Monday, November 28, 2022

Carlyle to Be Your Debt Supplier?

The Carlyle Group plans to raise its third credit opportunities fund.  Yahoo Finance reported:

It’s set to have a broad mandate, with the ability to invest in distressed and performing private debt, as well as special situations. The private credit market is increasingly becoming the only option for companies looking for debt financing in Europe and the United States

Carlyle snatched Brintons away from its founding family in a credit opportunity.  It got Mrs. Fields in a similar move.  

Former CEO Kewsong Lee steered Carlyle deeper into packaged credit.   Carlyle generally avoids putting good money after bad for stressed affiliates (Semgroup, Synagro, ManorCare).  It remains to be seen if they extend loans to affiliates with the money.

Sunday, November 27, 2022

Homeland Threat Private Equity

Face the Nation hosted two former Homeland Security Chiefs, Jeh Johnson (Blue Team) and Michael Chertoff (Red Team).  Both are private equity underwriters (PEU).  Johnson is with Enlightenment Capital while Chertoff has his own PEU in The Chertoff Group.

Politicians Red and Blue love PEU and increasingly, more are one.  Far more common is PEU hiring of former elected officials/public servants.  It's true in healthcare, as well as homeland security.

Update 11-28-22:  Last year Jeh Johnson spoke on "Creating a More Just World."  That's not private equity's reason for being.

Saturday, November 26, 2022

Former Medicare Chiefs' PEU Positions


America's healthcare non-system is stressed and one destructive force is greed.  Private equity underwriters (PEU) targeted healthcare over the last few decades.  Policy makers have not reigned in the PEU boys.   

Consider the Center for Medicare/Medicaid Services (CMS), formerly known as the Health Care Financing Administration (HCFA).  Many Medicare Chiefs went on to PEU positions.  

Tom Scully -- Welsh, Carson, Anderson and Stowe

Nancy-Ann DeParle -- Consonance Capital Partners

Andy Slavitt -- Town Hall Ventures

Marilyn Tavenner -- Serves on Board of WCAS and Apollo affiliates, as well as an SPAC with Tom Scully and Jeb Bush

And there's more:

TPG Capital employed two Medicare Chiefs, Seema Verma and Leonard Schaeffer.  Both have multiple PEU positions on their resume. 

Medicare Direct Contracting stands to funnel more money to the greed and leverage boys.  Over fifty lawmakers wrote a letter in opposition to the program.

Medicare Direct Contracting will hand Traditional Medicare to Wall Street investors, without input from seniors, doctors, or even Congress.  

Most of the 53 Direct Contracting Entities are owned and controlled by investors, including private equity firms, Wall Street investors, and large private payers.

DCEs spend as low as 60 percent of their budget on patient care, allowing them to keep 40 percent of revenues for profit. Meanwhile, Traditional Medicare spends 98 percent of its budget on patient care.

The current Medicare Chief is the former Managing Director of Manatt Health, where she consulted on health care financing issues from 2016 to her appointment in 2021.  This information is not included in her Medicare bio, however you can download a large picture of her. It remains to be seen which PEU hires her after her "public service."  I expect the competition to be fierce.

Politicians Red and Blue cater to PEU and that's why healthcare greed remains unchecked.  America is poorly led by people serving the richest and greediest amongst us.

Update 12-3-22:  Private equity is destroying U.S. healthcare and has been for a parasite for decades. 

“PE firms are gobbling up physician and dental practices; homecare and hospital agencies; mental health, substance abuse, eating disorder, and autism services; urgent care facilities; and emergency medical transportation.”

And former Medicare Chiefs are leading the overcharge.

“Financial engineers… raise large amounts of money and borrow even more to buy firms and loot them. These kinds of private equity barons aren’t healthcare specialists who help finance useful health products and services, they do cookie-cutter deals targeting firms/practices/hospitals they believe have market power to raise prices, who can lay off workers or sell assets, and/or have some sort of legal loophole advantage. 

Often, they will destroy the underlying business. The giants of the industry, from Blackstone to Apollo to Bain, are the children of 1980s junk bond king and fraudster Michael Milken. They are essentially super-sized mobsters.”

Update 12-7-22:   Carlyle Group co-founder David Rubenstein said last week

Right now, at Carlyle, an enormous percentage of our investments go into healthcare, not only in the US, but also around the world. It is one of the fastest-growing and likely most stable areas of economic growth. When I worked in the White House in the late 1970s, 7% to 8% of US GDP was in healthcare. Today, it’s roughly 20%.

The profit curve is being bent in the direction of the greed and leverage boys.  

Wednesday, November 23, 2022

Former Rep. Conaway CPA Lobbied for FTX

The former Chair of the House Ethics Committee and Certified Public Accountant Rep. Mike Conaway lobbied for FTX.   A filing showed Conaway Graves Group lobbied on the issues of:

Congressional and Executive Branch issues related to the formation of orderly digital asset markets.

Conaway Graves Group is likely listed in the legions of creditors seeking payment from the now bankrupt FTX.  

I would expect a CPA to ask two questions before taking on a client.  One, what is the makeup of the board of directors?  And two, who is the auditor and for how long?  A small insular board and no name auditor should've been red flags to an accountant.

Conaway used his accounting skills to sniff out a $1 million fraud at the National Republic Congressional Committee.  Something should have smelled bad at FTX.  CME Group President Patrick Duffy told CNBC he detected a fraud after meeting with Bankman-Fried.

Duffy's May 2022 testimony to a Congressional committee should have given Conaway doubts about representing FTX.  Snippets are below:

...FTX’s market maker and backstop liquidity provider plans imported from its offshore practices in low regulatory jurisdictions raises serious questions about the potential conflicts of interest embedded in the FTX model.

Finally, the FTX proposal eliminates critical customer protections. Under their model, market participants will lose important customer segregation protections and could be exposed to increased collateral investment losses.

...The FTX proposal is not innovation. It is an evasion of best practices and prudent risk management.

Here's what Conaway's client FTX founder Sam Bankman-Fried told that same committee:

(FTX) We also have strong customer protections under our model. It is a safe and conservative risk model which would have helped to alleviate some of the instances that we have seen with recent futures exchanges like the LME nickel fiasco earlier this year by having the collateral pre-funded at the clearinghouse rather than relying on credit, and having a real-time risk engine.

We also have enhanced customer protections. We have all of the customer protections that exist on traditional features exchanges and on FCMs because we understand deeply that we have a responsibility to ensure that if there is direct access to the platform, that users are still afforded the same level of protection. On top of that, we have further customer protections, suitability, and transparency than what you find on most other platforms.

Did Conaway Graves help write his testimony to Congress?  The public knows FTX customer protections were a bald faced lie, given Bankman-Fried siphoned off customer funds while running his  "personal fiefdom."

Update 11-24-22:  Conaway Graves cut its ties with FTX.  Both Red and Blue political teams received funding from FTX executives.

Update 11-25-22:  FTX could use a good CPA like Mike:

According to the company's lawyers, they have no reason to believe financial statements were ever audited. That means that no trained professionals from outside the company and its dozens of affiliates ever looked over FTX's books objectively, to ensure investors received truthful information.

Did Mike Conaway's team ask for an audit prior to representing FTX on Capital Hill?

The company "had a lack of corporate controls at a level that none of us in the profession that have looked at it so far have ever seen."

Mike may have seen something similar at the NRCC. 

Update 11-26-22:  Which flimsy excuse is true?  

Bankman-Fried blames "confusing internal labeling" for why billions in customer funds were transferred to Alameda.  

Bankman-Fried implies in an interview that he forgot about $8 billion in customer deposits.

Conaway couldn't sniff this one out. 

Update 11-30-22:  Just the group for a CPA to lobby on behalf of:

... a group of employees quit ...after becoming concerned about what they say was his (SBF) cavalier approach to risk, compliance and accounting.

Update 12-1-22:  Red flags Rep. Conaway missed:

FTX commissioned two different audit firms to audit its 2020 and 2021 financial statements. The reports by Armanino LLP, which signed the report for the U.S. operation, and by Prager Metis LLP, which signed the opinion for the offshore operations, were issued at the end of March 2022.

The first red flag anyone receiving these reports should have seen is that there were two different audit firms producing them. 

The second red flag for any reader of the 2021 audit reports is that neither the Armanino nor the Prager Metis audit reports for 2021 provides an opinion on the FTX US or FTX Trading internal controls over accounting and financial reporting.

SBF said he donated millions to Conaway's Red Team using dark money channels. 

Update 12-2-22:  More clues missed by Mike Conaway?  

FTX's interim CEO said that it was impossible to rely on any of the group's financial statements because it didn't have its own accounting department and was audited by a little-known firm that had an office in the metaverse. 

Update 12-19-22:  Another CPA Congressman Brad Sherman has been trying to ban cryptocurrencies in the U.S. for five years.

Update 12-20-22:  The New Yorker did a piece on lack of crypto regulation but failed to give CPA Mike Conaway his due as former Chair of the Ag Committee and FTX lobbyist..

FTX followed the standard playbook of influencing Washington, and that’s buying influence on a bipartisan basis

Just like the PEU boys. 

Update 1-4-23:  The last count in the indictment is an allegation that SBF conspired with others to violate campaign finance laws.  SBF made "enormous illegal contributions disguised to look as if they were coming from SBF’s “wealthy co-conspirators.” 

Update 1-8-23:  Institutional Risk Analyst reported:

The question is how state and federal regulators, as well as elected officials in both political parties, did not see that the entire construct of crypto currency was at best a form of money laundering and at worse outright fraud.

Tuesday, November 22, 2022

Biden Back at Rubenstein's Nantucket Compound

President Biden will celebrate Thanksgiving at the Nantucket estate of private equity underwriter David Rubenstein, co-founder of The Carlyle Group.  Rubenstein's preferred carried interest taxation remains in force, thanks to the Blue Lucys.  Uncle Sam helped Rubenstein build his billions in wealth, indirectly and directly.  Carlyle located in D.C. to have greater access to Uncle Sam's wallet and elected officials.

Biden stayed at Rubenstein's estate in 2014, 2016, possibly 2019, 2021 and 2022.  

Update 11-24-22:  Speculation formed as to whether Rubenstein and his new lady friend would dine with the Bidens during the holiday.  DailyMail only found the 2014 stay.

Update 12-27-22:  Biden spoke at the Kennedy Center Honorees reception in the East Room of The White House.

And a special thanks to our friend David Rubenstein.  David, you’ve become a friend.  (Applause.)  David — David is Chairman of the Board of the Kennedy Center here and probably puts more time in there than does in his business.  But thank you, David, for all you do.

U2's Bono, a PEU with Elevation Partners, was also honored at the event.

Before FTX, Abraaj Failed


FTX founder Sam Bankman-Fried ran the cryptocurrency exchange and affiliated companies as “personal fiefdoms." 

The Abraaj Group, the Middle East's largest private equity fund failed similarly in 2018.

Liquidators overseeing Abraaj Group’s insolvency now estimate chief executive officer Arif Naqvi’s alleged theft to have cost the firm $385 million, an amount significantly more than what prosecutors claimed.
The SEC took action in the matter against a U.S. based Abraaj managing partner for fraud:

...potential investors were provided with an inflated performance track record for existing investments in prior funds managed by Abraaj's investment adviser entity...

...personnel responsible for valuations stated internally that certain write-downs were needed for a number of portfolio companies held by private equity funds managed by AIML. According to the order, Bourgeois-one of Abraaj's managing partners, the CEO of its New York office, and the global head of fundraising and investor relations-was aware of these advised write-downs on at least two separate occasions. The order finds that Bourgeois recommended that AIML not apply the write-downs (or delay doing so) to avoid the negative impact on APEF VI fundraising he anticipated would result if AIML's lower track record was shared with potential investors. 

Where was the oversight from the board or financial audit firms?  Absent.

....conflicts of interest between auditors and the private equity groups that employ them are an “eternal problem” in the sector.

KPMG played a key role enabling the Abraaj debacle.  FT reported:

KPMG has been blocked from winning new audit contracts in Abu Dhabi after regulators removed the Big Four firm from the list of accountants authorised to sign off companies’ financial statements. The move by the Abu Dhabi Accountability Authority comes just weeks after a separate watchdog in Dubai fined KPMG and one of its former partners $2mn for failings in its auditing of Abraaj, the emerging markets private equity group that collapsed in 2018. 

Failure to write down holdings to keep inflated performance figures is the current state of private equity.  That could keep the SEC very busy.

Sunday, November 20, 2022

Energy Co-Head Bails on Carlyle


Pensions and Investments
reported:

Avik Dey, who joined Carlyle Group this summer to co-head its energy business, is leaving the firm at the end of November, according to people with knowledge of the matter.

Days before the PI story Carlyle announced Telis Energy, a European alternative energy platform.  Reuters reported

Carlyle seeks $1.6 bln for second renewable energy fund

Neither Dey nor Carlyle International Energy are mentioned in the stories.

Avik Dey had a five month tenure at Carlyle.  That's seven months shorter than Mike Cavanaugh, who'd been tapped to replace Carlyle's founding triumvirate. 

Executive turnover continues at the politically connected private equity underwriter (PEU).  The search to replace CEO Kewsong Lee continues.  The founders remain firmly in charge.

Saturday, November 19, 2022

Crypto Funny Money


Yahoo Business
interviewed former FDIC Chair Sheila Bair regarding the implosion of crypto firm FTX, Alameda Research and 130 related entities.  The interview came just days after Bair said of FTX's bankruptcy:

“There is no systemic impact to the real economy,” Bair said, adding that this is all just “funny money in the ether with speculation.”

Bair failed to declare her board role with crypto infrastructure firm Paxos or that FTX bought an equity stake in Paxos in its Series D funding round (summer 2021).  

No business reporter asked:  So, Mrs. Bair that "funny money in the ether" was used to buy equity in a firm where you are on the board of directors.  Is Paxos planning to return that money to FTX customers given it was likely purchased with FTX customer funds?  ....Mrs. Bair?

Paxos put out a statement regarding their exposure to FTX/Alameda.

Paxos affiliates occasionally extend loans to select firms as part of our designated market maker program which included Alameda. These loans are always over-collateralized and must be held on-platform in Paxos’ full control and custody. As with all similar loans, Paxos required Alameda to provide collateral substantially in excess of the original loan and only use the loan for that program. These loans are never funded with customer monies.

The press release did not reveal Paxos' loan exposure to Alameda.  It did not state what form of collateral Alameda gave to Paxos or whether the loan(s) remain over-collateralized. 

Carlyle Group co-founder David Rubenstein became a cryptocurrency fan after his family office Declaration Partners invested in Paxos in several funding rounds.  Rubenstein wants individual retirement funds to have access to private equity and cryptocurrency investments.

Paxos has a tool for that:

Financial advisor crypto trading from Paxos Crypto Brokerage will help broker-dealers create a seamless experience for their financial advisors and their clients to engage in the benefits of the crypto ecosystem including tax, allocation, settlement and commission functionality that also adheres to pricing requirements across other asset classes. 
Many retirees are hesitant to consider crypto investments after the sudden and colossal failure of FTX/Alameda Research.  

Carlyle knows both sides of insolvency.  Carlyle Capital Corporation imploded after the obscenely leveraged mortgage backed security fund saw the underlying value of its holdings rapidly decline.  It was the canary in the financial services industry, failing in early 2008.  Investors sued after being told by Carlyle that the fund was safe.  In a different investor lawsuit Carlyle used puffery as it's defense.

Carlyle sued multiple parties after oil prices plummeted in 2014-2015.  The plunge erased its stake in oil stored at SAMIR, a Moroccan refinery.  

Wide swings in the value of underlying assets is not new to David Rubenstein. The private equity playbook is buy distressed/undervalued assets and flip them after they have been packaged as preferred holdings.

 The Bear Cave Newsletter wrote:

Paxos discloses, “Not all deposits are covered by the FDIC or private insurance, and Paxos may still incur losses in the event of a bank insolvency.” Sheila Bair, the former chair of the FDIC from 2006 to 2011 is on the board of Paxos. 

More alarming, an August 2022 forfeiture application for probable cause filed in Broward County alleges Paxos and Silvergate were connected to a money laundering operation

Paxos is part of the crypto money wash.  Sheila Bair and David Rubenstein don't want to see it unwind.  Their will has a significantly greater likelihood of making it into law or operationalized into regulations.  Expect the usual hidden agendas and double talk.

Update 11-20-22:  Peter Schiff, CEO and chief global strategist at Euro Pacific Capital, stated:

“This is not a crypto winter. That implies spring is coming. This is also not a crypto ice age, as even that came to an end after a couple of million years,” he writes in a tweet. “This is crypto extinction.”

Not if Sheila Bair and David Rubenstein have any say. 

Update 11-29-22:  More funny money implodes:

Crypto lender BlockFi has about $355 million in cryptocurrencies currently frozen on crypto exchange FTX, attorney Joshua Sussberg told a U.S. bankruptcy court on Tuesday.

The $355 million is on top of another $671 million in loan to FTX sister company Alameda Research.

Friday, November 18, 2022

Elon's Loyalty Oath from Lake Wobegone


 .....where all the women are strong, all the men are good-looking, and all the children are above average.

Twitter owner Elon Musk continues wreaking havoc on his new company.  After firing half the workforce Musk implemented a loyalty oath to an extremely hardcore Twitter 2.0. 

...employees needed to show their desire for working at his new "extremely hardcore" "Twitter 2.0" by clicking a signup link before 5 pm ET Thursday. Those who do not sign up, Musk said, will be considered to have resigned from the company.

Using a loyalty oath link to drive away talent...that's exceptionally bad leadership.  

As the deadline passed, less than 50% of Twitter's employees had signed up for Musk's Twitter 2.0

That means Twitter lost 75% of its workforce since Musk took over as owner.  Twitter's Trust and Safety Team has been hollowed out.  One news report stated six critical systems no longer have any engineers.

I expect debt holders are screaming, however they may not have anyone to speak with as most of the finance department, including payroll, is gone.

 
Musk drove in more fear by threatening managers who advocated for average employees to work from home, a benefit awarded only to exceptional Twitter staff members.  
Twitter...where interest costs have ballooned, advertisers are not customers and the few employees remaining are all exceptional.  

Thank heaven the CEO is brilliant in creating new bigger problems, so the old ones don't look so bad.

Update:  Twitter may be on life support given:

Elon Musk ordered the temporary closure of the company's offices.  The company told staff in a memo overnight that it had shut down all its locations "effective immediately", raising concerns about the effective running of the business amid reports of a mass staff exodus.

Musk has done in three weeks what takes most private equity underwriters years and a down business cycle.  Debt holders and those who rolled over major equity stakes should be livid.

After closing the office Musk summoned engineers to Twitter headquarters.

Update 11-19-22:  Elon Musk is the nightmare manager many people have endured.  As Dr. W. Edwards Deming noted 

“Every theory is correct in its own world, but the problem is that the theory may not make contact with this world.”

Profound knowledge incorporates Deming's theory of psychology, systems, variation and knowledge, as well as their interaction.  It is missing from today's world.

Update 11-20-22:  Fortune reported:

Elon Musk is "well outside his depth" at Twitter and a "bullying management culture" won’t work there, says a former Facebook executive.

Reuters added:

"This is essentially Game of Thrones between Musk and the Twitter employees," says Dan Ives of Wedbush Securities. "This is really a quicksand situation that he's trying to fix. And the more he does, the more damage he does."
"I think there's a feeling right now that this situation is just continue to go more and more into a train wreck," said Ives, "And I think it's something even Musk himself underestimated."

Musk restored the account of the Great Retaliator after a Twit thumbs up/thumbs down poll.  No content moderation council needed.

Game of Thrones is not Profound Knowledge.

Update 11-24-22:  Polling is not Profound Knowledge.  One can poll their way to a hellscape.  

Update 12-8-22:  Billionaire Elon Musk asked employees to envision themselves as a crime victim to increase productivity.

 He also invited Twitter employees to not leave the workplace by providing beds in conference rooms.

Update 12-11-22:  Musk asked employees to sign yet another loyalty oath, the non-leaking version..

Update 12-14-22:  Twitter debt holders are writing down the value of their debt/notes.

The biggest chunk of the debt -- $10 billion worth of loans secured by Twitter's assets -- might have to be written down by as much as 20%.

Update 12-15-22:   Musk suspended the Twiter account that tracked his private jet flights.

Update 12-16-22:  Twitter's Elon Musk, the free speech absolutist, banned a number of journalists.  That got a warning from the European Union.  Censorship by whim or retaliatory impulse is so 2022.

Update 12-20-22:  Management by poll got a process change after Twitter users voted for Elon to step down as CEO.  Now only paying Twitterheads votes will count.  

Update 12-26-22:  Free speech absolutist Musk turns out to be a corporate autocrat.  Visitors must wait for an hour and can only speak after Wizard Elon.

Update 12-29-22:  In the midst of widespread technical problems shared by Twitter users Musk wrote "Works for me."  Hellscape achieved.  

Update 12-30-22:  More evidence of Twitter's new Hellscape under Musk:

Some Twitter employees are bringing their own toilet paper to work after the company cut back on janitorial services.

The company's San Francisco headquarters have been left with dirty bathrooms and the office is in disarray, per the publication. The stench of leftover takeout food and body odor is present throughout the premises.

Zero based budgeting has returned to Twitter.  That brings a special hell for employees. 

Update 1-1-23:  Horror movie is close to Hellscape:

...the Twitter situation-- it's a nightmare on Elm Street that doesn't end.

Update 1-29-23:   Hellscape achieved says many Twitter workers.  WoBeHere.

Thursday, November 17, 2022

No Fiduciary Oversight at FTX


How does s founder and CEO approve a $1 billion personal loan from the company and its affiliated entities?  Sam Bankman-Fried of Alameda Research and FTX did just that.

What are the mechanisms to ensure there are no conflicts of interest and the loan furthers the company's legitimate business strategy?  FTX lacked a board of directors with independent members.  The board consisted of SBF, a FTX employee and a lawyer.  FTX refused a request from one investor to create a real board.

Effective altruism was operationalized as financial fraud with blatant conflicts of interest.  Former FDIC Chair Sheila Bair compared FTX to Bernie Madoff.  Bair was named to the board of Paxos, a crypto infrastructure firm, in 2016.

Ms. Bair serves on the board of a non-public fintech, Paxos Trust Company, LLC and its parent Kabompo Holdings, Ltd

FTX invested in Paxos in its Series D round.  Bair failed to mention FTX's equity stake in the firm she oversees. 

“There is no systemic impact to the real economy,” Bair said, adding that this is all just “funny money in the ether with speculation.”

So Mrs. Bair, real people did not lose real money?  You sit on a board that provides infrastructure to the speculative economy?

Paxos' addressable market is evaporating with the failure of every crypto exchange:

As for Paxos itself, the company is not as buzzy as many others in the crypto industry, since it is not consumer-facing; it focuses primarily on back-end infrastructure. Paxos CEO Charles Cascarilla has frequently said he wants to use blockchain to remake the financial plumbing of Wall Street—a process he says will reduce delays and free up capital, and also prevent the sort of meltdowns that befell Robinhood and others when clearinghouses couldn't keep up with record trading volumes.

Has Paxos made any capital calls as a result of the ongoing crypto implosion?  That would be more real money going to support "funny money in the ether with speculation."

Bair speaks out of both sides of her mouth, a unique insider ability.  She knows when and how to deliver her lines.

The man who wound down Enron said FTX is the worst he's seen in his career.  

On September 1, 2022 Bloomberg's "The David Rubenstein Show" interviewed FTX founder Sam Bankman-Fried.   Rubenstein's family office Declaration Partners invested in Paxos and holds a seat on the Paxos board, alongside Bair.

FTX invested in Paxos in July 2022.  The fact that both FTX and Declaration Partners had investments in Paxos was not mentioned in the Bloomberg interview.  

Carlyle Group co-founder David Rubenstein made a fortune on BankUnited, courtesy of Sheila Bair.  That gift came in the aftermath of the 2008 financial crisis.

Rubenstein's crush on crypto has been apparent since he took his Paxos stake in late 2020.  Not long ago he called crypto titillating.  He is skilled in hawking his investments.

Paxos provides firms the ability to have their own crypto brokerage.  The brokerage plans to "generate yield by lending assets to institutional counterparties."


Mrs. Bair notes her recognition from the Consumer Federation of America.  It states the following about crypto regarding retirement plans:

...several aspects of cryptocurrencies raise serious questions about the prudence of exposing plan participants to these assets, including:

● They can exhibit extreme price volatility, which can be particularly devastating for participants who are approaching retirement;

 ● It can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype; 

● Because cryptocurrencies are not held like traditional plan assets in trust or custodial accounts, they are at heightened risk of fraud, theft and loss;

● There are no consistent, reliable, and widely accepted standards for valuing cryptocurrencies; and 

● Rules and regulations governing the cryptocurrency markets are evolving, and some market participants may be operating outside of existing regulatory frameworks or not complying with them at all.

Given these concerns, and the many uncertainties that currently pervade digital asset markets, we think it would be particularly challenging for plan fiduciaries to satisfy their prudence obligations when exposing plan participants to this category of assets.

My worry is how Mr. Rubenstein and Mrs. Bair will use the push to regulate crypto to fluff up the value of Paxos.  They have influence and will use it to their advantage.  

With crisis comes opportunity.  That generally does not come with accepting responsibility, accountability or recognition of one's role in a debacle.  Sweep it under the rug, prop up its remains and position for future profits.  

Politicians Red and Blue love PEU and increasingly, more are one.

Update:  SBF isn't alone in making unilateral decisions as founder.  Tesla's Elon Musk did likewise:

Musk said he made a unilateral call on ending Tesla's acceptance of Bitcoin cryptocurrency and acknowledged that the board was not informed before he told analysts in October that Tesla's board was considering buying back up to $10 billion of stock.

FTX's bankruptcy filing actually states:

The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise. For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.

In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.

...the use of software to conceal the misuse of customer funds, the secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol, and the absence of independent governance as between Alameda (owned 90% by Mr. Bankman-Fried and 10% by Mr. Wang) and the Dotcom Silo (in which third parties had invested).
Basic business skills were absent in a firm run by polymaths.  Laws don't apply either.

The bankruptcy filing shows some investment holdings but does not list Paxos.  There are two places where the word "others" is used.

Update:  The law firm that helped FTX make acquisitions is the same law firm assisting with the bankruptcy process. It's Simon and Cromwell.  In odd timing the Fed announced a pilot digital token with Citigroup.  Simon and Cromwell is providing legal services for the digital token pilot.  The firm also has a vibrant private equity practice. 

Update 11-18-22:   Vox reported

Last year Bankman-Fried had described his ethical framework to reporter, Kelsey Piper, telling her that unethical conduct was not acceptable, even in service of “the greater good.”

In their conversation early Wednesday, Piper asked him if he stood by that. “Man, all the dumb shit I said,” he replied. “It’s not true, not really.”

Ethics, he elaborated, aren’t as important to a person’s public standing as whether they achieve success.

"Effective altruism" was a scam. operationalized as greed, massive fraud and widespread conflicts of interest. 

Update 11-25-22:  SBF's effective altruism endorsed greed, fraud and blatant conflicts of interest under the guise of helping alleviate some suffering not borne by the monied class.

Update 11-29-22:  More funny money implodes:

Crypto lender BlockFi has about $355 million in cryptocurrencies currently frozen on crypto exchange FTX, attorney Joshua Sussberg told a U.S. bankruptcy court on Tuesday.

The $355 million is on top of another $671 million in loan to FTX sister company Alameda Research.

Update 12-18-22:   Once again the smartest guys in the room plead ignorance.

"I think he believes he can play the media and the world the way he plays the markets. Get the view out there that was just incompetent. Just speculation, but I think this is the game he is playing."

Update 1-4-23:  The last count in the indictment is an allegation that SBF conspired with others to violate campaign finance laws.  SBF made "enormous illegal contributions disguised to look as if they were coming from SBF’s “wealthy co-conspirators.”

Monday, November 14, 2022

Congress to Tackle Crypto


 As the hull of FTX burns in the Bahama breeze:

"Congress needs to take heed and ensure it doesn't let a failing, scam-based industry lobby its way to a legislative bailout."--Public Citizen President Robert Weissman

Carlyle Group co-founder David Rubenstein showed his love for crypto in multiple interviews.  His family office has a stake in crypto infrastructure firm Paxos.  The following occurred on Saturday, November 12th.

"Paxos received direction from US Federal Law enforcement to freeze Paxos-issued assets associated with four ethereum addresses.  In compliance with the request, Paxos froze 11,184.38 PAXG tokens valued at roughly $19 million. These tokens were previously on the FTX.com platform and had moved to unknown wallet addresses over the prior 24 hours." 

In July 2022 FTX invested in Paxos alongside Bank of America, Coinbase Ventures and Peter Thiel's Founders Fund.  

The dual investments of FTX and Founders Fund show how money can transcend politics in crypto: Thiel is a staunch conservative who spoke at former President Trump's inauguration, while Bankman-Fried was one of President Biden's biggest donors.

Red Team donor Peter Thiel supports "the idea that companies should basically be able to do whatever they want, that democracy isn’t the most important value."

Paxos already has the consummate D.C. insider as a major investor.  If anyone can engineer funds from Uncle Sam's wallet, it is David Rubenstein.  Carlyle located in Washington for that very reason.

David Rubenstein (patriotic philanthropy), Sam Bankman-Fried (effective altruism) and libertarian Peter Thiel all want government regulation to be light, taxes to be low and for any oversight to bolster their investment positions.  Bailouts are fine, even when behavior has been bad.  

“These blowups have not been crypto blowups, they have been banking blow-ups. Lending to the wrong entity, misvaluations of collateral, arrogant arbs, followed by depositor runs. See Long Term Capital, Savings & Loan and Sub-Prime blowups. All different versions of the same story.”--Mark Cuban

They've been mostly non-bank blowups, caused by blatant conflicts of interest and a cascade of financial frauds.  

Carlyle made huge returns on BankUnited after the 2008 financial crisis, courtesy of billions in FDIC subsidy.  Rubenstein is a deep pocketed Congressional influencer.  The non-lobbyist successfully retained private equity's preferred carried interest taxation multiple times over the last twelve years.  

Congress, don't look at the titillating Paxos Gold.  It may take your regulatory will away.

Update 11-15-22:  After the Wolf of Wall Street targeted crypto, crypto has a new Wolf  in SBF:

"I think this [crypto] crash accelerates regulatory intervention," Saylor said on Yahoo Finance Live . "I mean, in fact, in a sense, SBF is like the Jordan Belfort of the crypto era. Instead of 'The Wolf of Wall Street,' they'll make a movie called 'The King of Crypto.'"

Update 11-16-22:  News reports indicate SBF approached PEUs Apollo and TPG for a cash infusion.  There is no evidence FTX reached out to Carlyle's Rubenstein.  Both are investors in Paxos.

Sunday, November 13, 2022

Orszag's Lazard Advisory on Masar


The Saudi Public Investment Fund, headed by Crown Prince Mohammed bin Salman, hired Lazard for a possible IPO.

Saudi Arabia's Public Investment Fund (PIF) is working with Lazard on funding options and a potential initial public offering of Masar, a $27 billion mega project in the holy city of Mecca.
A former Obama White House official heads a key part of Lazard and joined the firm as Vice Chairman of Investment Banking.

Peter R. Orszag is CEO of Financial Advisory at Lazard, leading the firm’s advisory businesses that serve companies and governments across the globe. 
One of those advisories deals with global politics.

Lazard Geopolitical Advisory will help corporate leaders assess risks and opportunities in the constantly evolving geopolitical environment. 

Lazard Geopolitical Advisory will combine some of the world’s most experienced geopolitical minds with Lazard’s unmatched business expertise. 

It will be a highly bespoke offering built to provide strategic insights on relevant geopolitical trends – advising clients on risks, opportunities, and how key developments may translate into business impact.  

The geopolitical environment has been made more complex by a ruthless Saudi Crown Prince.  Corporate leaders have been all too willing to set aside the murder of WaPo journalist Jamaal Khashoggi.

Recent moves by the Crown Prince to embarrass President Biden were followed by a few quiet concessions.  What role did Peter Orszag have softening the harsh environment?

Last month Lazard hired another former Obama advisor in its Geopolitical Advisory.

Lazard announced today that Jami Miscik has joined the firm as a Senior Advisor, effective immediately.
Miscik served as Global Head of Sovereign Risk for Lehman Brothers when it imploded in September.  

Orszag's journalist wife is Senior Global Affairs analyst with CNN.  He, of all people, should have numerous reasons for not dealing with the Saudi regime.   

Service to greed and power are reasons to work with the Saudi Crown Prince. Those generally end badly for the ones doing the servicing.

Update 12-6-22:   The U.S. court case against the Crown Prince was dismissed under the guise of sovereign immunity, something the Prince did not have at the time of the execution.  The judge said his hands were tied by the Biden administration's recommendation to the court.  Thugs win.

Friday, November 11, 2022

Biden's PIAB Bios Omit PEU Roles

Three of the four President Biden appointees in May 2022 have private equity underwriter (PEU) ties not mentioned in their White House bios.  

In June the President added Evan Bayh, also a PEU, to the President's Intelligence Advisory Board (PIAB).


Biden's cabinet is chock full of former PEUs.  Politicians Red and Blue love PEU and increasingly, more are one.

FTX Bankrupt, SBF Resigns


The Guardian
reported:

One of the world’s biggest cryptocurrency exchanges, FTX, has filed for bankruptcy protection in the US amid warnings the embattled industry faces a 2008-style crisis.

FTX’s founder, Sam Bankman-Fried, also resigned as chief executive after a precipitous fall from grace that began last week with reports about the financial structure of his crypto empire.

In a statement, FTX said a range of related businesses including its US-based exchange and Alameda Research, a trading firm also owned by Bankman-Fried, had filed for chapter 11 proceedings in the US state of Delaware “in order to begin an orderly process to review and monetise assets for the benefit of all global stakeholders”.

Also included in the bankruptcy filing were “approximately 130” further businesses that made up the sprawling FTX group, a network of associated companies tied together through subsidiaries, contractual agreements, and the shared figurehead of Bankman-Fried himself.

Bankman-Fried may be out as CEO but he remains a major equity owner and board member.  FTX's press release indicated a number of corporate entities were not part of the bankruptcy filing.


Anthony Scaramucci coached business partner SBF to come clean on untoward activities with regulators.  Mooch said he would be buying back the 30% stake SBF and FTX took in Skybridge Capital in September.

Scarmucci spoke of SBF's violation of trust to investors, account holders and the crypto industry.  He said a small group in Sam's inner circle knew every single working while others were unaware. Legal and compliance staff quit the following day.

Bitcoin Magazine reported:

Only 10% of FTX's $8.8 billion in customer funds is backed by liquid assets.

 Back to the small group in SBF's inner circle.  CoinDesk reported:

...30-year-old Bankman-Fried is roommates with the inner circle who ran his now-struggling crypto exchange FTX and trading giant Alameda Research.

Many are former co-workers from quantitative trading firm Jane Street, others he met at the Massachusetts Institute of Technology, his alma mater. All 10 are, or used to be, paired up in romantic relationships with each other. 

Scaramucci didn't want to use the term "fraud", but conflicts of interest are clear if ten romantically involved people ran 130 different corporate entities.

Did SBF or any of his lieutenants transfer assets to any of the FTX entities not declaring bankruptcy?  If so, that would be salt in investor wounds.  

Is Crypto Bahamas 2023 still on?  Will Bill Clinton and Tony Blair return to headline the event?

Update 11-12-22:  It's amazing how the smartest guys in the room turn stupid when caught doing something bad.

....Bankman-Fried’s stunning claim that he was unaware of FTX’s leverage risk, including an apparent lack of basic financial controls. 

Update 11-13-22:  Son of a law and psychology professor SBF calls it a "poor judgment call":

"FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call... All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda."

More like financial crime....   Mark Cuban said:

....with FTX now—that’s somebody running a company that’s just dumb as f*** greedy. So, what does Sam Bankman do? He just, give me more, give me more, give me more, so I’m gonna borrow money, loan it to my affiliated company, and hope and pretend to myself that the FTT tokens that are in there on my balance sheet are gonna sustain their value.”

FTX account holders are trying a workaround to get their money out of the exchange.  They are getting FTX users in the Bahamas to buy NFTs with their crypto.  Shenanigans got FTX to where it is.   They continue.

SBF should be under the control of a legal authority.   

Update 12-4-22:  FTX founder Sam Bankman-Fried should be in custody by now said Coinbase CEO Brian Armstrong.  I thought that three weeks ago.

Update 12-13-22:  SBF is finally under the control of a legal authority. 

Update 12-18-22:   Once again the smartest guys in the room plead ignorance.

"I think he believes he can play the media and the world the way he plays the markets. Get the view out there that was just incompetent. Just speculation, but I think this is the game he is playing."

Update 1-4-23:  The last count in the indictment is an allegation that SBF conspired with others to violate campaign finance laws.  SBF made "enormous illegal contributions disguised to look as if they were coming from SBF’s “wealthy co-conspirators.”

Update 1-5-23:  SBF's General Counsel at FTX "told prosecutors what he knew of Bankman-Fried's use of customer funds to finance his business empire."  He had over a year to learn how SBF did business.

8-3-2021:  Cryptocurrency exchange FTX.US named a former Sullivan & Cromwell LLP and U.S. Commodity Futures Trading Commission attorney as general counsel.

Meanwhile Sullivan and Cromwell remains the law firm for FTX, before, during and after the revelations of gross mismanagement and fraud.

Update 1-15-23:  Scaramucci is now using the fraud word regarding SBF.

Wednesday, November 9, 2022

SBF Interview with Carlyle's Rubenstein

 

In September Carlyle co-founder David Rubenstein interviewed FTX's Sam Bankman-Fried (SBF).  They discuss the "J.P. Morgan of crypto" label placed on SBF after he bailed out a number of failed crypto firms.

"Dr. Doom" Nouriel Roubini recently wrote:

"The bubbles of private equity, property, venture capital and cryptocurrencies will burst now that the era of cheap money is over.

Bursting Bubble brothers, SBF and Rubenstein.

Update 11-10-22:  Bloomberg reported FTX with an $8 billion hole is careening toward bankruptcy.  WSJ said Bankman-Fried committed the financial sin of tapping into customer accounts.  It lent over half of its customer's funds to Bankman-Fried's Alameda Research. 

Special Situations Research Letter indicated which funds had equity stakes in FTX:

Update 11-11-22:  Marc Cohodes saw through SBF in this video from September.  The media finally found SBF's operation was headed by college friends.  This would have been more important information than SBF running with Bill Clinton and Tony Blair.

Update 11-12-22:  It's amazing how the smartest guys in the room turn stupid when caught doing something bad.

....Bankman-Fried’s stunning claim that he was unaware of FTX’s leverage risk, including an apparent lack of basic financial controls. 

Reminds me of Carlyle after the implosion of Carlyle Capital Corporation.  Both highly leveraged, done in by investors demanding their money back.  SBF and Rubenstein can share bankruptcy stories when the FTX fiddler returns.  Maybe Orlando Bravo can join them as the PEU invested big in FTX.

Update 11-13-22:  Son of a law and psychology professor SBF calls it a "poor judgment call":

"FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call... All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda."

More like financial crime....   Mark Cuban said:

....with FTX now—that’s somebody running a company that’s just dumb as f*** greedy. So, what does Sam Bankman do? He just, give me more, give me more, give me more, so I’m gonna borrow money, loan it to my affiliated company, and hope and pretend to myself that the FTT tokens that are in there on my balance sheet are gonna sustain their value.”

The SBF-Rubenstein interview pitted "Effective Altruism vs. Patriotic Philanthropy."  Both are excuses to unethically garner gobs of money.  Patriotic Philanthropy comes with preferred taxation.  

Update 11-15-22:  Competence is not needed, just sponsorship.   SBF's vacuous speech is rivaled by Marc Andreesson.  Big's Matt Stoller cites Andreesson and a16z as crypto fraudsters.

Update 11-16-22:  News reports indicate SBF approached PEUs Apollo and TPG for a cash infusion.  There is no evidence FTX reached out to Carlyle's Rubenstein.  Both are investors in Paxos.

Update 11-17-22:   The guy who wound down Enron in bankruptcy called FTX the worst he's ever seen.  

Former FTX CEO Sam Bankman-Fried received a $1 billion personal loan from one of four silo companies deeply involved in the collapse of the FTX cryptocurrency exchange.

A formal declaration in ongoing Chapter 11 bankruptcy filings from FTX’s new CEO John Ray III has revealed further misappropriation of funds by Bankman Fried.

SBF's effective altruism was an operationalized fraud fraught with blatant conflicts of interest.  Where was the board of directors with fiduciary oversight?   SBF and his polymath inner circle refused to create one.

Sheila Bair (who gifted BankUnited to Carlyle) said FTX is similar to Bernie Madoff's ponzi scheme.

Update 11-25-22:  Ruybenstein came out in favor of blockchain technology after saying this of crypto (last week on Fox Business):

"We should be worried because it's very risky, it's very complicated and people don't have the information they would have if it was properly regulated.  It really isn't regulated, and so it's the Wild West to some extent."

"Generally it's a very complicated area, it's not for people who are not professionals," he said.

"I don't think it's going to go away completely, but clearly it's been damaged a great deal and a lot of people are going to be suffering from this."

The article made no mention of Rubenstein's family office investment in Paxos.  Undeclared conflicts of interest are part of the investment Wild West.

Update 11-26-22:  Which flimsy SBF excuse is true?  

Bankman-Fried blames "confusing internal labeling" for why billions in customer funds were transferred to Alameda.  

Bankman-Fried implies in an interview that he forgot about $8 billion in customer deposits.

Rubenstein's softball questions couldn't ferret this out prior to the fall of SBF.

Update 11-29-22:  More funny money implodes:

Crypto lender BlockFi has about $355 million in cryptocurrencies currently frozen on crypto exchange FTX, attorney Joshua Sussberg told a U.S. bankruptcy court on Tuesday.

The $355 million is on top of another $671 million in loan to FTX sister company Alameda Research.

SBF has interviews lined up for 11-30 with Dealbook's Andrew Ross Sorkin and 12-1 in a Twitter space.  The people interviewing SBF should be legal authorities, not journalists.

Update 12-2-22:  SBF admitted that his philanthropic reputation was at least partly a bogus public-relations play.  Rubenstein is yet to do so, however his ex-wife called him out for using his patriotic philanthropy to make more green.

Update 12-3-22:  Rubenstein said this of SBF:

...the collapse of Sam Bankman-Fried's exchange should serve as a reminder that the space still isn't regulated by the Securities and Exchange Commission, which let it avoid providing accurate financial updates and for some employees to use company funds to buy houses in the Bahamas.

The SEC does very little to regulate private equity and the greed and leverage boys regularly siphon company funds from affiliates via deal fees. management fees, and special dividends/distributions (often debt funded).

Update 12-7-22:  Barron's interviewed Rubenstein and asked:

Did you invest in FTX?

I didn’t. My family office team looked at FTX at the $30bn valuation [earlier this year]. It didn’t move forward, and the memo never reached me, but the other day they showed me what they had prepared. The memo pointed out all the concerns about conflicts of interest. There wasn’t a lot of transparency.

Wow, Rubenstein had research on FTX at his disposal prior to his show's SBF interview.  So much for preparation outside lobbing softball questions at people he considers his peer.

You interviewed him for your own show this summer. Could we have seen something like this coming?

Someone would have to have done some digging. Add Rubenstein to the gloss over list.

Update 12-8-22:  CoinDesk added:

FTX was an improperly organized firm at its founding. Customer assets were always precariously placed. And we know this now because of SBF’s own description of its end.

Update 12-13-22:  SBF is finally under the control of a legal authority.  

Update 12-14-22:  Did SBF's politically connected parents help him rise to the level of a peer to David Rubenstein?

Update 12-18-22:   Once again the smartest guys in the room plead ignorance.

"I think he believes he can play the media and the world the way he plays the markets. Get the view out there that was just incompetent. Just speculation, but I think this is the game he is playing."

Update 12-31-22:  Business Insider reported:

Sam Bankman-Fried had at least four meetings with senior White House advisers this year, including just two months before FTX collapsed, according to a report from Bloomberg.

Most recently, Bankman-Fried met with Steve Ricchetti, counselor to the president, on September 8, sources told Bloomberg.

 That was one week after The David Rubenstein showed aired their SBF interview.

Update 1-1-23:  In an earlier financial crisis SBF promised lenders big returns for a cash infusion

....he promised annual returns as high as 20% in exchange for loans of cash or crypto, but offered few specifics.

Sounds like a young Rubenstein. 

Update 1-4-23:  The last count in the indictment is an allegation that SBF conspired with others to violate campaign finance laws.  SBF made "enormous illegal contributions disguised to look as if they were coming from SBF’s “wealthy co-conspirators.” 

Update 1-5-23:  SBF's General Counsel at FTX "told prosecutors what he knew of Bankman-Fried's use of customer funds to finance his business empire."  He had over a year to learn how SBF did business.

8-3-2021:  Cryptocurrency exchange FTX.US named a former Sullivan & Cromwell LLP and U.S. Commodity Futures Trading Commission attorney as general counsel.

Meanwhile Sullivan and Cromwell remains the law firm for FTX, before, during and after the revelations of gross mismanagement and fraud.

Update 1-16-23:  Business Insider reported:

Sam Bankman-Fried was a spiteful and insecure manager who reacted badly to any conflict or criticism, according to a former top executive for FTX's US-based operation.

Some people believe they are above the law.