State of Greed Seen in Citadel Settlement

Billionaire owned trading firm cheats clients over six year period and is fined peanuts.  FT reported:

The US financial industry regulator has fined Citadel Securities $700,000 for trading ahead of customer orders, dealing a blow to the market-making firm that has benefited from a big rise in retail trading this year. 

Chicago-based Citadel Securities delayed certain equity orders from clients to buy or sell shares while continuing to trade the same stocks in its own account, as part of its market-making activities, Finra said. The claims relate to “over the counter” equity trades, which are carried out away from public stock exchanges and then reported to regulators. 

Over a two-year period until September 2014, the market-maker removed hundreds of thousands of large OTC orders from its automated trading processes, according to Finra. That rendered the orders “inactive” and so they had to be handled manually by human traders. Citadel Securities then “traded for its own account on the same side of the market at prices that would have satisfied the orders,” without immediately filling the inactive orders at the same or better prices as required by Finra rules, the regulator said. 

Nearly half of the 467 limit orders reviewed by the regulator in the six years until September 2018 were found to violate Finra’s requirements to display orders. The bulk of the violations were for failing to execute trades against existing quotations in a timely manner, Finra said.

The regulator also highlighted the ability for traders on Citadel Securities’ OTC desk to “disable” the system component that automatically sent certain messages to trade OTC stocks.

Citadel Securities is majority-owned by Ken Griffin, the billionaire investor, and is the sister firm to Citadel, the hedge fund he runs. The company is the biggest US retail market-maker with a 40 per cent share and has emerged as one of the big winners from the boom in retail investing through the pandemic. 

Citadel Securities will pay a fine of $700,000 under the terms of a settlement with the regulator without admitting or denying the claims. 

Claims? The regulator found direct evidence of frontrunning with Citadel required to make injured traders whole.   As expected news of the settlement did not make Citadel's website.  I took the liberty of adding it.

Some FINRA folks may be in good graces with Citadel as a result of this toothless settlement. Where does that leave the small investor?  I'd like to be more than a prop in Citadel's proprietary trading book.

PEUs Bring Back Dividend Recap

After a quarter off private equity underwriters (PEU) brought back their signature debt for dividend move, also known as a dividend recap or liquidity recap.. 

Providence Equity Partners-backed Bite has earmarked roughly 200 million euros ($232 million) from an issue of senior debt to pay shareholders. Around $560 million of proceeds from the loan being sold by Epicor will be used for a payout to KKR & Co.

Sponsors cash mining affiliates should not be a surprise.  The Carlyle Group siphoned off millions from Philadelphia Energy Solutions before it declared bankruptcy (the first time).  Carlyle profited from ManorCare, another affiliate it drove to bankruptcy.  That dividend came in the wake of Carlyle's spinning off ManorCare's facilities to a healthcare REIT. 

How long before Bite or Epicor have financial problems due to sponsor dividend bleeding?  It remains to be seen.

Carlyle Performing Airport Body Temperature Scans

The Carlyle Group's latest product in its COVID-19 portfolio is airport body scanners that detect passengers with fever.

At the Los Angeles International Airport (LAX), thermal cameras are checking airline passengers' body temperatures throughout the Tom Bradley International Terminal and arrival areas.

Thermal imaging cameras detect infrared radiation and can measure the surface temperatures of people.

The LAX screening program is a partnership with the Carlyle Airport Group, through Schneider Electric, which will provide 3 types of cameras to help determine which is most accurate and effective at detecting potentially ill people.

The equipment being tested is on loan at no cost to LAX.

A Carlyle press release stated:

Five separate camera assemblies with units manufactured by Omnisense, Mobotix, Flir and Carlyle-backed HGH are being used in the pilot.

Carlyle could profit by having two affiliates involved, Schneider Electric and HGH Infrared Systems.  What are the odds that HGH wins, given Carlyle family ties?  That's PEU profit layering, on which Carlyle cut its teeth.. 

Carlyle's Airport Group CEO said:

"The pilot is unique in monitoring the entrance to the terminal and testing not just individual cameras, but assemblies of cameras....  the cameras must be able to scan large numbers of persons quickly and continuously while simultaneously identifying individuals that exhibit possible elevated body temperature."

Carlyle affiliates can help screen airports for people with fever (Schneider Electric & HGH), test for COVID antibodies (Ortho Clinical), assist with blood plasma collection (MAK Systems), produce antibody drug conjugate (Piramal Pharma Solutions), ensure the maximum hospital bill for COVID-19 patients (TrustHCS), manufacture Ivermectin treatment (SeQuent Scientific) and make federal coronavirus purchasing something other than a clown show (Unison).

Carlyle plans to profit from, the pandemic as President Trump seems determined to perpetuate it.

Carlyle Co-CEO Youngkin to Step Down for Public Service

Reuters reported:

Carlyle Group Inc said on Tuesday that Glenn Youngkin will step down as co-chief executive to dedicate himself to public service, leaving Kewsong Lee as sole CEO of one of the world's biggest private equity firms.

Lee, who joined Carlyle seven years ago after spending 21 years at private equity firm Warburg Pincus, will become the firm's only CEO when Youngkin leaves at the end of September.

Recall Carlyle made its fortunes in part due to employing former public servants, James A. Baker, Frank Carlucci and George H. W. Bush.  It appears Youngkin wishes to reverse the trend and enter public service on behalf of the Red team.

"As the world continues to face so many challenges today, and as Carlyle is well-positioned, now is a natural point to focus my full-time efforts on community and public service efforts that I believe can make a meaningful impact," Youngkin said in a statement.

Youngkin and his wife Suzanne earlier this year launched VA Ready, a non-profit offering training for unemployed Virginians to help them find work amid the coronavirus pandemic. He has also been a donor mainly to Republican politicians.

If someone wanted to impact unemployment one of the most powerful levers would be as co-CEO of a private equity underwriter (PEU) with thousands of companies under their control.

In 2011 Carlyle Group co-founder William Conway offered $1 billion to groups tackling unemployment.  Did Conway's funds help start VA Ready?  Conway remains co-executive chairman alongside fellow founder David Rubenstein, who said this regarding Youngkin's change.

“He did an outstanding job as co-CEO, but I certainly understand the pull of the kind of public service activities to which Glenn is committed,” Rubenstein said in the statement. 

Former public servant Rubenstein recently told Andy Serwer that people will go back to work, however some will be laid off by their employer.  He also said Americans will become numb to widespread coronavirus deaths.

Maybe Glenn Youngkin's retirement from Carlyle is a truly heartfelt move, but that's hard to believe given Carlyle's 3-D chess manipulation of Uncle Sam's wallet.  It's more likely Glenn became Carlyle's first executive level layoff (while fully supported by Carlyle's billionaire founders).

How long before a publicly funded VA Ready is training employees for free for Carlyle's affiliates?   VA Ready could take public money as employees are let go from Carlyle companies and once again as employees are rehired within the firm's vast portfolio of businesses.  Carlyle could push off lots of people costs onto such a nonprofit.  

Glenn's wife could run the nonprofit while Youngkin is groomed for future public service in Washington, D.C.  It may be the new Carlyle way.  Someone has to keep the green flowing for the PEU boys after Jay Powell and Randall Quarles.  Youngkin could be key.

Update 7-24-20:  Bloomberg reports Youngkin may run for Virginia's Governor, presumably on the Republican ticket..  Youngkin had Carlyle's infrastructure deals which include Terminal One at New York's JFK airport and the Corpus Christi's Harbor Island deep water oil terminal, which Carlyle abruptly abandoned.  Candidate Youngkin should answer questions about Carlyle's shifting infrastructure winds.  Virginia once considered doing a ports deal with The Carlyle Group.  

Rubenstein Says Get Used to Deaths, Go Back to Work

Yahoo Finance reported:

The tradeoff between reopening the country and exacerbating the coronavirus outbreak is “the big problem we have right now in the economy,” says David Rubenstein, a billionaire investor who co-founded the private equity giant Carlyle Group.

Rubenstein predicted that everyday Americans will grow accustomed to heightened levels of sickness and death from the disease as the economy continues to reopen.

“It's going to have a lot of health consequences that we're going to live with and just accept as normal,” he says. “I think people are going to go back to work and tolerate 1,000 people dying a day.”

In 1987, he co-founded a $5 million firm called Carlyle Group that now manages more than $200 billion in assets and runs offices on six continents.

The Carlyle Group recently invested in several companies tackling different aspects of the coronavirus outbreak.

“You have two ships passing in the night,” Rubenstein says. “While there's a desire to reopen, we also see the consequences of reopening.”

“I suspect we're just going to be tolerating more deaths than we normally would,” he says.

Carlyle stands to profit from the pandemic's proliferation.  Carlyle affiliates can help test for COVID antibodies (Ortho Clinical), assist with blood plasma collection (MAK Systems), produce antibody drug conjugate (Piramal Pharma Solutions), ensure the maximum hospital bill for COVID-19 patients (TrustHCS), make Ivermectin treatment (SeQuent Scientific) and make federal coronavirus purchasing something other than a carnival show (Unison).

Another ship on the sea is America's healthcare system.  Rubenstein's back to work solution means more people mixing, more opportunity for the highly transmissible COVID-19 virus to propagate.  More interaction, more cases.  More cases, more profits for Carlyle from its COVID-19 stable.

He did say more government funds for businesses will be coming, as well as layoffs.  How might Rubenstein's philanthropy help widespread suffering from unemployment or income inequality, which he said is worse than it has ever been?  Andy Serwer asled the question.  Rubenstein said nonprofits would need to change their business models, via consolidations and fewer offerings.  The billionaire did not say he would put his vast resources to solving the plight of people/blight from our economic implosion.

We know he doesn't want to pay more in taxes.  Rubenstein's track record is clear in that regard.

Update 7-21-20:  Serwer failed to ask the most basic question:  How does Carlyle plan to profit from COVID-19?  Carlyle co-CEO Glenn Youngkin plans to step down in September.  The news piece stated:  "Across the private equity industry, asset managers are trying to assure investors that their portfolios are not only well-positioned to ride through the economic carnage inflicted by Covid-19, but that they can capitalize on opportunities that might arise during the turmoil.

Update 8-11-20:   Republicans in Congress agree with Mr. Rubenstein that people should go back to work. 

Subsidized Billionaire Family Offices Make Profitable Bets

Billionaires took private and forgive-able public loans in March.  Private loans enabled market beating returns on their wealth while public money subsidized operations in some firms.  Reuters reported:

Billionaires looked after by Swiss bank UBS (UBSG.S) are looking to move some of their cash out of equities after profiting from an unprecedented sell-off and rapid rebound from March to May, the world’s largest wealth manager said on Thursday. 

During the rout in stock markets across the globe in March, UBS’ richest customers took out loans to place billions into crashing stock markets. They are now looking to pull that money from equities and put the profits in illiquid and private assets, UBS’ head of global family offices told Reuters. 

Their strategy has helped family offices which manage the financial affairs of the world’s richest beat hedge funds and overall markets to outperform their target benchmarks through May, according to the bank’s survey of 120 family offices, with an average family wealth of $1.6 billion, published on Thursday.

Some high return family offices took Paycheck Protection Program funds.  Reuters reported:

Private investment firms that manage the fortunes of wealthy individuals and their kin were approved for millions of dollars in taxpayer-funded relief loans designed to help small businesses weather the coronavirus lockdown.

The companies - often referred to as “family offices” - approved for the forgivable loans from the Small Business Administration (SBA) included those that oversee money for the family that co-owns the National Basketball Association’s Sacramento Kings; the former manager of a multi-billion dollar hedge fund firm; and a serial Las Vegas entrepreneur.  

About 2,000 firms that manage money or advise on investments, such as hedge funds or wealth advisers were approved for loans meant to shore up payroll and rent costs for small companies.

The SBA said in a report, finance and insurance firms represented $12.2 billion across 168,462 loans, about 2.3% of the program’s total lending as of June 30.

So the Trump team pushed millions out the door to people with the wherewithal to borrow huge amounts.  Many founding private equity underwriters (PEU) formed family offices with the vast wealth.  It's not clear if any of these offices took forgivable PPP loans while making big bets on equities.

Some recipients include:

Rothschild Capital Partners LLC, a New York-based firm that manages money for its chief executive, David D. Rothschild and others, got the go-ahead for a loan of up to $350,000 to retain eight jobs. The firm managed approximately $330 million at the end of 2019 on behalf of the Rothschild family and a group of wealthy investors, according to public filings.  Representatives for Rothschild did not respond to requests for comment.

The family office of former high-profile hedge fund manager Jacob Gottlieb, New York-based Altium Capital Management LP, was also approved for up to $350,000 to retain eight jobs, according to the disclosure. Gottlieb until recently ran the approximately $8 billion Visium Asset Management before it shut down amid a financial fraud scandal

Carlyle's SeQuent Makes COVID Medication Ivermectin

In early May I questioned how The Carlyle Group would profit from its planned purchase of veterinary medicine maker SeQuent Scientfic in the midst of a global pandemic.  It turns out one Sequent medicine is under study for COVID-19 treatment and early studies show positive results.

A 40% reduction in mortality is a significant and welcome development.

Carlyle affiliates can help test for COVID antibodies (Ortho Clinical), assist with blood plasma collection (MAK Systems), produce antibody drug conjugate (Piramal Pharma Solutions), ensure the maximum hospital bill for COVID-19 patients (TrustHCS) and make federal coronavirus purchasing something other than a carnival show (Unison).  Add Ivermectin treatment (SeQuent Scientific) to Carlyle's COVID-19 portfolio.

More disease, more demand.  . Could The White House's bumbling public health response make Carlyle's billionaires richer?  Highly likely.