Tag: Finance

.Org Domain Sale Under Review

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I’m not surprised. This seems to a be a classic example of self dealing, and the folks at ICANN and the Internet Society giving benefits to themselves and their friends, and they figured out that no one would know until it is too late.  ¯_(ツ)_/¯

Unfortunately for them, and fortunately for the rest of us it quickly blew up into a complete sh%$ storm, and now they are trying to put a gloss of due diligence on this:

ICANN is reviewing the pending sale of the .org domain manager from a nonprofit to a private equity firm and says it could try to block the transfer.

The .org domain is managed by the Public Internet Registry (PIR), which is a subsidiary of the Internet Society, a nonprofit. The Internet Society is trying to sell PIR to private equity firm Ethos Capital.

ICANN (Internet Corporation for Assigned Names and Numbers) said last week that it sent requests for information to PIR in order to determine whether the transfer should be allowed. “ICANN will thoroughly evaluate the responses, and then ICANN has 30 additional days to provide or withhold its consent to the request,” the organization said.

ICANN, which is also a nonprofit, previously told the Financial Times that it “does not have authority over the proposed acquisition,” making it seem like the sale was practically a done deal. But even that earlier statement gave ICANN some wiggle room. ICANN “said its job was simply to ‘assure the continued operation of the .org domain’—implying that it could only stop the sale if the stability and security of the domain-name infrastructure were at risk,” the Financial Times wrote on November 28.

In its newer statement last week, ICANN noted that the .org registry agreement between PIR and ICANN requires PIR to “obtain ICANN’s prior approval before any transaction that would result in a change of control of the registry operator.”

The registry agreement lets ICANN request transaction details “including information about the party acquiring control, its ultimate parent entity, and whether they meet the ICANN-adopted registry operator criteria (as well as financial resources, and operational and technical capabilities),” ICANN noted. ICANN’s 30-day review period begins after PIR provides those details.

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The pending sale comes a few months after ICANN approved a contract change that eliminates price caps on .org domain names. The sale has raised concerns that Ethos Capital could impose large price hikes.

Of course it can raise prices.  It WILL raise prices.  That’s why the offer waited until the price caps were repealed.

You can see my earlier post, and a summary of the corruption and self-dealing, here.

I’m still wondering why there is not a criminal RICO investigation going on over this.

Signs that Your Investment Might be a Scam………

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How about when investors are demanding an exhumation of the founder of the fund?

It does seem to me that this might be an indicator that there are significant irregularities:

Lawyers for customers of an insolvent cryptocurrency exchange have asked police to exhume the body of the company’s founder, amid efforts to recover about $190m in Bitcoin which were locked in an online black hole after his death.

………

Citing “decomposition concerns”, lawyers requested the exhumation be completed no later than spring 2020.

………

Soon after his death, however, reports surfaced that nearly 80,000 users of QuadrigaCX – at the time Canada’s largest cryptocurrency exchange – were unable to access funds totaling more $190m.

Cotten was the only one with access to necessary permissions. While Robertson has possession of the laptop containing the necessary passwords, she remains locked out.

………

Uncertainty about the missing funds has fueled speculation that Cotten may still be alive. In their letter to the RCMP the law firm underlined the “need for certainty around the question of whether Mr Cotten is in fact deceased”.

The accounting firm Ernst & Young, tasked with auditing the company as it undergoes bankruptcy proceedings, discovered numerous money-losing trades executed by Cotten, using customers’ funds.

They also found a substantial amount of money was used to fund a lavish lifestyle for the couple, including the use of private jets and luxury vehicles. Ernst & Young was able to recover $24m in cash and $9m in assets held by Robertson.

Both Canada’s tax authorities and the FBI are also investigating the company.

Anyone wanna guess the results of the exhumation?

I would not place bets on either side.

Pennsylvania Pushes Back Against Hedge Fund Looting

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The State Treasurer has taken a look at the hedge funds, and the state are moving to simpler financial instruments, which have far lower fees, and actually perform at least as well.

Of course, low fee funds don’t have the money to spend on political donations, so I do wonder how long it will be until the state legislature starts pushing back over this:

Pennsylvania Treasurer Joe Torsella last month told the world he’d pulled the state’s money — or at least the slice he oversees — “out of all so-called hedge-fund investments, resulting in [over] $14 million in annual fee saving.”

The claim sounded familiar. I looked it up, and sure enough Torsella had announced back in April 2017 that he was moving $2.4 billion in state funds away from private investment managers into a “passive investment strategy, saving an estimated $5 million per year in fees.”

The 2017 purge was against “actively managed” stock investors. This fall’s move, dumping nearly $500 million out of hedge funds, was “the next installment,” Torsella spokeswoman Ashley Matthews told me.

This was smaller than the stocks move (just one-fifth of the assets), but also bigger (almost three times the fee savings).

The move reflects Torsella’s long-held position to put more state pension money in low-cost index funds while avoiding high-fee hedge funds.

Through a company called Aksia, a “fund-of-funds” manager hired under Torsella’s predecessor Rob McCord, Pennsylvania employed more than 50 hedge funds — such big firms as BlackRock D.E. Shaw, and Philadelphia’s PFM, as well as more obscure investors in a web of hedging strategies — to invest a slice of Pennsylvania families’ Tuition Assistance Program (TAP) money.

What does the record show? Since 2013, Aksia and its funds were paid more than $100 million by the Pennsylvania treasury — $15 million a year — in fees and shared profits (“carried interest”), for managing that not-quite-$500 million.

How’d they do? According to Treasury data, after paying those fees, the hedge funds returned an average of less than 4 percent a year over those 6½ years. That is less than the college savings plans’ long-term target for all investments, which is 6 percent a year.

This is an unalloyed good.

First it means that the taxpayers of the state of Pennsylvania are no longer being ripped off, and second,  it represents a claw-back of power and money from Wall Street.

Finance Ruins Everything

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Case in point, the orgy of self dealing and corruption that is ICANN’s plans to approve the sale of the .org domain to a hedge fund connected to ICANN executives:

Earlier this month, within the domain name world, there were significant concerns raised upon the news that Internet Society (ISOC), the (perhaps formerly?) well-respected nonprofit that helps “provide leadership in Internet-related standards, education, access, and policy” had agreed to sell off the Public Interest Registry, which is the registry that manages all .org top level domain (TLD) names, to a private equity company called Ethos Capital. Just having a public interest nonprofit selling off a part of its operations to a private equity group would be trouble enough, but the details make the story look much, much worse.

Just a few months ago, ICANN, a different non-profit that is in charge of coordinating and managing the various top level domain namespaces, and figuring out who gets to manage the associated registries (and, which has been subject to years of controversy regarding poor accountability and transparency, along with accusations of self-dealing), had announced that it was eliminating the price caps on the .org TLD. For most of the past decade, the ICANN agreement regarding the .org TLD space had held that .org domains had a maximum top price of $8.25 per year per domain.

ICANN claimed that it was making changes to the .org contract to “better conform” with the base registry agreement that ICANN had with other TLDs, tons of which have come on the market over the past few years. However, seeing as the .org TLD is one of the oldest ones on the web, and which has generally been considered (though, not exclusively) to be used for things like non-profits and community organizations, many people were reasonably concerned about the lifting of the price cap. Indeed, in response to ICANN’s request for comment, the comments went overwhelmingly against the removal of the price cap.

But ICANN did it anyway.

And, then, just a few months later, the Internet Society sells off the registry to a private equity firm.

And it gets worse. Remember how I mentioned earlier the years-long concerns about ICANN and self-dealing?

Ethos Capital is a new private equity firm lead by Erik Brooks. Brooks was at Abry Partners until earlier this year. Abry Partners acquired Donuts and installed former ICANN President of Global Domains Akram Atallah in the top spot there.

………

Oh, and it gets even worse:

Despite stating that Ethos Capital “understands the intricacies of the domain industry” its founder and CEO Erik Brooks has no experience within that industry. The firm’s website lists only Brooks and one Nora Abusitta-Ouri – who joined the outfit last month as its “chief purpose officer” – as employees.

But there is a common thread between those two and it is Fadi Chehade, a former CEO of ICANN, the organization that oversees the domain-name system and awards the contracts to run internet registries.

………

Oh, and it gets even worse. While Ethos Capital does not list Chehade as an employee, it appears that he started the organization:

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May 7th, [When Chehade registered the Ethos Capital domain] eh? the timing is notable:

That date is significant because it is one day after ICANN indicated it was planning to approve the lifting of price caps through its public comment summary.

In case you were wonder about the “thread” that ties Brooks, Abusitta-Ouri and the CEO of Public Interest Registry:

The founder of Ethos Capital is Erik Brooks. He left ABRY Partners this year after spending two decades at the investment firm.

Does the name Abry ring a bell? That’s because it’s the company that bought new top level domain name company Donuts last year.

That deal involved Abry Senior Advisor Fadi Chehade. Chehade is the former CEO of ICANN, the group that oversees the domain name industry.

Now we have a twenty year veteran of Abry, who worked on the Donuts deal and was (or still is) a member of Donuts’ board, leaving this year to form a new entity that buys a registry, much like how Abry bought Donuts.

And the CEO of Public Interest Registry is Jon Nevett, one of the founders of Donuts.

Oh, and:

The other person listed on Ethos Capital’s website is Nora Abusitta- Ouri. She worked for Chehadi at ICANN as SVP, Development and Public Responsibility Programs.

In other words, the folks involved here are all very closely connected, and it happened right after ICANN, going against the public’s clearly stated interests, suddenly made the .org domain space much more open to profit exploitation. The whole thing is incredibly sketchy.

………

As more and more anger rose about this whole mess, ISOC is trying to calm the waters
It also insists that the lifting of price caps had absolutely nothing to do with this, and that this wasn’t all planned out in advance, but in September — a claim that almost no one believes. The one “new” fact in this statement is finally admitting what everyone already suspected, that Chehade is associated with Ethos Capital as an “adviser” though it downplays that role and tries to talk up how he advises lots of companies. Thing is, mere “advisers” aren’t usually the people registering the domain names…

Seriously, finance these days is all about looting, and in this case, it is looting a public commons.

FWIW, Ethos is saying that they will be good stewards of the domain, with “Price increases of up to 10 percent,” which means that the price will double every 7 years, if it holds to that promise, which, spoiler, it won’t.

We really need to change tax and bankruptcy laws to shut these motherf%$#ers down.

Least Surprising News of the Day

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There is now an investigation of the consultant McKinsey & Company over what appears to be egregious self-dealing in its bankruptcy consulting:

McKinsey & Company, the elite consulting firm that advises many of the world’s largest and most powerful institutions, is facing a federal criminal investigation of its conduct advising bankrupt companies, according to five people familiar with the matter.

Prosecutors and other Justice Department officials in New York and Washington are trying to determine if McKinsey used its influence over insolvent companies in violation of the rules of Chapter 11 bankruptcy — where billions of dollars can change hands — by quietly steering valuable assets to itself or favoring its own clients over other creditors.

………

In the past two weeks, investigators have conducted interviews about McKinsey’s actions in the bankruptcies of at least two companies, Alpha Natural Resources, a coal producer, and SunEdison, an alternative energy company, said one of the people, who was questioned by F.B.I. agents.

The judges overseeing both those cases have already suggested that questions over McKinsey’s conduct could best be resolved by the Justice Department — either with civil actions or criminal charges.

In addition to the previously unreported criminal investigation, an investigation by the Office of the United States Trustee, a division of the Justice Department that polices the conduct of companies in the bankruptcy system, is underway.

The office, which can seek civil penalties and make criminal referrals to prosecutors, has told judges in at least three other bankruptcy cases that it was examining McKinsey’s practices. The firm said it had responded to questions from the United States Trustee.

American business is rotten to its core, and McKinsey is just a particularly brazen and corrupt avatar of this situation.

I’m sure that they will get off with a fine of a few bucks, so in the end, it’s just a cost of doing business.

H/t Eschaton.

Clearly, the Solution is Not Enough Profit Motive

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We now have a number to attach to the cluster-f%$# that is Pacific Gas & Electric’s malicious prioritization of profit over safety, 1,500 fires over the past 6 years.

They could have done the job right, but there are stock buybacks and dividends to be made:

Over the past week, the Kincade Fire has torn through nearly 78,000 acres of California wine country, forcing about 180,000 people to evacuate. At the same time, millions have gone without electricity, often for days at a time.

Hospitals scrambled to find refrigerators for medications, people bundled their children to keep them warm during cool nights, and seniors were left alone in the dark.

The state’s largest utility, Pacific Gas & Electric Co., is responsible for these blackouts and possibly for the fire itself.

About the same time the Kincade Fire ignited, a jumper cable broke on a PG&E transmission tower in the area, the company told state regulators on October 24. By the time PG&E personnel arrived, the California Department of Forestry and Fire Protection, known as Cal Fire, had taped the area off and identified the broken cable.

A problem with PG&E equipment was also the cause of the Camp Fire, a California state agency said, which killed at least 85 people last year and razed more than 18,800 structures. It was the deadliest and most destructive fire in California history.

In fact, according to The Wall Street Journal, the utility company’s equipment led to more than 1,500 fires from June 2014 to December 2017.

………

PG&E CEO Bill Johnson said Californians should expect these types of preemptive service interruptions for another 10 years.

“We recognize the hardship of not having electric service,” a PG&E representative told Business Insider in an email. “While we recognize that the scope of these events is unsustainable in the long term, it was the correct decision given the large-scale, historic weather events and ensuing equipment damage that unfolded across our service area.”

But many Californians say they should have never been forced into this choice: deadly fires or multiday blackouts. Instead, PG&E’s critics accuse the company of shirking safety precautions to funnel money toward investor dividends.

The Los Angeles Times columnist Michael Hiltzik suggested PG&E might now be “the most detested, and detestable, corporation in California, if not in the observable solar system.”

Worse than Comcast?

Daym!!!!!

……….

After a PG&E pipeline exploded in 2010, killing eight people, state regulators started investigating the company. They found that PG&E had collected $224 million more than it was authorized to collect in oil and gas revenue in the decade before the explosion. At the same time, it spent millions less than it was supposed to on maintenance and generally fell short of industry safety standards.

“There was very much a focus on the bottom line over everything: ‘What are the earnings we can report this quarter?'” Mike Florio, who was a California utilities commissioner from 2011 to 2016, told The New York Times. “And things really got squeezed on the maintenance side.”

A 2017 report to state regulators highlighted PG&E’s lack of a comprehensive safety strategy, unclear communication about safety between management and field personnel, and tendency to take action only after a major disaster.

Anticipating the cost of billions of dollars in legal claims associated with the Camp Fire and other fires from 2017 and 2018, PG&E filed for bankruptcy in January.

PG&E is completely beyond redemption.

Regulators have the power to liquidate PG&E by refusing to sign off on their bankruptcy, which would wipe out the executives and investors who have benefited from their deliberate negligence.

Break it up, take it over, and throw the executives in jail.

My Heart Bleeds for These Corrupt Motherf%$#ers

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You know, maybe if your business is dependent on concealing its ownership, you should not have a business at all:

Small businesses are assessing the potential costs of complying with requirements under proposals in both chambers of Congress aimed at limiting the use of anonymous shell companies.

The House in October passed a bill requiring most limited-liability companies, among other firms, to tell the Treasury Department who their primary owners are. A companion measure has been introduced in the Senate. The legislation aims to crack down on entities that are used as vehicles for hiding or moving illicit funds.

The bills would require companies with 20 employees or fewer and no physical office to provide owners’ names and other personally identifiable information. The House measure calls for annual submissions; the Senate bill gives businesses 90 days to report ownership changes and a year to report changes to addresses or other personal information.

Limited-liability companies, often referred to as shell companies, provide owners with protections against lawsuits, among other financial benefits. They are frequently used by real-estate investors and sole proprietors, those who run one-person businesses. Some limited-liability companies are registered in the U.S. under the names of representatives who neither own nor operate them.

Passage of the House bill marked a victory for corporate-transparency advocates, following several failed attempts. Big banks, human-rights advocates, law-enforcement authorities and other groups have expressed their support for creating a registry of “beneficial,” or true, owners.

If you need to conceal the ownership of your business, your business is fundamentally corrupt, and and it needs to be ended.

It’s Bank Failure Friday!!! (On Saturday, Again)

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No bank failures in 2018, a failure in May of this year, and now 3 bank failures in 2 weeks.

The most recent failure, the 4th for the year, is City National Bank of New Jersey of Newark, NJ.

I’m beginning to wonder if regulatory forbearance has begun to come to the end of its string, and now banks that were left to slide are beginning to collapse.

Full FDIC list

So, here is the graph pr0n with last few years numbers for comparison (FDIC only):

It’s Bank Failure Friday!!! (On Saturday)

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The 2nd and 3rd commercial banks have failed this year, matching the number of credit union failures for the year, this compares with 0 for all of 2018, and 8 total for 2017.

I’m not sure if this is just a blip, or if this is a return to trend, and 2018 is an outlier,

And here they are, ordered, and numbered for the year so far:

  1. Louisa Community Bank, Inc., Lousia, KY
  2. Resolute Bank, Maumee, OH

Full FDIC list

Chump Change

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As threatened, Federal Magistrate Judge Sallie Kim held the Education Depaartment in contempt and assigned a $100,000.00 fine for continuing to attempt to collect debts from students of Corinthian Colleges.

That amount is chump change to someone like Secretary of Education Betsy DeVos, even it had been assigned to her.

She needed to spend a few days in jail, because these actions were deliberately thwarting the judge’s instructions:

A federal judge on Thursday held Education Secretary Betsy DeVos in contempt for violating an order to stop collecting loan payments from former Corinthian Colleges students.

 Magistrate Judge Sallie Kim of the U.S. District Court in San Francisco slapped the Education Department with a $100,000 fine for violating a preliminary injunction. Money from the fine will be used to compensate the 16,000 people harmed by the federal agency’s actions. Some former students of the defunct for-profit college had their paychecks garnished. Others had their tax refunds seized by the federal government.

 “There is no question that the defendants violated the preliminary injunction. There is also no question that defendants’ violations harmed individual borrowers,” Kim wrote in her ruling Thursday. “Defendants have not provided evidence that they were unable to comply with the preliminary injunction, and the evidence shows only minimal efforts to comply.”

………

In September, the federal agency revealed in a court filing that former Corinthian students “were incorrectly informed at one time or another … that they had payments due on their federal student loans” after Kim put a hold on collections in May 2018.

………

Attorneys for the borrowers proposed an array of sanctions, including fining DeVos $500 per day until the Education Department is fully compliant with the original court order.

Toby Merrill, director at the Project on Predatory Student Lending, a legal-aid group representing the students, said the “rare and powerful action to hold the Secretary of Education in contempt of court shows the extreme harm” of DeVos’s actions.

Fine, schmine, DeVos Should have spent some time in jail.

DeVos probably spends more on berthing costs for her yacht than the $500.00/day proposed by the borrowers.

Bankruptcy Should Have Consequences

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The Mayor of San Jose is proposing that PG&E’s bankruptcy should be resolved by turning it into a customer owned utility:

Frustrated by PG&E Corp.’s California blackouts and its existing options for exiting bankruptcy, the mayor of the state’s third-biggest city is proposing something radically different: turn the company into the nation’s largest customer-owned utility.

San Jose hopes to persuade other California cities and counties in coming weeks to line up behind the plan, which would strip PG&E of its status as an investor-owned company and turn it into a nonprofit electric-and-gas cooperative, Mayor Sam Liccardo said in an interview.

The buyout proposal by San Jose, the largest city served by PG&E with more than a million residents, amounts to a revolt by some of the utility’s roughly 16 million customers as PG&E struggles to keep the lights on and provide basic services while preventing its aging electric equipment from sparking wildfires.

Mr. Liccardo said the time has come for the people dependent on PG&E for essential services to propose a new direction. A cooperative, he said, would create a utility better able to meet customers’ needs because it would be owned by customers—and answerable to them.

“This is a crisis begging for a better solution than what PG&E customers see being considered today,” Mr. Liccardo said. He said recent power shut-offs initiated by the company were poorly handled, adding, “I’ve seen better organized riots.”

………

The buyout idea represents a dramatic twist in the debate over how PG&E can emerge from bankruptcy, compensate fire victims and address its many safety problems. It likely will face stiff opposition from PG&E, which in January filed for chapter 11 protection from an estimated $30 billion in wildfire-related liabilities. The company’s bondholders also will likely contest the idea after putting forward a rival reorganization plan that the bankruptcy court agreed to consider.

Instead of taking their proposal to the bankruptcy court weighing PG&E’s fate, proponents say public entities will likely take their case directly to the California Public Utilities Commission, which can veto a reorganization plan emerging from bankruptcy review if in its eyes it doesn’t serve the public interest.

PG&E has been so awful for so long, I really do not see an alternative to this.

As an aside, a bankruptcy might very well prevent them from opening their pocket book to bankroll a initiative petition campaign against any public ownership proposals.

Not Enough Bullets………

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The con man who managed to extract billions of dollars from supposedly sophisticated venture capitalists, WeWork’s Adam Neumann, after managing to loot hundreds of millions of dollars in his scam, will now be payed $1,700,000,000.00 to go away.

This guy should be in jail, not walking away with billions:

WeWork’s co-founder Adam Neumann is in line for a $1.7bn (£1.3bn) payout as investors seize control of the troubled office rentals empire he co-founded and thousands of employees wait to hear if they will lose their jobs.

Neumann, 40, used to describe WeWork as “largest physical social network in the world” and a company so important it would one day solve the problem of orphaned children.

Now his business – once the US’s most valuable private company – is in crisis. And the only winner appears to be Neumann, who is reportedly stepping back from the corporate crisis he created with a lucrative deal that will hand him $1bn from the sale of his shares plus a $185m “consultancy fee” and a $500m line of credit.

Under the terms of a rescue deal first reported by The Wall Street Journal, SoftBank, the Japanese investment firm that is WeWork’s largest shareholder, will now take control of the company.

………

The payout to Neumann comes as WeWork weighs up sacking about 2,000 people. The redundancies are on hold while WeWork refinances but are expected soon and have triggered widespread bitterness among WeWork’s 15,000 employees. Many had expected to become millionaires when the company floated but now face losing their jobs. WeWork did not immediately return calls for comment.

As near as I can figure out, VC’s see never going to be profitable unicorns going profit as a way to extract money from idiots further down the line, and they have run out of idiots.

Once bitten, twice shy, I guess.

A Good Start

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California cities and counties will be allowed to establish public banks under a controversial bill signed into law Wednesday by Gov. Gavin Newsom, making California only the second U.S. state to allow such institutions.

Public banks are intended to use public funds to let local jurisdictions provide capital at interest rates below those charged by commercial banks. The loans could be used for businesses, affordable housing, infrastructure, and municipal projects, among other things.

Proponents say public banks can pursue those projects and support local communities’ needs while being free of the pressure to obtain higher profits and shareholder returns faced by commercial banks. Support for public banks also has grown since the financial crisis a decade ago and since Wells Fargo & Co. was embroiled in a slew of customer-abuse scandals in recent years.

………

The only other state with public banks is North Dakota. Critics of the institutions say a government-owned banking system would be expensive, risky and carry a threat of political influence.

The history of public banks in North Dakota makes it pretty clear that this is a good idea.

It saves the taxpayers money, and it just works.

About the only people who lose in such an arrangement are banking executives and Wall Street.

Good

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Private prison firm GEO has been disavowed by all of its banks, because their business has finally become too toxic even for the likes of JP Morgan Chase:

All of the existing banking partners to private prison leader GEO Group have now officially committed to ending ties with the private prison and immigrant detention industry. These banks are JPMorgan Chase, Wells Fargo, Bank of America, SunTrust, BNP Paribas, Fifth Third Bancorp, Barclays, and PNC.

This exodus comes in the wake of demands by grassroots activists — many under the banner of the #FamiliesBelongTogether coalition — shareholders, policymakers, and investors. Major banks supporting the private prisons behind mass incarceration and immigrant detention have now committed to not renew $2.4B in credit lines and term loans to industry giants GEO Group and CoreCivic.

This shift represents an estimated shortfall of 87.4% of all future funding to the industry, which depends on these bank credit lines and loans to finance their day to day operations. Together, these banks commitments — alongside a federal judge’s block on the Trump administration’s plans to expand family detention this weekend, new policy initiatives such as California ending all contracts with private prisons, and Democratic primary candidates publicly raising the idea of a federal ban on for-profit incarceration — lead many to speculate a threat to the survival of the private prison industry all together.

One can only hope.  This is an industry that profits on misery and cruelty, and the sooner that these people need to work

As a note if you patronize the following banks, you might want to move your accounts:

Five banks have not yet made the commitment to stop extending their credit lines and term loans to CoreCivic: Regions (headquartered in Birmingham, AL), Citizens (Providence, Rhode Island), Pinnacle Bank (Nashville, TN), First Tennessee Bank (Memphis, TN), and Synovus Bank (Columbus, GA). In response to an inquiry, Pinnacle President and CEO Terry Turner said “while we don’t discuss details of client relationships, we base commercial credit decisions on several factors. In general we lend to businesses based in our markets that have strong leadership teams, sound credit histories and good operating leverage so they can create jobs and enhance the economic health of our markets.” Additionally, a spokesperson from Regions wrote “we recognize that people have differing views about the private sector’s involvement in prisons. This is a complex issue that government officials and policymakers are in the best position to address directly.”

I would note that private prisons are a new phenomenon, and they are hip deep in the creation of our carceral state:

As a brief historical recap: the American private prison industry is a relatively new phenomenon, with the first private prison opening in 1984. Given their business model depends on keeping a consistent and increasing number of people incarcerated, it’s been speculated and critiqued that this is why GEO Group and CoreCivic have spent $25M on lobbying over the past three decades to push for harsher criminal justice and immigration laws. A cycle emerges when one follows the money: everyday people put their money in banks, banks lend that money out to the private prison industry, the private prison industry uses that financing for their day to day work including lobbying, which successfully funnels more detainees into their facilities, and banks reap a payoff from their loans.

These companies need to be ended before their thirst for profits leads them to give IG Farben a run for their money.

In More Enlightened Times, Elon Musk Would Be in the Dock

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Even ignoring his highly inaccurate tweets about Tesla, things like going private and impossible promises about self-driving cars, we have the corrupt self-dealing around Tesla’s purchase of Solar City.

If the SEC or the DoJ were actually interested in pursuing stock fraud, Musk would be in a world of hurt:

Back in 2016, Tesla acquired solar panel manufacturer SolarCity, billing the $2.6 billion deal as an opportunity to create “the world’s only vertically integrated sustainable energy company.” From a SolarCity solar panel to a Tesla battery, the company promised, the in-house supply chain would scale up clean energy for all and provide cost synergies to the businesses and shareholders.

But SolarCity, of which Tesla CEO Elon Musk was chairman, was deeply in debt at the time. Now, newly unsealed documents in an investor lawsuit say the situation was far worse than that. They allege that SolarCity wasn’t just carrying a heavy debt load: it was completely insolvent.

The upshot of reams of law surrounding mergers and acquisitions is that C-suite executives and company boards of directors are supposed to make sure shareholders get the most money possible out of their investment. If they’re going to sell the company, they have to make sure they’re accepting the most valuable reasonable offer. Companies doing the acquiring, meanwhile, are supposed to do their homework to make sure they’re not wasting their resources on a bad deal—and Tesla shareholders say the SolarCity acquisition was exactly that.

………

SolarCity only continued to function because of SpaceX money, the suit alleges:

As SpaceX’s chairman, CEO, CTO, and majority stockholder, Musk caused SpaceX to purchase $90 million in SolarCity bonds in March 2015, $75 million in June 2015, and another $90 million in March 2016. These bond purchases violated SpaceX’s own internal policy, and SolarCity was the only public company in which SpaceX made any investments.

The scenario described is as follows:  Musk owns over 50% of SpaceX, and you used their money to prop up Solar City until Tesla, which is a publicly traded firm, bought the solar panel installer out.

Musk’s cousins founded the company, and Musk was Solar City’s largest shareholder, and they all made made a lot of money as a result, Elon netted about $½ Billion, of what can only be called looting.

This is as corrupt as hell, and in the days before Reagan emasculated the SEC and the white collar crime division of the DoJ, he would be under criminal indictment, and banned from both the securities industry, as well being banned from serving as an executive or a board member of of a publicly traded company.

Of course, after Reagan, and Bush, and Clinton, and Bush, and Obama, it’s, “No harm, no foul.”

WATB Central

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For those of you who don’t know, WATB stands for Whiny Ass Titty-Baby, and in this case it is referring to the delicate snow flakes in Silicon Valley who will brook no criticism of the dumbest and most ill informed business plans:

The first rule of Silicon Valley venture capital is never insult a start-up. Founders are always killing it, disrupting the world or just plain 🙌🙌🙌.

 If a start-up is fizzling, shuttering or caught scamming? The socially acceptable response is total silence.

Everyone knows that. Except Jason Palmer.

 The start-up in question was AltSchool, a Mark Zuckerberg-backed project to turn school into a start-up experience. It had just announced it was pivoting out of existence after raising $174 million.

$174M lessons here. We passed on @Altschool multiple times, mainly because disrupting school was a terrible strategy, but also b/c founders didn’t understand #edtech is all about partnering w/existing districts, schools and educators (not just “product”) https://t.co/nPCjV83Zi4

— Jason Palmer (@educationpalmer) June 29, 2019

That single jab at a failed company sent the investor elite into conniptions.

……

Mr. Palmer believed he would save his investors money by not investing in a start-up that would have lost it. He was right. But in the cacophony of venture capitalist boosting, that became about emotion, and even soul.

……

By not knowing the rules, he showed exactly what those rules are, and just how the Silicon Valley positivity machine runs. For venture capitalists, Twitter is a place to sell. It’s a place to talk up portfolio companies. It’s a place to perform the industry pastime of “thought leading.”

What this sh%$ storm sounds like is what happens when someone running a Ponzi scheme gets challenged.

The idea that the white dudes, and they are very white, and very dude as a rule, must be handled with kid gloves because they are saving (or disrupting) the universe, when most of them are just working on brave new ways to break the law, or suck the marrow out of the public commons, is complete crap.

I long for the day when an aggressive anti-fraud investigation targets the Silicon Valley.

Completely Not a Surprise

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Somehow or other, WeWork took a fairly standard real estate play, leasing long, and renting short, and, by adding Kombucha,* managed to sell itself as a high tech unicorn.

Now that the WeWork IPO is collapsing under the weight of mathematics and allegations of self dealing, maybe we should seriously consider a little more scrutiny of both the business plans and the business practices of startup companies:

Historically low interest rates and quantitative easing are supposed to encourage investors to take more risks, but even in this climate there are limits. WeWork is hitting one as investors conclude they’re wary of investing in Shanghai-on-the-Hudson.

That’s the main lesson of the slow-rolling deflation of the public-market listing of WeWork parent We Co., scheduled for this month but under threat of postponement. The company filed its paperwork last month hoping to achieve a valuation of $47 billion. Investors haven’t stopped laughing.

The skepticism is due in part to We’s attempts to pretend it’s a technology company that will “elevate the world’s consciousness.” It’s a real-estate company that leases office space for long terms and rents it to small businesses for short terms. Technophilia is a market staple. But We faces established—and old-fashioned—direct competitors such as IWG, owner of Regus business centers, which has traded publicly for years, is profitable unlike We, and sets a benchmark for realistic returns.

The bigger cause for We’s woes is the corporate-governance risk investors have decided they’re not willing to stomach. In this regard We resembles a Chinese more than American company, and investors have noticed.

Take WeWork’s name. The IPO listing documents revealed that company founder Adam Neumann had vested trademarks related to the “We” name in a separate company and then sold those rights to We Co. in exchange for shares worth nearly $6 million.

American investors squawked, but this sort of arrangement is almost routine in China. In one famous case, Chinese entrepreneur Huang Guangyu, jailed in 2010 for 14 years on questionable charges of illegal business dealings, held onto some of the logos and other intellectual property of his electronics retailing company and used them to establish a competing chain of stores from his jail cell. We Co. has since reversed its deal with Mr. Neumann.

Another symptom of this China syndrome is We’s extensive web of transactions with related parties. The company disclosed in its IPO filing that it leases four buildings that are owned by Mr. Neumann, and it also reportedly hired an executive’s parents to broker another of its leases. Then there’s the personal control, with Mr. Neumann’s wife Rebekah designated to pick his successor in the event injury or death prevents him from running the company. This again is characteristic of China, or a South Korean chaebol, where the goal is to keep the company all in the family.

Seriously, where are the prosecutions?

*As Anna Russell would say, “I’m not making this up, you know.”

Not Enough Bullets

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The deal that the Sacklers are pushing to expuge their obligations for actively promulgating the opioid crisis would result in them holding to on most of their ill gotten gains.

When the powers that be talk about bankruptcy reform, it seems to be directed at hurting the ½ million or so people who have medical catastrophes, and not about people like the Saklers, who will be allowed to walk away with the proceeds of their crime:

The Sackler family, which grew into one of the nation’s wealthiest dynasties through sales of the widely abused painkiller OxyContin, could emerge from a legal settlement under negotiation with its personal fortunes largely intact, according to an analysis reviewed by The Washington Post and people familiar with the discussions.

Under a novel plan to relinquish control of their company, Purdue Pharma, and resurrect it as a trust whose main purpose would be to combat the opioid epidemic, the Sacklers could raise most, if not all, of their personal share of the $10 billion to $12 billion agreement by selling their international drug conglomerate, Mundipharma, according to the documents and those close to the talks.

Yet the proposed settlement — built on the projected value of drugs not yet on the market — offers gains for both sides if the company and more than 2,000 cities, counties, states and others that have sued Purdue and the family can craft a deal.

………

But they would still retain much of their wealth. In fact, they might be able to keep billions of dollars that state attorneys general allege they pulled out of the company.

“No one is going to be happy after this,” said Adam J. Levitin, a Georgetown Law School professor who studies bankruptcy. “People are going to be mad that the Sacklers aren’t going to jail, that they will have money left.”

The Sacklers need to be impoverished, and those in management need to be jailed.

To quote Billie Ray Valentine, “It occurs to me that the best way to hurt rich people is by turning them into poor people.”

They need to be humiliated in the public square as an example to others.

This is Market Manipulation, not a “Pillar of Stock Market”

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It appears that the stock market is running out of steam because companies are reducing their stock buybacks.

As I have noted before, until SEC Rule 10b-18 was adopted in 1983, stock buybacks were considered illegal market manipulation.

It’s why the stock markets is showing insane PE ratios.

Senior executives buy back stock, boosting their own stock options, instead of investing in improvements in the business:

Corporate capital expenditures have slowed this year, adding to worries that economic growth is fading. Many executives have said the lingering trade tensions with China are giving them pause. The latest data from S&P Dow Jones Indices indicate capital expenditures picked up in the second quarter, improving 5.2% from the first three months of the year but still 7.8% below the boom seen at the end of last year.

The willingness among companies to buy back their shares has been among the biggest driving forces of the decadelong bull market. Since 2013, U.S. companies have poured $4.2 trillion into stock buybacks, according to Bank of America Merrill Lynch. Investors, though, haven’t shown the same enthusiasm for stocks. Mutual funds and exchange-traded funds tracking U.S. equities have posted $84 billion in outflows over the same period, according to the bank’s analysis of EPFR Global data.

Corporate buybacks boomed after the U.S. tax overhaul in December 2017, with every quarter in 2018 marking a new high for share repurchases. The recent easing in activity has some analysts and investors questioning whether the shift marks a return to the norm, or if companies are pulling back the reins for other reasons. 

This is not market fundamentals, this is corruption.