Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to the Money Stuff Podcast. You're a
Speaker 2: weekly podcast where we talk about stuff related to money.
Speaker 2: I'm Matt Levin and I write the Money Stuff column
Speaker 2: he Bloomberg Opinion.
Speaker 1: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 1: an anchor for Bloomberg Television.
Speaker 2: What are we talking about today, Katie?
Speaker 1: We're going to talk about a Donnie Sure, what's going on.
Speaker 1: We're going to talk about micro strategy. There's a lot
Speaker 1: to say there, and we're going to talk about short selling,
Speaker 1: which is one of the favorite topics in the money
Speaker 1: Stuff universe.
Speaker 2: That's good or saying yeah, you don't care about.
Speaker 1: It, I'm going to politely agree. This was interesting. So
Speaker 1: got I'm a Donnie. US prosecutor's a qu a Donnie
Speaker 1: who is one of the world's richest people of promising
Speaker 1: to pay more than two hundred and fifty million dollars
Speaker 1: in bribes to Indian government officials to win solar energy contracts.
Speaker 1: This was very interesting on a number of different levels.
Speaker 2: Yeah, I don't read a lot about brivary I love
Speaker 2: bribary cases. I read about them some it's so interesting.
Speaker 2: One thing that's interesting is like usually when you have
Speaker 2: a bribery case, it's like and then they handed the
Speaker 2: bag of cash to the official right, or like there's
Speaker 2: emails being like the official would really like to buy
Speaker 2: his mansion now here. It's like all of the like
Speaker 2: emails they quote sound legitimate because what it says is like,
Speaker 2: to win these power contracts, they had to pay incentives
Speaker 2: to the state power companies, And so they would say
Speaker 2: things like we need to pay incentives to the state
Speaker 2: power companies. And it's like, well that sounds fine. Paying
Speaker 2: the state power companies rebate for buying power seems fine.
Speaker 2: Now paying the state power company executives two hundred million
Speaker 2: dollars is that? But so the stuff they quote makes
Speaker 2: it clear that it's going to these people personally. You know,
Speaker 2: I read a lot about like how if you were
Speaker 2: to pay bribes. None of this is ever legal advice,
Speaker 2: but I read a lot about how if you were
Speaker 2: to pay bribes, you should try to make them look
Speaker 2: business like and not like a sack of cash and
Speaker 2: like winking emails saying I've given you the chickens, but
Speaker 2: just like, yes, we're paying incentives to make a commercially
Speaker 2: viable contract with the state power company, you know, and
Speaker 2: if it happens to go to the executives personally, then
Speaker 2: like you can prove it.
Speaker 1: Hearing you describe that kind of reminds me of the
Speaker 1: Eric Adams emails with the airline, and one of his
Speaker 1: staffers was like, no, you got to make it look
Speaker 1: a little legit. He put that in an email or
Speaker 1: she I don't know, yeah, put that in an email.
Speaker 2: I only read like the charging documents from the SEC
Speaker 2: and from the Department of Justice, and so one assumes
Speaker 2: they have evidence and testimonies saying oh, yeah, we gave
Speaker 2: them the money personally. But it's actually weird because it's like,
Speaker 2: for one thing, these numbers are so large. If you're
Speaker 2: paying two hundred million dollars, it doesn't sound like you're
Speaker 2: paying two hundred million dollars to the power company. It's
Speaker 2: like that's a big bribe.
Speaker 1: Oh yeah, two hundred and fifty million.
Speaker 2: Yeah. And the bribes are weird because it's like one
Speaker 2: of them is like they did deals with different Indian
Speaker 2: states and so one of them it's like they paid
Speaker 2: several hundred thousand dollars. So yeah, that sounds like a
Speaker 2: bride and when I was like, they paid several hundred
Speaker 2: million dollars, Like that sounds like a legitimate business expense.
Speaker 1: Yeah.
Speaker 2: And like also the guy who got two hundred thousand
Speaker 2: dollars must be annoyed reading this indictment, like I could
Speaker 2: have gotten two hundred million dollars. Strange.
Speaker 1: Something that maybe you can expand upon is how this
Speaker 1: ties into the US, Like US prosecutor, yes, are alleging
Speaker 1: that he bribed the Indian government. Like why is the
Speaker 1: US getting involved?
Speaker 2: Okay, So part of the answer is the US loves
Speaker 2: to get involved. Like there are much crazier cases than this, right,
Speaker 2: I love like Olympic doping cases where it's like, you know,
Speaker 2: in Paris, a foreign athlete gets drugs from a foreign
Speaker 2: doctor and the US is like, ah, that's undermining international
Speaker 2: sport and they'll bring charges.
Speaker 1: Well, you know, you know when an American athlete could
Speaker 1: have won that race.
Speaker 2: That's a good point, thank you.
Speaker 1: I think about this a lot anyways.
Speaker 2: Go on doping your horse. But everything sort of flows
Speaker 2: through New York, you know. Like part of the answer
Speaker 2: is that a Donnie Green, which is the a Donnie
Speaker 2: Group entity that allegedly paid the bribes, like they had
Speaker 2: like a partner on these power deals, and that's a
Speaker 2: company called the Azure Global Power and that was for
Speaker 2: a while listed in New York. But the main answer,
Speaker 2: particularly in like the SEC case, is that a Donnie
Speaker 2: Green issued bonds. They did like an international dollar nominated
Speaker 2: bond offering, and some of those bonds were sold to
Speaker 2: US investors, and so allegedly they defrauded US investors. And
Speaker 2: it's very interesting. Freud I wrote that this is basically
Speaker 2: a green washing case because what happens is they issue
Speaker 2: these bonds in twenty twenty one when they're paying the bribes,
Speaker 2: and they're allegedly paying the bribes, and they paid the
Speaker 2: bonds back in twenty twenty four. So like nobody lost
Speaker 2: any money. The investors are fine, the US investors a fine.
Speaker 2: How are they defrauded? Well, they were defrauded, because the
Speaker 2: SEC makes a big point of saying, look at all,
Speaker 2: like the ESG promises that a Donnie puts in the
Speaker 2: bond offering, like they're like, not only are we a
Speaker 2: renewable power company, but we're also one that works in
Speaker 2: developing countries and doesn't pay bribes and like you can
Speaker 2: imagine being an ESG investor in twenty twenty one and saying,
Speaker 2: I would love to put money into a company that
Speaker 2: does like renewable power which is green and very like
Speaker 2: E and also works in developing countries, so it's like,
Speaker 2: you know, providing clean power to places where it's like
Speaker 2: not as easy to fund solar projects. So it's like
Speaker 2: s And then it doesn't pay bribes because like a
Speaker 2: lot of you know, energy projects in developing countries, you
Speaker 2: worry about it they pay bribes.
Speaker 3: Good G.
Speaker 2: It's some good G. And like the SEC says that
Speaker 2: Donnie Green position itself as a leader in environmentally conscious,
Speaker 2: socially responsible and good corporate governance principles, and it sought
Speaker 2: to differentiate itself from its peers and other potential investments
Speaker 2: or issuers and developing countries that might be susceptible to
Speaker 2: corruption and bribery issues. Oh, if you're an ESG investor,
Speaker 2: like you're looking at solar projects and development countries and like, oh,
Speaker 2: these probably pay bribes and that's not very ESG. But
Speaker 2: then Donnie's like, we do solar projects in India and
Speaker 2: we don't pay bribes, and you're like, great, and those
Speaker 2: people were defrauded because they allegedly invested in a company
Speaker 2: that did pay bribes.
Speaker 1: Yeah. So there you go a detail that I love
Speaker 1: about this whole thing. You talk about a Donnie Green,
Speaker 1: you think about gotam a Donnie himself. The reason why
Speaker 1: he is so rich and like so systemically important to
Speaker 1: the government and their ambitions and also the Indian stock market.
Speaker 1: He made his money in coal mining. Oh sure, and
Speaker 1: like this is all part of his broader reinvention.
Speaker 2: Well yeah, although like that's actually not that uncommon, Like
Speaker 2: a lot of like energy and infrastructure companies are like
Speaker 2: we also do green energy because like if you're in
Speaker 2: the energy business, you have some advantages and like yeah,
Speaker 2: entering energy contracts better solar energy.
Speaker 3: Yeah.
Speaker 1: I just like that he became greener and also allegedly
Speaker 1: that's true pp Yeah yeah, well you say started doing
Speaker 1: We don't know that's true, you know, I.
Speaker 2: Mean obviously, like there's the there's like the Hindenburg allegations
Speaker 2: a while back.
Speaker 1: Yeah, January twenty twenty three.
Speaker 2: Yeah, so I don't think this is like particularly confirmatory
Speaker 2: of those, but it's a sort of general.
Speaker 1: Like I was wondering about that. I was trying to
Speaker 1: rack my brain for that information, and I guess I
Speaker 1: could have looked it up.
Speaker 2: But the Hindenburg stuff is like very miscellaneous. It's not
Speaker 2: like Donnie is bad because of this one bad thing
Speaker 2: they did. It's like, oh, look at this nephew, right,
Speaker 2: So it's a little hard to like, somewhere in the
Speaker 2: Hindenburg report there might be like something about this, but
Speaker 2: it's hard to tell. I was gonna say something else.
Speaker 1: What was it we were talking about before Edinburgh cold bribes?
Speaker 1: We could talk about Donald Trump a little bit, like
Speaker 1: it would be interesting to see what happens here with
Speaker 1: a new US attorney in New York.
Speaker 2: Yes, I want to get to that, but I want
Speaker 2: to go back to the thing I was going to say.
Speaker 2: A Donnie himself is very closely associated with power in
Speaker 2: de He's like most with Mody and like he's a
Speaker 2: political figure as well as a business figure. And it's
Speaker 2: interesting to me if you read this case. The way
Speaker 2: that the deal works is that step one, a Donnie
Speaker 2: Green wins this enormous contract with the Indian federal government
Speaker 2: green power thing, and then step two, to like make
Speaker 2: that contract work, they have to go out and win
Speaker 2: contracts with each Indian states power company, and like allegedly
Speaker 2: they win the power contract, the federal contract first, and
Speaker 2: then they go out and start bribing the state governments.
Speaker 2: There's no suggestion that they won the federal contract illegitimately,
Speaker 2: which is like it's a little interesting. I don't know. Yeah,
Speaker 2: they're like so politically connected in the Indian federal government.
Speaker 2: It's like, it's like interesting that they're like pan bribes
Speaker 2: that say, it's just on the rais an eye brat
Speaker 2: Donald Trump.
Speaker 1: Donald Trump. So Donnie really likes Donald Trump, at least
Speaker 1: according to his social media presence after Trump. I think, yeah, I.
Speaker 2: Think, if you're a business person, this is not true
Speaker 2: in twenty sixteen, but it's true in twenty twenty four.
Speaker 2: If you're a business person, you really like Donald Trump
Speaker 2: according to your social media presence.
Speaker 1: Yeah, that's actually that's very true across nationalities.
Speaker 2: It's just like, why not, Well, on that trem.
Speaker 1: He didn't just congratulate him. He also committed to invest
Speaker 1: ten billion dollars in the US create as many as
Speaker 1: ten thousand jobs.
Speaker 2: Incentives.
Speaker 1: Yeah, incentives sometimes are another word for bribes.
Speaker 2: But yeah, though again it's like if he committed to
Speaker 2: invest ten billion dollars in the United States, that's a
Speaker 2: good incentive. That's like, the United States in this relationship
Speaker 2: is the principal. If he committed to invest ten billion
Speaker 2: dollars in Trump Media, then that would be that that's like,
Speaker 2: that's the agent. But now I don't I don't think
Speaker 2: that's happening. I remember in the first Trump administration being
Speaker 2: interested in what sort of foreign corupt Practices Act prosecutions
Speaker 2: there would be given Trump's whole thing. And I remain
Speaker 2: interested in the second Trump administration about that because in
Speaker 2: the first administration Trump owned a hotel or foreign governments
Speaker 2: would put people up at high rates. But now there's
Speaker 2: like there's Trump Media. There's like a lot going on.
Speaker 3: So we'll see, we'll see.
Speaker 1: Oh my gosh, micros Strategy, Micro's strategy is buying so
Speaker 1: much bitcoin. Micro strategy shares are going up so much.
Speaker 1: Micro Strategy has another short cellar after it. Where do
Speaker 1: you want to start?
Speaker 2: Its strategy is so interesting, but it's so simple, it's
Speaker 2: so simple. We were talking to John Collison. I remember
Speaker 2: on this podcast he argued for the view that companies
Speaker 2: should focus on doing their business well and that a
Speaker 2: company that spends too much time focused on like doing
Speaker 2: stuff with stock or like optimizing its stock. Probably just
Speaker 2: doing stock trades is probably it's probably a bad idea,
Speaker 2: and you should focus on building the great business. Mega
Speaker 2: said he has a business, right runs an enterprise.
Speaker 1: Software nominally a software Yeah.
Speaker 2: Right, totally has a business. But one gets the sense
Speaker 2: that most of what it's executives focused on day to
Speaker 2: day is is sharing lots of stock and using the
Speaker 2: proceeds to buy lots of bitcoin.
Speaker 1: How do we get more bitcoin?
Speaker 2: And then talking up the fact that they've bought more
Speaker 2: bitcoin with the proceeds from selling stock. And I don't
Speaker 2: know how that has affected the customers or their enterprise
Speaker 2: software business. I don't know if like the enterpres yeah,
Speaker 2: I know, right, but as a shareholder value maximization strategy,
Speaker 2: right now, they've made the right choice, like clearly, like
Speaker 2: they have made their stock go up so much by
Speaker 2: doing this insane perpetual motion trade. Where there are stock
Speaker 2: trades that, like I wrote, like one hundred and fifty
Speaker 2: percent premium to the value of the underlying bitcode, it's
Speaker 2: actually more than that because you take into leverage and stuff.
Speaker 2: Let's say there's stock trades like three times the price
Speaker 2: of like their underlying bitcoin, And so they just sell
Speaker 2: a dollar worth of stock, they use it to buy
Speaker 2: a dollar worth of bitcoin, and their stock goes up
Speaker 2: by three dollars. So they just perpetually expanding their market cap.
Speaker 2: And like, when I think about that trade, you know,
Speaker 2: we talked about the Destiny Attack one hundred fund, where
Speaker 2: like it was trading at like a thousand percent premium
Speaker 2: to the underlying private company shares because you could get
Speaker 2: those shoes. And so I was like, why they should
Speaker 2: is your stock because that'll compress the premium, right, Like
Speaker 2: you sell more stock, that puts selling pressure on your stock.
Speaker 2: Your stock goes down. Meanwhile you buy the underlying assets,
Speaker 2: the underlying assets go up. You sort of eventually get
Speaker 2: to a place where you're fairly valued. That's what micro
Speaker 2: shategy is doing. But the premium keeps going up, like
Speaker 2: it doesn't work. Like it worked great for them, but
Speaker 2: it doesn't like actually compress the premium. So eventually they
Speaker 2: will have a market cap greater than like the entire
Speaker 2: world's economy because they found a perpetual motion machine.
Speaker 1: And I look forward to that reality. It is interesting.
Speaker 1: I mean I have my ETF glasses on all the time.
Speaker 1: But there's all of these. But no, there's leveraged micro
Speaker 1: strategy and ETFs that are doing incredible trading volume, which
Speaker 1: is nuts. There's been a couple of days where like
Speaker 1: they've been the most traded stock, which is crazy. And
Speaker 1: there is a theory out there that, you know, some
Speaker 1: of the people I follow on Twitter or x are
Speaker 1: entertaining that whether all the money that's coming into these
Speaker 1: ETFs is like just part of the reason why you
Speaker 1: have that big premium. Like Mike Green overhead Simplify has
Speaker 1: made the case that yes, like some of these ETFs
Speaker 1: have powered micro strategy just just like this insane premium.
Speaker 1: Maybe that's why it's not getting arbitraged away.
Speaker 2: I hope that's not true. It just seems like such
Speaker 2: a tail wagging the dog situation.
Speaker 1: So yeah, yeah, it's just like one of the thought exercises.
Speaker 2: One thing that I've heard argued is that micro strategy
Speaker 2: is a pot of bitcoin. Why would you buy it
Speaker 2: at a three times premium to the underlying bitcoin rather
Speaker 2: than buying bitcoin or a bitcoin ETF or something like that.
Speaker 2: One answer is, like, you want to see where this
Speaker 2: is going, and you think the premium will expand, which.
Speaker 1: Is like you know, like science experiment.
Speaker 2: Like you could have a theory that the premium will expand.
Speaker 2: Like micro Strategy is argued, like we're actually a better
Speaker 2: way to hold bitcoin because we can get leverage. You
Speaker 2: can't get leveraged, like you can leverage your bitcoin, but
Speaker 2: like you're trying get three x the bitcoin, So it's
Speaker 2: like it's it's not it's not really a leverage plan.
Speaker 2: We would have a fundamental view that the premium will expand.
Speaker 2: Another thing is like for some reason, you cannot own
Speaker 2: any other bitcoin instrument, and so you own this thing.
Speaker 2: I don't know, I don't know who that would be.
Speaker 2: I have heard people say iras, you can't buy the
Speaker 2: Queen ETF and your IRA, but you can buy micro
Speaker 2: Strategy in your IR which sounds terrifying. This is perhaps
Speaker 2: a less institutionally held stock than like a lot of
Speaker 2: other stocks, perhaps, but there are some institutional investors in it.
Speaker 2: And you could imagine being an equity fund manager where
Speaker 2: your mandate is like you can't really buy ETFs in
Speaker 2: your equity fund, but like can you buy this corporate stock?
Speaker 1: Yes you can, you.
Speaker 2: Can, and like if you like you're like an equity
Speaker 2: fund manager is like, really, I love bitcoin, this is
Speaker 2: like your best way to get Yeah, the three X celebrity, Yes, maybe,
Speaker 2: but like there's something amazing going on. Oh yeah, and
Speaker 2: they are like capitalizing on it to the health.
Speaker 1: Well to that point, maybe one of the reasons why
Speaker 1: you buy micro Strategy at this premium is because you
Speaker 1: love Michael Sailor, Like he does have a cult following.
Speaker 2: Yes, you know who's not doing that trade Michael Sailor.
Speaker 1: Yeah, that's true. And I know there's this daily Mail
Speaker 1: cover from like March two thousand that's been making the
Speaker 1: rounds on X about him losing like six billion dollars
Speaker 1: in a day on micro Strategy, and it's just amazing
Speaker 1: to think that just the evolution of this company and
Speaker 1: the evolution of Michael Saylor, and he's now obviously a
Speaker 1: very wealthy man.
Speaker 2: To be clear, I really respect. Respect is maybe not
Speaker 2: the right word.
Speaker 1: I really cherish and in mind.
Speaker 2: I cherish and MMA is by the idea of like,
Speaker 2: we run a software company, but that's boring, so we're
Speaker 2: just going to get all in. I'm buying as much
Speaker 2: bitcoin as we can and it does so well.
Speaker 1: Yeah, well, so you said, you know, it's a pot
Speaker 1: of bitcoin. Yeah, and so it owns about thirty billion
Speaker 1: dollars worth of bitcoin and its market cap is one
Speaker 1: hundred and five billion dollars. And I think it's interesting
Speaker 1: to compare that to like a traditional asset manager, like
Speaker 1: a black Rock, who has a market cap of like
Speaker 1: one hundred and fifty three billion dollars with eleven something
Speaker 1: trillion dollars in assets.
Speaker 2: Yeah, but this is not the market cap of the manager.
Speaker 2: This is the market cap of the fund.
Speaker 1: Yeah.
Speaker 2: This is a fund that trades at three x the
Speaker 2: value of its underlying stuff.
Speaker 3: Yeah.
Speaker 1: Yeah, it's not actually a fund.
Speaker 2: Right, It's not actually a fund, it's just it just
Speaker 2: is a fund as a software company.
Speaker 1: It's a fun slash software company that now Citron is
Speaker 1: trying to short.
Speaker 2: Yeah. So this is like a famous widow maker, right,
Speaker 2: because people have noticed this for a long time, Yeah,
Speaker 2: and have tried to short it and then carry out.
Speaker 1: Carry Stale did it just in March, and I was
Speaker 1: seeing a look at it. They did the same thing
Speaker 1: long bitcoin short micro strategy. Their reasoning at the time
Speaker 1: was that they're trading history and basic common sense suggests
Speaker 1: that the current inflam right there, premium will contract much
Speaker 1: as it has on prior occasions, providing a compelling opportunity
Speaker 1: for a pair trade. Since that Bloomberg News article, micro
Speaker 1: strategy is up one hundred and seventy five percent and
Speaker 1: bitcoin is up thirty eight percent.
Speaker 2: I mean they're right, like, yeah, before the end of
Speaker 2: the universe that premium will contract.
Speaker 1: Are the heat death of the year universe?
Speaker 2: But like before carrots Dell gets out of the trade,
Speaker 2: who knows, Yeah, right it is has a famous whoto maker.
Speaker 2: Sidron didn't like put out a report being like we're
Speaker 2: all in on anti micro strategy. They were like, we're
Speaker 2: hedging our long bitcoin with a little bit of short
Speaker 2: micro strategy. But yeah, the same basic trade. Yeah, and
Speaker 2: the stock went down, which I was impressed by, Like
Speaker 2: I write about how I heard this is and nobody
Speaker 2: sells it, so.
Speaker 1: I don't know, amazing. Maybe you didn't tweet about it enough,
Speaker 1: because that's what Ciitron did. It was cool to see that,
Speaker 1: but you I don't know. I want to make the
Speaker 1: common sense argument that oh, maybe it went down on
Speaker 1: this specific one just because it's come up so much,
Speaker 1: But I feel like that's never stopped.
Speaker 2: Yeah, like who knows, right, Like there's a lot going on,
Speaker 2: including you know, micro Strategy is in the middle of
Speaker 2: selling twenty one billion dollars worth of stock. They sold
Speaker 2: like four point six billion dollars of stock last week.
Speaker 2: Sorry not last week. It's yeah, it actually was last week.
Speaker 1: I was this week, but time is a flat circle.
Speaker 2: Well, but the point is, like they disclose like this
Speaker 2: Monday that it's WLD four point six billion dollars or
Speaker 2: stock last week. They're probably doing roughly that clip this week,
Speaker 2: so like, you know, maybe the stock went down because
Speaker 2: they were like sold a bunch of stock. In any case,
Speaker 2: they're selling stock buying bitcoin. Bitcoin is going up to
Speaker 2: one hundred thousand dollars. There is no reason that what
Speaker 2: they're doing should increase the premium. But like taking a
Speaker 2: step back, if you're all in on bitcoin, having enormous
Speaker 2: firepower to buy all out of bitcoin makes bitcoin go
Speaker 2: up and it makes your strategy look better. Right, If
Speaker 2: micro Strategy was buying bitcoin and bitcoin is going down,
Speaker 2: like people would be like, yeah, that's annoying, right, But
Speaker 2: they're buying bitcoin. Bitcoin is going up. People like, oh,
Speaker 2: their geniuses. Look, they keep buying bitcoin. It keeps going up.
Speaker 2: So it's like there is like a virtuous cycle component
Speaker 2: to it, where like they're enormous buying firepower gives them
Speaker 2: some momentum, like both in terms of like the value
Speaker 2: of their assets and also in terms of like how
Speaker 2: they look to the market because they look like they're
Speaker 2: buying a thing that goes up.
Speaker 1: Yeah, well, good game, Michael Saylor, whatever you are on
Speaker 1: your yacht in Miami. Shall we keep talking about short
Speaker 1: selling and short squeezes? And sure you wrote this week
Speaker 1: that short squeezes are legal now.
Speaker 2: So I wrote this week about the appeals cart decision
Speaker 2: from last month. Sorry it's a slow week.
Speaker 1: Yeah, I was wondering, like what's what's the next?
Speaker 2: So often, you know, things just sit on the back
Speaker 2: burner for a while, and I'm like, well today I'm
Speaker 2: going to write.
Speaker 1: About let's look at what happened last month.
Speaker 2: You know, you can't always be it makes.
Speaker 1: For a great podcast, Yeah right.
Speaker 2: We love to read timely. So I read this week
Speaker 2: about something that happened last month, which is appeals court
Speaker 2: decided that it's okay to do a short squeeze. So
Speaker 2: it is is like companies most prominently overstock dot com
Speaker 2: I thought they invented it. Someone emailed me with Pegasus
Speaker 2: Wireless might have invented this. I wasn't following shorts squeze anyway.
Speaker 2: Companies do this thing from time to time where they
Speaker 2: try to squeeze out their shorts. So a company will
Speaker 2: get mad at short sellers. They'll think, oh, there's naked
Speaker 2: short sellers like those story. They'll just be mad at
Speaker 2: like people betting against them. And so they'll say, what
Speaker 2: we're gonna do is we're gonna give each shareholder some
Speaker 2: magic token. Now it's a crypto thing, like overstocked it
Speaker 2: with a crypto thing. But it doesn't have to be
Speaker 2: a crypto thing. It can be like a paper certificate
Speaker 2: saying you're entitled to you know, ten percent of the company,
Speaker 2: and you give them this magic thing in a way
Speaker 2: that can't be traded. So people who get the magic
Speaker 2: thing can't sell it. And what that means is that
Speaker 2: short sellers can't buy it. And so if you're a
Speaker 2: short seller, you borrowed stock from someone else, you sold
Speaker 2: the stock short, and you owe the person you borrowed
Speaker 2: the stock from the stock back and whatever else comes
Speaker 2: with the stock. So I stock is a dividend, you
Speaker 2: have to pay them a dividend. If there's a spinoff,
Speaker 2: you have to give them shares of the spinoff. If
Speaker 2: the company gives out this magic token, then the short
Speaker 2: sellers owe the magic token back to their share lenders.
Speaker 2: If they can't get the magic token because it doesn't trade,
Speaker 2: then they can't fulfill their obligation and they fall into
Speaker 2: a black hole. That's the idea. And so the effect
Speaker 2: of this is that do you announce, oh, we're gonna
Speaker 2: pay out this magic token in like a week, and
Speaker 2: then before you pay the magic token, all the short
Speaker 2: sellers say, oh wait, if that happens, then I'll be,
Speaker 2: you know, in this black hole. And so I have
Speaker 2: to buy back my stock now to avoid that. And
Speaker 2: so the short sellers all buy back their stock and
Speaker 2: the stock goes up, and the short sellers lose money
Speaker 2: and are sad, and you, as the CEO, are happy
Speaker 2: because one your stock went up and frankly, you are
Speaker 2: probably selling stock into that rally, because of course you're
Speaker 2: this kind of ceo. But then two, the short sellers
Speaker 2: lost money, and like that's what you really wanted because
Speaker 2: you hate them, And this is like a controversial thing
Speaker 2: because it just so clearly is like a form of
Speaker 2: market manipulation, right, Like you're creating artificial demand for the
Speaker 2: stock by doing this weird non traded dividend that like
Speaker 2: clearly has no corporate finance purpose. Like clearly giving people
Speaker 2: a non traded thing is not good for your shareholders
Speaker 2: compared to giving them a traded thing. But you do
Speaker 2: it to hose the short sellers, and the SEC hates
Speaker 2: it and has brought fraud charges against a company that
Speaker 2: is something kind of like this. And when Overstock tried
Speaker 2: to do this a couple of years ago, the SEC
Speaker 2: kind of told them to knock it off, and so
Speaker 2: they had to delay their dividend. Ultimately, Overstock decided, we'll
Speaker 2: just do a traded dividend, and so what happened is
Speaker 2: they announced this weird magic token thing. The short sellers
Speaker 2: got nervous and like covered some of the shorts, and
Speaker 2: the stock went up, and the Sea of our stock
Speaker 2: sold a lot of his own personal stock into that rally,
Speaker 2: and then ultimately over Stocks said never mind, We're not
Speaker 2: kind of do that and it's not going ba time.
Speaker 2: And they said never mind because the SEC stopped them.
Speaker 2: But it's never been clear that it's illegal, and so
Speaker 2: some short sellers who got squeezed by Overstock sued Overstock
Speaker 2: and they lost and the court said, well, this maybe
Speaker 2: creates an artificial price, but there's no deception involved, like
Speaker 2: they said very clearly what they were doing, and so
Speaker 2: if there's no deception, it can't be market manipulation. You
Speaker 2: have nothing to sue for. So that's that's the current
Speaker 2: state of things.
Speaker 1: So it's like you said, it's legal.
Speaker 2: Now, yeah, you know, it's like it's the Tenth Circuit.
Speaker 2: So it's not like where most securities cases are brought.
Speaker 2: It's not clear what would happen if the sec brought
Speaker 2: a case like this is private short sellers who no
Speaker 2: one really sympathizes with. But yeah, it kind of seems
Speaker 2: like it's like it's legal to do this.
Speaker 1: I feel like you wrote about this just so you
Speaker 1: could write about that guy that you love.
Speaker 2: Yeah. Phil Falcom did an amazing short squeeze with these
Speaker 2: bonds that are delightfully called the max Zips in like
Speaker 2: two thousand. He bought these distressed bonds because he thought
Speaker 2: they were an investment, and then like he found out
Speaker 2: that his prime broker was also shorting them, and he
Speaker 2: got so mad, which is rude. And he got so
Speaker 2: mad that he bought up more and more bonds until
Speaker 2: he owned like one hundred and thirteen percent of the
Speaker 2: bonds because like, you know, he'd buy all the bonds
Speaker 2: and then the prime broker would be like, I'm going
Speaker 2: to short some more bonds, and Phil Falcon I'd be like, ah, right,
Speaker 2: buy those two, and like he ended up owning more
Speaker 2: than one hundred percent of the bonds, and then he
Speaker 2: like called in his borrow, like he called the prime
Speaker 2: broker and said, I want all my bonds that you
Speaker 2: owe me, and the prime breker is like, okay, I'll
Speaker 2: go find them. And the prime breaker tried to buy
Speaker 2: them and there was no one selling, and so ultimately
Speaker 2: they got on a call with Phil Falcon and Falcon said,
Speaker 2: just keep bidding. Sometimes you are just on the wrong
Speaker 2: side of the trade, which is amazing, Yeah, And then
Speaker 2: Phil Falcone also said somebody owns more than one hundred
Speaker 2: percent of these bonds, which is probably why you can't
Speaker 2: buy them. And the prime worker is like, what, how
Speaker 2: do you know that? Because I owned them. God it incredible,
Speaker 2: And then the SEC sued him and said it was
Speaker 2: marketing mapulation. Then he got in trouble.
Speaker 1: I do love him sending them on just like a
Speaker 1: wild goose chase, only just keep bidding a lot of
Speaker 1: life lessons there. Did he make money ultimately, I mean
Speaker 1: the SEC sued him.
Speaker 2: It's sort of like the subsequent sec an things and
Speaker 2: problems were probably not worth it to him in the
Speaker 2: long run. He did make money on the trade.
Speaker 1: That's good. And also he did win something which is
Speaker 1: very real, and that is frequent mentions in the money
Speaker 1: stuff column.
Speaker 2: Much Yeah, but you know it's it's like is that
Speaker 2: trade legal now? Well, the problem is that, like I
Speaker 2: don't think he did anything really deceptive, but he wasn't
Speaker 2: like going around telling everyone that he was buying more
Speaker 2: than all of the bonds until he had actually done
Speaker 2: it and then he was telling everyone because it's yeah,
Speaker 2: but there is some difference between that and like the
Speaker 2: oversicked case, where it's like these companies are really really clear.
Speaker 2: They're like, we're going to go out and get those
Speaker 2: shorts and so there's like no deception at all there.
Speaker 2: Sometimes there is like sometimes they're like a little KOI
Speaker 2: about it because the SEC doesn't like it when you
Speaker 2: say I'm just going to go out and burn the shorts.
Speaker 2: But like they can't be that CHOI because they really
Speaker 2: hate short sellers and so they really are going around
Speaker 2: on Twitter all day being like those short sellers. Yeah,
Speaker 2: I'm excited for Elon Musk to like learn about this decision.
Speaker 1: And I feel like he's a little bit busy right now.
Speaker 2: I think he is not spending a lot of time
Speaker 2: thinking about how much he hates short sellers right now.
Speaker 2: But I'm fairly confident that the time will come again
Speaker 2: when Elon Musk spends a lot of time thinking about
Speaker 2: how much he hates short sellers. Yeah, and when he does,
Speaker 2: there's like a whole new technology for him.
Speaker 1: Well, he'll be good to that point. Carson Block from
Speaker 1: Muddy Waters was on Bloomberg Television sometime on Thursday, and
Speaker 1: he said that he does expect more anti short seller
Speaker 1: rhetoric under Trump. The exact quote is, we've already had
Speaker 1: some rhetoric. We might have some more anti short seller rhetoric.
Speaker 1: He didn't know. He doesn't think that Trump and Musk
Speaker 1: believe that short sellers are responsible for their company stocks falling,
Speaker 1: et cetera. But we know Elon Musk Cage short sellers.
Speaker 2: Yeah. And by the way, what's his name block, No,
Speaker 2: Devin Nuns. Yeah, the chief executive officer of Trump Media
Speaker 2: and Technology Group has like written letters to Congress about, oh,
Speaker 2: the naked short sellers are getting our stock, which I
Speaker 2: think it is very, very very hard to argue that
Speaker 2: the stock of Trump Media and Technology Group has been
Speaker 2: systematically manipulated down to reflect less than its fundamental value.
Speaker 2: But you know, there's like, oh, there's weird fails, there's
Speaker 2: naked short selling. So you've already seen, you know, from
Speaker 2: the Trump camp, a increase in anti short seller rhetoric,
Speaker 2: and there's anyways to burn short sellers, including like the
Speaker 2: government can say it's illegal, which has happened in my
Speaker 2: you know, financial career, but otherwise, Yeah, And that was
Speaker 2: the Money Stuff Podcast.
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