Short-selling news startup didn’t disclose investment in anti-hangover drink

The publisher and co-founder of Hunterbrook Media, the startup newsroom whose affiliate places stock market bets to profit from its journalism, owns a stake in a competitor to a company that was recently the subject of a critical article.

Hunterbrook Media launched in April amid a storm of calculated controversy over its business model: It would do hard-hitting investigative journalism, building a media business by putting its money where its mouth is and shorting its targets’ stock.

The model has a certain logic. But this newest exposé raises questions about how to trust journalists who are playing the market when they are — as has not been previously reported — also invested in another company in the same space as their target.

The focus of the story is a company called Safety Shot, which makes a drink it claims lowers blood alcohol content and can quickly sober up people who have been drinking. Hunterbrook’s report, edited by founder Sam Koppelman, said the product didn’t work.

But Hunterbrook’s story did not disclose that Koppelman is an investor in another company in the same space, ZBiotics. Koppelman acknowledged, after Semafor reviewed documents showing the investment, that he has a small personal stake in the supplement startup, which on its website promises to help drinkers prevent hangovers.

The pitch is not unlike that made by Safety Shot. While Hunterbrook’s article focuses on Safety Shot’s claim that it sobers you up after drinking, Safety Shot also markets itself as a hangover cure or preventer, the crux of ZBiotics’ product.

“The morning after, that dreaded next day—the sluggishness, the foggy mind, and the lost hours—it’s a relentless adversary,” the homepage of Safety Shot’s website says. “We’ve all been there. It’s time for a game-changer.”

In a statement to Semafor, the company dismissed the similarities between Safety Shot and ZBiotics, which says it relies on a different mechanism (probiotics “engineered to break down acetaldehyde”) to clear your head.

“These aren’t competitors: ZBiotics is a private wellness start-up that makes probiotics, Safety Shot is a NASDAQ-listed company that has claimed a can of its drink can cut your blood alcohol content in half in 30 minutes,” Hunterbrook said in a statement. “Hunterbrook Media reported issues with Safety Shot — and the next day, broke the news that the FDA had opened an investigation into the company based on new findings from a FOIA. We’re glad the story is out there and transparently disclosed the position Hunterbrook Capital decided to take based on the reporting.”

In a text, Koppelman noted he invested in ZBiotics well before Hunterbrook was created, and said his stake in the company is fairly insignificant. He also emphasized that the investment was a personal one, and Hunterbrook Capital was not invested in Zbiotics.

“It was such a small personal check, the ZBiotics team ghosts my emails,” Koppelman said.

Hunterbrook Media is the sister company of Hunterbrook Capital, a “news-powered” hedge fund that trades partially off of the information gathered and published by its editorial arm. Since launching earlier this year, the publication has already begun making financial decisions based off the information collected by its reporters: The New Yorker reported earlier this month that several weeks before Hunterbrook published its recent investigation into mortgage lender United Wholesale Mortgage, Hunterbrook Capital was made aware of the gist of the piece, and made the decision to short it. The hedge fund did the same with Safety Shot; the Hunterbrook Media piece this week noted that Hunterbrook Capital is shorting the company.

Hunterbrook only uses information to inform its reporting that is already public, meaning it uses no insider sources or leaked information. As The New Yorker pointed out, this makes a lot of work for Hunterbrook’s general counsel, a former SEC lawyer who reportedly monitors a Google Drive of internal text messages and Slacks to ensure that the operation isn’t running afoul of insider trading laws.

Unsurprisingly, Hunterbrook’s stories come with massive disclaimers and disclosures in multiple parts of the article. In a big box at the top of its Safety Shot piece, Hunterbrook notes, “Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short $SHOT at the time of publication. Positions may change at any time after publication.” At the bottom of the page, it offers a long legal disclaimer and several disclosures essentially telling readers that its articles are not intended as financial advice.

Hunterbrook’s sendup of Safety Shot itself was interesting, and I have to admit I enjoyed the creative, “unscientific” process: In addition to reporting on the product’s claims, the publication tested out the product by throwing a party, getting people drunk, and filming their experience using Safety Shot. (They complained about the taste).

The news organization is throwing itself head-on into confrontational journalism in an era defined by cuts and a decline in journalistic swagger. And they raised reasonable questions about Safety Shot’s marketing, which is plastered with bold, all-caps claims about the product’s effectiveness. On Friday, Hunterbrook reported that, based on Freedom of Information Act requests, Safety Shot is currently being investigated by the Food and Drug Administration.

Hearing Koppelman’s defense, I am also somewhat open to the idea that ZBiotics and Safety Shot are positioned slightly differently (though of course, there’s also an argument to be made that if the drunkenness-reversing Safety Shot works, you probably don’t need the hangover-preventer ZBiotics). Others don’t see them as particularly different at all: In an article published in February, the beer blog Hop Culture interviewed executives from both companies to explore the emerging field of hangover recovery.

But there’s a reason The Wall Street Journal doesn’t play the markets. The Safety Shot case exposes one of the fundamental challenges the company faces: Every editorial decision it makes will be seen through the lens of Hunterbrook’s stated aim, which is to make money from financial investments, not from people reading their journalism.

News organizations are built on the trust of their audiences, and it’s hard to tell how Hunterbrook will earn this trust if it seems like ulterior motives are behind its journalism — or if it appears its journalists aren’t being forthcoming with their own potential conflicts of interest.

Correction: This story has been updated to clarify that Hunterbrook Capital is an affiliate of Hunterbrook Media, not its parent company.

• Hunterbrook raised $10 million from several well-known backers, including Laurene Powell Jobs’ Emerson Collective; Outside the Box Investments, which employs former journalists; and Marc Lasry, the Avenue Capital co-founder and former co-owner of the Milwaukee Bucks.
• After Hunterbrook’s article about UWM, CEO Mat Ishbia said that Hunterbrook was funded by longtime rival Rocket Mortgage co-founder Dan Gilbert, a claim that Koppelman dismissed as a baseless conspiracy theory.