supply chain for the affordability crisis in U.S. healthcare.

The former president of Express Scripts and co-founder of Ascent, Amy Bricker, also argued that PBMs and PBM GPOs help reduce prices.

“I’ve testified a number of times in front of Congress and had pharma at the table,” Bricker told Hunterbrook. “In every one of those hearings, drugmakers are asked, if we did away with rebates, would you lower your list price unilaterally to make up for those rebates? Not once was the answer yes.”

Rogers agreed, telling Hunterbrook: “You may not like it, but it’s not illegal.”

The legality appears to be an open question based on recent litigation.

In 2024, the Illinois Attorney General recovered $45 million from CVS Caremark for retaining money from Zinc that should have been passed through to the state health plan that Caremark and Zinc represented.

CVS capitulated in a settlement prior to any litigation. In addition to the money, the settlement explicitly modified the contract between Caremark and the state to ensure that rebates negotiated by Zinc, as well as Caremark itself, would be fully passed through to the state.

“The Illinois case tells you: Forget the cost of litigating. Even aside from that, they don’t want to talk about this publicly: Let’s make this go away,” said Sherman.

The Pharmaceutical Care Management Association (PCMA) — a lobbying group for the PBM industry — provided the following statement to Hunterbrook regarding PBM GPOs:

“GPOs are used in health care and many other industries to aggregate purchasing volume and obtain lower prescription drug costs for patients. Employers and PBMs should be able to use every tool at their disposal to push back against the high drug prices set by drug companies. PBMs, including smaller market companies, need the leverage provided by GPOs to aggressively negotiate with drug companies to secure savings on lifesaving medications for patients and employers.”

CVS Sued To Stop Release of Public Records Revealing That PBM GPOs Don’t Pass Through Revenue to Health Plans and Patients

After Hunterbrook requested further information about the case from Illinois under the state’s Freedom of Information Act, Zinc’s owner, CVS, sued to stop the state attorney general from releasing the information without significant redactions.

The information Hunterbrook did receive, however, showed a gap between what drugmakers paid Zinc and what Zinc ultimately passed through to CVS and therefore patients.

The same exhibit stated, “100% of rebates and [Redacted] passed from ZINC to Caremark to client.”

The share of funds not passed through (the left-most redacted column in the table above, outlined in red (“Column 4”) — appeared to grow substantially from 2020 to 2023.

During that period, Column 4 payments totalled nearly $49 million — a similar amount to what Zinc was later forced to pay in settlement — accounting for 8.66% of the total invoiced each quarter, on average. And this was just one health plan among thousands across the country.

On the chart above, the numbers in Column 4 show the amount left when “Gross Rebates” are subtracted from the “Total Invoiced.” Therefore, this difference likely represents fees — such as “Manufacturer Administrative Fees” — Zinc itself charged drugmakers for its services on behalf of a plan.

The amounts in Column 4 fluctuate in lockstep with rebates — whenever “Gross Rebates” increase over the previous quarter, the value in Column 4 increases by roughly the same proportion. This suggests the amounts in Column 4 are, like rebates, calculated as a percentage of drug list prices.

The attorney general’s office declined to comment for this story, citing active litigation.

The documents from the Illinois case also include Zinc’s contracts with CVS Caremark (the PBM) and CVS Pharmacy.

The contract between Caremark (“Company”) and Zinc (“GPO”) states:

“Company and GPO acknowledge and agree that a portion of the [Redacted] remitted by GPO to Company constitutes compensation for services rendered by Company to GPO pursuant to that certain Services Agreement, effective April,1 2020, between Zinc Health Ventures, LLC, the parent company of GPO, and CVS Pharmacy, Inc., the parent company of Company.”

The redacted term appears to be “Manufacturer Administrative Fees” — based on the “Services Agreement” between Zinc and CVS Pharmacy.

It’s tricky teasing out the exact division of work between Zinc and its parent company.

The “Services Agreement” suggests that CVS outsourcing to Zinc is mostly a formality: In fact, Zinc hires CVS Caremark to do work that the PBM says falls under the GPO’s responsibilities. Zinc then pays a portion of the manufacturer administrative fees to Caremark in exchange for these services.

The services Zinc pays Caremark for include “General Support Services” — like Human Resources, IT Support, and Legal and Compliance Support — as well as “Administrative Support for Manufacturer Rebate Agreements.”

In the latter category, CVS seems to handle the accounting, reporting, and drugmaker correspondence for rebate payments between Zinc and drugmakers.

What work is left for Zinc?

According to the contract, Zinc “is engaged solely to provide the rebate contracting and financial analysis and consultation services described herein.”

The analysis and consultation services appear to involve modeling how different terms in plan contracts would impact the amount of money paid by plans. Aside from the parts of “rebate contracting” assigned to CVS, it seems as if Zinc is solely securing rebate deals with pharmaceutical manufacturers.

The agreement also shows that CVS Caremark sees how money flows between the drugmakers, GPO, PBM, and plan clients — even if CVS won’t let its plan clients see this information. Experts told Hunterbrook that PBMs often make it difficult for plan sponsors to audit rebates and discounts, telling clients they don’t have access to, or are prohibited from disclosing, rebate and fee data.

Greg Baker, the CEO of AffirmedRx — an independent PBM that positions itself as a more transparent alternative to the Big Three — called claims that Zinc, Ascent and Emisar lower drug prices “a blatant joke.”

“It’s profiteering that hurts patients in the long run,” Baker told Hunterbrook.

“Where there’s mystery there’s margin,” U.S. Rep. Jake Auchincloss, a Democrat from Massachusetts, told Congress.

Visits Indicate PBM GPOs Are Largely Shells

Emisar — owned by Optum and UnitedHealth

In response to an FTC lawsuit last year, Optum Rx confirmed that Emisar was a separate, stand-alone legal entity.

They claimed to have launched Emisar “to focus on negotiating rebate agreements with pharmaceutical manufacturers and developing manufacturer-facing technology solutions,” as well as providing “innovative data analytics services.”

But despite Irish offices, no entity named Emisar was registered to operate in Ireland, according to the Irish business database.

Emisar also appears to lack a website or phone number. It only has about two dozen employees on LinkedIn. And its job openings intermingle with those of UnitedHealth and Optum, suggesting it may not be a particularly independent operation.

The Optum roles of “Pharma Account Manager” and “Associate Director – Pharma Account Manager” both “report to the Director of Pharma Services, Emisar.”

A job posting for an “Associate Director – Industry Relations” at UnitedHeath would “report to the Senior Director of Industry Relations, Emisar.” There’s also a posting for a “Senior Account Manager” role at Optum “within our Emisar team.”

A visit to UnitedHealth’s Optum headquarters in Dublin somewhat clarified the situation.

During a workday in January 2025, an Optum security guard escorted a Hunterbrook reporter through the Optum office building to what appears to be Emisar’s global headquarters, to the extent it exists.

A single room in the Optum building.

An Emisar logo by the door.

About 10 cubicles.

That room — from which Emisar supposedly negotiates billions of dollars of discounts, while also purportedly selling drugmakers a wide array of data, analytics, and administrative services in exchange for massive fees that UnitedHealth claims are not Optum rebates requiring pass-through to health plans, and certainly not kickbacks — was empty.

No one was working there.

Photographs of Optum’s Dublin, Ireland, office by Hunterbrook contributor Doug Donovan, who investigated healthcare fraud for The Baltimore Sun, which won a Pulitzer Prize related to his reporting. Source: Doug Donovan for Hunterbrook Media

“Emisar, which operates out of Ireland, was established in 2021 by Optum and it still doesn’t have a website. When you look at Ireland registered entities, it doesn’t exist. You can hardly find any employees on LinkedIn. Something feels way off here,” Baker told Hunterbrook.

“Emisar is acting behind the scenes on behalf of UnitedHealth Group’s OptumRx PBM. They do not serve any other PBM or external members. If Emisar is adding so much value, why isn’t it actively pursuing other customers?”

Criticizing similar remarks Baker made while testifying before Congress in 2023, a longtime PBM GPO executive told Hunterbrook, “He’s calling out the problems, I don’t think he’s bringing the solutions.”

On UnitedHealth’s fourth-quarter 2024 earnings call, Witty insisted, “We are committed to full transparency” — but never mentioned Emisar.

The CEO of Optum posted a LinkedIn message echoing his boss, Witty, promising to “make more transparent who is responsible for drug prices in this country.”

Many of the comments on the Optum CEO’s post were harsh critiques of the PBM.

“Claiming that nearly 100% of rebates are or will go to customers is a twist of words,” wrote Nicolas Ferreyros, who runs a nonprofit that advocates for cancer patients.

“And what about the offshore GPO $$$?” asked Mike Sharp, a pharmacist and industry consultant with SharpRx Pharmaceutical Consultation Services.

Sharp added in an interview with Hunterbrook: “It’s a shell game by PBMs to scrape more money.”

“Are you also going to clarify that ‘non-rebate cash flows’ from pharma will also be passed through? And that this includes the cash flows wrt Emisar?” posted Jens Thorsen, who runs a business that advises health plans on their policies and interactions with PBMs.

In an interview with Hunterbrook, Thorsen called the PBM GPOs a “bait and switch” to hide revenue from PBM contracts. “This is bullshit, they’re passing through some but not others.”

The conclusion: Emisar appears to be essentially a front for Optum and UnitedHealth.

Zinc — owned by CVS Caremark: Firewall? Or No Wall?

Like Emisar, Zinc does not appear to have a website or phone number.

According to LinkedIn, Zinc may have even fewer employees than Emisar.

And its headquarters — whose address was revealed in a lawsuit — turned out to be a single, empty suite in an office building outside Bloomington, Minnesota.

Image of the office building in Bloomington, Minnesota, that purportedly houses the Zinc headquarters. Source: Google Maps

“It looked like a caricature of a front,” said the Minnesota-based singer-songwriter Raffaella, who visited Zinc at Hunterbrook’s request during two separate workdays in early 2025.

She interviewed two CVS employees from the adjacent office, who said they did not know anyone who worked at Zinc.

Was anyone ever at Zinc?

“Occasionally,” said one. “Here and there.”

“They keep it locked,” said the other. “If you’ve got information we can email them … I don’t think there’s a general email, but if you’ve got your information, I’d be happy to pass it along to them.”

“It’s walled off from us.”

Both claimed not to know what Zinc does, or how a person would make an appointment, given the absence of a phone number or an email for Zinc, which could only be contacted through CVS.

A former Zinc executive also employed by CVS Caremark explained the dynamic, requesting anonymity due to risk of retaliation.

They corroborated what numerous industry insiders told Hunterbrook: CVS carefully guards information about Zinc, often intimidating current and former employees to keep quiet.

“Other people at CVS may be scared to talk to you. Leadership, especially Caremark, is very heavy-handed, will threaten them if they say anything publicly negative about the company. They may try to do something via the PBM formularies.”

The former executive scoffed at the healthcare conglomerate’s claim of separation.

“You really don’t know a PBM from a GPO because there is no difference,” they said. “Think of the PBM/GPO as one entity … there was literally a temporary wall put up between Zinc and Caremark. No separate building. … Zinc and Caremark reported to the same VP.”

The purpose of Zinc, they explained, was to rack up charges from drugmakers.

The best example was making drugmakers pay Zinc for data access. They described how the conversation went with drugmakers.

“‘I don’t need it, I don’t want it,’” the drugmakers would say. And in return, Zinc would threaten to “disadvantage you versus your competitors.”

“Will you buy it? Yeah. Do you use it? Probably not,” they said of drugmakers, adding, “If you’re not compliant, they’ll try to disadvantage you versus your competitors. … This is Caremark, Express Scripts, Optum, they all do that.”

They also noted that the charges would increase year over year — with data portal fees quadrupling — despite the fact that “the data was not, in my opinion, very useful from a pharma perspective. … It was minimal.”

What about Ascent?

Ascent — owned by Cigna’s Evernorth Express Scripts

The takeout shack didn’t open until 11 a.m., local Swiss time.

Next door, on the fourth floor of a small office building about an hour from Zurich, a subsidiary of a subsidiary of a subsidiary of the American conglomerate Cigna had its headquarters: Ascent Health Services.

Ascent appears to be the most established of the PBM GPOs — employing about 88 people, according to LinkedIn, and potentially a handful more, according to an office visit. But it’s still a tiny slice of its parent Evernorth Express Scripts, which has tens of thousands of employees.

“Small Company Feel, Big Company Benefits,” reads Ascent’s website. (This one has a website, unlike Emisar or Zinc.)

“We have the energy and boldness of a startup and the expertise and pragmatism of a scale-up, all in one place,” reads another section.

“We are a boutique rebate contracting organization,” reads a third.

An industry expert questioned the branding.

“Isn’t that the exact opposite of their argument now?” asked Sherman. “‘You don’t want a boutique, you want scale.’ It seems like bullshit.”

“I used to do my own rebates at Harvard Pilgrim. I didn’t want to give them up because I didn’t trust the PBMs,” recounted Sherman. Speaking figuratively, he continued: “They came in and put a gun to my head with our CFO and said: ‘Your guys want to keep this because they like doing it, but we have scale.’ We were the boutique contracting shop in that case.”

“In my opinion, it’s corporate fiction,” said Ann Lewandowski, a whistleblower and fractional compliance officer for health plans. Lewandowski founded the consultancy Healthcare Rebel Alliance to help employers improve oversight and compliance of their medical and pharmacy benefits.

Thorsen, the healthcare insurance advisor who had said, “This is bullshit” — referring to the fees collected by PBM GPOs from pharmaceutical companies — was especially skeptical of the Swiss headquarters.

“If there’s a good explanation that’s not sheltering cash, I’ll be darned.”

Looking for that explanation, a Hunterbrook reporter visited Ascent’s headquarters in Schaffhausen.

In the elevator to the office, a postman had a package for Ascent.

Did he deliver to Ascent often? “No, not regularly, not so much.”

A receptionist at Ascent took the package and walked the reporter through the open floor-plan office past a dartboard to the kitchen for a glass of water. She confirmed Ascent had the entire floor and guessed the company numbered “maybe about a hundred” people.

How many came to the office?

“It really depends. Just a few,” she told Hunterbrook.

That day, it appeared to be about a half-dozen, between the office visit and observation from the outdoor patio of the neighboring takeout shack.

“I started with just kebabs and donuts. Now I have more. And different sauces,” said Ahmed, the proprietor of Albeek Take Away.

Did he have any customers from Ascent?

“No, no, no, from Ascent, nobody,” he said. He pointed at two other small offices in the area. “I get people from there and there, not there,” he said, pointing back to the Ascent office.

Did he ever deliver to Ascent?

“No, no, no delivery.”

At the closest café, the barista, Chiarra, recognized the name Ascent, though she said she did not have any regular customers from the office.

“They order from here once or twice a month,” she said.

By 5 p.m., Ascent had called the police on the Hunterbrook reporter at the outdoor patio of the takeout shack.

Two Polizei approached, saying that Ascent had called “a couple of minutes ago.”

One officer, Ismail Scheuermeier, stayed with the reporter at the shack while the other went up to Ascent.

Scheuermeier asked about the reason for Hunterbrook’s investigation, then shared his own perspective on the healthcare system.

“We think it is stupid in America,” he told Hunterbrook. “Our medicine is also expensive … But as a regular working man or woman, it is affordable, you do not end up on the street,” he said, referring to the Swiss healthcare system. “In America there are people on the street. Someone gets cancer they end up on the street. You hear about it in the media, in movies. Not many positive things.”

The other police officer returned with two men from Ascent. Both declined to share their names.

“That’s not relevant,” replied one of the men, who later confirmed via LinkedIn that he was Ascent’s chief commercial officer. According to LinkedIn, the CCO previously worked for Cigna’s Express Scripts from Orlando, Florida, before moving to Switzerland in 2022.

In response to hearing about the empty Emisar office in Dublin, he said, “We are not a fake company, there are ways for press to reach us.”

But there was no press contact on Ascent’s website. The “Contact Us” link didn’t work on certain browsers. And after initially offering to share a corporate contact, the Ascent executive instead asked for a Hunterbrook contact.

The next day, the U.S.-based managing director of external affairs for Cigna followed the reporter’s public account on X and sent a request to follow the reporter’s private Instagram account.

In response to a follow-up request for comment through LinkedIn, the CCO referred to Ascent and Cigna jointly as “our company.”

“It is our policy that all media inquiries about any and all aspects of our company be referred to our media relations team which has a publicly available email address. The email address for media relations is on the Cigna website.”

During the conversation outside the Swiss office, the Ascent executive said he’d called the cops because of concerns raised by the December 2024 killing of UnitedHealthcare CEO Brian Thompson, allegedly by Luigi Mangione.

“Look, with everything that’s been going on, you know, the shooting in New York, and you come here this morning, then disappeared for a few hours, and then you’re back,” he said. “And we’ve got anxious people here. Look, I hope you won’t come back again and try to talk to people.”

The reporter offered not to return if they’d answer a couple of questions. What was the purpose of this Swiss subsidiary, and were he and his colleague from America?

“We work at Ascent, that’s all I’ll say,” he replied.

The police officer wrapped up the impromptu interview, asking that the Ascent executive share a contact email and Hunterbrook write to that email rather than returning to the office.

The officer concluded, “There are many other beautiful things to see in Schaffhausen.”

One proved to be the newsroom of the regional business paper AZ, which investigated the proliferation of the “many letterbox companies in Schaffhausen,” as an AZ journalist called the local shell companies.

The journalist pulled a copy of Ascent’s filings from the town’s commercial registry, dating back to Ascent’s incorporation in April 2019. Ascent’s many signatories are almost exclusively American and include Amy Bricker, the former president of Express Scripts.

“The 8:05 a.m. train from Zurich to Schaffhausen is full of Americans every morning, big sign of this small town as U.S. tax haven,” the journalist said.

A former employee of Ascent contradicted this purpose. “From here it looks like shifting money,” they told Hunterbrook, requesting anonymity to avoid retaliation. “They move money here and there.”

Ascent has the strongest case for being an actual “group purchasing organization” — PBMs beyond Express Scripts, including a PBM called Prime Therapeutics, are publicly involved in Ascent.

Offshore PBM GPOs like Ascent and Emisar are particularly worrisome to Alden Bianchi, an attorney at McDermott Will & Emery LLP who advises large employer group health plans.

“There’s just zero transparency with the cross-border cooperatives,” he said, referring to Ascent and Emisar.

“There’s no broker disclosure law, for example, that requires them to tell you what’s going on. So I view them with a good deal of suspicion, especially if you are a fiduciary of a plan, which a lot of my clients are,” Bianchi continued.

“How do you possibly exercise your fiduciary duty over some oversight when you’re dealing with an offshore cooperative?”

The broker disclosure law Bianchi mentioned is part of the Consolidated Appropriations Act of 2021, which implemented transparency and reporting requirements for employer-sponsored health plans and the vendors that deliver these benefits.

Were taxes the reason for the Swiss jurisdiction?

“Yes, it’s nothing else,” a former Ascent employee told Hunterbrook.

Miller, the Ascent co-founder, independently confirmed the tax advantages.

“We had a skunks team that looked at all the regulations and tax implications,” he told Hunterbrook, referring to a team within the overall Cigna/Express Scripts organization that helped create Ascent.

“There’s obviously the advantages of being offshore also.”

After starting out as a physician, Miller became the chief medical officer of his hospital system and then joined Express Scripts when the PBM had just begun scaling up.

He was widely credited for his pioneering work to dramatically reduce the price of statins, which are essential to tens of millions of people. Early in his career at Express Scripts, he challenged Pfizer — then the largest pharmaceutical company in the world — and stripped Pfizer’s blockbuster drug Lipitor from his PBM’s formulary, favoring a more affordable generic.

Miller later took on Martin Shkreli — the felonious pharmaceutical executive who notoriously hiked the price of antiparasitic medicine Daraprim from $13.50 to $750 per pill. Miller partnered with a compounding pharmacy to undercut Shkreli with a $1 alternative.

In other words, Miller embodied what PBMs were originally meant to do: reduce healthcare costs.

When Cigna acquired Express Scripts, Miller became the chief clinical officer of both companies.

“I spent an enormous amount of time fighting inevitable regulations, legislation, and sort of hatred in the marketplace,” he told Hunterbrook.

This onslaught led to the creation of the PBM GPOs.

“Hand-in-glove to the whole conversation of how do you sustain your profitability over time is you’ve just got to continually be evolving new things,” he told Hunterbrook.

Miller explained that a core benefit of the PBM GPOs is that they can charge fees that are not considered rebates, and therefore do not need to be passed through to health plans and patients.

“There are lots of different fees you can charge. You can charge data fees. You can charge administrative. You can charge clinical fees. The fees fall into different buckets,” he explained.

“You can double-, triple-dip on fees.”

“This is why there’s so much hatred now, because as these details become more known, people are like, what a screwy business this is, right?”

Baker of AffirmedRx elaborated on the kinds of “details” Miller was referring to.

Baker showed Hunterbrook an example of an Express Scripts client letter that displayed a single number, versus the itemized breakdown AffirmedRx provides in its pursuit of differentiation through transparency.

He said AffirmedRx had identified 23 different sources of fees charged by PBM GPOs. “All of these fees add up and there is no accountability or visibility,” Baker told Hunterbrook.

Countering that criticism, Miller argued that PBMs are probably necessary to rein in drug pricing by drugmakers. “When the pharmaceutical manufacturer sets its price, if the PBM did not exist, would they set the price any lower?”

Mark Cuban’s Cost Plus Drugs is already testing this hypothesis, cutting out PBMs by selling drugs directly to consumers – and contracting directly with employers.

Were Ascent’s fees adding profit on top of what could be taken from rebates, or were drugmakers adapting by reducing the rebate payment as they paid Ascent more?

“They were reducing rebates to pay Ascent more,” Miller said, confirming the core issue: health plans were getting less money because of payments to PBM GPOs.

This was, Miller explained, the nature of the PBM business: facing off against the consultants hired by the health insurance plans to review bids by the PBMs.

“When you’re dealing with these PBMs, they’re much more aggressive, smarter people, a little more creative,” he said. “It’s a pretty sharp-elbowed business.”

“When you first create something, you’re trying to get ahead of the consultants and their knowledge, right? So when you initially set up an Ascent, they’re unaware of this,” Miller said, apparently indicating that the PBM GPOs were at least in part deceiving the health plans and their consultants.

“Nothing stays quiet for long. Someone starts understanding, oh, there’s this new pool of money, so we’re going to put it in our contracts to cover that also. And so it’s a whack-a-mole thing. And this is why consultants are involved in almost every bid.”

Referring respectively to health plans, consultants, and PBMs, Miller said: “Because you’re [health plans] paying them [consultants] essentially to try to understand where’s the next innovation of how they’re [PBMs] going to try to rob me [health plans].”

“Once it gets discovered, the consultants narrow in on it, you end up disclosing more and more,” Miller concluded.

The Numbers: Millions of Dollars in Revenue per Employee

Despite the ghost offices, tiny head-counts, and opaque operations, a staggering amount of money flows through these subsidiaries.

Hunterbrook reviewed LinkedIn profiles, team photos, corporate filings, and job listings to determine the staffing at all three entities. We identified fewer than 150 employees total — about 88 at Ascent, and roughly two dozen each at Emisar and Zinc.

These skeleton crews apparently handle billions of dollars a year.

Neither the PBM GPOs nor their parent companies report financial information for these specific entities, but the limited data available suggest these businesses are improbably lucrative.

A 2023 Nephron Research report cited by the FTC estimates PBMs earned $7.6 billion in fees related to their GPOs in 2022. With fewer than 150 employees across all three entities, these PBM GPOs generate more than $50 million in revenue per employee. By comparison, Apple — long considered one of the world’s most profitable companies — generated approximately $2.4 million per employee in 2024. Nvidia, the AI chip giant whose market cap has surpassed $4.5 trillion, brings in about $3.6 million per employee.

This napkin math was backed up by the former Optum and Emisar executive Rogers, who estimated to Hunterbrook that the GPOs bring in at least “tens of millions” per employee.

The persistent lack of transparency surrounding PBM GPOs makes it difficult to untangle any value they may be adding, according to Ben Link, a pharmacist who previously worked for a PBM and now leads 46brooklyn and 3 Axis Advisors alongside Ciaccia.

“When these GPOs were created, was there a transfer of assets into the GPO? Like, either they actually did develop something, or from an account management standpoint, there would have had to have been a transfer of assets, right?” Link posited. He added, “Because, again, if you didn’t do those things, well, that would certainly seem to suggest more so, again, this is a shell, right? This isn’t actually doing anything. There’s no unique value here, aside from slip slapping a label on it.”

Ciaccia and Link have worked with states to identify problematic PBM practices, including a major 2018 investigation revealing nearly a quarter-billion dollars of margin PBMs made from the Ohio Medicaid program unrelated to GPOs. The state cut ties with PBMs based on the findings.

The federal government has looked into PBMs as well. As part of a sweeping investigation of the pharmaceutical supply chain, the FTC sued the Big Three PBMs and their PBM GPOs for inflating insulin prices in 2024. The FTC also specifically flagged PBM GPOs as entities of concern in a July 2024 interim report on PBMs.

A spokesperson for the FTC declined to comment for this story.

Calling Emisar, Ascent, and Zinc “rebate aggregators,” the FTC found evidence of financial engineering on a massive scale: “Internal PBM documents appear to show novel methods of fee generation from these new rebate aggregators. One report estimates that since the PBMs spun off their rebate aggregators, they have extracted from drug manufacturers billions of dollars in additional fees, which doubled from $3.8 billion in 2018 to $7.6 billion in 2022.”

The FTC cited data from Nephron Research, showing that “Fees & GPO” overtook “Rebates & Price Protection” and the “Spread” PBMs collect as a percentage of PBM gross profits. This growth accelerated between 2016 and 2020. That coincided with a proposal by the first Trump administration to remove the safe harbor for PBM rebates from federal anti-kickback laws.

“These aggregator fees have grown substantially since the initiation,” said Sharp. “They’re becoming very material in terms of what pharma has to pay to obtain access to these formularies.”

“They started out as 1 to 2.5% of rebate amounts,” he told Hunterbrook. “The PBMs knew they’d eventually have to be transparent about rebates. They started this side pool to protect their margin and revenue. Now, they’re in the 15-to-20% of total rebate amounts.”

This extraordinary revenue flows through a labyrinth of payment categories sources say are carefully engineered to avoid transparency: entity administration fees, prescription data services, data portals, enterprise fees, and other charges that PBMs insist are not rebates and therefore don’t require pass-through to health plans. These revenue streams exist on top of the PBM’s typical administrative service fees of about 3% to 5% of the wholesale price of each drug, further inflating healthcare costs.

The effectiveness of the scheme is enhanced by its invisibility. Most healthcare payers (health plans, unions, self-insured employers) — and certainly patients — have no idea these PBM GPOs or their fees even exist.

“It’s fight club. First rule of fight club, you don’t talk about fight club,” Link, the pharmacist and former PBM employee, told Hunterbrook, referencing the film “Fight Club.”

“You don’t know what you don’t know, and to the extent the PBMs themselves are delivering what they said, it wouldn’t even occur to a health plan,” said Sherman.

“Even when I was a health plan CMO, I don’t know, barring some shock or data point, how I would figure out that there were tens of millions of dollars that they were sucking up somewhere,” Sherman told Hunterbrook. “I always assumed they were screwing with me somehow, and if you can minimize that, you’re ahead of the game. But I wouldn’t have known how to look for it.”

PBM GPOs Begin Receiving Legal Scrutiny

Beyond the FTC, a few others have begun to wise up to the scheme.

States including Illinois, Ohio, Louisiana, Vermont — as well as the Office of the Inspector General (OIG) of the United States Office of Personnel Management — have each begun to tackle the PBM GPO scheme.

In June 2025, Louisiana filed a lawsuit against Zinc and Caremark in state court. Shortly afterward, a Hunterbrook reporter contacted the attorney general’s office about a potential error in the company’s name in the complaint. While it declined to comment on or confirm that the flagged text was incorrect, citing “active litigation,” the attorney general’s office re-filed its complaint the next day, correcting the error.

Louisiana and CVS Caremark are discussing a settlement, Attorney General Liz Murrill said in December 2025. CVS would pay around $50 million to resolve the lawsuit concerning Zinc, as well as 2 related cases over Caremark’s practices.

“We can confirm we have an agreement in principle with CVS. The suits will be dismissed, and they are eligible for the discretionary one-year extension as a Managed Care Organization. We will announce the specifics once finalized,” a spokesperson for Attorney General Murrill told Hunterbrook.

In Ohio, the attorney general is pursuing a case similar to the one in Illinois, claiming that Express Scripts used Ascent to fix prices and rebates among a handful of supposed competitors.

In April 2025, Michigan’s attorney general accused Express Scripts and Prime Therapeutics of using Ascent as part of an illegal price-fixing cartel.

Prime Therapeutics is a separate PBM with a minority ownership stake in Ascent. Prime CEO Ken Paulus described Ascent as a “real shared effort” between the two PBMs in a 2021 interview.

​​”We have direct access to all of the contracts in the GPO. We have employees that work in the GPO with, with their employees,” Paulus said. He noted that, at the time, Ascent represented “100 million lives” and had generated “literally in the billions of dollars of, I think, savings for our clients that we wouldn’t have otherwise seen.”

Prime Therapeutics declined to provide comment for this story.

Rather than compete against each other, Express Scripts and Prime Therapeutics agreed to leverage their combined buying power to undercut independent pharmacies in the state — leading to “pharmacy deserts” and bolstering Express Scripts’ market power, according to the Michigan attorney general’s complaint.

“To effectuate the Agreement, Prime and ESI exchange CSI — including the confidential terms of their contracts with retail pharmacies and drug manufacturers — in part through a secretive, off-shore, jointly-owned group purchasing organization (‘GPO’) called ‘Ascent,’” read the complaint.

Meanwhile, there’s been pushback at the federal level.

In August, the House Committee on Oversight and Government Reform opened a probe into Emisar and Ascent. The creation of offshore GPOs “appears to be yet another example of the institutional intent at opacity and avoidance of oversight within your company,” read the letters sent to Cigna and Optum Rx.

The Committee’s Majority staff did not respond to repeated Hunterbrook inquiries about the status of the probe.

Federal watchdogs have also been clawing back funds from PBM GPOs.

In March 2024, the Office of Personnel Management reported on its audit of pharmacy benefits administered by Express Scripts, which had been hired by the American Postal Workers Union Health Plan. According to the report, the union was supposed to receive “‘the value of the PBM’s negotiated discounts.’”

But in 2019, Express partnered with Ascent to “handle all drug manufacturer rebate administration.” Now, the PBM and GPO split drug company rebates between them. When the time came to pass through the money, Express sent along its share — but Ascent didn’t. Instead, it pocketed about $15 million that should have gone to the union.

The PBM GPO agreed to return the $15 million. But their counsel insisted Express Scripts “contracted with Ascent to perform rebate management services,” and the payment was a good faith measure. (The letter was included as Appendix B in the OIG Final Audit Report.)

Later in 2024, the Office of Personnel Management had déjà vu: Its audit showed Ascent had kept nearly $10.6 million in rebates it owed the Compass Rose federal employee health plan. Once again, the contract apparently required “pass-through transparent drug pricing” so the plan would “receive the value of the PBM’s negotiated discounts, rebates, credits, and other financial benefits.”
Yet, millions in rebates were withheld from Compass Rose because of “lower rebate percentages agreed to internally between the PBM and Ascent,” according to the OIG’s Audit Report.

Ascent kept 14.264% of the total rebates it received for Compass Rose from mid-2019 through 2021.

Express Scripts agreed to credit Compass Rose for the rebates it wrongfully withheld, once again insisting that Ascent is not its “sister company.”

“Of the few that have raised the issue, they’ve immediately caved,” said Sherman. “Why would you think that any health plan is not subject to the same gaming?”

“I think they exist for the sole purpose of hiding data and taking fees,” Jonathan Levitt told Hunterbrook, referring to PBM GPOs.

Levitt is a founding partner of Frier Levitt LLP, a healthcare law firm. He provided testimony on PBM GPOs to the Senate Finance Committee in 2023, and his firm has helped plan sponsors recover millions of dollars PBMs wrongfully diverted to rebate aggregator GPOs.

He told Hunterbrook it is a fiduciary responsibility for plans to audit PBMs, and if the health plan finds underpayment, a fiduciary responsibility to recover it. “If you do an audit, and you’re in the middle of an RFP, I almost guarantee that you will get better terms in the next contract.”

“The manufacturer contracts with the GPOs that we’ve seen reveal a delta between what the plan received and what the manufacturer paid,” he said. “We’ve seen GPO manufacturer agreements that discuss the administrative fees and other fees that the PBM contract with the plan does not mention.”
Zinc, Emisar, and Ascent have also been looped into major multi-district litigation against PBMs, insurers, and pharmaceutical companies for driving up the price of insulin. Over 400 companies, unions, school districts, universities, and state and local governments have signed onto the suit as plaintiffs.

Last January, the plaintiffs moved to add the PBM GPOs as defendants.

Similar drug pricing lawsuits are making their way through state and federal courts, including cases filed by the attorneys general of Hawaii and Rhode Island.

Critics of rebates and high drug prices had only just begun sinking their teeth into PBMs when the conglomerates began ramping up these PBM GPOs. They get just a cursory mention on three pages of the 73-page interim report the FTC published in 2024.

In a brief section about PBM GPOs, a subheading reads: “Corporate Restructuring of PBM Rebate Negotiation Services Raises Concerns.”

Those were the government’s core findings before the 2024 election.

PBM GPOs got slightly more attention during listening sessions hosted by the Department of Justice and FTC this summer.

“The largest PBMs created new GPO structures under their own parent companies that are now offshore, primarily in places like Switzerland and Ireland, that negotiate rebates on behalf of almost every patient in the country, at least in commercial markets,” said Joe Shields, founder and president of TransparencyRx. “That’s not reform, that’s not meaningful transparency or market integrity.”

“You can imagine how many times I’ve been physically to the FTC,” said Miller, the former Cigna and Express Scripts CMO. “The PBMs underestimated the problem that was going to create.”

In January 2025, the Trump administration fired the inspector general who had recovered $15 million for the postal workers union and $10 million for other federal employees from Cigna’s Express Scripts and Ascent.

In March 2025, Trump fired the two Democrats of the five-member FTC leadership, leaving the agency without a single commissioner able to oversee the FTC’s insulin lawsuit.

As a result, the case was administratively stayed from April 1 through August 27.

Lina Khan, the Chair of the FTC at the time the lawsuit was filed, called the firings “A gift to the PBMs.”

Express Scripts accused Khan of having an “anti-PBM bias” when they sued the FTC last fall, alleging the FTC’s July 2024 report on the industry was “unfair, biased, erroneous, and defamatory.”

A month after the proceedings resumed, the FTC’s case was once again put on hold for all of October and most of November, thanks to the month-and-a-half-long government shutdown. An evidentiary hearing is currently scheduled for June 17, 2026.

The PBMs and their GPOs are seeking to have the case dismissed. They’re also challenging the FTC proceeding in federal court as unconstitutional.

Some states are attempting to rein in the PBMs and their GPOs through legislation. In October 2025, California enacted a PBM reform package that decouples PBM compensation from drug prices in favor of a flat fee model and requires rebate pass-through, among other provisions. The law explicitly specifies that rebates include any discounts or fees collected by an affiliated GPO.

“(v) (1) ‘Rebates’ means compensation or remuneration of any kind received or recovered from a pharmaceutical manufacturer by a pharmacy benefit manager, affiliated entity, or subcontractor, including a group purchasing organization, directly or indirectly, regardless of how the compensation or remuneration is categorized, including incentive rebates, credits, market share incentives, promotional allowances, commissions, educational grants, market share of utilization, drug pullthrough programs, implementation allowances, clinical detailing, rebate submission fees, and administrative or management fees.

“(2) ‘Rebates’ also includes fees, including manufacturer administrative fees or corporate fees, that a pharmacy benefit manager, affiliated entity, or subcontractor, including a group purchasing organization, receives from a pharmaceutical manufacturer.

“(3) ‘Rebates’ does not include pharmacy purchase discounts and related service fees a pharmacy benefit manager, affiliated entity, or subcontractor receives from pharmaceutical companies that are attributable to or based on the purchase of product to stock, or the dispensing of products from a pharmacy benefit manager’s affiliated mail order and specialty drug pharmacies. ‘Rebates’ does not include a pharmacy benefit management fee.”

PBMs Fail To Disclose PBM GPOs in Contracts with Health Plans

Hunterbrook reviewed several contracts between health plans and each of the Big Three PBMs — Optum, Express Scripts, and CVS Caremark — as well as marketing materials presented to PBM clients.

Across thousands of pages of contracts and presentations, the PBMs did not include any direct explicit mentions of Emisar, Ascent, or Zinc whatsoever.

“They’re hiding it contractually,” said Sharp, who was instrumental in establishing the CMS NADAC system for tracking pharmacy prices and who helped implement Indiana Medicaid’s supplemental rebate program while pharmacy director for the state’s Medicaid plan. He added, “If I were contracting and I created this aggregator pool, would I really want to tell anybody about it? Probably not.”

Thorsen, the health plan consultant, agreed: “There were other cash flows hidden that were not getting passed back.”

“When I last met with them, it was not on the radar,” Sherman, the former CMO of Harvard Pilgrim, said of his meetings with PBMs, and any mentions of PBM GPOs. “They didn’t differentiate between the PBMs and the companies that were a level down,” despite fiduciary responsibilities and transparency laws.

Certain contracts claim 100% pass-through of rebates to the client. But they limit the scope of rebates, similar to the statement by former UnitedHealth CEO Sir Andrew Witty on the aforementioned earnings call.

PBMs generally don’t consider the new “fees” drugmakers pay to their affiliated PBM GPOs to be rebates. Because contracts are between PBM and plan sponsor (not the PBM GPO and plan sponsor), PBMs can argue that their clients are only entitled to rebates that actually hit the PBM’s account.

Consider a hypothetical example:

Company A hires Caremark to be the PBM for its employee health plan. The contract says Caremark will pass through 100% of rebates received by the PBM in relation to claims by Company A’s plan members.

Zinc receives $100 million in total payments from drugmakers for patients on Company A’s health plan. Zinc sends $80 million of this to Caremark, keeping $20 million that it classifies as fees or other GPO compensation. Caremark passes through $80 million — 100% of the rebates Caremark received — to Company A.

The other $20 million belongs to Zinc, not Caremark, even though the funds still ultimately pad the bottom line of their shared parent company: CVS Health.

And because Company A only has a contract with CVS Caremark (not Zinc), Company A has no way to know about the $20 million Zinc kept.

“Rebates have become a term of art, and in the old days we would characterize any money from pharma as rebate,” according to Ciaccia. “They’re now being re-itemized as associated fees along with rebates, even though they may, in fact, walk and talk just like the rebates of old.”

“You’re looking at a business model that, in general, is contorting itself to try and make old money in new ways,” Ciaccia said of the Big Three health conglomerates CVS Health, Cigna Group, and UnitedHealth Group.

The contracts that Hunterbrook reviewed also say that the PBM won’t contract with drugmakers for non-rebate revenue that reduces rebates, contradicting the Cigna CMO’s assertion that drugmakers reduced rebates to pay higher fees.

At least one contract also said that the PBM wouldn’t alter a drug’s status on the formulary list of insured drugs based on fee payments, only rebates.

Sharp said his manufacturer contacts “categorized these as bullshit fees,” he told Hunterbrook. “Manufacturers refer to it as extortion for formulary access.”

“My view of these aggregator fees is it’s another way to recategorize that rebate money and create new revenue streams in their contracts with manufacturers,” Sharp continued.

Baker, the CEO of AffirmedRx, echoed this. “Most of the fees are payment for market access, in my opinion. If I’m being generous, only 5% of the fees are for administering those negotiations,” he told Hunterbrook.

Sharp posed the question: “Are rebates being cannibalized by the aggregator fees?”

Former Emisar executive Rogers said, “As the bubble is bursting, premiums have been set for the next three years and there’s not going to be enough rebates to pay them. And so they’re gonna have to raise premiums for employees.”

Rogers added, “There’s no more money left.”

The former executive of a drug company told The New York Times “he had a set pool of money to cover fees to G.P.O.s and rebates to employers. When he paid more in fees, he offered less in rebates.”

Sharp told Hunterbrook, “Your physician, your legislator, people that use the benefit, they don’t understand what the aggregators are, what they do, what they keep, how they affect drug pricing.”

He explained the impact on how much a patient pays for medicine, demonstrating how the majority of drug revenue is pocketed by the various middlemen.

Hunterbrook interviewed drug company executives about their interactions with PBMs and PBM GPOs. The CEO of one billion-dollar, publicly traded pharmaceutical company, who is contracted with all three PBMs, described a byzantine process.

“It’s a little absurd,” he told Hunterbrook. “They own the GPO and the PBM of course, so the GPO is sort of a smokescreen to say we didn’t make a decision on the pharmacy benefits, this GPO did.”

He went on, “When they’re owned by the same corporation, as you said, they’re sitting in the same building, the same people, they just artificially separated them … and they’re doing the same thing.”

The executive partly countered a couple of claims made by other experts Hunterbrook interviewed.

The difference between rebates and fees wasn’t a significant component of his negotiations, he said. And the data portal was useful for the company to get information on “the copays, who’s paying what, what demographics” — which larger companies already had access to, according to the former Zinc/Caremark/CVS executive.

Cuban co-founded the public benefit corporation Cost Plus Drugs to remove middlemen like PBMs from the supply chain.

In an email exchange with Hunterbrook regarding the PBM GPOs, he wrote, “They are covers for the Big Three to say in a contract that they pass through 100% of the rebates they get. And it is also used as a way to keep us and others from being able to get full access to brand drugs.”

Miller countered: “Mark Cuban — and I suspect he’s losing money in his effort — if you think about Mark Cuban’s efforts, they have these limited products. For instance, they charge you for mail. Our patients in mail-order get mail for free. … you will almost always spend more on the Cuban market basket than using your benefit.”

“I think there are ways to fix this. But we don’t have the political will to name a postal office anymore, what’s more, take on a big issue like this,” he told Hunterbrook. He added, “Every time we add things on … those are maladaptive fixes, and for every good intention, there’s all these ways to bastardize it.”

Rogers called out benefit plan consultants as part of the problem, questioning how they’re paid.

Experts told Hunterbrook that compensation to brokers and consultants who advise health plan sponsors on their PBM contracts can range from flat fees to a percentage of “savings” — which could either be defined as overall plan savings or tied to rebates. The latter could encourage higher rebating without creating an incentive to target PBM GPO fees.

Brokers and consultants also can be incentivized to steer their clients toward major PBMs: PBMs sometimes pay brokers bonuses or commissions based on how much business they drive to the PBM.

“I’m not popular with those consultants unless they’re transparent,” said Levitt, the litigator who represents health plans against PBMs, calling some benefit consultants “crooked.”

Congress did give transparency advocates a win: The Consolidated Appropriations Act of 2021 created disclosure and reporting requirements for health plans, as well as brokers and consultants. This has driven progress on the broker transparency front, Bianchi said, but both he and Gelfand — president of the large employer lobbying group ERIC — noted that the law’s reach is limited when it comes to PBMs.

“Congress just did it wrong,” Bianchi said. “In HIPAA, Congress directly regulated the service provider. They called them business associations, but they’re service providers. In this law, they did not directly regulate the service provider, they just regulated the plan. I think that was shortsighted.”

Gelfand’s group, ERIC, has lobbied for legislation explicitly designating PBMs as fiduciaries of health plans, which would require the middlemen to act in the best interests of the plan and its members.

“They’re constantly staying one step ahead of whatever the best practices are, or whatever they believe Congress is looking to regulate or the FTC,” Gelfand said. “They control the game, and they write the contract. And the vast majority of even the companies that I represent, which are the biggest companies in the country, with the most leverage to negotiate with the PBM, even they can only negotiate certain things within those contracts.”

PBM “GPOs” Aren’t Even GPOs

Purchasing cooperatives like GPOs let groups of buyers pool their purchasing power for greater leverage.

“I mean, it’s not like anybody’s really reinventing any wheel here,” Bianchi told Hunterbrook. “Now, the problem is mechanically, who exactly does the purchasing cooperative? In an ideal world, there would be some overarching employer association, like a mega Chamber of Commerce, but … it’s not easy to pick a group that could sponsor it.”

Of all the possible configurations for drug purchasing coalitions, putting a PBM at the helm raises conflicts of interest, according to Bianchi. Bianchi continued “The other possibilities, and this is where it gets a little bit more dicey, they can be organized by brokers and consultants, and all of the large brokers have them, you know, you look at the Mercer’s of the world or whoever, and this is almost a benefit add-on to their services that they provide their clients. And so brokers, in many ways, are natural, makes sense… The second worst alternative is for the PBMs to sponsor these collaboratives because they don’t have any incentives, It’s a conflict of interest, in my view. And then the worst of all is when PBMs create a buyer cooperative that is made to look like an independent. That is, they’re not disclosing their participation… Is it absolutely true that a PBM-led consortium is necessarily bad? Maybe the answer to that is no, or it doesn’t have to be.”

He also distinguished genuine purchasing groups from rebate aggregators like Zinc, Ascent and Emisar.

“These things are good ideas because they leverage purchasing power, but they need to be managed. And maybe that’s the bottom line right there,” he said.

“And then I go one step further to be very cautious of international cooperatives,” Bianchi added, explaining that it’s hard to enforce U.S. transparency requirements on an overseas GPO.

“The Big 3 PBMs all recently established separate, affiliated entities that they refer to as group purchasing organizations, so-called ‘PBM GPOs,’” wrote the FTC. “These entities, however, are not traditional GPOs that purchase drugs and other medical supplies on behalf of health care providers like hospitals. Rather, the entities — which we refer to as ‘rebate aggregators’ — negotiate contracts, including rebates, with drug manufacturers — a task that PBMs historically engaged in directly.”

Industry experts interviewed by Hunterbrook agreed that “GPO” is a misnomer.

“A GPO is an independent organization that stands in collaboration with a healthcare company and a healthcare system,” said Keith Palmer, a former Marine Corps captain who has spent decades as a senior healthcare executive.

“They aggregate the volume of a healthcare system to negotiate better pricing for products and services,” he added.

Traditional GPOs have also criticized PBMs for calling their new entities “GPOs.” Both the Health Care Supply Chain Association and Healthcare Group Purchasing Industry Initiative have posted materials distinguishing PBM GPOs from traditional ones.

“These group purchasing ’captive’ entities, commonly described as ‘rebate aggregators,’ have an entirely different mission, structure, and purpose than the healthcare group purchasing participants in HGPII,” wrote the latter. “They operate with limited transparency to maximize revenue and capture rebates for their corporate parent, rather than leveraging savings for participating health systems.”

At first, even Express Scripts wasn’t sure about the GPO label, according to Adam Fein, president of Drug Channels Institute.

In a 2023 post, Fein wrote, “A couple of years ago, Express Scripts’ PR team told me in no uncertain terms: ‘Ascent is not a GPO.’ The company has since changed its tune, judging by this page on its new The Facts about Express Scripts website.”

Sherman faced the Big Three PBMs as CMO of Harvard Pilgrim. He rattled off the supposed functions.

“Consolidating purchasing volume. But isn’t that what PBMs do? Simplified procurement. Rebate management. Again, no difference than what the PBM was selling me without this. Formulary management. Advice and data on optimizing formulary. That’s what the PBM without the GPO is doing.”

“I’ve never seen anything different from what the PBM is doing,” Sherman said. “So why do they exist?”

“I’ve always believed there were other fees and other ways they’re paying themselves internally in ways that manage to carve it out of anything you see,” he said. “You get 100% back of what you know about, but not the stuff they’re hiding.”

Emma Freer, a senior policy analyst for healthcare at the anti-monopoly advocacy group American Economic Liberties Project, concurred.

“These PBM GPOs only exist as a routing mechanism for the PBM itself. It’s designed to be confusing. I don’t see what purpose they serve other than being a way to funnel fees,” Freer told Hunterbrook.

“These PBM GPOs are not GPOs,” she concluded.

From Drug Costs to Death

The costs of the current system go beyond higher drug prices, as evidenced by the death of 22-year-old Cole Schmidtknecht, reported by The Washington Post and explained in a lawsuit filed on January 21, 2025, by his bereaved parents.

The defendants are Optum Rx — the PBM that owns Emisar — and the pharmacy Walgreens. In July, a federal judge denied Optum’s attempt to have the case dismissed.

Walgreens did not respond to Hunterbrook’s request for comment.

One way that PBMs negotiate with pharmaceutical companies in return for rebates is through “step therapy.” While step therapy can lower drug spending, in some cases, patients must instead try a more expensive drug for a certain time, determined by the PBM, prior to being able to fill a prescription with a cheaper alternative.

The more expensive the drug, the bigger the rebate that the PBM can get paid by pharma as a discount to the drug’s increased price.

This can be the case even if the patient’s doctor prescribed the cheaper drug first. Pharmaceutical companies pay PBMs rebates to make their drug the first step, despite higher patient co-pays.

“Burdens can become so extreme that patients may delay taking their medication, skip doses, or even go without them entirely, sometimes with fatal results,” wrote the FTC.

In late 2023, Optum decided to replace the relatively cheap asthma drug Advair Diskus and its generic equivalents with newer, more expensive branded products.

Why would the PBM want patients to switch to pricier alternatives? Most likely, because Optum and potentially Emisar could then earn more in rebates and fees.

So beginning in January 2024, a patient could only get a script for the cheaper version filled if their doctor had prior authorization from the PBM. Prior authorization is slow and often rejected.

Cole grew up with chronic asthma. He successfully used his preventative inhaler — an affordable asthma treatment with multiple generic equivalents — for more than a decade, his parents said.

On January 10, 2024, Cole went to his local Walgreens in Wisconsin to refill his usual script for the affordable drug.

According to the lawsuit, he expected to hand over his $66.86 copay and leave with the preventive inhaler that helped him breathe. But due to the recent PBM change negotiated by Optum — and likely Emisar, as the PBM GPO was built in 2021 — his asthma inhaler was no longer covered by insurance.

To get his inhaler, it would now cost him $539.19 out of pocket, a more than eightfold increase. Cole couldn’t afford the unexpected leap in cost from the PBM’s formulary change.

So he left the pharmacy without his inhaler, according to the lawsuit.

Five days later, Cole had a severe asthma attack, asphyxiated, and lost consciousness. His roommate rushed him to the emergency room.

Cole never woke up. He died within a week.

“Breathing isn’t optional. And they made it an option for Cole,” Bil Schmidtknecht, Cole’s father, told Hunterbrook.

Bil said he also has asthma — and was on the same insurance plan. A few weeks after Cole’s death, Bil’s wife went to a local independent pharmacy to pick up his prescription for the same inhaler. The staff at that pharmacy informed her of the formulary change and made sure she didn’t leave without medicine.

“She came home, Pandora’s box was opened,” Bil explained, “and we were like, ‘Holy shit, this is what happened to our son.’”

Since then, Bil has become a vocal advocate for PBM reform. He quit his job and founded the nonprofit Patient Protector, which is producing a docuseries about PBMs, Modern Medical Mafia.

Shortly after the first episode was published on Amazon and Vimeo last spring, Optum Rx’s parent company UnitedHealth Group reportedly got the platforms to take it down. It remains available on YouTube.

Sitting next to a life-size photo of his late son in the Wisconsin capitol rotunda, Bil spoke to a Hunterbrook reporter via video call in early November 2025. He was there advocating for a PBM reform package called Cole’s Act.

“This shit can’t happen anymore. I mean, it just can’t. Cole was freaking 22 years old and had a life ahead of him,” Bil said.

“All the money in the world isn’t bringing Cole back. So let’s make sure we just save people.”

If you have information related to PBMs, PBM GPOs, or other topics investigated in this article, please contact ideas@hntrbrk.com to share with Hunterbrook Media, which can keep you anonymous.

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Authors

Laura Wadsten is an investigative journalist specializing in healthcare. She began her career reporting on antitrust and health care markets as a Correspondent for The Capitol Forum, a premium subscription financial publication. Previously, she was Executive Director of the nonprofit Moving to Value Alliance, where she produced the MTVA Unscripted Podcast. Laura was a Hodson Scholar and Editor-in-Chief of The News-Letter at Johns Hopkins University, where she earned a B.A. in Medicine, Science & the Humanities.

Nathaniel Horwitz is CEO of Hunterbrook — and he sometimes moonlights as a reporter. He has co-founded, invested in, and served on the boards of several biotechnology companies, ranging from AI-designed medicines for cancer to cell therapies for autoimmune diseases. He has a BA in Molecular Biology from Harvard, where he coauthored biomedical research in the scientific journal Cell. His writing on medicine has been published in The Washington Post, The Atlantic, and The Daily Beast. His first job out of high school was reporting for his hometown newspaper, including an investigation of vaccination rates in local schools. He volunteers as executive chair of the 501(c)(3) education nonprofit Mayday Health.

Editors

Sam Koppelman is a New York Times best-selling author who has written books with former United States Attorney General Eric Holder and former United States Acting Solicitor General Neal Katyal. Sam has published in the New York Times, Washington Post, Boston Globe, Time Magazine, and other outlets. He has a BA in Government from Harvard, where he was named a John Harvard Scholar and wrote op-eds like “Shut Down Harvard Football,” which he tells us were great for his social life. Sam is based in New York.

Wendy Nardi joined Hunterbrook after working as a developmental and copy editor for academic publishers, government agencies, Fortune 500 companies, and international scholars. She has been a researcher and writer for documentary series and a regular contributor to The Boston Globe. Her other publications range from magazine features to fiction in literary journals. She has an MA in Philosophy from Columbia University and a BA in English from the University of Virginia.

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By: Nathaniel Horwitz, Laura Wadsten, Michelle Cera

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Based on Hunterbrook Media’s reporting, Hunterbrook Capital is long $ACHV at the time of publication. Positions may change at any time. See full disclosures on our website.

ICYMI: Hunterbrook Media published a breaking news article yesterday on New Era Energy & Digital — which was sued by the New Mexico Attorney General for alleged “fraud on the state.” It’s a pretty wild legal complaint, and yet another example of the kinds of companies latching onto AI buzz. It’s worth a read.

• Achieve Life Sciences ($ACHV) is a roughly $250 million medical company seeking FDA approval for cytisinicline, likely the best therapy to quit smoking. If approved on June 20, Achieve plans to sell the medicine in the U.S. by the end of 2026. The company is also seeking approval for the first therapy to help people quit vaping.

• The FDA accepted Achieve’s anti-smoking application for review, with two successful Phase 3 clinical trials and a successful longer-term safety study. The FDA also expedited anti-vaping with both a National Priority Voucher and Breakthrough Therapy Designation. If cytisinicline is approved for anti-smoking, it will likely also be approved for anti-vaping.

• Under the Affordable Care Act, nearly all American health plans must offer insurance coverage for FDA-approved smoking cessation interventions.

• Cytisinicline is already used in Europe. Several smoking cessation clinicians, scientists, and health program directors that Hunterbrook interviewed for this investigation said cytisinicline should be FDA approved. None said further data was needed.

• Cytisinicline has proven safer and more effective than predecessors withdrawn from the U.S. market: Pfizer’s Chantix (varenicline) — which hit $1 billion in annual sales — and GlaxoSmithKline’s Zyban (bupropion). Generic versions remain available.

• Smoking is declining in the U.S. but still kills at least half a million Americans every year. E-cigarette vaping and nicotine pouches are on the rise, with a slew of new health risks.

• After a perilous financing journey, Achieve ended the third quarter of 2025 with $48 million, or about nine months of burn at its current rate of about $15 million/quarter. Achieve added $5 million in October through a convertible loan and may draw another $5 million alongside launching the product. The company’s clinical expenses are declining now that its key clinical trials are complete, but Achieve will need to raise more capital for commercialization, likely alongside FDA approval.

The golden rain tree is poisonous.

Each year, on the border of spring and summer, dense flowers swoop from pendulous branches in European mountains and ornamental gardens. Horses and humans that eat the flower’s seeds by accident may get sick, but deer and hares feast on the same legumes without harm. This paradox sparked a reputation for mystical power, inspiring a symbolic tree in J. R. R. Tolkien’s “The Lord of the Rings.”

Over two centuries ago, a chemist discovered the culprit: a molecule now called cytisinicline, originally known as cytisine (but no relation to cystine, the amino acid).

Like all chemicals, cytisinicline is toxic in excess. But in lower concentrations, it’s a plant-derived medicine that Europeans have used for decades to fight tobacco addiction.

“It treats the addiction, that’s amazing,” said Dr. Mary O’Sullivan, founder and director of the smoking cessation clinic at Mount Sinai Health System, in an interview with Hunterbrook. “It’s not just suffocating the addiction or trying to get around it. It treats it. That’s an enormous step forward.”

Cytisinicline is also found in the māmane trees of Hawaii, where it feeds moths and birds, as well as the shrub mescalbean, which is used as a ritualistic hallucinogen by certain tribes.

The molecule binds to nicotine receptors, which are the proteins on brain cells that are activated by nicotine. When cytisinicline binds these receptors, it essentially replaces nicotine — reducing craving and withdrawal, without being nicotine itself.

“It’s a very good drug, what we know about it so far,” said O’Sullivan. “I have nothing but good things to say about it. I wish we had it a long time ago. It’s such a shocking thing that all these people who have had smoking-related diseases could have benefited from it so long ago.”

“We should get it on the formulary as soon as we can and get it out to our patients,” she said, referring to the list of drugs that are cleared for prescription by hospitals and insurers. “I would use it immediately, especially if it was cheap.”

After a decade-long journey, the Seattle-based company Achieve may finally receive FDA approval for cytisincline, with an approval deadline of June 20, 2026.

Dr. Robert West, a smoking cessation expert at University College London, told Hunterbrook that the FDA “definitely should” approve the option for Americans. “Cytisinicline has been used safely for decades by many millions of people in Europe and has clear efficacy.”

Smoking kills about half a million people every year in the U.S. and over 7 million people worldwide. There are about 29 million American cigarette smokers and about 28 million e-cigarette users, including many middle and high schoolers, a lot of whom go on to smoke tobacco.

A spokesperson for Achieve told Hunterbrook that of those 29 million smokers, 53% try to quit annually, yet only 10% succeed. These statistics align with recent data from the U.S. Centers for Disease Control and Prevention (CDC) — that only 8.8% successfully quit — as well as interviews with experts.

It’s hard to overstate the lethality of smoking, even after declines in American usage. Smoking causes about 9 in 10 lung cancer deaths, 6 in 10 pulmonary disease deaths, and 3 in 10 heart disease deaths.

A past therapy for smoking cessation from Pfizer earned over $1 billion in peak annual sales, despite side effects. The FDA label for varenicline — first branded as Chantix in 2006 — had a suicidality warning, plus a fourfold higher rate of nausea than cytisinicline, and higher rates of sleep issues and headaches. The FDA later removed the suicidality warning from Chantix after further data.

“Unfortunately, everyone in the world knew about the suicidal ideation and the potential for aggressive behavior,” said O’Sullivan. “It was in all the ads on TV and to this day the patients remember it, and also the providers remember it, so providers have been reluctant to prescribe varenicline even though the black box warning was taken off years ago.”

Unlike varenicline, cytisinicline has not shown the risk of suicidal ideation.

Both Chantix (varenicline) and GlaxoSmithKline’s drug Zyban (bupronion), were withdrawn from the U.S. market due to manufacturing issues. In addition to more side effects, each also required longer treatment than cytisinicline.

“From the available evidence, cytisinicline has the potential to be at least as effective as varenicline when given using an appropriate dosing regimen (e.g. for a similar length of time) and is almost certainly more effective than bupropion,” West wrote to Hunterbrook. “The side effect profile of cytisinicline is somewhat better than varenicline — similar symptoms but less common. Both are safe though in terms of serious side effects. The side effect profile looks better than bupropion.”

West viewed cytisinicline as the best therapeutic intervention available. “I am not aware of other drugs that have the same level of evidence to support them.”

Dr. Judith Prochaska — a professor in the department of medicine at Stanford University, a consultant to Achieve, and a director of Stanford Health Care’s tobacco treatment service — agreed.

“The data indicate that cytisinicline has comparable efficacy to varenicline, doubling the chances of quitting smoking through 6 months or longer relative to placebo, and with fewer self-reported adverse events than varenicline,” Prochaska wrote to Hunterbrook. “The most recent trials have found both longer duration of cytisinicline treatment and a higher dose schedule increase smoking abstinence.”

Dr. Maya Vijayaraghavan — a professor of medicine at UCSF who practices as a general internist and a researcher in tobacco control — would like to see cytisinicline directly compared with the generics. “Cytisinicline can help people stop smoking more so than placebo and may be as effective as varenicline, but we need trials that compare varenicline with cytisinicline.”

On safety, she said that: “Cytisinicline may have fewer people [with] serious adverse effects compared to varenicline. Tolerability is about the same for both medications. They both can cause nausea and GI distress, difficulty sleeping, and abnormal dreams.”

Patients On Social Media

Many who have opted for cytisinicline to quit smoking or vaping have taken to online forums to discuss their experiences. On Reddit, many reviews have been positive.

“Amazing,” one user wrote. “Easiest attempt to quit ever.”

Several Reddit users documented their journeys with quitting, including someone who struggled to quit with other methods and relapsed. That changed with cytisinicline.

“I wasn’t even sure 100% if I wanted to quit before this. But now the pills have given me only one option. To quit. Because there is literally no satisfaction in a cigarette now even if I tried,” the post read.

Another Reddit user advised others considering cytisinicline, stating, “All I can say is it made everything survivable.”

The same went for vaping.

“I was vaping every hour, for about 2 years. I was vaping in bed too. I HAD to quit, I’m SO EMBARRASSED that I let vaping get such a hold on me,” described one user, who said that now with cytisinicline they’re “3 weeks in and I’m not caving in.”

It didn’t work for every user on the thread. One added a caveat: “Yes it’s amazing, but be prepared for it to mess with your sleep a bit. Antihistamine sleep aids helped me through.”

One Facebook user who smoked for 20 years told others in a quit smoking support group that cytisinicline was successful in making them a non-smoker without side effects or withdrawal symptoms.

“Cytisine was the best decision for me,” they wrote, using cytisinicline’s other name. “The perfect medicine.”

Compelling Data

Achieve began R&D in 2015 and has since completed a half-dozen clinical studies in the U.S. testing the dynamics, safety, and effectiveness of cytisinicline.1

“For me this mission is deeply personal,” Dr. Cindy Jacobs, the former president and chief medical officer of Achieve, said on the 3Q24 earnings call. Jacobs later moved to an advisory role in September 2025. “Smoking has left a profound mark on my family. Until recently both of my parents were lifelong smokers. Two years ago my mother was diagnosed with lung cancer. In July, my father faced a total laryngectomy after being diagnosed with throat cancer, which has severely impacted his ability to eat and communicate.”

Prochaska summarized the positive results of cytisinicline as an addition to a limited arsenal of nicotine replacement therapy (NRT) options in the U.S.

“If you look at the articles, they’re written by the best people in smoking cessation, they’re written by people I trust,” said O’Sullivan.

Network meta-analysis, which simultaneously evaluates multiple treatments across randomized controlled trials, revealed that varenicline and cytisinicline lead the pack in helping smokers quit for six months or longer, according to Prochaska. Both medications showed better results than traditional NRT and bupropion.2

And regarding safety?

Cytisinicline’s side effects are generally mild and temporary, primarily affecting digestion and sleep patterns. Studies also indicate that patients report fewer adverse events with cytisinicline compared to varenicline. While there are limited direct comparisons between cytisinicline and bupropion, previous research suggests varenicline and bupropion have similar side effect profiles.

In 2021, Achieve completed a Phase 2b study (ORCA-1) with 254 adult smokers. For the 3 mg cytisinicline arm that Achieve took into Phase 3 studies, smokers were as much as five times more likely to stop smoking on cytisinicline than a placebo.3

In April 2022, Achieve completed a Phase 3 study (ORCA-2) with 810 adult smokers, evaluating the effectiveness of 3 milligrams of cytisinicline taken three times daily for six and 12 weeks. The six-week group had a 25.3% abstinence rate vs. 4.4% for placebo, whereas the 12-week group had a 32.6% abstinence rate vs. 7% for placebo. The study also assessed up to 24 weeks, with similar results.

In May 2023, Achieve completed a second Phase 3 study (ORCA-3) with 792 adult smokers. The design largely mirrored the first Phase 3 study. The six-week group had a 14.8% abstinence rate vs. 6% for placebo, while the 12-week group saw a 30.3% abstinence rate vs. 9.4% for placebo. Continuous abstinence rates through 24 weeks further demonstrated efficacy.

According to Chantix’s FDA label, it had a 12-week abstinence rate of around 23% and more safety issues than cytisinicline. According to Zyban’s FDA label, it had a lower efficacy rate in the 15% to 20% range, making cytisinicline a compelling alternative, especially due to its relatively fewer side effects and shorter treatment duration.

In one direct comparison study from 2018 in New Zealand with results in 2021, cytisinicline outperformed Chantix. In another comparison study from 2021 in Australia, Chantix had a slight edge on cytisinicline. The industry publication STAT News noted in a 2023 article that Achieve “argues that the latter study uses a 25-day course of treatment, a shorter course than that used in the biotech’s trials.” STAT also noted that only about a quarter of Chantix patients complete a full course of therapy. In Achieve’s Phase 3 trials, more patients stayed on cytisinicline than placebo.

In addition to smoking cessation, Achieve is pursuing FDA approval for vaping cessation, in part based on its Phase 2 trial (ORCA-V1) concluded in August 2023, half of the cost covered by a $2.8 million grant from the NIH’s National Institute on Drug Abuse program.

31.8% of participants who received 12 weeks of cytisinicline quit vaping compared to 15.1% of those on placebo, without more side effects. These results were presented at medical conferences in 2024 and published in JAMA Internal Medicine​ in May 2024.

Achieve then received Breakthrough Therapy designation from the FDA for cytisinicline as a vaping cessation treatment in July 2024. This designation seeks to expedite the development and review of drugs that may have a substantial improvement over existing therapies for serious or life-threatening conditions. There are currently no drugs approved for vaping cessation.

West felt the focus should remain on tobacco. “Vaping carries a small fraction of the risk of smoking and from a public health perspective smoking must be our number, one, two and three priority,” he wrote. “Anything that detracts from this would be undesirable.”

The FDA accepted Achieve’s New Drug Application (NDA) for cytisinicline to enable smoking cessation in September 2025, based on data from the completed ORCA-2 and ORCA-3 trials, as well as its long-term safety assessment in an open-label trial (ORCA-OL), in which patients knew they were receiving cytisinicline.

In November 2025, Achieve announced results from “the fourth and final scheduled safety review by the Data Safety Monitoring Committee, or DSMC, for the ORCA-OL trial.”4

“Adverse events reviewed during the final DSMC meeting were mostly mild in severity, and no serious adverse events were deemed to be treatment related. The DSMC found no concerns with respect to drug safety.”5

O’Sullivan was not worried about the ORCA-OL trial. “I haven’t seen any red flags about it,” she said, noting that she is not one of the clinicians involved in the trial.

As with all applications, the FDA could still require additional data or studies if any safety concerns arise. Achieve also needs to maintain long-term access to cytisinicline supply. The company is in a legal dispute with its original supplier, Sopharma, though Achieve named other suppliers in its FDA application.6

“Straightforward dosing and low rates of adverse events led to improved treatment adherence and success, including a long-term safety study that exceeded enrollment benchmarks,” an Achieve spokesperson told Hunterbrook. “Achieve has completed two Phase 3 studies with over 1,600 adults who smoke, many with multiple prior quits including on legacy Rx products. Cytisinicline has demonstrated in clinical trials to be safe, effective and well-tolerated.”

Returning Leadership

In August 2024, Achieve’s former CEO, Richard Stewart, reassumed the position after serving as executive chairman since September 2020.

The new executive chairman, Tom King, said in the accompanying press release: “The change in leadership is driven by the need to have a CEO with substantial M&A and commercial experience pushing the company forward to future critical milestones, whether that be a potential licensing transaction or strategic transaction for the commercialization of cytisinicline.”

Stewart is the founder of Ricanto, a firm that seeks potentially undervalued pharmaceutical assets and has flipped a couple in modest acquisitions.

Ricanto previously supported Renown Pharma, with an experimental therapy for Parkinson’s disease; Huxley Pharma, another company working on central nervous system (CNS) therapies, which BioMarin acquired for $58 million in 2009 during the financial crisis; and Brabant Pharma, a third CNS therapies company, acquired by Zogenix in 2014 for $20 million in cash, $15 million in stock, and future milestone and royalty payments.

Before founding Ricanto and working on its portfolio companies, Stewart served for seven years as CEO of Amarin, a once multibillion-dollar pharmaceutical company that suffered a massive stock decline after competition from generics.

Choppy Financing History

Achieve is funded through the second quarter of 2026, which includes the FDA approval deadline on June 20, but the company will need to raise additional capital for commercialization.

In July 2024, Achieve did a $20 million debt refinancing with Silicon Valley Bank (SVB), which is now a division of First Citizens Bank. Achieve had previously entered a $25 million debt deal in December 2021, in which Achieve borrowed $15 million with the potential for an additional $10 million from SVB and SVB Innovation Credit Fund VIII, L.P.7 Achieve can draw an additional $5 million before it will need to tap additional financing sources.

Sailing had not been smooth.

Achieve did multiple reverse stock splits leading up to 2020, had a going concern notice from its auditor PwC in its 2022 10-K filing (though this was resolved in 2023), and paid for stock promotion as recently as 2024 from Zacks Small Cap Research, whose analyst has tossed Achieve a softball question on an earnings call.

Commercial Opportunity

Smoking is making a cultural comeback. And while overall rates are declining in the U.S., it remains an enormous public health crisis. Despite millions of people trying to quit, the success rate is dismal.

“Two in three adults who smoke want to quit, and yet more than 9 in 10 quit attempts fail,” Dr. Judith Prochaska told Hunterbrook. “Adults who use tobacco and want to quit need access to evidence-based quit aids.”

Vijayaraghavan cited ananalysis from Massachusetts General Hospital suggesting that “if cytisinicline became immediately available, approximately 71,000 people could quit smoking in one year and maintain long-term abstinence.”

And while smoking is on the decline, vaping is skyrocketing, with its own health risks.

“There is a big demand for vaping cessation,” said Vijayaraghavan. “As more people are trying the newer e-cigarette products that can be quite addictive, there is likely to be more need.”

Achieve is positioned to be the first mover in this space.

Prochaska noted that cytisinicline also showed a clear benefit for adults who exclusively vape. The FDA has given Achieve two types of expedited review, positioning cytisincline to be the first FDA-approved anti-vaping therapy.

The boutique investment firm Rogue Funds — which disclosed a long position in May 2024 — estimated potential revenue of $300 million to $600 million per year. The estimate is based on 10% of the 14 million people in the U.S. trying to quit smoking each year deciding to use a prescribed medication, with 30%-60% of that market share going to Achieve, and $700-$800 pricing based on a discount to Pfizer’s pricing for Chantix, now only sold as the generic varenicline. Rowe applied an industry-standard 3x valuation multiplier to his projected revenue to estimate a valuation of $1 billion to $1.8 billion for ACHV.

The financial analyst Keith Dalrymple of DF Research projected a fivefold return based on similar assumptions.

Federal Coverage Requirements for Smoking Cessation Suggest Favorable Health Insurance Reimbursement Landscape

Under the 2010 Affordable Care Act, or “Obamacare,” nearly all health insurance plans must offer some type of coverage for smoking cessation interventions.

The specific services and treatments covered can vary from plan to plan, but most Americans have health insurance that covers FDA-approved medications to help them quit smoking. 2014 government guidance provides an example of coverage that would comply with the ACA requirement:

The ACA prohibits state Medicaid programs from excluding FDA-approved tobacco cessation medications from coverage.8 100 million Americans were covered by Medicaid during 2023, the most recent data available from the Medicaid and CHIP Payment and Access Commission.

Most private health plans are required to cover preventive services with a U.S. Preventive Services Task Force rating of “A” or “B.”9 Smoking cessation interventions have an “A” rating, with the Task Force recommending FDA-approved medications alongside counseling.

About 203.7 million Americans had private health insurance in 2024, and HHS recently reported 24.2 million consumers enrolled in ACA Marketplace Exchange plans for 2025.

All Medicare beneficiaries are eligible for smoking cessation counseling at no cost.

Medicare Part D plans cover cessation medications that require a prescription (not over-the-counter) with cost-sharing allowed. Medicare Advantage plans must offer benefits equivalent to Part D plans.

Given the high cost of tobacco-related health risks, health insurance plans may view interventions like quit-aid medications as a worthwhile investment that saves money overall. In a 2020 report on smoking cessation, the U.S. surgeon general wrote, “Smoking cessation medications approved by the U.S. Food and Drug Administration and behavioral counseling are cost-effective cessation strategies.”

A spokesperson for Achieve told Hunterbrook, “Upon potential FDA approval, Achieve is committed to working closely with patients, healthcare providers, and insurers to ensure access.”

Few Options Beyond Cytisinicline

Although cytisinicline has been around for decades, Achieve has patents on its specific version, as well as on its use for smoking cessation in the U.S.

Beyond cytisinicline, there are few options in the U.S. compared to other countries.

“It is unfortunate that the nicotine mouth spray, which has been approved for use in more than 50 countries globally, has not received FDA approval as a therapeutic cessation aid for use in the US,” Prochaska wrote to Hunterbrook.

“There are some possible therapeutic interventions with glucagon-like peptide-1 receptor agonists and deep brain stimulation,” wrote Vijayaraghavan, referring to popular GLP-1 drugs best known for weight loss and a neurosurgical treatment that uses electrodes implanted in the brain. “However, these are early in their phase of inquiry and need robust clinical trials with behavioral counseling and other forms of FDA-approved pharmacotherapy.”

Smoking cessation therapies also compete with the ongoing advocacy of the tobacco industry.

“Tobacco use is an issue of social justice and equity where populations with high rates are the ones that have faced targeted marketing by the industry and systemic inequities that have led to high rates. There is a need for more smoking cessation trials of FDA approved aids and other adjunctive approaches in community-based sites with populations that are representative of those who smoke enrolled in those trials,” said Vijayaraghavan.

Delmonte Jefferson, executive director of the Center for Black Health & Equity, made a similar point at a public session about smoking cessation hosted by the FDA on October 21, 2024.

“We went from picking tobacco to the tobacco industry targeting Black people,” said Jefferson.

Dr. Dorothy Hatsukami — professor of psychiatry and behavioral sciences at the University of Minnesota and an expert on cancer prevention — ascribed the limited number of options more to the decisions of American regulators than to entrenched industry interests.

“I do not think that the industry has delayed smoking cessation approaches,” Hatsukami wrote to Hunterbrook. “Rather, I think the FDA tends to be very conservative in its approach for approving smoking cessation pharmacological treatments.”

A spokesperson for Achieve told Hunterbrook the company has not encountered resistance from the tobacco industry or the vaping industry in its pursuit of cytisinicline’s approval.

“The big industry players would like to pivot away from smoking, which they admit is a harmful product, and would like to pivot towards harm reduction products, such as vaping,” wrote Hatsukami. “There is resistance towards this approach among some members of the public health community, where the goal is to eliminate all tobacco or nicotine use.”

O’Sullivan summed up her perspective on the potential of cytisinicline to reduce harm and save lives. “I think it’s a really wonderful opportunity. I’m looking forward to having it, I’m looking forward to the world having it,” she told Hunterbrook.

“Put it in the water!”

Authors

Nathaniel Horwitz is CEO of Hunterbrook. He has co-founded, invested in, and served on the boards of several biotechnology companies, ranging from AI-designed medicines for cancer to cell therapies for autoimmune diseases. He has a BA in Molecular Biology from Harvard, where he coauthored biomedical research in the scientific journal Cell. His writing on medicine has been published in The Washington Post, The Atlantic, and The Daily Beast. His first job out of high school was reporting for his hometown newspaper, including an investigation of vaccination rates in local schools. He volunteers as executive chair of the 501(c)(3) education nonprofit Mayday Health.

Michelle Cera trained as a sociologist specializing in digital ethnography and pedagogy. She completed her PhD in Sociology at New York University, building on her Bachelor of Arts degree with Highest Honors from the University of California, Berkeley. She has also served as a Workshop Coordinator at NYU’s Anthropology and Sociology Departments, fostering interdisciplinary collaboration and innovative research methodologies.

Laura Wadsten is an investigative journalist specializing in healthcare. She began her career reporting on antitrust and health care markets as a Correspondent for The Capitol Forum, a premium subscription financial publication. Previously, she was Executive Director of the nonprofit Moving to Value Alliance, where she produced the MTVA Unscripted Podcast. Laura was a Hodson Scholar and Editor-in-Chief of The News-Letter at Johns Hopkins University, where she earned a B.A. in Medicine, Science & the Humanities.

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By: Bethany McLean, Andrew Ford, Laura Wadsten

Editor: Jim Impoco

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short RadNet (NASDAQ: $RDNT) at the time of publication. Positions may change at any time. See full disclosures on our website.

• RadNet’s much-hyped AI business is a sideshow. Less than 5% of the medical imaging company’s revenue — about $65 million out of $1.5 billion in the first nine months of 2025 — comes from its newfangled Digital Health division. Much of that division’s revenue, and two-thirds of its reported revenue growth excluding recent acquisitions, comes from selling software to RadNet’s own imaging centers. RadNet also charges mammogram patients $40 for an “AI read” using technology that experts say is commoditized. And yet, the company’s stock has soared in value since its AI rebrand, trading at a much higher multiple than historic norms and competitors.

• The success of RadNet’s roll up business is also misunderstood. By reconstructing RadNet’s footprint and tracking closures, a financial analysis estimates that about half of reported “same-center” revenue growth in recent years came from closing centers located within 15 minutes of surviving RadNet sites and apparently shifting the patients over. Get rid of this consolidation, and organic growth drops to an estimated 2.5%–3%, rather than the reported 6%–10%.

• The truth is buried beneath inconsistent disclosures. RadNet’s 2024 10-K filing said it opened 44 centers through internal development; its earnings release said nine. One 10-Q filing reported 398 centers in operation; a later filing restated that to 375 for the same period, with no explanation. Even the online “center locator” shows seven or eight fewer locations than the headline count. These inconsistencies make it difficult to track how the footprint is actually changing amid purported same-center sales growth.

• Manufactured profits. RadNet’s soaring stock relies on adjusted margins that strip out both stock-based compensation and some R&D spending, which is a critical variable in assessing the profitability of a tech business. After backing out those accounting techniques, RadNet’s operating margins are actually down, not growing.

• Insiders are cashing out. Over the past two years, RadNet insiders have sold more than 780,000 shares — worth $50.9 million — without any open-market purchases.

• RadNet did not respond to repeated requests for comment. Hunterbrook repeatedly sought RadNet’s side of the story, but the company did not engage.

Wall Street keeps asking if there’s an AI bubble. The answer seems obvious once you move past the usual suspects.

Sure, the headline numbers are staggering: $4 trillion in projected spending through 2030, with hyperscalers like Nvidia, OpenAI, and Google announcing new deals seemingly weekly. But the tech giants aren’t the only tell.

It’s the smaller companies slapping “AI” on their pitch decks and watching their valuations soar.

Just as in the dot-com boom when Zapata, a fish company, renamed itself zap.com and saw its stock double, companies are making a fortune in this frothy market by tying themselves to AI — at least in investors’ minds.

If the label is just a label, the stock may turn out to be fish food.

Consider RadNet ($RDNT), a nearly 50-year-old radiology chain pulling off one of the most audacious AI rebrandings in recent memory.

For decades, RadNet basically just ran imaging centers — brick-and-mortar clinics offering outpatient services like mammograms, CT scans, X-rays, and prostate cancer screenings. Until 2020, the stock traded at less than $15 a share.

Then its management team launched a rebrand, now positioning the company as “the leader in the development of artificial intelligence for mammography, ultrasound, and x-ray.”

Wall Street has eaten it up. RadNet’s stock has soared as high as $86, reaching a market capitalization of more than $6 billion — about three times its sales this past year. That’s an aggressive valuation for what remains, at its core, a low-margin, imaging center roll-up, with more than 400 centers across eight states.

Over several months, Hunterbrook investigated RadNet’s AI pivot — reporting from imaging centers in Phoenix to the industry’s flagship conference in Chicago, interviewing more than a dozen radiologists and sector executives, and reconstructing the company’s shifting footprint through archived data and SEC filings. What emerged was a gap between story and substance: a Digital Health business that generates much of its growth by invoicing a different RadNet business line; a same-center sales metric seemingly juiced by undisclosed consolidations; financial disclosures that don’t add up; and insiders using the stock run-up to cash out.

Hunterbrook has reached out to RadNet repeatedly to hear the company’s perspective on our findings. RadNet has not replied to any of these messages or calls.

Slouching Toward Artificial Intelligence

At the heart of RadNet’s metamorphosis is Enhanced Breast Cancer Detection — AI-powered technology the company markets as “a more accurate mammogram.” RadNet integrated EBCD with another product it acquired named DeepHealthOS, a platform it describes in a buzzword-laden blur as a “pioneering cloud-native operating system powered by clinical AI that improves disease detection and that leverages operational generative AI.”

The two acquisitions, along with a legacy software business and assets from several other recent purchases, make up the division RadNet is highlighting to investors as part of the AI boom: Digital Health.

On paper, the pivot looks brilliant. When RadNet announced its second-quarter earnings in August, it reported that revenue in its Digital Health segment grew 30% year over year, and that its profitability margin had improved. Over the next month, the stock climbed some 40%.

“We hope, and we aspire to grow our Digital Health software business in the range of 30% per year for many years to come,” CFO Mark Stolper promised on the earnings call. The third-quarter results, announced in November, looked even better, with Digital Health revenue up 52%.

Yet, strip away the glossy Digital Health chrome and the AI spin looks more like hype than reality. The disconnect between the AI-fueled valuation and the reality on the ground — in the reading room — is jarring.

“Every AI company is knocking at your door,” said Dr. Roman Keller, a radiologist at an independent practice in Minnesota. “They want to sell you something, but what is it really going to give us?” That sentiment was echoed by a range of radiologists and industry experts Hunterbrook spoke with for this investigation.

Are radiologists biased against their obsolescence? Maybe. But even Andrej Karpathy, one of the founders of OpenAI — who ran AI at Tesla as well — posted to X in September about the slow pace of artificial intelligence’s encroachment on radiology. “The benchmarks are nowhere near broad enough to reflect actual, real scenarios,” he wrote, claiming radiology is “too multi-faceted, too high risk, too regulated” for AI to replace many jobs.

RadNet’s AI offering is also, financially speaking, a rounding error. Even in the company’s published numbers, less than 5% of its revenue is coming from Digital Health.

The source of that revenue should be alarming. Most of RadNet’s recent growth in this business appears to come from sales to its own imaging centers, a fact that is buried in complicated intercompany transaction disclosures.

Beneath the tech patina, RadNet looks like an ordinary business — one whose financial metrics, including reported same-center sales, raise questions of their own. One example: same-center sales.

Wall Street sell-side analysts have pointed to the company’s same-center sales growth at its imaging centers as a reason for their bullishness on the stock; the numbers, as presented, also look like evidence of AI-driven efficiencies.

Yet relying on that metric requires trusting that the denominator — that is, the number of stores RadNet purports to operate — remains easy to track over time. A detailed investigation of the company’s footprint suggests the reality is more complicated. That’s because RadNet has been essentially merging separate, nearby locations into single reporting units. Hunterbrook’s analysis, conducted with the help of outside financial analysts, suggests this maneuver may have artificially more than doubled RadNet’s apparent same-center sales growth.

Stack the AI hyperbole against the slippery metrics of the core business, and a key question remains: Other than an old school radiology business, what, exactly, is real about RadNet?

The Brutal Economics of Imaging Centers

RadNet needed a new story to boost its sagging stock.

Its core business, running imaging centers, was once highly profitable, thanks in large part to generous Medicare reimbursement rates.

That drew new entrants, including RadNet itself. Its CEO, Dr. Howard Berger — a physician by training — founded RadNet in the early 1980s with a group of other doctors as a single Los Angeles imaging center. Over time, RadNet morphed into a roll-up play, buying other imaging centers, with the idea that consolidation would bring efficiencies and growth.

But in the early 2000s, the economics of the business became harder.

The 2005 Deficit Reduction Act slashed Medicare reimbursement rates, especially for MRIs and CT scans — both of which are core to RadNet’s business. Since then, the Centers for Medicare and Medicaid Services, or CMS, which sets how much the government will pay for healthcare services, has cut imaging reimbursement rates further, and because commercial payers benchmark to Medicare, most reimbursement is declining in this area.