00:00:02 Speaker 1: Bloomberg Audio Studios. Podcasts. Radio. News. Matt, Matt, Matt, Matt, Matt. That's the only thing I have to say. 00:00:12 Speaker 2: I always, like, wish that our relationship was like in Annie Hall where Alvy and his friend both call each other Max constantly. Because I called you and I'm like, Max. And you never reply, yes, Max. 00:00:22 Speaker 1: Oh, yeah, you want me to probably by my name? 00:00:25 Speaker 2: Probably not. You put it like that now. Absolutely not. 00:00:28 Speaker 1: So, Max. 00:00:30 Speaker 2: I've never... Mastered the intro of the guest hosts, but here we are. 00:00:34 Speaker 1: I'm a guest host. 00:00:37 Speaker 2: Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion. 00:00:47 Speaker 1: And I'm Max Abelson, a senior reporter here at Bloomberg News, where I write about money and power. 00:00:53 Speaker 2: Money and power. 00:00:54 Speaker 1: Yeah, you know, Matt only writes about money stuff. I write about money and power. 00:00:59 Speaker 2: I don't like power. 00:01:01 Speaker 1: I love power. I don't want it. 00:01:04 Speaker 2: No, I find power off-putting, and I enjoy money. 00:01:08 Speaker 1: You hold your nose once a subject crosses over from money to power. You're like, nope, can't put this in the column. It's about money, but it's also about power, so you've got to cross it off the list. 00:01:17 Speaker 2: I sometimes quote Samuel Johnson, who says something like, man is seldom so innocently engaged as in the pursuit of money, as in getting money. He says, I know you disagree, but many people disagree. Many people think money is the roots of evils and things like that. But no, I think money is a charming and innocent subject and power is nefarious. 00:01:37 Speaker 1: Well, speaking of charming and innocent, that's not the first time you've quoted Samuel Johnson at me. 00:01:42 Speaker 2: Sure. 00:01:42 Speaker 1: Because I believe there's the... I do it a lot. There's the guy who's been seen going around shooting cats. 00:01:48 Speaker 2: Oh, yeah. 00:01:48 Speaker 1: But that won't happen to my cat. 00:01:50 Speaker 2: But Hodge shall not be shot. No, no, Hodge shall not be shot. No, that's in Life of Johnson, but. 00:01:54 Speaker 1: It's... Pellfire. 00:01:55 Speaker 2: It's also the epigraph of Pellfire. 00:01:59 Speaker 1: Pellfire stuff. 00:01:59 Speaker 2: Really, really, really... Setting a certain tone. She's talking about the Clippers. 00:02:05 Speaker 1: Oh, there are a few things I'd rather talk about. It's so delicious. Go Knicks, first of all. 00:02:09 Speaker 2: Yeah, yeah. Max is interested. So last week, the Clippers got in trouble with the NBA for paying Kawhi Leonard like millions of dollars under the table, basically, is the summary. And Max's interest in the story is twofold. One, he's a Knicks fan. And two, he's a fan of the dance that Steve Ballmer did on stage at a Microsoft event years ago, which is like truly one of the most. 00:02:30 Speaker 1: It's stunning. 00:02:31 Speaker 2: Amazing videos. 00:02:33 Speaker 1: You don't get to see a human being move their body just in the way Steve Ballmer moves his body. I think they're celebrating Windows 95. 00:02:40 Speaker 2: That's true. Anyway, yeah. So the Clippers. So about a year ago, Pablo Torre broke the news that like the Clippers had this very weird deal with this thing. this fraudulent company called Aspiration Partners, where the Clippers were paying Aspiration millions of dollars for sort of vague environmental services. And Aspiration was paying Kawhi Leonard, it turns out, basically the same number of millions of dollars for an endorsement deal in which Kawhi Leonard did very, very little. And Poplitaria's thesis, which at the time was like surprising and controversial and just turns out to be just clearly true, although the Clippers still deny it. But the thesis was that this was a way for the Clippers to pay Kawhi Leonard, who's their star player, more than the NBA maximum contract amount. So they were like trying to, you know, they're recruiting star players. And the way to do that is, you know, there's a salary cap. You couldn't pay them more than a certain amount, but they could pay them millions of dollars more if they funneled that money in a like deniable way through Aspiration Partners. And so it does seem like they paid Aspiration Partners millions of dollars for possibly fake tree planting. And then Aspiration turned around and paid that same amount of money to Kawhi Leonard. for probably fake endorsement deals. And in this way, the Clippers were able to retain his services. And the NBA hired my old law firm, Wachtell Lifton, to do an investigation of this. And last week, they put out their report, and it's real bad for the Clippers. It basically confirms Paul Latorre's reporting and also finds a bunch of other endorsement deals that seem to have been both created and funded by the Clippers. Like the Clippers would pay companies millions of dollars of consulting fees, like to companies that were not consultants. And then the consulting fees would somehow find their way to Kawhi Leonard. 00:04:25 Speaker 1: It was like the stadium display maker, basically, right? 00:04:27 Speaker 2: Oh yeah, they paid consulting fees. I forget what the other few companies, they were like companies that didn't do consulting, but they also paid consulting fees to the people who did the scoreboard in the stadium. And then they also called the scoreboard company and they were like, we would like to increase the price that we're paying for the scoreboard. And by the way, We're expecting you to turn around and spend that money on Kawhi Leonard. 00:04:47 Speaker 1: It's a splendid scandal. I mean, it's got novelistic qualities. I mean, I think Aspiration, right, that's the main one. Yeah. 00:04:54 Speaker 2: I don't even know if that's the main one. It's the one that sort of broke up in the story. And it's the craziest one because they were, like, the guy who founded that company and did this deal with, you know, the club versus Kawhi Leonard is now in prison. 00:05:04 Speaker 1: Sandberg, I think. 00:05:05 Speaker 2: Yeah, Joe Sandberg is his name. And the company is crazy. And, like, before they all collapsed, like, I think in 2024, Aspiration was, like, gearing up for an IPO. And it was, like, a kind of vague tree-planting environment. It's like an environment. There's, like, a debit card that somehow gave you environmental credits. It was, like, sort of, like, consumer-facing environmental whatever. But to, like, juice their revenue, apparently, there's, like, a 2024 Bloomberg Green investigation. To juice their revenue, Aspiration would do these, like, round-trip deals where They would find customers who, for some reason, were usually Colombian celebrities, like actors or soccer players from Colombia. And they would pay these customers, write deals where these customers would agree to pay them tens of thousands of dollars to plant trees. And the tree planting was like, someone else was planting the trees and they were reselling the tree planting at high markups, which is an absurd business to be in. But they would get tens of thousands of dollars of revenue for tree planting. And then Joe Sandberg's other company would turn around and pay the same amount of money to these Colombian celebrities for like marketing deals. So no money would change hands. The Colombian celebrities would never pay or receive anything, but they just like sign their name on a piece of paper. And for that aspiration could book revenues, which got them in trouble. But so like when Pablo Torre broke the story, I was like, this is a company that is in the business of doing fake endorsement deals for like reasons of their own. And so, like, you know, and the Clippers are like, hey, could we do a fake endorsement? It's like, perfect, yes. Give us some fake revenue. We'll do some fake endorsement deals. It's like the business model. 00:06:37 Speaker 1: It's like, you know, scandals come and go. Any idiot can have a little scandal. But a scandal on top of a scandal, you know? 00:06:43 Speaker 2: Right. It's like, I truly don't know what was going on. Like, I think some people at Aspiration were, and you see this in the Wachtell report, like some people at Aspiration were like, why are we paying Kawhi Leonard this much money? He's not like a big endorser. He's not doing anything for us. Why are we doing this? And Joe Sanra's like, ah, we'll get it all back. 00:07:00 Speaker 1: Trust me. 00:07:01 Speaker 2: But, like, you get the sense that Aspiration was, like, kind of a big company, and some people involved in it were not simply there to do fraud, but, like, the whole thing was kind of doing a lot of fraud. 00:07:12 Speaker 1: Shout out to Pablo and his staff. That's good reporting. But also, you know what? Credit goes to Wachtel, your former bosses. I feel like, Matt, in my mind's eye, this is probably... very, very wrong. You'll be disappointed with me for having thought this. But in my mind's eye, I thought that when you go to like an external law firm to, you know, do an independent review, I always like a part of me, like imagine that was a way of like trying to get something like a clean bill of health in public after, you know, the scare of a scandal. And then the Wachtell report comes out. It's like, it's worse. It made this look like a bigger scandal, not a smaller scandal. I was kind of amazed. I was sort of impressed, but maybe that's not fair to law firms in their reviews. 00:07:54 Speaker 2: No, I think the proper cynical interpretation of law firm outside investigations is that they are designed to throw someone under the bus who is probably not the person writing the check to the law firm, right? So in many internal investigations, the upshot is this one bad apple did some real bad stuff. A classic law firm internal investigation is conducted in the shadow of some sort of Regulatory investigation or like justice department investigation. And often the purpose, the deep purpose of the law firm investigation is to get the justice department not to charge the company with something bad. And often the way to do that is to serve up some sacrificial victims to the justice department and be like, this is the guy who did the crime and here's all the evidence against them. So charge him. And then like the company gets credit for cooperating. And so, you know, you're right that the point of a law firm investigation is to make, is often to make the company look good. But often the way to do that is to make some selected person look as bad as possible. That's not what's going on here because, like, first of all, there's probably no, like, you know, this is just, like, a scandal. It's not like the Justice Department is going to shut down the NBA. And secondly, like, it's not clear what the NBA's incentives are here. Like, maybe it would be better for the NBA to be like, nope, nothing wrong here. But they do seem to have given Wachtell free reign and Wachtell seems to have had a lot of fun. And, like, you know, they found a lot of bad stuff. Allegedly. I mean, like, you know, the Clippers still say this was a biased investigation and everything was fine. But it's like it's really like they find these consulting fees and then they go interview the people at the companies who say, well, we don't do any consulting. And we thought it was pretty weird to get these consulting fees and they paid them all up front. And so there's a lot of bad stuff. 00:09:33 Speaker 1: I will say I was watching live on Kawhi Leonard hit. I mean, this was for a different basketball. This is for the Raptors. The coolest shot I've ever seen. 00:09:40 Speaker 2: Yeah. The Clippers got him right after that, right? 00:09:42 Speaker 1: I think right after that. I think he left the Raptors. I mean, that was in the Eastern Conference semifinals. Probably the first time the Eastern Conference semifinals have been mentioned on a podcast. But it was awesome. 00:09:53 Speaker 2: Is that true? You talk a lot about sports betting, but you're probably not a lot about individual games. 00:09:57 Speaker 1: It was sick. 00:09:58 Speaker 2: Sick. 00:09:59 Speaker 1: And so was the lockdown. Report. I want to talk about a phrase I wouldn't have known if it weren't for you. Empory Digital. 00:10:18 Speaker 2: Oh, man. 00:10:19 Speaker 1: Empory Digital. What a great, great word. 00:10:22 Speaker 2: Empory Digital is a dat. 00:10:24 Speaker 1: Do you know what a dat is? Tell me what a dat is. 00:10:28 Speaker 2: So, Empory Digital is like an electric motorcycle company in the not very distant past. But in 2025, a thing that small public companies could do was they could just get a big stash of Bitcoin. And then, you know, if they had $ 100 million of Bitcoin, their stock would trade at like a $ 200 million valuation. And this is a great trade for people who had stashes of Bitcoin. And so Empory Digital, like, you know, dozens of other smallish public companies pivoted to being a digital asset treasury company, as they call it, a DAT. So it got like, I don't know, $ 500 million of Bitcoin. And it was like, ooh, look, we traded a premium. We're going to be the future of holding Bitcoin or whatever. They did this in like July of 2025. It's really like the peak of the popularity of this trade. And soon after that, the trade stopped working because there's never any reason that these stocks would trade at a premium to the Bitcoin. It's just like a thing that people got really into for a while. And so it stopped working and they stopped trading at premiums and often started trading at discounts to the value of their Bitcoin. And when that happened, you know, the point of the DAT was like, if you had a stash of Bitcoin, those were the $ 100 million, you could sell it for $ 100 million. But if you plopped it into a DAT, then you'd have $ 200 million worth of stock and you sell that for $ 200 million and you'd have more money, right? So it's a great trade, Because you could turn $ 1 of Bitcoin into $ 2 of stock. But when it reversed and these DATs were trading at a discount, people realized that you could turn $ 0. 90 of stock into $ 1 of Bitcoin. Because what you do is buy up a DAT and then crack it open, sell all the Bitcoin, and it would sell for more than the value of the stock that you bought. So people started, I mean, not that many people. The idea of DAT activism became a thing. 00:12:04 Speaker 1: DAT activism? 00:12:05 Speaker 2: Because you could buy stock in a DAT and then yell at the board and say, you should sell the Bitcoin and liquidate the company, and you'll sell the Bitcoin for more than the value of the stock because it's trading at a discount. This was complicated by the fact that M3 Digital, in 2025, they went from being an electric motorcycle company to being a DAT. In 2026, they went from being a DAT to being an AI infrastructure company because that's The 2026 trade. I think they're no longer trading at a discount. But anyway, they were doing some Bitcoin buybacks. They were kind of doing some version of this trade. And then some activists got into the stock and were like, we're going to crack this open. And two of the activists are a guy named Gabby Glicksberg, who runs a fund called ATG, and another guy named Tice Brown. There's like a lawsuit over their data activism. And in the lawsuit, the judge, in the judicial opinion. He quotes an email that Tice sent to me being like, I forget what he said, but he said something like, I want to do activism at a dat. And I was like, I was like, yes. 00:13:08 Speaker 1: You know, that's so interesting. 00:13:09 Speaker 2: I was like, my eyes lit up, you know. 00:13:12 Speaker 1: You've asked me, I think several times, offensively so, why anyone would be willing to talk to me. I hope you mean journalistically, not like, you know, personally. You've wondered why is it that people are willing to go on the record when that could, you know. 00:13:25 Speaker 2: You do a number of things, but One thing you do is you write about money and power and you, how can I put this? You allow rich and powerful people to make fools of themselves or to express their innermost selves, which are bad. 00:13:46 Speaker 1: Well, I don't think they would see it that way. Apparently not. But let me just say honestly, like honest to goodness, I'm not so sure. I don't think I see it that way either. You know, it's like, why am I talking to a microphone across from you? You know, I'm probably, definitely will sound not as smart as you. 00:13:59 Speaker 2: Yeah, no, we're definitely both making fools of ourselves. 00:14:02 Speaker 1: But yet people do want the chance to kind of explain themselves and give an accounting of what they've been up to. And I actually, I remember what he said. I put it down and I loved it. I'd like to liquidate a Bitcoin treasury company. I'd like to speak publicly about it. And that cracks me up because it's like, it really goes to show. It's like whatever people are up to, they might be up to liquidating a Bitcoin treasury company. They do want to speak publicly about it. Not all the time, but some people want to talk about it some of the times and bless them for wanting to talk to you about it or me. 00:14:30 Speaker 2: And by the way, that email to me is quoted in the judicial opinion. And then like the day after he sent that email, I published a column about like the going on at Empory, which I think I mentioned it, but I don't think I, maybe I quoted a filing. I think he sent letters. So I quoted, but like, it's not like, it's not like he did speak publicly through me. It's not like he gave me an extensive interview in which I quoted him. Right. I mean, like I just wrote about it. 00:14:51 Speaker 1: Well, I can say the very same. I mean, people talk on the record, but they talk on background. 00:14:56 Speaker 2: But I do think that when people email me, sometimes it's because they're like, I want to say my two cents about whatever, and then I often ignore them. But sometimes it's like, I would like to liquidate a dat. And they know that my eyes will light up at that sentence, because that's a funny sentence. Not to everyone, but to me. I find that a very funny sentence. Like, as soon as I got that email, I was like, oh, why have I not thought of this? Why has no one done this? Why is this not a thing? And, like, it's a little bit of a thing now. 00:15:30 Speaker 1: You love the rules of the game. 00:15:32 Speaker 2: Well. 00:15:32 Speaker 1: You like knowing what the rules are, and I guess very, very highly paid people in finance also do that so that they can then profit from it. You like knowing the rules so that you can then explain it in a very humorous manner. 00:15:44 Speaker 2: So that I can delight in them, right? And, by the way, I think that, like, this is, like, an underappreciated thing about the financial industry, like, When I was a derivative structure at a bank, was I getting paid well? I was getting paid okay. But I wasn't doing the derivative structuring purely because there was a pot of money at the end of it. I was doing it because it was quite lovely. 00:16:02 Speaker 1: For the love of the game. Yes. 00:16:05 Speaker 2: Both during and after working at a bank, I was like, this derivative structuring is so beautiful. And now I get to just convey the aesthetic appreciation of finance without the long hours. But part of the thesis of the column is that I am not the only one with an aesthetic appreciation of the finer points of finance. And I think a lot of people who do it for a living also have an aesthetic appreciation for it. And I think Thijs Brand might be one of those people. 00:16:30 Speaker 1: Finance is delightful. 00:16:31 Speaker 2: Yeah. 00:16:31 Speaker 1: What are you going to say? That's just great. 00:16:32 Speaker 2: I mean, the other thing about the story is that basically, like, Gabby Glicksberg, one of the activists at Empery, was running a proxy fight, tried to get his board nominees on the board so that, you know, basically he could liquidate the data and capture the discounts. and um the current board was like no you can't do that your directors are ineligible for various reasons and so there's a lawsuit and like the delaware court basically ruled in favor of gabby glicksburg and was like you can run your guys for election although like there was a ruling basically basically every concern that the company had the court was like yeah that's fair like like there was like some like communications between gabby glicksburg and tice brown that maybe shouldn't have been and like weren't preserved and the judge sympathized with their concerns and like actually sanctioned the other side, but like did say the main thing is you can run your guys for election. 00:17:21 Speaker 1: Correct me if I'm wrong. The central question at hand was like had to do with hedging. 00:17:24 Speaker 2: Well, there's two questions. One is like the communication, right? We're basically like, there's like two or three guys who are activists. And like the question is, are they a group? And if they're a group, did they disclose that accurately? And like, you know, the company's like, yeah, they didn't disclose it. And basically the judge was like, you have to let them run anyway, even if they're, some valid concerns about whether they were coordinating. But then the other question, which I thought was just more interesting, I don't know if it's the main question, but it's a more interesting question is like the trade here is you buy a dollar worth of Bitcoin in a debt for 90 cents because like it's trading at a discount, but then you're long Bitcoin, right? And like, you don't want to be long Bitcoin. You just want to capture that discount. And so you sell a dollar worth of Bitcoin in like the Bitcoin market. And so in fact, the activists here had some sort of Bitcoin hedge where basically they're like Delta neutral Bitcoin, right? Like they're, they're long the debt and they're short, like the proportion of underlying Bitcoin. And the company was like, they have to disclose that. And like, that's really bad. And so they shouldn't be eligible to run because their interests are not aligned with those of shareholders because every other shareholder in this debt. In theory, it's like long a pot of Bitcoin because that's what the debt is. And these guys are not long a pot of Bitcoin. They're they're neutral to Bitcoin. And they're just in it to crack open the DAT and capture the discount, which I think is a really interesting claim. And I think it's wrong, but it's just contingently wrong. It's just like, what is the DAT? If you believe that the DAT is a vehicle for true believers to hold Bitcoin, which I think is true of strategy, the original DAT, then it's like, yes, if you're not long Bitcoin, if you're hedging your Bitcoin, then you are not aligned with shareholders. But I think most DATs Like, just, like, the way they were formed, it's all, like, the shareholder base is all, like, the same, like, 12 hedge funds. It's very, like, it's very arbitrage-y. And so I think that, like, all of the shareholders in this data are kind of, like, there for the premium and, like, sad about the discount. And so, like, they are kind of aligned. But it's just, like, you know, I don't know. That's just my impression. 00:19:16 Speaker 1: Arbitrage is one of those words that when I started covering finance as a journalist, I thought was meaningless and fancy and people used it to sound smart, sort of like the equivalent of saying finance instead of finance. But I feel like, actually... Arbitrage is a very neat way of saying kind of what we're talking about, that there is something really delightful about understanding what's going on and trying to get a little premium, you know, coming or going. 00:19:38 Speaker 2: Right. I think the arb is just like you can own a dat, you know, an empery or strategy or whatever, because you want to be long Bitcoin. That's the easiest way to be long Bitcoin. Or you can own. the DAT and be short Bitcoin and not have any Bitcoin exposure and be trading something else and the something else is like not you know risk-free but it's an arbitrage in the sense of your long and short like related instruments and you're trying to capture the difference between them and that's what's happening here right like the original that trade was like all these people are like i can buy bitcoin and plop it into a debt and like immediately double the value so that's an arbitrage right and like so when you could easily raise money for a debt by like you know going out to hedge funds and doing that trade and now that when that reverses and like when a dollar of bitcoin is worth 90 cents on a debt then like all the hedge funds are like well you know Do the trade the other way. 00:20:25 Speaker 1: It's a beautiful thing. I got to say arbitrage and finance. 00:20:29 Speaker 2: You did. 00:20:29 Speaker 1: My mother will think I'm so smart. 00:20:35 Speaker 2: So we're recording this on Wednesday. I wrote on Tuesday about this spat between Vlad Tenev and Adam Aaron. So Vlad Tenev is the CEO of Robinhood. Adam Aaron is the CEO of AMC Entertainment, the movie theater chain, and Memestock. And so Robinhood have gotten really into, like, tokenizing stocks, and they're doing this thing where they're offering, outside of America, they're offering a tokenized version of some public company stocks, including AMCs. And, like, Adam Aaron got wind of that and he got mad, and he, like, tweeted, like, this is, you know, this is fake stock or whatever. I forget what he said. You probably will actually know. And then, like, Vlad Danov's like, what's the problem here? And so they got in a little fight. And I wrote about it because, like, I think, like, they both have, like, reasonable opinions. Whereas, like, Adam Aaron, as the CEO of a meme stock, really wants to sort of control his shareholder base and, like, know where all the shares are. And Vlad Tenev, as the CEO of a, like, meme stock boutique, meme stock bazaar, maybe, wants to, like, you know, make his own, you know, variance on meme stocks. And so Robinhood is basically, like, you know, making, rolling its own AMC stock. And AMC doesn't like that. 00:21:47 Speaker 1: Nothing he said could possibly be funnier than the actual thing the other guy said was the quasi-fake market you're creating on the island of Jersey, which is a wonderful insult. And I said, what's the concern? 00:22:00 Speaker 2: What's the concern? 00:22:01 Speaker 1: What's the concern? 00:22:02 Speaker 2: And, like, I don't know. I wrote this, like, there is a really powerful intuition, particularly at, like, meme stock companies for some reason, for good reason. There's this powerful intuition that, like, Only a company can create shares of its own stock. And if there are trades happening away from the company's knowledge, that's bad. And I don't share that intuition. And I'm with Vlad Tenev that, yeah, if you want to make your own AMC stock, essentially, these tokens are... First of all, Robinhood's tokens are backed by AMC stock. Robinhood buys the stock and then sells tokens representing that stock to foreign investors because security is law. The U.S. implications are not, like, entirely settled yet, and so they just do this abroad. But so, like, they're not exactly creating AMC stock, but they could. They could. Like, you could sell forwards. Like, I've written about this a lot because, like, there's a lot of this stuff happening with private stocks, right? Like, AMC is a public company. They're mad about it. Like, the things they're mad about are slightly different from, like, the things Anthropic is mad about or things, you know. Before it went public, SpaceX was getting tokenized by Robinhood and Elon Musk was mad about it. And like there, you know, those companies were like, we're private companies. We really should be able to control our shareholder base. And so when people were selling forwards on them or like plopping their shares into SPVs and selling SPV shares, the companies would get mad. With a public company, it's like you do have less control, but still like there's this long history of meme stock companies getting very nervous about short sellers and phantom shares and like, You know, not knowing where their shares are and like telling their shareholders to recall their shares from street name and own them directly so that they could have a direct relationship with their shareholders. 00:23:44 Speaker 1: Matt, when I was a wee lad, one of my first interviews ever of all time as a finance reporter was with the overstock.com people. 00:23:52 Speaker 2: Oh. 00:23:52 Speaker 1: And they were so upset about insider trading naked. 00:23:58 Speaker 2: Naked short selling. Yeah. 00:23:59 Speaker 1: Oh, pardon, pardon. I said insider trading. 00:24:00 Speaker 2: No. 00:24:00 Speaker 1: Naked short selling. Right. Talk my ear off about it. 00:24:03 Speaker 2: Yeah, no, I've written about the overstock. 00:24:07 Speaker 1: That was a long time ago. But let's talk about another way of owning things. You can own a token, but I learned something in your column that I just simply did not know. So according to you, I really hope this is right. The entity that owns most shares of most companies is called Seed & Co., which sounds like something you would make up because it's spelled C-E-D-E. 00:24:30 Speaker 2: But... No, this is true. Actually, I went and looked and Wikipedia quotes a report from 1998 saying that Seed & Co owns 83% of all stocks in the United States. That was a long time ago, but I do think it's roughly true. If you look at DTC, DTC is the depository trust company. It is what I usually think of as owning all of the stocks, although for reasons we can get to, it's actually Seed & Co. But DTC, which is the same as Seed & Co, DTC says that it has custody of about $ 74 trillion of equities, which is in round numbers, like half of the market cap of like the global equity market cap. But like DTC is pretty US centric. So like it's much more than half of US stocks. On the order of most companies, 80% of their stock is owned by Seed & Co, which is the nominee of DTC. There's a reason for that, which people have explained to me multiple times because I always forget. 00:25:24 Speaker 1: Do you want to take a swing at it? Okay. 00:25:26 Speaker 2: So the reason for that is that DTC is a corporation. And because of the need to transfer stocks quickly, they need one person to be able to do it. And so Seed & Co is some sort of partnership that one partner of Seed & Co can sign the transfer documents. And so it's the nominee for DTC. This may not be exactly right, but it's rough. 00:25:43 Speaker 1: I liked it. 00:25:43 Speaker 2: Anyway, Seed & Co owns all the stocks. And so if you own stock through... Robinhood, you know, like what happens is that you own an entry on Robinhood's ledger saying that you own some stock and Robinhood owns an entry on DTC's ledger and Seed & Co has nominee for DTC owns stock on like AMC's ledger. And so most companies like don't directly have like a list of shareholders. It's not like the company keeps the list of shareholders. The company keeps a list of shareholders, but like the number one name on the list is Seed & Co and everyone who owns stock through a brokerage or in like normal ways owns through Seed & Co. 00:26:17 Speaker 1: Including me. 00:26:18 Speaker 2: Potentially. Probably. And the reason for this is like in the olden days, if you wanted to buy stock, like I would give you money and you would give me a stock certificate. And this was an incredibly inefficient way to run a financial system. And so they were like, what if we just put all the stock certificates in one place? And instead of like moving them around, we just called it that one place and said like cross off Max's name and write my name on it, right? Oh, let's do it the other way around. Or whatever, yeah. And that's like the system that develops. So DTC is like the clearinghouse. It just has all the stocks. And it keeps track of the movements of the stock rather than relying on companies or transfer agents or like paper share certificates. But that was an incredibly efficiency enhancing development in like the 60s and 70s. And now people are like, there has to be a better way. So you hear like a lot of like, we'll put it on the blockchain, right? So the idea is that there should be a shareholder list that the company maintains or is maintained on the blockchain that doesn't involve this weird third party. And so this is a thing that comes up a lot. And one way it comes up is tokenization. When people say tokenization of stocks, they mean a lot of different things. But one thing they could mean is some sort of blockchain-based public ledger of each company's stock such that you didn't need to have any sort of intermediary like TTC or like Robinhood. And, like, AMC would just have its own, like, you know, perfect share ledger that everyone could sort of see and that it could have a direct relationship with the shareholders. But that's not what's happening here. What's happening here is that Robinhood is doing its own thing and, like, just issuing some sort of derivative security on a blockchain. 00:27:51 Speaker 1: You know, Seed & Company reminds me of. What? I'm a big fan of Seed & Company from here on in. It reminds me of, I think, the single funniest finance-related piece of humor. Not by you. Actually, I think possibly at the root of our work friendship. It's a Saturday Night Live skit, possibly from the late 80s, might be the early 90s. It's like a black and white ad for a very important investment bank. And it's like a really handsome old man. He's like, what we do at our company is we write down our clients. We put it on a piece of paper. And we keep that piece of paper. 00:28:22 Speaker 2: I'm blanking on the name. It's a famous one. It's one of two Jim Downey ads for Saturday Night Live. The other one is the Change Bank. But the, what's the name? Grayson Moorhead Security. Oh, good, Matt. I think is what it's called. And it's very funny. Like, the tagline is like, at Grayson Moorhead Trust Department, we will write down a list of our customers and we'll keep it in a safe place. If there is time, we will make a copy of the list. 00:28:48 Speaker 1: In case something happens to the first list. 00:28:51 Speaker 2: I quote that ad sometimes because, like, I read about, like, complicated high finance and, like, There's like this baseline level of finance that is like a bank is in the business of keeping a list of who has money at the bank. And like most of the time that doesn't come up. It's not like in the news. It's just like a sort of background assumption. But sometimes it comes up. Sometimes they get the list wrong. 00:29:11 Speaker 1: True mat heads, real money stuff fans will know that you love nothing more than an entry on a ledger. 00:29:17 Speaker 2: Oh, I love an entry on a ledger. 00:29:18 Speaker 1: In fact, I believe you. 00:29:19 Speaker 2: This is why I wrote 50,000 words about crypto once. 00:29:22 Speaker 1: Do you not define a dollar as like basically a one that's on the ledger somewhere? 00:29:26 Speaker 2: I mean, yeah. That's what it is, right? A dollar is an entry on a ledger at a bank. 00:29:30 Speaker 1: And it's just so satisfying to think that there's a room with pieces of paper somewhere, you know? 00:29:34 Speaker 2: No, there's not really. It's a computer. 00:29:36 Speaker 1: I insist. I insist on it. Quick shout out to 1995. 00:29:38 Speaker 2: Oh, by the way, when you say a room with pieces of paper, so like one thing about Seed & Co, like the normal way to think about how stocks are owned is that the company has an electronic list of its shareholders, which is maintained by a service provider called the transfer agent. And on that electronic list, it lists its shareholders, and most of the shareholders are Seed & Co. Like Seed & Co owns 80% of the stock, and then Seed & Co keeps its own list. And so these are all electronic entries. But in the not that, I mean, 20, 30 years ago, a lot of stuff was share certificates. And a lot of what DTC, the depository, did was, like, have vaults with share certificates. And then it would have an electronic list of who owned the shares. But, like, the underlying shares consisted in paper form at their vault, which flooded in a hurricane. 00:30:22 Speaker 1: Really? 00:30:22 Speaker 2: Yeah. Anyway, also, I've written about this, but a guy wrote a novel called The Vault, which is about, like, someone doing a heist at the DTC, which is, like, again, like, Not a real thing. They're not all bear security. But it's a good concept for a novel. 00:30:35 Speaker 1: You know, someone on Twitter started posting individual frames of Heat, the 1995 Michael Mann classic. And I found out my wife had never seen it. So this week I rewatched it. And there is not merely a subplot. I mean, in a way, it's crucial to the movie that they steal bear bones. 00:30:50 Speaker 2: Sure. It's crucial in every movie. 00:30:52 Speaker 1: And what a good scene that is. 00:30:54 Speaker 2: Diehard, too, right? Like, Bearer Bonds. 00:30:56 Speaker 1: Oh, it is also Diehard. 00:30:57 Speaker 2: Bearer Bonds, big thing. 00:30:58 Speaker 1: Bearer Bonds are the heart and soul of American cinema, post-1980. 00:31:03 Speaker 2: Yes, and by the time they were a big cinematic trip, they were not really a financial thing anymore. 00:31:08 Speaker 1: I've never heard of them. I only know about Bearer Bonds. That's a heat. What's the concern? 00:31:25 Speaker 2: Did you talk about Apollo? 00:31:27 Speaker 1: I do want to talk about Apollo. 00:31:29 Speaker 2: So there's this paper finding that it's measuring how much private equity firms, portfolio companies pay to borrow money. And they say, We find that under three measures of reputation, portfolio companies owned by the most aggressive sponsors pay considerably higher yields than those owned by more genial sponsors. I really like the idea of genial sponsors. I really like my like sort of paradigm of like the private equity industry is that is not a fun interest. Whatever. It has its perks, but like, it's not like a genial industry. It's not like, you know, it's not like people sitting around and being like, oh, it's so nice to work here. It's like, you know, it's kind of tough. And then like, There is in this paper a league table of, I think I called it, I called it the league table of sponsor aggressiveness. But you could call it the league table of sponsor geniality. 00:32:15 Speaker 1: Depending on which one was top. You know, I was so mad at you and so disappointed when I went to, what's it called, like SSSN or something like that? 00:32:23 Speaker 2: SSRN. Uh-huh. 00:32:24 Speaker 1: And I downloaded the paper. 00:32:26 Speaker 2: You searched for the phrase league table. 00:32:28 Speaker 1: And it was not there, and I thought, that rascal. 00:32:30 Speaker 2: I made up that name. But no, they have a list of like 25 private equity firms ranked in order of aggressiveness. And the ranking is very strange. It's like, as I said, the three measures of reputation. So one is they went to ChatGPT and Claude and were like, what's the most aggressive private equity firms? And they had the LLMs rank them. And the LLMs drew on accumulated human knowledge to be like, Apollo's the most aggressive. 00:32:55 Speaker 1: Sorry, that's real? 00:32:56 Speaker 2: That's what they did? That's really what they did. That's one of the three methods. 00:32:59 Speaker 1: That's also disappointing. 00:33:00 Speaker 2: Yeah. That's one of their methods. Another method is they just looked at which sponsors had done the phrase is liability management exercises, basically like quasi-coercive debt exchanges where like, you know, you extract some money from creditors to give to other creditors. And if you did an LME, you were in the more aggressive bucket. And if you didn't do an LME, you're in the less aggressive bucket. And the third measure of reputation, the third measure is that they put the sponsors into two buckets. One was Apollo because they just thought of Apollo as having the most aggressive reputation. And the other was the other 24 sponsors. And they said like, Apollo, because it is sort of known as the most aggressive sponsor at extracting value from creditors, it was just, they did a regression with Apollo in one bucket and the other sponsors in the other. And they found that the most aggressive sponsors pay higher yields than those owned by more genial sponsors. And they found that Apollo loans in particular carry a premium of about 100 basis points compared to other sponsors. 00:33:55 Speaker 1: I'm sorry, that's like real money at the end of the day, right? Oh, yeah. 00:33:59 Speaker 2: I mean, like, 100 basis points, you know, spread on a sample where, like, the average thing yields 717 basis points. 00:34:05 Speaker 1: That's like a jerk premium? 00:34:07 Speaker 2: Well, so what I wrote about this is, like, so, like, Apollo would dispute this, but, like, yeah, I think it's fair to characterize it as a jerk premium. 00:34:15 Speaker 1: Or let's not even say jerk. Let's just say aggressiveness premium. 00:34:17 Speaker 2: Yeah, but, like, what is aggressiveness? Like, what I wrote is, like, I don't think it's, um, it's not like a moral premium. It's not like people are mad, and so they're like, ah, you have to pay more because I'm mad. It's saying, look, we know that Apollo has this reputation for extracting value from creditors. We're a creditor. We don't want value extracted from us, but we expect them to extract value from us. That's why, you know, that's what they do. And if we expect them to extract value from us, we have to charge them for that upfront. And so we charge them an extra hundred basis points. That's kind of like the way to model it. Now, again, like you can dispute the facts, right? Like Apollo says, this is a flawed methodology. And like, it's like one or two transactions years ago, it doesn't, but they're not wrong that there is a certain reputation for aggressiveness. And then the question is, if Apollo is paying 100 basis points a year for that reputation, is it getting its money's worth, right? And if, in fact, they continue to extract value from creditors, then maybe 100 basis points a year is a perfectly fine price to pay for that. 00:35:13 Speaker 1: How lucrative is their aggressiveness? Right. 00:35:16 Speaker 2: And the paper sadly does not measure that. And again, Apollo's like, oh, it was years ago. So they're not like, yes, we're going to ruthlessly... fleece our creditors tomorrow, right? But it's like, you know, there's some chance that, like, on balance, Apollo makes more for its equity investors even after accounting for the extra 100 basis points of alleged yield spread. 00:35:37 Speaker 1: You know, on, like, a personal basis, no one would, I guess, want to be called aggressive. 00:35:40 Speaker 2: Oh, I disagree. 00:35:41 Speaker 1: But what I was just going to say, I was just going to say, in finance, though, what an incredible compliment to their minds. 00:35:49 Speaker 2: So, again, like, Apollo's like, oh, that's not true. But, like, let's say they just embrace it, right? And they go out to raise money for their private equity funds. And they go to a private equity limited partner and they say, invest in our fund. It's great. And the private equity LP is like, well, I don't know. These other sponsors are paying less for debt. And so that's going to eat into my returns. And then Apollo's like, it's because we're aggressive. Of course you want to be with the aggressive one. Of course you want the people who are going to maximize. When people discuss private equity aggressiveness, at some point someone always says, look, we're fiduciaries for pension funds, whatever. We're fiduciaries for our clients. And so we're not being aggressive. We're just being zealous in, you know, maximizing returns for our clients. And here's like outside evidence of that, right? Here's someone being like, wow, Apollo is really zealous in maximizing value for their, you know, private equity clients, right? It's a good advertisement. 00:36:43 Speaker 1: It's a delightful compliment. 00:36:45 Speaker 2: Now, again, like there's a weirdness here, which is that Apollo now runs much more debt than equity, right? And like, are kind of trying to move away from their reputation for aggressiveness. And so they can't just be like, yeah, we're aggressive, whatever. But like, you know, I would be. 00:36:59 Speaker 1: You know, how I knew it was going to be a good item. It includes the line in money stuff. Ooh, these guys are good at extracting money from creditors exposed. So we're going to charge them for that ex ante, which has three key signs of a good mat line. 00:37:11 Speaker 2: Okay. 00:37:12 Speaker 1: It's got a little bit of Latin. 00:37:13 Speaker 2: Okay. 00:37:14 Speaker 1: I believe you are classics. It's got the word. 00:37:17 Speaker 2: Ooh, which is, I love saying ooh. 00:37:20 Speaker 1: You love saying ooh. A key word I would like to say on a personal note. A key word in my wife's vows to me. 00:37:27 Speaker 2: Ooh. 00:37:27 Speaker 1: The word ooh is so close to my heart as well, Matt. And then it also has. 00:37:31 Speaker 2: Are you going to say the line? 00:37:32 Speaker 1: Do you want to hear it? 00:37:33 Speaker 2: Yeah, sure. 00:37:34 Speaker 1: It's actually very moving. 00:37:35 Speaker 2: Okay. I think... In the middle of a sentence. We'll get to your third item in the sentence in a bit. 00:37:41 Speaker 1: In the middle of a sentence. The line, at least according to the laws in our vows, is that Anne Bancroft said of Mel Brooks, her husband, every time I hear his key in the door, it's like, ooh, there's a party that's going to start. 00:37:55 Speaker 2: Aw, that's so nice. 00:37:56 Speaker 1: Yeah, it really is lovely. 00:37:58 Speaker 2: Also a good description of Max Abelson. 00:38:01 Speaker 1: Oh, Matt, that's so sweet. And now I need to finish my compliment of your one line. And this one's important. Not just Latin, not just the word ooh. But imagine dialogue. 00:38:11 Speaker 2: Yes. 00:38:11 Speaker 1: I think I told you very early in our relationship. It's simply my favorite thing in money stuff. 00:38:15 Speaker 2: It is an important component of money stuff. 00:38:16 Speaker 1: It's key. 00:38:17 Speaker 2: It's usually about Elon Musk, but not always. 00:38:19 Speaker 1: Sometimes. 00:38:21 Speaker 2: Wait, ooh, ooh, I do feel like comes from my desk at Goldman, actually. Like, I feel like there's... Is that true? Yeah, yeah. Like, when we were, like, sarcastically describing things, we were like, ooh. 00:38:29 Speaker 1: They're like, ooh, a party's about to start. 00:38:32 Speaker 2: Exactly. 00:38:33 Speaker 1: You know, I searched ooh and money stuff. 00:38:36 Speaker 2: I think there's a lot. 00:38:37 Speaker 1: Dozens. 00:38:37 Speaker 2: Dozens? 00:38:38 Speaker 1: And I'm telling you right now. 00:38:39 Speaker 2: So many columns. I would have said hundreds, but okay. 00:38:41 Speaker 1: Oh, I think it was like, I don't know because I'm going to say like 112. Okay, okay. 00:38:44 Speaker 2: 112 oohs. 00:38:47 Speaker 1: Ooh is such a better word than oh. 00:38:49 Speaker 2: Well, it depends. They're different things. 00:38:51 Speaker 1: No, it doesn't depend at all. Your average sentence with the word oh, like O-H obviously, average sentence with O-O-H, or even if you want O-H-H, it's going to be a better sentence. 00:39:03 Speaker 2: O-H-H doesn't do much for me. Ooh, yeah, no, I agree that ooh, an ooh sentence is a better sentence than an oh sentence, but that's only, like, you know, you can't improve it just by swapping the oh for the ooh. You need to have the underlying ooh. 00:39:15 Speaker 1: Oh, you're saying? 00:39:15 Speaker 2: The substance needs to justify an ooh. 00:39:17 Speaker 1: You're saying that the other words in the sentence besides the ooh also have to be good in order for the sentence to be good? 00:39:22 Speaker 2: No, I'm saying that the ooh has to be contextually appropriate. Yeah, I agree. You can't just replace oh with ooh. They mean different things. Mmm, yeah. 00:39:29 Speaker 1: They mean different things. I guess I can agree on that. 00:39:32 Speaker 2: Wait, oh, these guys are good at extracting value. Ooh, these guys are good at extracting value. Very different meanings. And that was the Money Stuff Podcast. I'm Matt Levine. 00:39:45 Speaker 1: And I'm Max Abelson. 00:39:46 Speaker 2: We'll have Phil and guest hosts for a few months while my usual co-host Katie Greifeld is on parental leave. You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com. 00:39:56 Speaker 1: And you can find my work at Bloomberg.com, which you should generally subscribe to as well because it's good. 00:40:01 Speaker 2: We'd love to hear from you. You can send an email to moneypod at Bloomberg.net. Ask us a question and we might answer it on the air. You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show. The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andam. Our theme music was composed by Blake Maples. Amy Keene is our executive producer, and Cheryl Brumley is Bloomberg's head of podcasts. Thanks for listening to The Money Stuff Podcast. We'll be back next week with more stuff.