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Carson Block on the Short-Selling Market (Podcast) · Masters in Business

• 0:02
  Speaker 1: This is mesters in Business with very renaults on Bluebird Radio.
• 0:07
  Speaker 1: Here this week on the podcast, Oh, I have an
• 0:11
  Speaker 1: extra special guest. His name is Carson Block, and he
• 0:15
  Speaker 1: is a choose a adjective, brilliant, revered, notorious short seller. Uh,
• 0:23
  Speaker 1: say what you will about him. I find him to
• 0:25
  Speaker 1: be an absolutely fascinating guy. I am a big fan
• 0:29
  Speaker 1: of short sellers and have interviewed a number of them.
• 0:32
  Speaker 1: I find they are the ones who uncover fraud in
• 0:36
  Speaker 1: all its guys. Is often when various regulators are missing it.
• 0:42
  Speaker 1: So whether we're talking about Jim Chanos or David Einhorn,
• 0:47
  Speaker 1: or go down the list of all the various short sellers,
• 0:51
  Speaker 1: Carson Block clearly joins that pantheon of greatness. He has
• 0:58
  Speaker 1: uncovered a huge number of frauds. Uh. He talks about
• 1:02
  Speaker 1: how China has allowed all sorts of fraudulent companies to
• 1:06
  Speaker 1: go public, and then the New York Stock Exchange and
• 1:10
  Speaker 1: other US regulators allow these companies that are essentially shells
• 1:16
  Speaker 1: with nothing um really happening going on to be publicly
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  Speaker 1: listed in the States where they manage to effectively steal
• 1:25
  Speaker 1: money from investors. And he is absolutely um, blunt and
• 1:30
  Speaker 1: vociferous in his criticism. He has uncovered a number of
• 1:35
  Speaker 1: spectacular frauds that collapsed, often to the point of being
• 1:40
  Speaker 1: delisted publicly or in other words, they just went bankrupt.
• 1:44
  Speaker 1: So I found this to be really a fascinating conversation,
• 1:48
  Speaker 1: and I think you will also, with no further ado,
• 1:51
  Speaker 1: my conversation with Muddy Waters Carson Block. This is mesters
• 1:59
  Speaker 1: in Business with very renults on Bloomberg Radio. My extra
• 2:06
  Speaker 1: special guest this week is Carson Block. He is the
• 2:09
  Speaker 1: famed short seller who is the founder of the research
• 2:13
  Speaker 1: shop Muddy Waters. They have about two hundred and sixty
• 2:17
  Speaker 1: million dollars in assets under management. Some of the firm's
• 2:21
  Speaker 1: research reports have revealed extensive frauds at a number of companies,
• 2:27
  Speaker 1: leading to stock prices collapsing and some companies getting delisted.
• 2:33
  Speaker 1: Carson Block, Welcome to Bloomberg. Yeah, thanks for having me, Barry.
• 2:38
  Speaker 1: I've been looking forward to this, hoping to do it
• 2:41
  Speaker 1: for quite some time. So I'm glad we got the
• 2:43
  Speaker 1: chance to connect. I'm glad we did thanks to her
• 2:45
  Speaker 1: putting us together. Let's start with your background, and and
• 2:49
  Speaker 1: you have like a really intriguing background. You spent the
• 2:53
  Speaker 1: summer of in Japan. Tell us about that, what you
• 2:58
  Speaker 1: learn about Asia from that experien aarens. Well, yeah, that's
• 3:02
  Speaker 1: that's going back pretty far. Um, I don't think i'd
• 3:05
  Speaker 1: be here today if I hadn't gone to Japan um
• 3:10
  Speaker 1: that summer. But every time I say that, the flip
• 3:13
  Speaker 1: side is maybe I'd be running Goldman Sachs instead. So, um,
• 3:18
  Speaker 1: perhaps it wasn't a great thing. Now I I definitely
• 3:22
  Speaker 1: kid on that one, but um, yeah, I Uh. That
• 3:25
  Speaker 1: was summer after my freshman year of high school and
• 3:27
  Speaker 1: I had not yet been to a foreign country. So
• 3:31
  Speaker 1: at the beginning of freshman year and just um history
• 3:34
  Speaker 1: teacher who said that he would lead a group of
• 3:37
  Speaker 1: students um every summer to Japan to do an exchange,
• 3:40
  Speaker 1: and that's just so appealed to me. And people ask me, well,
• 3:45
  Speaker 1: why don't you want to go to Europe for the
• 3:47
  Speaker 1: first time? You go overseason said, and I just make
• 3:50
  Speaker 1: the joke that, yeah, Europe is the same as the US,
• 3:52
  Speaker 1: except they are more bathtubs on legs, and um, yeah,
• 3:57
  Speaker 1: I don't know. Being an Asian culture totally different really
• 4:00
  Speaker 1: appealed to me. So UM went to Japan and it
• 4:06
  Speaker 1: was you know, it was so different, and especially in
• 4:11
  Speaker 1: and the bubble had just burst there. But this was
• 4:14
  Speaker 1: a period in the US where, um, you know, all
• 4:18
  Speaker 1: these a lot of the movies that were made in
• 4:20
  Speaker 1: the late nineteen eighties basically showed Japan's dominating US in
• 4:24
  Speaker 1: you know, every company has uh you know, had a
• 4:28
  Speaker 1: Japanese element to it now, and you know that that's
• 4:31
  Speaker 1: kind of what was um portrayed by the movies, and
• 4:35
  Speaker 1: um there was it seemed like Honda and Toyota, we're
• 4:38
  Speaker 1: putting Detroit out of business. So yeah, it was it
• 4:41
  Speaker 1: was a really interesting time to be there. And I
• 4:44
  Speaker 1: didn't couldn't realize at the time that that was kind
• 4:46
  Speaker 1: of the apex of Japan's economic might, so to speak.
• 4:52
  Speaker 1: But uh, yeah, I really went my appetite for Asia,
• 4:56
  Speaker 1: and when I went to uh school or the university
• 5:01
  Speaker 1: a few years later, Um, I wanted to study I
• 5:05
  Speaker 1: wanted to study Chinese. But my girlfriend, who was a
• 5:09
  Speaker 1: couple of years ahead of me in school, she was
• 5:11
  Speaker 1: at Rutger's, she was studying Japanese. So because of that,
• 5:15
  Speaker 1: and of course studied Japanese for a year but ultimately
• 5:18
  Speaker 1: switched to Chinese. Broke up with my girlfriend, and yeah,
• 5:23
  Speaker 1: kind of set the course for the rest of my career. Yes,
• 5:26
  Speaker 1: so learning a little Mandarin certainly helped to go to
• 5:28
  Speaker 1: law school and end up with Jones Day in their
• 5:32
  Speaker 1: Shanghai office. Did did the language help at all studying
• 5:36
  Speaker 1: the language or is it just so overwhelming for a
• 5:39
  Speaker 1: foreigner that if you're not fluent it doesn't matter. Yeah.
• 5:44
  Speaker 1: That that's actually an interesting question, because the thing is,
• 5:49
  Speaker 1: when I studied Chinese in school, so I took three
• 5:53
  Speaker 1: academic years, including a summer in Beijing studying UM and
• 5:59
  Speaker 1: just also to fill in some of the gaps UM.
• 6:03
  Speaker 1: I didn't go to law school right after undergrad So
• 6:06
  Speaker 1: I graduated in and I've been interviewing for investment banking
• 6:13
  Speaker 1: first year analyst gigs. But I also had this idea
• 6:16
  Speaker 1: to start an a share research firm in China UM
• 6:20
  Speaker 1: and I just couldn't shake that idea. So I've had
• 6:23
  Speaker 1: an offer from one firm and I was still in
• 6:27
  Speaker 1: process with others. But I just said to myself, you know,
• 6:30
  Speaker 1: I probably always kicked myself if I never gave this
• 6:36
  Speaker 1: idea and China chance, so I'd never know what would
• 6:39
  Speaker 1: have been. So graduated, got on a plane, moved to Shanghai.
• 6:45
  Speaker 1: I had no idea what I was just really doing there.
• 6:48
  Speaker 1: And yeah, within six or seven months, I figured out
• 6:51
  Speaker 1: I've met with some companies, I had made contacts in
• 6:55
  Speaker 1: the market. I sat down with a p l A
• 6:57
  Speaker 1: general who was running business is for the p l
• 7:00
  Speaker 1: A and somehow involved in markets, and I just got
• 7:05
  Speaker 1: this picture that I was probably ten years too early,
• 7:08
  Speaker 1: that there was nothing I could say was investable, but
• 7:11
  Speaker 1: there would be nothing I could say was investable for
• 7:14
  Speaker 1: probably a decade or so. So I went back to
• 7:16
  Speaker 1: the States conventional ie banking, worked with my father then
• 7:20
  Speaker 1: in equity research for a few years covering micro caps
• 7:24
  Speaker 1: UM had some embittering experiences visa V markets and that's
• 7:29
  Speaker 1: when I went to law school. So when I entered
• 7:32
  Speaker 1: law school, I didn't think I would practice law. I
• 7:34
  Speaker 1: was just there to get a degree, and um, I
• 7:38
  Speaker 1: ended up really enjoying law school, so I thought, Okay,
• 7:40
  Speaker 1: I'll practice, And coming out of law school I had
• 7:44
  Speaker 1: an offer to join Kirkland and Ellis in Chicago, but
• 7:48
  Speaker 1: I also finagled an offer from Jones DA Shanghai, which
• 7:51
  Speaker 1: the partner in charge of the Jones DA Shanghai office
• 7:54
  Speaker 1: whod given me the offer was advising me on a
• 7:56
  Speaker 1: personal level. He said, you shouldn't come right out here
• 7:59
  Speaker 1: to kinda just go and work for a few years
• 8:03
  Speaker 1: in the States and get good training and then come out.
• 8:05
  Speaker 1: But anyway, I ignored his advice, took the offer, and
• 8:08
  Speaker 1: ended up there. So to your question about language, and
• 8:12
  Speaker 1: sorry for being so circuitous in the sand, this is
• 8:14
  Speaker 1: a very helpful background. So I met some mostly American
• 8:19
  Speaker 1: but you know, non Chinese lawyers in China who had
• 8:24
  Speaker 1: always had a real passion for the language, and so
• 8:28
  Speaker 1: they were near native and they're speaking and they could
• 8:30
  Speaker 1: do documents, draft and read in Chinese. For me, I
• 8:36
  Speaker 1: could never get to that level because I never had
• 8:40
  Speaker 1: a passion for the language. For me, it was always
• 8:43
  Speaker 1: a tool that I wanted to put in my toolbox.
• 8:45
  Speaker 1: And the difference was these people had spent Friday and
• 8:50
  Speaker 1: Saturday nights instead of going out studying Chinese and you know,
• 8:56
  Speaker 1: practicing That was not me. So um it was it
• 9:01
  Speaker 1: was like, it's definitely helpful, but I was never uh,
• 9:06
  Speaker 1: you know, in in practicing law. It was definitely helpful,
• 9:08
  Speaker 1: but I was never somebody who got, you know, who
• 9:11
  Speaker 1: would be able to handle the Chinese portions of a transaction,
• 9:16
  Speaker 1: So you weren't drafting documents in Mandarin now, and a
• 9:21
  Speaker 1: lot of the documents that we dealt with, especially if
• 9:24
  Speaker 1: they involved foreign acquirers or foreign joint venture partners, a
• 9:30
  Speaker 1: lot of those were in English and they would be
• 9:32
  Speaker 1: translated into Mandarin. So that part was that part was fine.
• 9:36
  Speaker 1: But to do the you know, ironically, to do the
• 9:40
  Speaker 1: due diligence and read through the government filings and all
• 9:44
  Speaker 1: these other documents that went to the Chinese UM they
• 9:49
  Speaker 1: often called them legal uh consultants because they didn't have
• 9:52
  Speaker 1: j d s from the States, so they weren't and
• 9:56
  Speaker 1: they weren't, at least at that time, accorded full associate
• 9:59
  Speaker 1: status that UH foreign law firms. Quite interesting, So how
• 10:03
  Speaker 1: do you go from being a lawyer at Jones Day
• 10:06
  Speaker 1: in Shanghai to launching your own love box self storage
• 10:12
  Speaker 1: start up in China? How does something like that come about? Well,
• 10:16
  Speaker 1: like everything else in this days of my life, and
• 10:21
  Speaker 1: in a very circuitous manner. What I actually when I
• 10:24
  Speaker 1: left Jones Day after not quite a year and a half,
• 10:29
  Speaker 1: I actually intended to set up UM a wealth management firm,
• 10:34
  Speaker 1: and it was going to technically or legally be based
• 10:36
  Speaker 1: in Singapore, but I was going to look to manage
• 10:41
  Speaker 1: offshore so non China assets or wealth of Chinese entrepreneurs
• 10:47
  Speaker 1: primarily based in Tier three and Tier four cities. And
• 10:52
  Speaker 1: kind of my thinking along these lines was they that
• 10:57
  Speaker 1: I think with the offshore wealth, they were looking for
• 10:59
  Speaker 1: something that was less volatile, UM safer, and if I
• 11:03
  Speaker 1: stuck to Tier three tier four cities, I wouldn't be
• 11:06
  Speaker 1: competing with the bankers from UBS and Credit Suite so much.
• 11:11
  Speaker 1: And I was going to be working with UBS. I
• 11:13
  Speaker 1: was actually going to be the custodian of the assets.
• 11:16
  Speaker 1: But anyway, UM, I was in the process of setting
• 11:20
  Speaker 1: that up. UM. During that time, I co authored Doing
• 11:23
  Speaker 1: Business in China for Dummies, which was really a foreign
• 11:27
  Speaker 1: direct investment uh primer. You know, I think the four
• 11:30
  Speaker 1: Dummies title really gives a short shrift. But UM, the
• 11:36
  Speaker 1: and I was a project that was in the work
• 11:37
  Speaker 1: since before I had left to move to China at
• 11:40
  Speaker 1: that time. But yeah, I was in the process of
• 11:43
  Speaker 1: setting this firm up and two things were happening, you know. One,
• 11:49
  Speaker 1: a good friend of mine was getting ready to launch
• 11:52
  Speaker 1: a self storage firm in Shanghai, and I introduced him
• 11:57
  Speaker 1: to a family member of mine who had owned self
• 11:59
  Speaker 1: storage in the US, and when we sat down for
• 12:03
  Speaker 1: dinner with that um ex uncle he had divorced out
• 12:07
  Speaker 1: of the family, he said, of all the investments I've
• 12:10
  Speaker 1: made in my life, self storage is by far the
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  Speaker 1: best over seventeen years, fifty cash on cash return and
• 12:17
  Speaker 1: that doesn't even include the lands appreciation. So now I'm thinking, like, whoa,
• 12:22
  Speaker 1: you know, and especially if we could be the first
• 12:24
  Speaker 1: in China. Um So, I decided I would be a
• 12:28
  Speaker 1: passive investor, but a few weeks later that flipped to
• 12:32
  Speaker 1: um majority active investor, and eventually that turned into this
• 12:36
  Speaker 1: guy needed me to buy him out. But that was
• 12:39
  Speaker 1: While that was happening, I was also having doubts about
• 12:43
  Speaker 1: whether I really wanted to spend my time hanging out
• 12:48
  Speaker 1: with factory owners in tier three tier four cities, because
• 12:52
  Speaker 1: these are undoubtedly some smart people. But you know, I
• 12:57
  Speaker 1: just had this vision, you know, and I, especially at
• 12:59
  Speaker 1: the time Shanghai, I had a real soft spot for
• 13:02
  Speaker 1: for animals, you know, and you just see them mistreated
• 13:04
  Speaker 1: on the streets all the time, and I just keep
• 13:06
  Speaker 1: telling myself. In addition to the just relentless drinking and
• 13:12
  Speaker 1: karaoke or whatever. I mean, that's kind of a euphemism there,
• 13:16
  Speaker 1: but that I'd have to endure that I would see
• 13:19
  Speaker 1: these guys do some something that you know, would really
• 13:23
  Speaker 1: really bother me. Like I'd see I just kind of pictured,
• 13:25
  Speaker 1: I'd see a guy about to get into the back
• 13:27
  Speaker 1: of his s class and you'd see a straight dog
• 13:30
  Speaker 1: line there and you go up and take it and laugh.
• 13:33
  Speaker 1: And I just had vision of my mind that there
• 13:37
  Speaker 1: I would have to make a choice between sort of
• 13:41
  Speaker 1: playing it off or just being like, man, what are
• 13:44
  Speaker 1: you doing? Like that is so wrong? And I don't
• 13:48
  Speaker 1: know why. That was the image that kept going through
• 13:50
  Speaker 1: my mind. But when I when I started thinking, on
• 13:54
  Speaker 1: the other hand, about how self storage could actually be,
• 13:58
  Speaker 1: because it was going to be know, we were the
• 14:00
  Speaker 1: ones starting in China, how could actually it would actually
• 14:04
  Speaker 1: be a near luxury service. You know, we were going
• 14:07
  Speaker 1: for the Chinese who were buying Cartier jewelry or something,
• 14:11
  Speaker 1: you know, and um as opposed to it being the
• 14:14
  Speaker 1: Joe six pack kind of service in the US. And
• 14:17
  Speaker 1: we we thought that we could actually build a strong
• 14:20
  Speaker 1: near luxury consumer brand in self storage there as opposed
• 14:24
  Speaker 1: to you in the US, like nobody knows can remember
• 14:28
  Speaker 1: the name of their self storage company because it's so fragmented.
• 14:31
  Speaker 1: Um So, on one hand, the self storage thing was exciting,
• 14:35
  Speaker 1: and on the other hand, I was having genuine second
• 14:39
  Speaker 1: or third thoughts about whether I wanted to manage, uh
• 14:44
  Speaker 1: massage wealth of tier three, tier four UM factory owners.
• 14:49
  Speaker 1: So I decided, Hey, this seems like fun and jumped
• 14:52
  Speaker 1: in with both feet to self storage. And that pretty
• 14:55
  Speaker 1: quickly became unfun. But that was all part of the journey.
• 15:00
  Speaker 1: So that leads to the obvious question. From Japan to
• 15:04
  Speaker 1: law school, to Shanghai to sell storage, to writing a
• 15:09
  Speaker 1: book doing business in China for dummies, none of this
• 15:13
  Speaker 1: has anything to do with short selling. How did this
• 15:16
  Speaker 1: early experience color what was to come? Sure? Well, I
• 15:22
  Speaker 1: had grown up in the markets. My father was an
• 15:26
  Speaker 1: institutional salesperson and equity analyst. He focused on high growth
• 15:31
  Speaker 1: micro tap companies. UM I mean earlier in his career.
• 15:35
  Speaker 1: He'd been early on McDonald's and I think even H
• 15:38
  Speaker 1: and R Block. But um, as market caps increased across
• 15:43
  Speaker 1: the board, what he focused on in dollar terms didn't
• 15:46
  Speaker 1: so kind of went from you know, not ridiculously small
• 15:50
  Speaker 1: too almost ridiculously small in terms of the market taps.
• 15:54
  Speaker 1: But um, you know, he's he's an eternal optimistly always
• 16:00
  Speaker 1: and I saw this consistently inside and outside the markets.
• 16:04
  Speaker 1: He would see the best in people, and by the
• 16:07
  Speaker 1: time I was in my early twenties, I was starting
• 16:10
  Speaker 1: to feel at times that there were people in my
• 16:13
  Speaker 1: father's life who took advantage of that, and that he
• 16:17
  Speaker 1: was often, um, you know, beguiled by charisma and what
• 16:25
  Speaker 1: ended up happening. I mean, there were there were an
• 16:27
  Speaker 1: objective ways of of of measuring this in that in
• 16:33
  Speaker 1: the during the period of nine through o two, we
• 16:37
  Speaker 1: were being lied to and used by a number of
• 16:42
  Speaker 1: managements of companies that my father and then my father
• 16:46
  Speaker 1: and I, um you were had had strong vison or
• 16:51
  Speaker 1: speculated based or whatever. I mean. We you know, we
• 16:54
  Speaker 1: thought that we were close with management, and back then
• 16:59
  Speaker 1: I think managements or insiders had forty five days to
• 17:02
  Speaker 1: file their forms for and so we noticed some egregious
• 17:06
  Speaker 1: behavior where we'd take managements on non deal road shows.
• 17:12
  Speaker 1: I mean, some of our clients would come in and
• 17:13
  Speaker 1: just buy the thing up inside. Like I remember, you know,
• 17:17
  Speaker 1: fidelity was just the way my father described it at
• 17:20
  Speaker 1: the time, a bull in a china shop, you know,
• 17:23
  Speaker 1: the way they would buy. But then we'd see these
• 17:26
  Speaker 1: form four or these forms four that, oh, well, the
• 17:30
  Speaker 1: CEO and CEO just sold several million dollars worth of
• 17:33
  Speaker 1: stock right after going on the non deal road show
• 17:36
  Speaker 1: while our clients were buying. And it was one of
• 17:39
  Speaker 1: my father's precepts that he quote put his money where
• 17:43
  Speaker 1: his mouth is. So he was long all of these
• 17:46
  Speaker 1: things personally in size that he was recommending clients by.
• 17:52
  Speaker 1: And so my tiny little nest d egg I I
• 17:56
  Speaker 1: too was And these companies started blowing up. And I
• 18:00
  Speaker 1: think the most egregious example was a company called rent Way,
• 18:04
  Speaker 1: which actually wasn't that small. I think it was about
• 18:07
  Speaker 1: a six million market cap at the time. And I
• 18:10
  Speaker 1: developed a couple of institutional clients, probably twenty four at
• 18:14
  Speaker 1: the time, and so we were taking the CFO Rentway
• 18:18
  Speaker 1: on a non deal road show. We're sitting in this
• 18:21
  Speaker 1: conscience room at this one client I developed a reasonable
• 18:25
  Speaker 1: size money, uh you know, mutual fund manager in l
• 18:29
  Speaker 1: A and the CFO at the time at that time, Rentway,
• 18:34
  Speaker 1: Jeff Conway, looked my clients in the eyes and said
• 18:38
  Speaker 1: to her, pointing at my father in the seventeen quarters
• 18:41
  Speaker 1: bill has been following us. We never missed one of
• 18:44
  Speaker 1: his estimates. That's how good a handle we have on
• 18:47
  Speaker 1: our numbers. But one or two weeks later, when my
• 18:52
  Speaker 1: father was supposed to meet Jeff in New York, he
• 18:55
  Speaker 1: wasn't there and the stock was halted and it turned
• 18:59
  Speaker 1: out that on my god, it was an accounting fraud,
• 19:01
  Speaker 1: and all Jeff pleaded guilty. Um, so did the controller
• 19:06
  Speaker 1: beneath him, and I think one other person and I
• 19:08
  Speaker 1: don't know. I mean, this was just salt in the wounds.
• 19:10
  Speaker 1: But I think Jeff got sentenced a fewer years in
• 19:14
  Speaker 1: prison and the people beneath him. But it was just
• 19:18
  Speaker 1: this really embittering time where, you know, it wasn't only
• 19:22
  Speaker 1: happening to us. This was at the same time that
• 19:26
  Speaker 1: Enron had happened in World Calm and helped South tycho. Um.
• 19:33
  Speaker 1: It just you know, seemed like top to bottom the
• 19:35
  Speaker 1: market was filled with liars. And I don't know, you know,
• 19:41
  Speaker 1: the other thing that my father had noted at the
• 19:43
  Speaker 1: time was I was also quick to sell when my
• 19:48
  Speaker 1: socks had gone up. You know, I said, wow, you know,
• 19:50
  Speaker 1: like we were hoping for a thirty taker and I've
• 19:53
  Speaker 1: gotten fifty nine months, you know, like, hey, I'm out,
• 19:57
  Speaker 1: and yeah, I mean, like some of these things, it
• 19:59
  Speaker 1: was the wrong thing to do UM in retrospect, but
• 20:02
  Speaker 1: I also had that I had that very I'm kind
• 20:05
  Speaker 1: of just abused the English language here, but it's very
• 20:08
  Speaker 1: risk managy type of mindset. So I think if you
• 20:13
  Speaker 1: combine that with the um bitterness that I was starting
• 20:18
  Speaker 1: to feel towards the system UM and our play pecking order,
• 20:23
  Speaker 1: which I as, you know, a quasi sell side equity research,
• 20:26
  Speaker 1: I kind of started to view us at the very bottom. UM.
• 20:32
  Speaker 1: I wanted out of the markets. But my father's kind
• 20:35
  Speaker 1: of one of his partying comments to me was maybe
• 20:38
  Speaker 1: you'd be a good short seller, and I said, well,
• 20:40
  Speaker 1: do you know any I was like, well, not really.
• 20:43
  Speaker 1: I mean there's this guy up in San Francisco named
• 20:46
  Speaker 1: John Gruber who does some but I don't know. You
• 20:49
  Speaker 1: can call him. And I said, now I'm going to
• 20:51
  Speaker 1: law school. So that was you know, that was really
• 20:56
  Speaker 1: the background. And Paul was here, but you know, I
• 21:02
  Speaker 1: I was totally done with markets until you know, by
• 21:06
  Speaker 1: active in two thousand nine. Let's talk a little bit
• 21:08
  Speaker 1: about what you were just saying about, Um, how two
• 21:11
  Speaker 1: thousand and nine and two and ten changed your life.
• 21:15
  Speaker 1: You took a trip to China. Tell us about that? Uh,
• 21:20
  Speaker 1: And I believe Orient Paper was the company involved. Sure. Well,
• 21:26
  Speaker 1: at the time, I was still living in Shanghai. Um,
• 21:29
  Speaker 1: I had the self storage business, and it had had
• 21:33
  Speaker 1: taught me many lessons, but one of them was that
• 21:36
  Speaker 1: as an entrepreneur, you really need to define, at least
• 21:40
  Speaker 1: as a beginning entrepreneur, you really need to define success
• 21:44
  Speaker 1: as not failing. So what that means is I was
• 21:47
  Speaker 1: struggling every day and not go out of business. And
• 21:51
  Speaker 1: my father had gotten really interested in a number of
• 21:54
  Speaker 1: these China based companies that had gone public in the
• 21:57
  Speaker 1: US via reverse merger. And he went to one of
• 22:02
  Speaker 1: the Rock conferences and came back from that really bowled
• 22:06
  Speaker 1: up about it. And um, he was mentioning and we're
• 22:09
  Speaker 1: talking my phone and just mentioning several companies, and I know,
• 22:15
  Speaker 1: I'm I'm sitting there in China struggling to keep this
• 22:19
  Speaker 1: business from folding. You know, my wife and I were
• 22:23
  Speaker 1: just kind of you know, we joke about this period
• 22:25
  Speaker 1: of time in our life, but it's really not a
• 22:28
  Speaker 1: half joke, but it's really not it's not a joke,
• 22:31
  Speaker 1: but you know, we're drinking pretty heavily, like every night.
• 22:34
  Speaker 1: Was just kind of like, yeah, let's go, let's go
• 22:37
  Speaker 1: meet up with some other entrepreneur friends and all numb
• 22:39
  Speaker 1: ourselves too, you know how badly we're getting punched in
• 22:42
  Speaker 1: the face every day. And um my father wanted me
• 22:46
  Speaker 1: to look at or help him diligence um some of
• 22:50
  Speaker 1: these companies, and I don't know, again, I just wasn't
• 22:53
  Speaker 1: enthusiastic about this, but I my expectation at the time,
• 22:59
  Speaker 1: and all pretty much all the dominoes had fallen for
• 23:04
  Speaker 1: me UM in the investing business at that point. I
• 23:07
  Speaker 1: didn't trust managements. I knew better than to trust bankers.
• 23:12
  Speaker 1: I realized. I realized that directors are you know, incompetent
• 23:17
  Speaker 1: um and lawyers are basically just there to serve the
• 23:21
  Speaker 1: managements and they're kind of weapons to be used against
• 23:26
  Speaker 1: curious shareholders. But I thought that auditors, I, like probably
• 23:33
  Speaker 1: of the investing public, thought that auditors were there to
• 23:35
  Speaker 1: perform in anti fraud function. And I'm not being facetious
• 23:40
  Speaker 1: when I say this, but I know now that that
• 23:42
  Speaker 1: is not actually the mandate. But I did not know
• 23:45
  Speaker 1: that when my father brought up Orient Paper. So UM,
• 23:50
  Speaker 1: at this time in China and my life, I was
• 23:54
  Speaker 1: quite skeptical of what went on in China. UM. Not
• 23:58
  Speaker 1: only had I co author the book of Doing Business
• 24:01
  Speaker 1: in China for Dummies, which involved a lot of great research.
• 24:04
  Speaker 1: And not only had I seen a number of joint
• 24:07
  Speaker 1: ventures and UM and other direct investments go bad for foreigners,
• 24:12
  Speaker 1: but I'd also chaired the American Chamber of Commerce in
• 24:15
  Speaker 1: Shanghai's Entrepreneurs Committee, and most of my friends were foreign entrepreneurs.
• 24:20
  Speaker 1: So one thing about me is I'm pretty good at
• 24:22
  Speaker 1: absorbing and internalizing experiences of others. And UM, so I
• 24:29
  Speaker 1: guess I was seeing the matrix at this point in China,
• 24:32
  Speaker 1: but I didn't quite know it yet. UM, and my
• 24:36
  Speaker 1: father wanted me to go look at Orient Paper. So
• 24:40
  Speaker 1: I was thinking, Okay, here's gonna be the problem here.
• 24:44
  Speaker 1: If there's gonna be a problem, which the problem is
• 24:46
  Speaker 1: that Really the question is is the guy stealing an
• 24:50
  Speaker 1: unacceptable amount of money out of the company. I assumed
• 24:54
  Speaker 1: that the business would be real, that the profits would
• 24:58
  Speaker 1: be largely real, but as he, you know, using this
• 25:01
  Speaker 1: too much for his own benefit. Wait, wait, let me
• 25:04
  Speaker 1: interrupt you right here. Unacceptable is the guy stealing an
• 25:08
  Speaker 1: unacceptable amount of money in China? Is there an acceptable
• 25:12
  Speaker 1: amount of money management can steal? Um? Yeah, I mean this.
• 25:18
  Speaker 1: This is a question that I remember my entrepreneur friends
• 25:22
  Speaker 1: and I used to occasionally when we get together to
• 25:25
  Speaker 1: numb ourselves. Um, we used to discuss and so the
• 25:30
  Speaker 1: question was, Okay, what do you think the average amount
• 25:34
  Speaker 1: of money stolen is when the capital is provided by
• 25:40
  Speaker 1: outside financing, whether it's the government, a loan or equity investment.
• 25:46
  Speaker 1: In The consensus, like to a person, was if we're
• 25:51
  Speaker 1: being kind, really probably more like in the case of
• 25:58
  Speaker 1: something that's good and functional. And so we we used
• 26:02
  Speaker 1: to then laugh and apply that multiplier to the Shanghai
• 26:05
  Speaker 1: World Expo. So that was that took place in two
• 26:08
  Speaker 1: thousand and ten, and it was so funny because it's
• 26:11
  Speaker 1: like Shanghai's answer to the Olympics, and Shanghai government brags
• 26:17
  Speaker 1: that it was spending I think eighty billion US to prepare.
• 26:22
  Speaker 1: So we used to just laugh and say, like, yeah,
• 26:25
  Speaker 1: this is why Shanghai wanted this. You know. It's like,
• 26:29
  Speaker 1: if we're being kind, sixteen billion dollars of graft like
• 26:34
  Speaker 1: that is so huge, man, Like foreign bank accounts and
• 26:38
  Speaker 1: you know in apartments in Hong Kong are just gonna
• 26:40
  Speaker 1: be like it's gonna be lit man, Like, these things
• 26:43
  Speaker 1: are gonna the money is gonna be pouring in. So
• 26:46
  Speaker 1: that was our view of what actually works in China
• 26:50
  Speaker 1: is and I used to say at the time also,
• 26:53
  Speaker 1: that's the difference between China and all of these other
• 26:57
  Speaker 1: basket case e m s and FM is. In China,
• 27:03
  Speaker 1: they didn't steal so much that they couldn't build the road,
• 27:07
  Speaker 1: like they understood the right level of corruption there. You know,
• 27:10
  Speaker 1: this is this is the level of draft that works best. Yeah,
• 27:15
  Speaker 1: they had like optimized for draft. So so that was
• 27:20
  Speaker 1: basically the question, you know, was was Chairman Leo going
• 27:23
  Speaker 1: to be on the right side of that line or
• 27:26
  Speaker 1: was he going to be over the top. And the
• 27:29
  Speaker 1: first indicator I had that something could be really wrong
• 27:33
  Speaker 1: was in the first conversation that I had with my
• 27:35
  Speaker 1: father about it. He had just come back from this
• 27:38
  Speaker 1: rock conference I think in Florida, and that's where he'd
• 27:42
  Speaker 1: heard about it and met some of the people around
• 27:45
  Speaker 1: orient paper. Um, you know American you know with promoter
• 27:49
  Speaker 1: types and stuff, and my father is telling me that, yeah,
• 27:53
  Speaker 1: they say, uh, they say, chairman Leo is different from
• 27:57
  Speaker 1: other Chinese company chairman. He doesn't drink, he doesn't smoke.
• 28:01
  Speaker 1: And my father is telling me that. I just I
• 28:04
  Speaker 1: have this memory of being in my apartment in Shanghai.
• 28:08
  Speaker 1: It's late at night, like I just really don't care.
• 28:13
  Speaker 1: But as soon as he said that, I perked up
• 28:16
  Speaker 1: and I said, I was like, look, I'm sure none
• 28:19
  Speaker 1: of that is true. But even if it were, the
• 28:23
  Speaker 1: fact that this is what's propagating at the conference gives
• 28:29
  Speaker 1: me some pause because I told him this. I said,
• 28:32
  Speaker 1: this indicates to me that somebody is trying to gain
• 28:36
  Speaker 1: American investor psychology, Like this is what we want to hear,
• 28:40
  Speaker 1: isn't it. He doesn't drink, he doesn't smoke. You know.
• 28:43
  Speaker 1: My father told me keep an open mind and whatever,
• 28:46
  Speaker 1: and I said I will. But this is already red flag.
• 28:49
  Speaker 1: So so what did you find that orient paper? Well,
• 28:52
  Speaker 1: the first thing was I ended up having launch in
• 28:55
  Speaker 1: l A few weeks later with the CFO and my father.
• 28:58
  Speaker 1: I was back home for Thanksgiving, and you know, like
• 29:00
  Speaker 1: all good China based companies, the CFO sat in the
• 29:04
  Speaker 1: US and you know, maybe flew over there like four
• 29:07
  Speaker 1: times a year, and the company was about to raise
• 29:11
  Speaker 1: money and two reportedly build uh a new new factory
• 29:17
  Speaker 1: building with two new production lines. Remember asking the CFO
• 29:21
  Speaker 1: what I thought were some basic questions, Okay, well, um,
• 29:25
  Speaker 1: what's the what's the cost of the building versus the
• 29:27
  Speaker 1: cost of the machinery? I don't know, Well, what do
• 29:30
  Speaker 1: you anticipate the per square meter construction costs to be?
• 29:34
  Speaker 1: Huh that's a good question. I don't know. Well what
• 29:36
  Speaker 1: about the actual machinery. Uh, that's a good question. I
• 29:39
  Speaker 1: don't know. It was just, you know, it's like this
• 29:43
  Speaker 1: wasn't a real CFO and I could see through it.
• 29:45
  Speaker 1: And then the real red flags came when um I
• 29:49
  Speaker 1: was talking about I was asking about another anticipated investment
• 29:53
  Speaker 1: that the company was supposed to make. They were supposedly
• 29:55
  Speaker 1: going to buy this UH photographic paper UM manufacturing line.
• 30:02
  Speaker 1: And the CFO said, oh, well, actually Chairman Leo already
• 30:07
  Speaker 1: bought it and he's holding it in trust for the company,
• 30:12
  Speaker 1: and then the company is going to buy it from him.
• 30:14
  Speaker 1: And I almost spit my lunch up. And what you
• 30:20
  Speaker 1: he's selling it to the company? I mean the cost
• 30:24
  Speaker 1: of course, right, So that then. Yeah, so that was
• 30:27
  Speaker 1: one of the questions that then you know, that was
• 30:29
  Speaker 1: like maybe the second question was, well, what did he
• 30:32
  Speaker 1: pay for it? I don't know, but um, but you know,
• 30:35
  Speaker 1: we're buying it at a fair price. We're having it
• 30:37
  Speaker 1: appraise by a third party appraiser. Huh okay, Um, but
• 30:43
  Speaker 1: like one of the Big four or American appraisal. Who's
• 30:46
  Speaker 1: the who's the appraiser? Um? I think it's a local
• 30:49
  Speaker 1: Chinese firm in fooding. What why would it be a
• 30:55
  Speaker 1: local firm and not a Big four or American appraisal
• 30:59
  Speaker 1: or for them like that? Um, because they're experts in
• 31:02
  Speaker 1: this type of uh, this type of manufacturing equipment, you know.
• 31:07
  Speaker 1: And I'm just thinking no way, like this is okay,
• 31:11
  Speaker 1: there's this is hyper like this is corrupt. I knew
• 31:14
  Speaker 1: that right then and there. But um, again it goes
• 31:17
  Speaker 1: to this question of its chairman Leo was dealing too
• 31:20
  Speaker 1: much money or is it like, you know, would I
• 31:23
  Speaker 1: still build the road? So? Um? Anyway, I said to him,
• 31:27
  Speaker 1: the CFO at the end of the meal, Um, I said, look,
• 31:32
  Speaker 1: I'm happy to go up in early January. I'm going
• 31:36
  Speaker 1: to bring um consultant with me who really understands manufacturing,
• 31:42
  Speaker 1: and we're going to take a much harder look at
• 31:44
  Speaker 1: this company and your company than anybody else has before.
• 31:49
  Speaker 1: I guarantee you that. So if there is any reason
• 31:53
  Speaker 1: Chairman Leo would have to not want us to look
• 31:58
  Speaker 1: at the company under the microscope, just come up with
• 32:01
  Speaker 1: an excuse. Okay, just tell me, you know, something came
• 32:05
  Speaker 1: up or whatever, all right, and we won't do it.
• 32:08
  Speaker 1: You know, in the CFO like he just didn't know
• 32:10
  Speaker 1: what he was getting into, and he's like, oh, well, no,
• 32:13
  Speaker 1: I'm sure Chairman Leo would really look forward to that it.
• 32:16
  Speaker 1: You know, I'd want to know too. Well. These arrogant idiots,
• 32:23
  Speaker 1: you know, welcomed us to a bow Ding in UM
• 32:26
  Speaker 1: early January of two thousand ten. And what we saw
• 32:30
  Speaker 1: was a Potempkon factory, I mean, a company that was
• 32:34
  Speaker 1: about to report its two tho nine revenue of one
• 32:38
  Speaker 1: three million. The best I was ultimately able to determine
• 32:42
  Speaker 1: was real revenue was only two and a half three
• 32:45
  Speaker 1: million dollars. And it was funny because I brought a
• 32:49
  Speaker 1: consultant up with me. UM and uh, I mean, this
• 32:54
  Speaker 1: trip was just bizarre, but say it had on the
• 32:58
  Speaker 1: balance sheet. UM raw materials of five million dollars. So
• 33:03
  Speaker 1: what what Orient Paper produced is core gating medium. So
• 33:07
  Speaker 1: when you look and if you cut into a box
• 33:09
  Speaker 1: and you see that wavy stuff inside the box layers,
• 33:12
  Speaker 1: that's core gating medium. And that is made with old cardboards.
• 33:18
  Speaker 1: So um, you know, just throwing a thrown away cardboard,
• 33:22
  Speaker 1: you recycle it, you make it in the medium. So
• 33:24
  Speaker 1: they head on the balance sheet I think about five
• 33:26
  Speaker 1: million dollars of raw materials inventory. And with the rest
• 33:32
  Speaker 1: at the facility, they're just like these big trash heaps.
• 33:36
  Speaker 1: They're just you know, like yeah, I don't know, I mean,
• 33:40
  Speaker 1: just a mark abount of trash heaps. And the consultant
• 33:43
  Speaker 1: I was with, he's wearing like a you know, Xenia overcoat,
• 33:47
  Speaker 1: and he climbs to the top of a trash heap,
• 33:49
  Speaker 1: looks around, comes down and says to me, if this
• 33:53
  Speaker 1: is worth five million dollars, the world's a much richer
• 33:57
  Speaker 1: place than I ever knew. And I mean it was
• 34:01
  Speaker 1: just ridiculous statement after ridiculous statement. This equipment was obviously
• 34:07
  Speaker 1: very old. I mean, if we were being generous early nineties,
• 34:11
  Speaker 1: it had you know, I had like the typical state
• 34:13
  Speaker 1: owned enterprise slogans UM painted on it, so it was
• 34:18
  Speaker 1: probably late eighties UM vintage but basically throw away from
• 34:23
  Speaker 1: s O S. And it was being carried on the
• 34:26
  Speaker 1: balance sheet and I think like sixty million UM. They
• 34:30
  Speaker 1: said that they had six lines. They were only able
• 34:32
  Speaker 1: to show us to the second line we suspected was
• 34:35
  Speaker 1: actually not producing paper, but it was just looping around,
• 34:38
  Speaker 1: uh finished paper. I mean we couldn't tell. We were
• 34:41
  Speaker 1: being very much rushed through the workshop at that point.
• 34:46
  Speaker 1: There's water everywhere, like on the folding tables. Okay, water
• 34:50
  Speaker 1: is an athema to paper, like that's you know, they
• 34:53
  Speaker 1: just didn't have the air handling equipment that a suit
• 34:57
  Speaker 1: like a moderately serious paper ma manufacturer would have. I mean,
• 35:01
  Speaker 1: there's so many red flags. And so the company's revenue
• 35:05
  Speaker 1: and purported output had climbed significantly in two thousand nine,
• 35:09
  Speaker 1: and so we asked the chairman. Consultant asked the chairman.
• 35:13
  Speaker 1: He said, uh so, okay, you know output last year
• 35:17
  Speaker 1: was was how many tons? And you know it was
• 35:19
  Speaker 1: pretty big, maybe thirty increased versus two thousand eight. And
• 35:24
  Speaker 1: consultants then asked, uh, okay, did you did you add
• 35:28
  Speaker 1: a production line? How did you how did you do that?
• 35:32
  Speaker 1: And he said, oh, process improvements. So afterwards, when we're
• 35:37
  Speaker 1: when we're downloading this incredible experience that we're having and
• 35:40
  Speaker 1: we're you know, we're talking about it, consultant said to me,
• 35:43
  Speaker 1: He's like, yeah, you remember when I asked him how
• 35:45
  Speaker 1: did you boost production? And he said process implements. It's like, Carson,
• 35:50
  Speaker 1: you were there, you were if you looked around, did
• 35:53
  Speaker 1: you see anything new, like even a new mop or buckets? No, Like,
• 35:59
  Speaker 1: that's total lie. So we we realized, i mean very
• 36:03
  Speaker 1: quickly on on the visit that no, this like this
• 36:08
  Speaker 1: wasn't a question of is the guy stealing? It was
• 36:12
  Speaker 1: a question of it was really just well it was
• 36:15
  Speaker 1: a conclusion of this is a potent in factory. This
• 36:17
  Speaker 1: is not a real business. These numbers that they're reporting
• 36:20
  Speaker 1: are total lies across the board. So so what was
• 36:25
  Speaker 1: the market cap and how large a short were you
• 36:28
  Speaker 1: able to get off on that? So it was it
• 36:32
  Speaker 1: was a hundred million market cap. And when I ended
• 36:36
  Speaker 1: up publishing this report, and it's like I didn't get
• 36:40
  Speaker 1: right into it because here's the thing. I I got
• 36:43
  Speaker 1: into China with pretty decent nest egg for a thirty
• 36:47
  Speaker 1: year old. Um. But I had incinerated it in self
• 36:51
  Speaker 1: storage and I was now beyond that two dollars in
• 36:55
  Speaker 1: debt and climbing I was borrowing from my father, so
• 36:59
  Speaker 1: I had no money to short this thing. And I
• 37:03
  Speaker 1: asked my father, Hey, you know, should we short it
• 37:06
  Speaker 1: and put out a report? My father literally had never
• 37:08
  Speaker 1: sold a stock short in his life, and he said
• 37:10
  Speaker 1: he was not interested. Um, and good luck to me, um.
• 37:15
  Speaker 1: And then I called some other people who I knew
• 37:17
  Speaker 1: uh from nine years earlier, so in the in the
• 37:21
  Speaker 1: markets and to see if they wanted to take a
• 37:25
  Speaker 1: short position and somehow compensate me. And no, nobody was
• 37:29
  Speaker 1: into that. UM. So I really didn't have a model
• 37:34
  Speaker 1: business model. And they just switched auditors to be Deo
• 37:37
  Speaker 1: Limited in Hong Kong. They've been audited by some Utah
• 37:41
  Speaker 1: based accounting firm that it would later turn out did
• 37:44
  Speaker 1: not even have a valid p C A O B registration,
• 37:47
  Speaker 1: But I didn't know that at the time. UM. But
• 37:49
  Speaker 1: I figured, Okay, well, you know, this is like one
• 37:52
  Speaker 1: of these It's probably like Chinese organized crime met up
• 37:55
  Speaker 1: with US organized crime. So it's really thinking about this
• 37:58
  Speaker 1: from the ninety nineties market, you know framework when I
• 38:03
  Speaker 1: started growing up there, so that there's no way they're
• 38:05
  Speaker 1: going to get an unqualified audit opinion wrong. So in
• 38:10
  Speaker 1: early April of two ten, I realized they had gotten
• 38:13
  Speaker 1: an unqualified audit opinion. I've forgotten at the company for
• 38:15
  Speaker 1: a while because I just had, you know, no economic
• 38:19
  Speaker 1: model here, so UM, I decided to produce a report
• 38:27
  Speaker 1: that I don't know would explain that these things are
• 38:29
  Speaker 1: fraud and I didn't There was no template for me
• 38:32
  Speaker 1: to write this report. It just kind of made to
• 38:37
  Speaker 1: template up myself, a combination of what I used to
• 38:39
  Speaker 1: write when I worked with my father and how I
• 38:41
  Speaker 1: learned to write as a lawyer. And we researched it
• 38:46
  Speaker 1: um and disclosed that we were short. Now I was,
• 38:51
  Speaker 1: I owned two thousand dollars worth of puts, and that
• 38:54
  Speaker 1: consultant also in two thousand dollars worth of puts. I've
• 38:58
  Speaker 1: funded them, mind from my credit card. And I think
• 39:00
  Speaker 1: he'd basically done the same thing because he was he
• 39:04
  Speaker 1: owned a Nissan factory in China that was never able
• 39:08
  Speaker 1: to get off the ground, and he was constantly embroiled
• 39:10
  Speaker 1: in you know, the brawls with foul steel courtroom brawls, etcetera.
• 39:14
  Speaker 1: So um, at that point, you know, I didn't really
• 39:21
  Speaker 1: My thinking was, hey, I've got nothing to lose. I mean,
• 39:24
  Speaker 1: the self storage facility like this, things just a liability.
• 39:27
  Speaker 1: What are they gonna do take the liability from me?
• 39:30
  Speaker 1: By all means? You know, you can have it, So
• 39:34
  Speaker 1: it's it's Subsequently, when I looked back on this, I
• 39:37
  Speaker 1: realized there's a real power in having nothing to lose.
• 39:41
  Speaker 1: So I just threw the ball as far down the
• 39:43
  Speaker 1: field as I could. And the one thing that I
• 39:45
  Speaker 1: hoped for, I hoped these guys would think that I
• 39:49
  Speaker 1: had a sizeable short position because I just I knew
• 39:53
  Speaker 1: I was continent. I would win a litigation. But if
• 39:56
  Speaker 1: they knew that I really had no money at all,
• 39:58
  Speaker 1: they would have suited me anyway and just raked me
• 40:01
  Speaker 1: over the cold um in terms of legal fees. So
• 40:04
  Speaker 1: I just it was a leap of faith that I
• 40:06
  Speaker 1: was gonna be able to bluff my way out of
• 40:09
  Speaker 1: getting sued. And um happened. Well, stock went down day
• 40:16
  Speaker 1: after we published a trough of fifty. Company came back
• 40:22
  Speaker 1: said my father and I had tried to extort them
• 40:24
  Speaker 1: and they refused, And you know, and then when it
• 40:27
  Speaker 1: was like, man, you're you know, because I was really
• 40:30
  Speaker 1: nervous about that report to the moment I pushed the button.
• 40:34
  Speaker 1: I mean, I knew everything and there was factual I
• 40:37
  Speaker 1: knew exactly what was going on, but I got checked
• 40:39
  Speaker 1: myself so many times because like this it's a big
• 40:43
  Speaker 1: deal and going out and saying this company is is
• 40:46
  Speaker 1: a zero and they're lying. But that nervousness entirely disappeared
• 40:52
  Speaker 1: when they came back and lied. I don't know that
• 40:55
  Speaker 1: I needed extra conviction. I mean I didn't, but the
• 41:01
  Speaker 1: moment they started making stuff up about my father and me,
• 41:05
  Speaker 1: then it was just like you know, I mean I
• 41:08
  Speaker 1: I was just like, I'm bringing you guys down. Like
• 41:10
  Speaker 1: it changes the dynamics because suddenly they go from minor
• 41:15
  Speaker 1: grifters with the tendency to exaggerate to oh, you guys
• 41:20
  Speaker 1: are just next level criminals. This is a zero, your
• 41:24
  Speaker 1: total frauds and I'm gonna double down. Is am I
• 41:27
  Speaker 1: hearing that right? Well? It went from somewhat, but it
• 41:31
  Speaker 1: went more from fighting scared in a way um to
• 41:37
  Speaker 1: fighting with suriy and so is it tell they revealed
• 41:42
  Speaker 1: that they were scammers and they knew they were scammers,
• 41:45
  Speaker 1: and they knew you knew they were scammers, right and yeah,
• 41:50
  Speaker 1: and then they started like lying about other things, trying
• 41:53
  Speaker 1: to put the toothpaste back in the tube and U
• 41:57
  Speaker 1: but yeah, it was you know, it was really And
• 42:00
  Speaker 1: it was right after that that um just you know,
• 42:04
  Speaker 1: I mean, the report went viral, um, and I had
• 42:08
  Speaker 1: a lot of people reach out to me and say,
• 42:11
  Speaker 1: you know, wow, great reports. Somebody's finally exposed this stuff.
• 42:14
  Speaker 1: This is the STEMA, look at this company, look at
• 42:17
  Speaker 1: that company. And I just started cracking open ten K's
• 42:21
  Speaker 1: and it was just obvious, you know, like all of
• 42:24
  Speaker 1: these things that I was looking at these things for frauds.
• 42:26
  Speaker 1: I mean, it was just really obvious from the ten Ks.
• 42:29
  Speaker 1: I mean, I skipped over the part about us reading
• 42:32
  Speaker 1: the orient paper finalings before we went up there. You
• 42:35
  Speaker 1: were in the airport waiting for our flight, and and
• 42:37
  Speaker 1: I mean we just kept laughing out loud at different times.
• 42:41
  Speaker 1: But again, we didn't get that this thing was going
• 42:43
  Speaker 1: to be ninety five plus lie. You know, that wasn't
• 42:49
  Speaker 1: apparent until we actually got on site. How far did
• 42:52
  Speaker 1: this stop ultimately fall? Um? I mean the stock ended
• 42:57
  Speaker 1: up getting down to below a dollar times. I mean
• 43:01
  Speaker 1: there was this back and forth right where you know,
• 43:04
  Speaker 1: they would come out with press release and stock could
• 43:07
  Speaker 1: go back up. It had been eight and a half
• 43:10
  Speaker 1: when we published UM, so there was kind of rains
• 43:13
  Speaker 1: found between four and six. And then when we did
• 43:17
  Speaker 1: our second or did our second report or sorry report
• 43:21
  Speaker 1: on second company, Rhino International, that company had the misfortune
• 43:26
  Speaker 1: of making the mistake of the CEO admitting to the
• 43:29
  Speaker 1: auditor that there were quoth some problems with the contracts,
• 43:34
  Speaker 1: and the soccer was very quickly delisted. So after Rhino
• 43:38
  Speaker 1: went down, UM, I think Orient Paper sold off even
• 43:42
  Speaker 1: more because the people who've been skeptical of us were
• 43:47
  Speaker 1: less skeptical of us and solidly to the prior reports.
• 43:50
  Speaker 1: So now you have Orient Paper and Rhino. When do
• 43:55
  Speaker 1: you say, hey, this is a real business. I need
• 43:59
  Speaker 1: to form a company. Well, I formed a I formed
• 44:03
  Speaker 1: an entity at the outset before publishing my first Remember
• 44:06
  Speaker 1: I was a lord for legal protection, right, you want
• 44:09
  Speaker 1: that shield. But when did you say, I have a
• 44:12
  Speaker 1: finance research business and potential edge fund here that there's
• 44:17
  Speaker 1: money to be made betting against these companies. Well, it
• 44:21
  Speaker 1: was right after Orient Paper that I realized that UM,
• 44:24
  Speaker 1: I came to the States for uh two trips, one
• 44:28
  Speaker 1: of them was about a month, and at that point
• 44:30
  Speaker 1: in time, I was trying to By then I realized
• 44:33
  Speaker 1: this is systemic with these China names, and I was
• 44:37
  Speaker 1: trying to figure out what the business model would be. Um,
• 44:40
  Speaker 1: should we do consulting for investment banks that we're looking
• 44:44
  Speaker 1: to bring companies in China public? No, Pretty quickly those
• 44:49
  Speaker 1: doors slammed in our faces. Um, they didn't diligence guys. Um.
• 44:55
  Speaker 1: Then then yeah, I was thinking, okay, well, um, should
• 44:59
  Speaker 1: I do the US on a subscription basis? And I
• 45:02
  Speaker 1: had there was a company that sells um subscription research
• 45:07
  Speaker 1: that was saying, yeah, look, you know, we'll distribute to
• 45:10
  Speaker 1: research and da da dad and you know. And I
• 45:12
  Speaker 1: was looking at the numbers and like, yeah, maybe I
• 45:15
  Speaker 1: could take this to you know, a million or more
• 45:17
  Speaker 1: in my pocket a year. Maybe um. And then uh,
• 45:21
  Speaker 1: there was also a very large hedge fund that said, yeah, look,
• 45:25
  Speaker 1: we want exclusive access to your ideas and you know,
• 45:27
  Speaker 1: we'll pay you for those. And but I kept coming
• 45:32
  Speaker 1: back to this idea of doing it publicly and trying
• 45:36
  Speaker 1: to have some you know, if I could get capital
• 45:39
  Speaker 1: to short these things and then publish and you know,
• 45:43
  Speaker 1: there's if you you know, this was a This was
• 45:46
  Speaker 1: a decision that took I don't know some time to
• 45:49
  Speaker 1: make because I realized that that was going to be
• 45:53
  Speaker 1: the much more um much more stressful path. I will
• 45:59
  Speaker 1: get food regulators. You know, I should assume that regulators
• 46:03
  Speaker 1: will look at me skeptically every time we publish a report.
• 46:07
  Speaker 1: But I felt like, if I'm just providing subscription research
• 46:13
  Speaker 1: two institutions um identifying various frauds in China, I mean,
• 46:19
  Speaker 1: one issue is how valuable is the research if these
• 46:23
  Speaker 1: things never go down. I mean, a fraud can flourish
• 46:26
  Speaker 1: and the markets until the markets figure out it's not
• 46:29
  Speaker 1: a fraud. So I did question the viability over the
• 46:34
  Speaker 1: long term of that business model. But the other thing
• 46:36
  Speaker 1: was it just I mean, it just seems a little
• 46:40
  Speaker 1: hollow as well, because I felt like, hey, if I'm
• 46:43
  Speaker 1: publishing this openly, I can hold these guys accountable, right,
• 46:47
  Speaker 1: But I'm just sending this to you know, blah blah
• 46:50
  Speaker 1: blah hedge fund um for you know, fifty k year
• 46:54
  Speaker 1: from that fund, I don't know who's going to hold
• 46:57
  Speaker 1: them accountable, Like why would this matter? So based on
• 47:01
  Speaker 1: that I said, all right, you know, like, let me
• 47:04
  Speaker 1: figure out a way to get some capital and then
• 47:06
  Speaker 1: start shorting these publicly. And so I made that decision.
• 47:10
  Speaker 1: You know, I realized there was a business to do
• 47:12
  Speaker 1: and that was the model I wanted to pursue. And
• 47:15
  Speaker 1: I probably made that decision by late August early September
• 47:20
  Speaker 1: of two thousand times. Quite quite interesting. Let's let's talk
• 47:24
  Speaker 1: a little more about what's going on in China. Um
• 47:28
  Speaker 1: after that orient paper experience, you've called for many Chinese
• 47:34
  Speaker 1: firms that are listed in the US to be delisted.
• 47:39
  Speaker 1: Tell us why they literally cannot be held The people
• 47:45
  Speaker 1: behind these companies literally cannot be held accountable. Not only
• 47:49
  Speaker 1: that they can't actually be investigated. I mean, that's PRC
• 47:53
  Speaker 1: law that specifically prohibits any PRC based person or entity
• 48:00
  Speaker 1: from cooperating with an overseas regulatory investigation without the express
• 48:06
  Speaker 1: higher consent of the Chinese Securities Regulatory Commission, which you know,
• 48:10
  Speaker 1: accepting the exceptional cases something like luck In where the
• 48:13
  Speaker 1: auditor already called it a fraud, is just not what
• 48:16
  Speaker 1: we're coming. So you not only can you not hold
• 48:19
  Speaker 1: the individuals to account, you cannot investigate them. And I
• 48:23
  Speaker 1: think Luckin's a great example here because luck In raised
• 48:27
  Speaker 1: think about eight hundred million dollars from the US markets,
• 48:31
  Speaker 1: and then the auditor, after we republished somebody else's research
• 48:36
  Speaker 1: and said that it checked out to US UM, the
• 48:39
  Speaker 1: auditor U E Y confirmed that this thing was a fraud,
• 48:44
  Speaker 1: and so luck In collapse and but the people luck
• 48:51
  Speaker 1: and ultimately settled with the SEC. And the eight hundred
• 48:56
  Speaker 1: million that it raised from US markets, I think it
• 48:58
  Speaker 1: paid to the s. You see, a hundred forty million,
• 49:01
  Speaker 1: and that's like, by far the most the SEC has
• 49:05
  Speaker 1: ever gotten out of one who's trying to frauds. And
• 49:08
  Speaker 1: the best part is luck raised that money with the
• 49:11
  Speaker 1: bond issuance in China. So I think a hundred fifty
• 49:13
  Speaker 1: million US that's a good deal. You you raise a
• 49:17
  Speaker 1: hundred and fifty million in bonds to pay for the
• 49:20
  Speaker 1: fraud you perpetrated rate raising eight million in equity. Yeah,
• 49:25
  Speaker 1: So I mean, like I look, I said, okay, eight
• 49:28
  Speaker 1: hundred that's the biggest big any one of these guys
• 49:31
  Speaker 1: who's had to pay in absolute terms, and the percentage
• 49:34
  Speaker 1: and it's not that bad a big it's sub leaves
• 49:38
  Speaker 1: you with over half a billion dollars. Right, yeah, I mean,
• 49:41
  Speaker 1: considering you hold the money, Um, it's not bad, but um,
• 49:45
  Speaker 1: but no this, you know, these guys are better operators
• 49:48
  Speaker 1: than that. But the issue, I mean, the reality is, um,
• 49:54
  Speaker 1: we just can't hold them accountable. And so when you
• 49:57
  Speaker 1: have that system like it's and so and also look
• 50:00
  Speaker 1: at this. You know, some people say, oh, you know
• 50:04
  Speaker 1: you're China basher this and that. But the reality is
• 50:08
  Speaker 1: China is an emerging market. China has a weak rule
• 50:11
  Speaker 1: of law. China is a country riddled by corruption, both
• 50:16
  Speaker 1: public sector and private sector. And also all of these
• 50:20
  Speaker 1: things are facts. And when the regulators in the US
• 50:24
  Speaker 1: don't even have the ability to investigate, I mean, of
• 50:28
  Speaker 1: course these guys are gonna come over here and lie
• 50:32
  Speaker 1: and steal the money, because why wouldn't they The proposition
• 50:38
  Speaker 1: if you're sitting in China and you know, and you've
• 50:40
  Speaker 1: got a business, and you know, I'm like, you meet
• 50:43
  Speaker 1: the right people who say, hey, you know, we can
• 50:45
  Speaker 1: sex this thing up and you know, bring in public
• 50:48
  Speaker 1: blah blah blah. You're thinking, okay, well heads, I win tails,
• 50:54
  Speaker 1: I don't lose, So why wouldn't you go and lie?
• 50:58
  Speaker 1: And the other thing is that I think is more
• 51:02
  Speaker 1: one of the changes that I've noticed in the eleven
• 51:06
  Speaker 1: years that I've been doing this. UM. Back then, when
• 51:10
  Speaker 1: we first started publishing UM, the Chinese guys were not
• 51:15
  Speaker 1: sophisticated with respect to the market. UM. They didn't really
• 51:20
  Speaker 1: get how things traded. UM and they yeah, I mean
• 51:25
  Speaker 1: they got fraud, but the frauds were very crude, basic
• 51:28
  Speaker 1: frauds where you invent counterparty, you invent customers and invent suppliers. UM.
• 51:33
  Speaker 1: The frauds today mostly more sophisticated. They're usually there's usually
• 51:39
  Speaker 1: more reality to the businesses. UM. Usually G s X
• 51:44
  Speaker 1: is an exception, But UM, they they're But I but
• 51:49
  Speaker 1: I feel like a lot of these stocks are manipulated,
• 51:53
  Speaker 1: and they're manipulated in very sophisticated ways. UM. We're going
• 51:58
  Speaker 1: to circle back to that. I wanted to talk about
• 52:00
  Speaker 1: some manipulation. But before we leave the sec UM, how
• 52:05
  Speaker 1: have they responded to your urging that they dealist firms
• 52:10
  Speaker 1: that can't be monitored or can't even be audited. Well,
• 52:15
  Speaker 1: there was a bill that was enacted and signed into
• 52:18
  Speaker 1: law by President Trump called the Holding Foreign Company's Accountable Act,
• 52:23
  Speaker 1: and it provides that if companies in a country are
• 52:28
  Speaker 1: not subjects. If the auditors are not able to be
• 52:31
  Speaker 1: inspected by the p c A O B, then these
• 52:35
  Speaker 1: companies will be delisted within two years there, you know,
• 52:40
  Speaker 1: two or three years after the enactment of the bill.
• 52:43
  Speaker 1: And it was obviously targeted to China, but that's the
• 52:47
  Speaker 1: wrong issue to focus on, and China might I've long
• 52:51
  Speaker 1: held the theory that China would give on the pc
• 52:54
  Speaker 1: A B inspections because that's not really going to be
• 52:58
  Speaker 1: an effective anti fraud tool. Um just inspecting these auditors, Like,
• 53:02
  Speaker 1: who cares that the PCOB is going to be messed
• 53:04
  Speaker 1: with during these inspections the same way everybody who's messed
• 53:07
  Speaker 1: with whoever goes over to check out a Chinese company.
• 53:10
  Speaker 1: But um, so, well, well, how do they mess with you?
• 53:14
  Speaker 1: That's that's interesting you say that, let's let's digress here.
• 53:17
  Speaker 1: Did were you harassed where you followed? Did you ever
• 53:20
  Speaker 1: feel that you were in danger? When I say when
• 53:23
  Speaker 1: I say messed with, I just mean fools and in
• 53:27
  Speaker 1: steinis in stone walls, I mean that that's co operation.
• 53:31
  Speaker 1: Well it's fake cooperation, right like that? That was the
• 53:35
  Speaker 1: that was the thing that was beautiful about most of
• 53:38
  Speaker 1: these companies and still is. It's it's the fake transparency
• 53:41
  Speaker 1: because one of the fundamental problems the SEC has in
• 53:45
  Speaker 1: one of these investigations and anybody has, is, first of all,
• 53:50
  Speaker 1: everything's in Chinese. So the vast majority of us in
• 53:54
  Speaker 1: the US and who worked at the p C A
• 53:56
  Speaker 1: O B don't understand Chinese, and you need things translate.
• 54:00
  Speaker 1: Translation is incredibly resource intensive. So it's one thing. I mean,
• 54:03
  Speaker 1: when you look at it from the SEC perspective, the
• 54:06
  Speaker 1: costs of these investigations are super high for them, and
• 54:09
  Speaker 1: again the recoveries and probabilities of recoveries are so low.
• 54:13
  Speaker 1: So that's one reason. I mean, like genuinely the SEC
• 54:15
  Speaker 1: Enforcement Division hates investigating these China based companies. Um, but
• 54:21
  Speaker 1: you you have the same problems p C O B.
• 54:24
  Speaker 1: Very few of the people would speak Chinese. Um, they'd
• 54:26
  Speaker 1: be jet lagged. They would have the Chinese Ministry of
• 54:29
  Speaker 1: Finance people because it's clear like that's the only framework
• 54:33
  Speaker 1: China would ever allow this to happen, shadowing them being there.
• 54:37
  Speaker 1: Documents will be switched out, would be missing, there would
• 54:39
  Speaker 1: be all kinds of excuses like, oh, well, you don't
• 54:41
  Speaker 1: understand how it is in China like this you know,
• 54:43
  Speaker 1: we have to give this document over here. Let's, you know,
• 54:45
  Speaker 1: take these guys, you know, to the other side of
• 54:47
  Speaker 1: town and see if we can find this document at
• 54:49
  Speaker 1: the Ministry of Finance. Oh no, it's not here. Gee, guys,
• 54:52
  Speaker 1: I'm sorry. Hey, how about we go and you know,
• 54:54
  Speaker 1: go to lunch and get drunk. I mean it's like,
• 54:56
  Speaker 1: this is what I envisioned happening, is that the their
• 55:00
  Speaker 1: time would be wasted and they wouldn't understand what's going on,
• 55:05
  Speaker 1: and like at the end of the trip, they would
• 55:08
  Speaker 1: get back to Washington and just say, like, I don't
• 55:11
  Speaker 1: know what the f happened? Man, Like I don't know
• 55:13
  Speaker 1: we were there. But wouldn't it be more effective to say,
• 55:17
  Speaker 1: these are the minimum listing requirements in the United States,
• 55:21
  Speaker 1: and if you don't jump through these hoops, you can't
• 55:23
  Speaker 1: be listed here. As opposed to going through that process.
• 55:27
  Speaker 1: I mean, it's a privilege to be listed here and
• 55:30
  Speaker 1: you have to do xcell y and Z. Why why
• 55:32
  Speaker 1: not take that approach? Well, I think you know the
• 55:36
  Speaker 1: problem that we faced. Look, let's be real here, okay.
• 55:39
  Speaker 1: I mean my my view is that almost all of
• 55:43
  Speaker 1: the companies, if not all the companies listed in the
• 55:46
  Speaker 1: US from China are committing some level of fraud, they
• 55:49
  Speaker 1: cannot be held accountable. Now I think we could instead
• 55:51
  Speaker 1: focus on this this Article one seventy seven of the
• 55:57
  Speaker 1: Amended Securities Law of the d r C that went
• 56:01
  Speaker 1: into effect in March of last year, and that is
• 56:04
  Speaker 1: the article that expressly prohibits cooperation with foreign regulatory investigations
• 56:09
  Speaker 1: into publicly traded companies that did not exist. That was
• 56:13
  Speaker 1: not codified formally until the adoption of that of that revision.
• 56:19
  Speaker 1: So before then it was kind of hard to to
• 56:22
  Speaker 1: say that, well, we you know, we need to formulate
• 56:25
  Speaker 1: a policy that says companies from China may not list here,
• 56:29
  Speaker 1: because we would you know, it's like, well, you know,
• 56:32
  Speaker 1: aside from the fact that these things are committing fraud
• 56:36
  Speaker 1: on a widespread basis, like what can you point to
• 56:38
  Speaker 1: in law, because like in the US, you know, we're
• 56:39
  Speaker 1: really focused on like, you know, what's the you know,
• 56:42
  Speaker 1: like give me a bright line definition of what may
• 56:44
  Speaker 1: and what may not be listed. But now you have
• 56:46
  Speaker 1: article one seventy seven. So I think that any country
• 56:49
  Speaker 1: that codifies a middle finger to US in you know,
• 56:53
  Speaker 1: regulatory bodies in its law de facto should not be
• 56:57
  Speaker 1: allowed to have its. You know, companies whose operations are
• 57:00
  Speaker 1: stancill be based there listed in the US. That makes
• 57:03
  Speaker 1: perfect sense, But but I have to point out that
• 57:07
  Speaker 1: it's created an environment that has allowed you and your
• 57:12
  Speaker 1: firm to come up with some spectacular short So so
• 57:17
  Speaker 1: let's quickly go over some of your greatest hits. Sino
• 57:21
  Speaker 1: Forest down after your report. We mentioned Rhino Drop before
• 57:27
  Speaker 1: it was delisted, tell us about to they were have. Yeah,
• 57:33
  Speaker 1: we have eight D listings globally, seven in which are
• 57:36
  Speaker 1: from China and I'm not including luck in. We might
• 57:39
  Speaker 1: be about to get our ninth D listing in France,
• 57:41
  Speaker 1: by the way, So what happens when you own a
• 57:43
  Speaker 1: put and a company is delisted? What is that put
• 57:46
  Speaker 1: worth at that point? Yeah? Well that was that was
• 57:49
  Speaker 1: interesting in the early days because these stocks can be
• 57:52
  Speaker 1: halted for multiple months, and you know, we had puts
• 57:57
  Speaker 1: going into put experty and so yees to decide whether
• 58:00
  Speaker 1: you want exercise or not, and um we ended up.
• 58:04
  Speaker 1: I mean that the one time this really happened to
• 58:06
  Speaker 1: us was on China Media Express, which was the third
• 58:10
  Speaker 1: company on which we wrote would become the second D listing,
• 58:14
  Speaker 1: and we had we had puts UM that expired during
• 58:18
  Speaker 1: the halt, so we exercised the puts. But then and
• 58:21
  Speaker 1: this happened to a lot of at that's at the
• 58:24
  Speaker 1: time I was using you know, like retail investor account.
• 58:27
  Speaker 1: This has been a lot of retail guys at this
• 58:29
  Speaker 1: time went um. So we're effectively short. And the broker
• 58:34
  Speaker 1: came back to us and said, oh, listen, you know
• 58:36
  Speaker 1: we need uh, we need you to deposit more margins.
• 58:39
  Speaker 1: So based on the last print of the stock, when
• 58:42
  Speaker 1: this thing starts trading again, you know, you're now short,
• 58:45
  Speaker 1: you know, like blond number shares that's you know, five
• 58:48
  Speaker 1: hundred thousand dollars worth of stock. Um, we want two margins,
• 58:53
  Speaker 1: So we need you to pump your account up. UM,
• 58:56
  Speaker 1: you know, store another five thousand in there. And you know,
• 59:00
  Speaker 1: like if that actually, I mean, that actually screwed me up.
• 59:03
  Speaker 1: I was very fortunate that I got UM. I got
• 59:06
  Speaker 1: a loan from somebody who uh you know it was
• 59:09
  Speaker 1: I mean, I mean offered it to me just when
• 59:11
  Speaker 1: I was lamenting. I wasn't asking for the loan and UM,
• 59:13
  Speaker 1: and so I was able to make money that way.
• 59:15
  Speaker 1: But I think a lot of retail got shafted on
• 59:18
  Speaker 1: those things. And the other thing that was problematic was
• 59:22
  Speaker 1: because when the stock the brokers realized that once the
• 59:25
  Speaker 1: stock started trading, because there were all of these put
• 59:27
  Speaker 1: options that have been exercised, everybody was going to be
• 59:30
  Speaker 1: naked short and so unlike when you're dealing with an
• 59:33
  Speaker 1: institutional counterparty, you know, who would say like, all right, man,
• 59:37
  Speaker 1: look I get it, the stock is going to go down,
• 59:39
  Speaker 1: maybe after some initial volatility, once it's unholted, you know,
• 59:42
  Speaker 1: we'll you know, we'll be chill and we're not going
• 59:45
  Speaker 1: to buy you in right away. We'll wait till the
• 59:47
  Speaker 1: afternoon to figure it out. I think that's how an
• 59:49
  Speaker 1: institutional counterparty works. The retail counterparties were like, you will
• 59:53
  Speaker 1: be bought in as soon as it resumes trading. So
• 59:56
  Speaker 1: what I want to mention the broker who who was
• 59:59
  Speaker 1: so nice to their alliance? Oh, I mean, I can't
• 1:00:03
  Speaker 1: even remember. I mean, we weren't dealing with Fidelity, but
• 1:00:07
  Speaker 1: I heard. I mean, Fidelity was a nightmare. Fidelity was
• 1:00:10
  Speaker 1: increasing the borrow cost, stirring halts on all these things.
• 1:00:15
  Speaker 1: I mean I think they jacked them, you know, from annually.
• 1:00:19
  Speaker 1: So Fido was sucking people dry, Um, I'm on a
• 1:00:23
  Speaker 1: halt for a company about to be delisted, seems sort
• 1:00:26
  Speaker 1: of doesn't really make a lot of sense to me. Um,
• 1:00:30
  Speaker 1: And you mentioned manipulation. Are you implying that for targets
• 1:00:34
  Speaker 1: of yours like G s X or T A L education,
• 1:00:38
  Speaker 1: do you think the Chinese government are propping up those stuffs? Well? God,
• 1:00:45
  Speaker 1: you know, what goes on behind the curtain in China
• 1:00:48
  Speaker 1: is very difficult to say. And there's also um, the
• 1:00:52
  Speaker 1: lines between government and government actors and private sector actors
• 1:00:57
  Speaker 1: are very blurry at times. So but there's just funky,
• 1:01:02
  Speaker 1: funky trading and a lot of these things. And it
• 1:01:04
  Speaker 1: wasn't only gsx UM a lot of other China names.
• 1:01:08
  Speaker 1: And then the final thing that I'll say on this,
• 1:01:10
  Speaker 1: Nobody else I know talks about this, but I suspect
• 1:01:15
  Speaker 1: that these companies water their stock all day long. And
• 1:01:20
  Speaker 1: here when you say water to explain that, well, that's,
• 1:01:25
  Speaker 1: you know, in the conventional sense, watering stock is issuing
• 1:01:30
  Speaker 1: shares to you know, people insiders in their proxies, but
• 1:01:34
  Speaker 1: without without recording those shares as having been issued. But
• 1:01:39
  Speaker 1: what happens, what I think happens here that makes it
• 1:01:43
  Speaker 1: so easy is you have to keep in mind that
• 1:01:46
  Speaker 1: these companies are all domiciled in Cayman or some are
• 1:01:51
  Speaker 1: b v I, but they're you know, they're legally domiciled
• 1:01:54
  Speaker 1: in Cayman or b B I, and their shares don't
• 1:01:57
  Speaker 1: trade on the US exchanges. It's their American Depository receipts
• 1:02:02
  Speaker 1: or American Depository shares. So what basically happens is if
• 1:02:06
  Speaker 1: you have a in share, you take it to the
• 1:02:08
  Speaker 1: depository agent and it's you know, funged exchange into an
• 1:02:14
  Speaker 1: A d R A d S that may be traded
• 1:02:16
  Speaker 1: on the exchanges. But the question I've had is who
• 1:02:21
  Speaker 1: the hell is keeping track of these Cayman schairs that
• 1:02:24
  Speaker 1: are coming to the that that are that are being
• 1:02:27
  Speaker 1: given to the depository agents. And look, I don't know
• 1:02:30
  Speaker 1: the answer because this is really our ten aspects of
• 1:02:35
  Speaker 1: of plumbing. But I suspect nobody. I mean, who's these
• 1:02:39
  Speaker 1: are Caman share registries? Okay, That's That's the whole point
• 1:02:42
  Speaker 1: of Cayman is that everything about ten in domiciles companies
• 1:02:46
  Speaker 1: is secret, especially the share registries. What is there? I've
• 1:02:50
  Speaker 1: asked some people and nobody's ever been able to answer me.
• 1:02:54
  Speaker 1: What safeguards are in place that would prevent these companies
• 1:02:57
  Speaker 1: from doing that or prevent the insiders from doing that.
• 1:03:00
  Speaker 1: And so I am of this view that our entrepreneurial
• 1:03:04
  Speaker 1: friends in China are so entrepreneurial that in many cases,
• 1:03:09
  Speaker 1: not only are they completely lying about the financials of
• 1:03:12
  Speaker 1: the company, but they're also manipulating the stock, and they're
• 1:03:15
  Speaker 1: also watering the stock. The share A count is much
• 1:03:18
  Speaker 1: higher than officially recorded yes, or that the yes that
• 1:03:24
  Speaker 1: the the shares outstanding are because I've seen in the past.
• 1:03:28
  Speaker 1: I first started asking this question in two thousand eleven
• 1:03:31
  Speaker 1: or twelve because I could see that the A d
• 1:03:33
  Speaker 1: S counts were rising a lot faster than these shares outstanding,
• 1:03:38
  Speaker 1: meaning they come to the shares that the company is issued.
• 1:03:40
  Speaker 1: And now that's not unexplainable that that doesn't in and
• 1:03:44
  Speaker 1: of itself mean that there's watering, because as you have
• 1:03:48
  Speaker 1: more legit team and shareholders funds their stock into a
• 1:03:53
  Speaker 1: d r S and a d S is to sell it,
• 1:03:54
  Speaker 1: you'll see that. But I just remember noting that some
• 1:03:57
  Speaker 1: of these increases the deltas the ADS accounts were growing exponentially,
• 1:04:03
  Speaker 1: and you know, and the and the shares outstanding, the
• 1:04:06
  Speaker 1: Cayman shares weren't growing that that much. And that's when
• 1:04:09
  Speaker 1: it dawned on me. It's like, look, I've been I've
• 1:04:11
  Speaker 1: lived in that country six years, total ton of business.
• 1:04:14
  Speaker 1: They're they're not going to stop at just like just
• 1:04:19
  Speaker 1: committing fraud with respect to the financials like that would
• 1:04:22
  Speaker 1: be stupid, That would be leaving money on the table.
• 1:04:24
  Speaker 1: I mean quite frankly, if this was the life you've
• 1:04:26
  Speaker 1: chosen to be a crook of this sort, you would
• 1:04:30
  Speaker 1: not stop at that alone. You would manipulate the stocks.
• 1:04:33
  Speaker 1: You look, you would water the stock, you would do
• 1:04:35
  Speaker 1: every single thing you could do. And I just don't
• 1:04:38
  Speaker 1: think that that you could get away with and the mechanisms. Look,
• 1:04:42
  Speaker 1: one of the problems that we have with stock manipulation
• 1:04:44
  Speaker 1: in the US is that it's so much stop trading
• 1:04:47
  Speaker 1: has done algorithmically. Okay, the SEC is staffed by lawyers
• 1:04:50
  Speaker 1: and accountants n s A. We need people who have
• 1:04:55
  Speaker 1: n s A type skills to be inside the SEC
• 1:04:58
  Speaker 1: to monitor trading, whether it's kind of based manipulation or
• 1:05:02
  Speaker 1: or give somewhere else. That's how manipulation occurs. And we
• 1:05:06
  Speaker 1: I mean, who's who with those skills? You know, Stanford
• 1:05:09
  Speaker 1: computer science graduate is gonna go work for the SEC. No,
• 1:05:11
  Speaker 1: I'm not gonna happen nobody at this point. I never
• 1:05:14
  Speaker 1: heard accounting fraud described as a gateway drug. It's just
• 1:05:19
  Speaker 1: the the entry to to more fraud. One of the
• 1:05:23
  Speaker 1: things I found interesting about your background is your relationship
• 1:05:28
  Speaker 1: with Jefferies Financial Group. UM CEO Rich Handler, tell us
• 1:05:32
  Speaker 1: a little bit about how Rich Handler affected your career.
• 1:05:41
  Speaker 1: UM so yeah, I uh, all right. UM, back in
• 1:05:49
  Speaker 1: it was clear to me that we were going to
• 1:05:52
  Speaker 1: go into the fund management business at some point, and um,
• 1:05:57
  Speaker 1: we were having a problem. Uh, I need institutional counterparties.
• 1:06:03
  Speaker 1: And because you know, we were so controversial. So at
• 1:06:06
  Speaker 1: that time and for a while after that, it was
• 1:06:09
  Speaker 1: an annual ritual where Goldman would tell us like no
• 1:06:14
  Speaker 1: and uh. And in late when my I was in
• 1:06:18
  Speaker 1: the delivery room, my son was about to be born, UM,
• 1:06:21
  Speaker 1: got the call from a prime BROKERAG sales guy at
• 1:06:24
  Speaker 1: CS telling me that, well, the Reputation Risk Committee, something
• 1:06:28
  Speaker 1: I never even heard of before, has met and said no,
• 1:06:31
  Speaker 1: we're we can't do business with you, so we're gonna
• 1:06:35
  Speaker 1: go with this guy Bill Huang instead, exactly Like, well,
• 1:06:41
  Speaker 1: I mean, look I even one time said to um,
• 1:06:44
  Speaker 1: you know, I had an account at a private bank
• 1:06:47
  Speaker 1: that I had opened um with full knowledge, you know,
• 1:06:51
  Speaker 1: the bank having full knowledge that I would be looking
• 1:06:53
  Speaker 1: to do short selling short sales in it in advance
• 1:06:57
  Speaker 1: of reports. And they said, oh, yeah, that's great, you know,
• 1:06:59
  Speaker 1: and get same access to borrow as you get on
• 1:07:01
  Speaker 1: the institutional side of the house. I mean, yeah, it's
• 1:07:03
  Speaker 1: gonna cost a little more, but you know, it's otherwise
• 1:07:05
  Speaker 1: the same thing. And then they decided after a little
• 1:07:09
  Speaker 1: while that they were gonna, you know, somebody in compliance.
• 1:07:12
  Speaker 1: It was like, no, no, we have to get rid
• 1:07:13
  Speaker 1: of this account. And um, you know, and I said
• 1:07:16
  Speaker 1: to my um private banker at the time, I was like,
• 1:07:20
  Speaker 1: you know she because she was talking about how well,
• 1:07:22
  Speaker 1: you know, we're really focused on compliance now and then
• 1:07:25
  Speaker 1: post GFC. And I said yeah, but we both know,
• 1:07:28
  Speaker 1: right and if I had a couple of hundred million dollars,
• 1:07:31
  Speaker 1: you guys let me do anything I wanted. But whatever,
• 1:07:34
  Speaker 1: So that's the reality, right, So what was the advice
• 1:07:37
  Speaker 1: handler gave you? So I went, so I set up
• 1:07:41
  Speaker 1: a meeting with him, and you know, I really didn't
• 1:07:45
  Speaker 1: I didn't know whether Jeffries would be interested in doing
• 1:07:47
  Speaker 1: the business because they had a big they were building
• 1:07:49
  Speaker 1: their investment banking franchise in Asia. But I figured, you know, look,
• 1:07:53
  Speaker 1: why not. He took the meeting, so you know, that's cool,
• 1:07:57
  Speaker 1: and um, you know, he knew a little bit of it.
• 1:08:00
  Speaker 1: He knew me by reputation. But um, he just started
• 1:08:04
  Speaker 1: asking very you know, direct questions like okay, well, I
• 1:08:09
  Speaker 1: mean this is a stressful business, right, like you know,
• 1:08:12
  Speaker 1: I mean besides lawsuits, I mean, don't you get that threats? Yeah,
• 1:08:15
  Speaker 1: I do, you do. I mean you're married, and you've
• 1:08:17
  Speaker 1: got a kid at home. Yeah, and you know, and
• 1:08:21
  Speaker 1: he's just and and and he's just you know, And
• 1:08:23
  Speaker 1: I told him how, you know, like Goldman, you know,
• 1:08:26
  Speaker 1: hated us and these other guys you know who hated us,
• 1:08:29
  Speaker 1: and and he just said to me, he's like, he said,
• 1:08:33
  Speaker 1: why do you do this? Man? You're you're crazy. And
• 1:08:36
  Speaker 1: I don't mean that in the ha ha you know,
• 1:08:38
  Speaker 1: funny way. I mean, really, why are you doing this?
• 1:08:41
  Speaker 1: I think you're addicted to the attention. So you've got
• 1:08:44
  Speaker 1: all these guys that Goldman Sacks and others with their
• 1:08:47
  Speaker 1: knives out waiting to stab you in the back. The
• 1:08:49
  Speaker 1: moment that they can you get death threats when you've
• 1:08:52
  Speaker 1: got a young family at home, you know, you you
• 1:08:55
  Speaker 1: get lawsuits. You're telling me you don't sleep well? Ever,
• 1:08:58
  Speaker 1: why are you doing seriously? I mean, is this gonna
• 1:09:01
  Speaker 1: at this point in your life? The kind of money
• 1:09:03
  Speaker 1: you're making, how much are you making? Is that? Does
• 1:09:05
  Speaker 1: that change your life? No? That doesn't change my life.
• 1:09:08
  Speaker 1: Why do you do that? And so you know he
• 1:09:12
  Speaker 1: and then again he repeated his assertion that he thought
• 1:09:15
  Speaker 1: I was addicted to the attention. So I walked out
• 1:09:18
  Speaker 1: of there. Um, yeah, look, I mean I don't know.
• 1:09:22
  Speaker 1: Maybe a lot of people say this, but I think
• 1:09:24
  Speaker 1: I really mean it. I very much appreciate when people
• 1:09:28
  Speaker 1: speak to me directly and don't be asked me, I mean,
• 1:09:31
  Speaker 1: assuming they have something valuable to say. And I recognized
• 1:09:36
  Speaker 1: that I just had one of those moments where um,
• 1:09:39
  Speaker 1: a very smart, sophisticated person who understands um to a
• 1:09:45
  Speaker 1: reasonable degree, what I do, was telling me that this
• 1:09:49
  Speaker 1: was a bad life decision to continue, uh, continuing this business.
• 1:09:55
  Speaker 1: And I really had to pause and consider that, and
• 1:10:02
  Speaker 1: I did. I mean, maybe I told myself what I
• 1:10:05
  Speaker 1: wanted to tell myself at the end of the day. Um,
• 1:10:09
  Speaker 1: I disagreed with his assessment, but I took it very
• 1:10:12
  Speaker 1: seriously and I even talked about it internally with UM
• 1:10:16
  Speaker 1: because at that time, my team consisted of some people
• 1:10:20
  Speaker 1: who I considered close friends. I mean, it still does,
• 1:10:23
  Speaker 1: but UM, these are people who were friends first and
• 1:10:26
  Speaker 1: then became team members, and so I also felt like
• 1:10:30
  Speaker 1: they were good people to help me evaluate what Rich
• 1:10:33
  Speaker 1: had said. And UM, how did you how did you
• 1:10:36
  Speaker 1: apply that? Did you go from pure short to long short?
• 1:10:39
  Speaker 1: What what did you do to follow his advice? I
• 1:10:43
  Speaker 1: didn't really change anything I was doing, but it wasn't
• 1:10:46
  Speaker 1: that I followed the advice. It's just that I felt
• 1:10:51
  Speaker 1: I'm somebody who's very focused on process and especially when
• 1:10:55
  Speaker 1: it comes to making difficult decisions. And UM, you know,
• 1:10:59
  Speaker 1: even if I don't change my mind, I always want
• 1:11:04
  Speaker 1: to get more information and I want to get contrary
• 1:11:06
  Speaker 1: perspective because I understand my decision better and I understand
• 1:11:10
  Speaker 1: the tradeoffs better. And I just felt while Rich's advice
• 1:11:13
  Speaker 1: didn't alter the outcomes and improved the process, and it's
• 1:11:17
  Speaker 1: helped me better understand why it is that I've chosen
• 1:11:22
  Speaker 1: this as as as my path makes a lot of sense.
• 1:11:26
  Speaker 1: So I know, I only have you for a few minutes.
• 1:11:28
  Speaker 1: Let's let's look at one and see what's made this
• 1:11:35
  Speaker 1: past couple of years so so challenging. Clearly there was
• 1:11:41
  Speaker 1: a brief collapse and then straight up the rest of
• 1:11:44
  Speaker 1: the year. How challenging of a year was it? On
• 1:11:47
  Speaker 1: the short side, In yeah, I really I really hated.
• 1:11:56
  Speaker 1: I mean, part of it is, UM. You know, I
• 1:11:59
  Speaker 1: definitely have hard time separating my my feelings about the
• 1:12:04
  Speaker 1: external environment from my feelings about what was happening business wise. UM.
• 1:12:09
  Speaker 1: You know, I going back to commony me earlier about UM,
• 1:12:14
  Speaker 1: how I'm very good at absorbing other people's experience. UM,
• 1:12:18
  Speaker 1: I think I'm I think I'm very sensitive to the
• 1:12:21
  Speaker 1: environment around me, especially very very sensitive to risk and
• 1:12:26
  Speaker 1: UM and in trouble. And so was just a year
• 1:12:31
  Speaker 1: of I mean, it was emotionally overwhelming for me, UM,
• 1:12:37
  Speaker 1: just based on all the misery. You know, I felt
• 1:12:39
  Speaker 1: like my heart was breaking some you know, more and
• 1:12:41
  Speaker 1: more every day. And on top of that, business was
• 1:12:45
  Speaker 1: like really really hard. So we I you know, we
• 1:12:50
  Speaker 1: were early. I was personally very early in the toilet
• 1:12:53
  Speaker 1: paper trade in um COVID, and I think it was
• 1:12:56
  Speaker 1: like mid January, sorry as late Anuary, when just stocked
• 1:13:02
  Speaker 1: up on toilet paper and you know, canned food, and
• 1:13:06
  Speaker 1: you know, basically got ready to live in a bunker.
• 1:13:09
  Speaker 1: And it was at the end of February UM and
• 1:13:14
  Speaker 1: markets in the US hadn't yet reacted. And also there's
• 1:13:17
  Speaker 1: an interesting point here because by late February, Hong Kong
• 1:13:22
  Speaker 1: and mainland markets had largely recovered from their COVID dips.
• 1:13:26
  Speaker 1: And we talked about the manipulation of the markets from China.
• 1:13:32
  Speaker 1: China developed the i P to manipulate its markets. Back
• 1:13:35
  Speaker 1: in UM. It tried to the government had tried to
• 1:13:38
  Speaker 1: novate the housing bubble, of the real estate bubble into
• 1:13:41
  Speaker 1: an equity bubble and pump up the equity bubble. But
• 1:13:44
  Speaker 1: they didn't understand that those bubbles are harder to keep
• 1:13:48
  Speaker 1: going because you've got daily marked to markets and um
• 1:13:52
  Speaker 1: our marks to market and anyway. But they, you know,
• 1:13:55
  Speaker 1: at that time, they started throwing short sellers in prison
• 1:13:59
  Speaker 1: or in jay ill temporarily, and they got the brokerage
• 1:14:02
  Speaker 1: firms to go out and buy stocks. And I think
• 1:14:04
  Speaker 1: they were pumping money into the government was pumping money
• 1:14:08
  Speaker 1: directing the market to keep it propped up. To send
• 1:14:11
  Speaker 1: to avoid the loss of wealth. But I felt like
• 1:14:14
  Speaker 1: the same thing must have happened in February in China
• 1:14:17
  Speaker 1: and Hong Kong because the government was trying to downplay
• 1:14:21
  Speaker 1: um They were trying to cover up any signal as
• 1:14:24
  Speaker 1: to how serious COVID really was. So the rest of
• 1:14:27
  Speaker 1: the world was kind in this meleeis at the end
• 1:14:30
  Speaker 1: of ten where we've been innesthetized by eleven years of
• 1:14:36
  Speaker 1: ridiculously low you know rates, so itnesthetized the risk. And
• 1:14:40
  Speaker 1: we're looking at the China Hong Kong markets going n
• 1:14:43
  Speaker 1: things so bad? Right, Like, those markets aren't off. And
• 1:14:47
  Speaker 1: I knew at the end of February when I saw
• 1:14:49
  Speaker 1: the results of an ever Core survey institutional clients that
• 1:14:54
  Speaker 1: they didn't think that COVID would have UM I think
• 1:14:57
  Speaker 1: it was only a relatively small minority that expected COVID
• 1:15:01
  Speaker 1: to have a material impact on the economy and markets.
• 1:15:05
  Speaker 1: UM as like this is complacency. And so at the
• 1:15:08
  Speaker 1: end of February, I said, guys, like, all these names
• 1:15:11
  Speaker 1: we've looked at throughout the years that didn't make the
• 1:15:14
  Speaker 1: cut for activist short selling, but we know our crap companies.
• 1:15:18
  Speaker 1: Let's short these things, Let's get CDs on cruise lines,
• 1:15:21
  Speaker 1: Let's do this, let's do that. And so we had
• 1:15:24
  Speaker 1: this great March. We didn't even have to publish anything.
• 1:15:29
  Speaker 1: And by the end of March, I think we were
• 1:15:31
  Speaker 1: up net eleven and I'm you know, and I'm thinking, man,
• 1:15:35
  Speaker 1: this is gonna be a record year for us. And
• 1:15:36
  Speaker 1: we were so smug, right at least I was. I'm
• 1:15:39
  Speaker 1: sitting there going, yeah, you know, I've been doing all
• 1:15:42
  Speaker 1: these interviews for all these years saying if you lever
• 1:15:45
  Speaker 1: up your balance sheet to buy back stock, you are
• 1:15:48
  Speaker 1: creating fragility. And now ha ha, all this fragility is
• 1:15:52
  Speaker 1: coming home to route. You know, the chickens are coming
• 1:15:54
  Speaker 1: home to roost. Look at you private equity guys having
• 1:15:57
  Speaker 1: you know, destroyed corpses have come Pennie for you know,
• 1:16:01
  Speaker 1: a couple of decades. Ha ha. Jokes on you. Now,
• 1:16:05
  Speaker 1: it wasn't jokes on me. Um. I think we're the
• 1:16:09
  Speaker 1: last to get the memo. It was like early August
• 1:16:12
  Speaker 1: when when I'm saying, like, okay, all of these trades
• 1:16:16
  Speaker 1: we put on at the end of February, beginning of March,
• 1:16:19
  Speaker 1: our genius trades because we're so smart, dude, we got
• 1:16:23
  Speaker 1: to get these out of the book, like they were
• 1:16:25
  Speaker 1: hanging there till August. So we were so we were
• 1:16:29
  Speaker 1: getting you know, we've given back almost all our teams
• 1:16:32
  Speaker 1: on that wet markets got back to break even in
• 1:16:34
  Speaker 1: August from the pre March collapse, right, And then we
• 1:16:39
  Speaker 1: were also now writing losses from GSX, which we short
• 1:16:42
  Speaker 1: in early June. Now we've done well shorting e Health
• 1:16:46
  Speaker 1: in early April. So that was that was actually that
• 1:16:49
  Speaker 1: was and is a great short, both in absolute terms
• 1:16:52
  Speaker 1: and in alpha um. But there's g SX. And then
• 1:16:56
  Speaker 1: we went into i think September with this really scammy
• 1:17:01
  Speaker 1: company that you know, normal times that have no business
• 1:17:04
  Speaker 1: having a market camp anywhere near a billion but called NanoX,
• 1:17:08
  Speaker 1: and so we went short that with this expose a
• 1:17:11
  Speaker 1: as to how like this whole thing is just a
• 1:17:13
  Speaker 1: promotion and you know, there's no reality there and nothing
• 1:17:18
  Speaker 1: closed up on us on the day and it kept
• 1:17:20
  Speaker 1: ripping and so we're you know, we're getting bled out
• 1:17:23
  Speaker 1: on NanoX, We're getting bled out on gsx UM. You
• 1:17:27
  Speaker 1: know our genius trades had Yeah, and it was tough.
• 1:17:32
  Speaker 1: I mean, we we really had to rally and we
• 1:17:35
  Speaker 1: were getting ready to launch another funds. You know I
• 1:17:37
  Speaker 1: was in in January. I was I was just marketing
• 1:17:40
  Speaker 1: this new fund we intended to launch and you know,
• 1:17:42
  Speaker 1: early to mid jan are so early to mid and
• 1:17:46
  Speaker 1: we sidelined it because of COVID. But by the time
• 1:17:50
  Speaker 1: we're bleeding everywhere. In the summer of last year, I
• 1:17:53
  Speaker 1: was just like, man, do not talk to me about
• 1:17:55
  Speaker 1: this new fund launch. I do not care. We are
• 1:17:58
  Speaker 1: in a nose dive. We need to pull out of it.
• 1:18:01
  Speaker 1: So so let's talk about. Yeah, we did, I mean,
• 1:18:06
  Speaker 1: we finished. Look, we finished with a decent print for
• 1:18:08
  Speaker 1: the year. Our clients were happy, but I just got
• 1:18:13
  Speaker 1: really no. I got very little satisfaction from from that year.
• 1:18:18
  Speaker 1: So so I wanna jump to our favorite questions we
• 1:18:22
  Speaker 1: ask all our guests and Charlie will record the outros later.
• 1:18:26
  Speaker 1: That's easy enough to do. So let me uh, let
• 1:18:29
  Speaker 1: me plow through my speed round and we have like
• 1:18:32
  Speaker 1: three minutes for these, um tell us what you're streaming
• 1:18:35
  Speaker 1: these days? You know what, I'm gonna hold off on this.
• 1:18:37
  Speaker 1: I'm gonna ask in the last two minutes we have
• 1:18:42
  Speaker 1: what do you make of some of the craziness that
• 1:18:44
  Speaker 1: took place in the US. I was reading this morning
• 1:18:47
  Speaker 1: that Michael Burry of the Big short fame is short Tesla.
• 1:18:51
  Speaker 1: What what do you make of some of those crazy
• 1:18:53
  Speaker 1: uh stocks UM things like game Stop and and any
• 1:18:57
  Speaker 1: thoughts on bitcoin um. Okay, so I mean the memes
• 1:19:03
  Speaker 1: thoughts just show that the market is broken. May are
• 1:19:06
  Speaker 1: a symptom, not a cause of the market being broken. UM.
• 1:19:10
  Speaker 1: The factors that have broken the market are the predominance
• 1:19:14
  Speaker 1: of passive investing, because that actually has a convex effect
• 1:19:18
  Speaker 1: on price behavior and increases fragility. It's the monitors ridiculously um,
• 1:19:24
  Speaker 1: low interest rates and excess liquidity UM. And it's also
• 1:19:28
  Speaker 1: the UM the erosion of the rule of law, and
• 1:19:31
  Speaker 1: the lack of accountability in you know, in the markets
• 1:19:34
  Speaker 1: and in society. So these are factors that have combined
• 1:19:38
  Speaker 1: to create this broken market. And plus there were a
• 1:19:41
  Speaker 1: lot of retail UM you know, retail market participants who
• 1:19:45
  Speaker 1: came into the market last year who didn't do it
• 1:19:47
  Speaker 1: out of boarding. Didn't do it because they're punting their
• 1:19:49
  Speaker 1: stimulus check. They did it because they were trying to
• 1:19:51
  Speaker 1: gamble their way out from underneath um financial hardships that
• 1:19:57
  Speaker 1: had been created by covid UM. So yeah, bitcoin what
• 1:20:01
  Speaker 1: do you think. I've got a friend who you know,
• 1:20:07
  Speaker 1: is kind of in this space, very smart guy, and
• 1:20:10
  Speaker 1: he said that the the real value of any of
• 1:20:13
  Speaker 1: these UM blockchain based cryptocurrencies is the present value of
• 1:20:18
  Speaker 1: the transaction fees or the thing he calls him, the
• 1:20:20
  Speaker 1: gas fees for using it UM. Beyond that, he admitted,
• 1:20:24
  Speaker 1: and he's you know, he's got a real bitcoin position.
• 1:20:27
  Speaker 1: Beyond that, he admitted, it's just a tool. So I
• 1:20:31
  Speaker 1: don't touch it. I don't care. I've seen I've seen
• 1:20:34
  Speaker 1: fads and the next thing to come and go like
• 1:20:36
  Speaker 1: a bunch of times during my career, and I've seen
• 1:20:38
  Speaker 1: a lot of people who can't tell the difference between
• 1:20:40
  Speaker 1: luck and skill because they happen to be in the
• 1:20:42
  Speaker 1: right place at the right time. And crypto bitcoin smell
• 1:20:45
  Speaker 1: that way to me. Thanks Carson for being so generous
• 1:20:48
  Speaker 1: with your time. We have been speaking with themed short
• 1:20:52
  Speaker 1: seller Carson Block of the research farm Muddy Waters UH.
• 1:20:57
  Speaker 1: Carson's hedge fund has about two hundred and sixty million
• 1:21:00
  Speaker 1: dollars in assets under management. If you enjoy this conversation,
• 1:21:05
  Speaker 1: well please check out any of the other nearly four
• 1:21:08
  Speaker 1: hundred prior discussions we've had over the past seven years.
• 1:21:13
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• 1:21:24
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