Tuesday, May 17, 2016

I would never say......

....I told you so.

Shortly after the Lending Club IPO, on December 23rd of 2014, I wrote the following post: re: same.

Lending Club (NYSE:LC) - Standing on the tracks waiting for the train......a case study


Yesterday, the DOJ &  SEC opened an investigation.  Just once I'd like to see the SEC proactively ask a few questions about these shams......preferably before the media reports the monkey business, executives resign or confess and investors have lost all of their money....isn't that what a "regulator" is supposed to do?

True, true that the SEC and DOJ are staffed with thousands of accountants, lawyers and financial forensic experts (one would imagine), so it might be surprising that it took them 18 months to figure out what an insurance agent in Cleveland (Deep Throat) publicly wrote about in his (my) sideline hobby, doing research in his (my) spare time.

But really, as a taxpayer what do you expect?   It's the U.S. regulatory environment at its finest.  At least since the day they stumbled across the Bernie Madoff fraud.......well....after years of discussions with Harry Markopolos and eventually, I guess, reading Bernie's confession on the front page of the New York Times, they were all over it.  The SEC took the time to write a 457 page report describing their fifteen year effort to "find the real killers".  I strongly urge anyone who has any faith at all in the integrity of the US Securities Regulatory System to read the report.  It's "comedy gold"......I'll skip ahead.....the conclusion (pg. 457) is priceless:

"The OIG also recommends that the Chairman carefully review this ROI and share with OCIE  and Enforcement management, the portions of this ROI that relate to the performance failures by those employees who still work at the SEC (Authors note: Many have since retired at full pension since the investigation started back in 1992), so that appropriate action (which may include performance based action, as appropriate) is taken on an employee by employee basis, to ensure that future examinations and investigations are conducted in a more appropriate manner and the mistakes and failures outlined in this ROI are not repeated."

So that's it?  Nobody did anything wrong?  After being "tipped off" for more than fifteen years they just "missed it"?....ooopppsss?  Apparently it's not a crime or even much of a ding on your career at the SEC to be labeled an imbecile?  Anyone involved in this mess might not get a bonus?....or maybe get a note in their personnel file, discounting the chance of promotion?   On the other hand, perhaps these scarce SEC resources might have been put to better use?. The SEC could have used some of the resources deployed to produce this 457 page comedy of errors and redeployed them to look at a business like .....Oh....I don't know.....just thinking out loud here........how about a business like LENDING CLUB!..... wouldn't we all be better off?....but I digress.

Seriously, investors lost billions because of Lending Club. ($8 Billion loss of Market Cap from peak as of today with about $1.5 Billion to go.)  It was an obvious sham.  There are many more out there. The theme is always the same: Under-price risk, dress it up and sell it to naive, Pollyanna Investors who are ready, willing and able to lose billions more on the next big thing.  If we're not going to throw people in the pokey after these frauds go bad (a wonderful, proven deterrent) at least, as investors, we should at a minimum, expect to have someone/anyone at the SEC actually read the filings and prevent these dog-shit businesses from becoming publicly traded companies.  Let Private Equity firms, sophisticated investors and Hedge Funds lose their shirt on private placements if they so choose.   Is that really too much to ask?  Apparently, it is.

By the way, did I mention that I've been writing about Alibaba for more than a year and a half as well?  Mary Jo White, if you're reading this.....I'm just sayin'......



Today's WSJ Article - Saying the same things I'd said a year and a half ago.   Aaron, if you're reading my blog, how about a citation/quote reference or two?....it's all good...
http://www.wsj.com/articles/lendingclubs-loans-come-home-to-roost-1463511780

Admittedly, I used slightly stronger language to describe the LC business model than "fragile", but this article is from the family-oriented WSJ, after all.  More importantly, some of the points Aaron makes are very consistent with what I wrote back then - including that LC was bleeding badly in "one of the most favorable interest rate environment in history".

Additional Link To FORTUNE Article:
http://fortune.com/2016/05/16/lending-club-gets-subpoena/

SEC - Madoff Report.....what could possibly go wrong?
http://www.sec.gov/news/studies/2009/oig-509.pdf

5 comments:

  1. Hey DT,
    After watching on a few presentations from anne stevenson-yang, stumbled upon your site, and really glad I did, big fan of your research.

    Maybe Obama is reading your blog, and had Jack in for a surprise tea time.

    https://www.washingtonpost.com/news/post-politics/wp/2016/05/17/alibabas-jack-ma-chinas-second-richest-man-visits-white-house/

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    1. Interesting indeed....from the video it seems like a top secret meeting that Jack would have preferred nobody knows about....Jack's usual Modus operandi would be to throw photo op pix all over the Internet of his shaking hands with the Prez in the oval office....this is really out of character. Here's a quick BST (Dick Fuld Banker Speak Translator) Translation of a hypothetical conversation that may or may not have taken place at the meeting:

      Obama: “Hello Jack, how are you?”
      BST: “I can’t stand this crook.”

      Jack: “Doing great, thanks for inviting me to the oval office!”
      BST: “My fake numbers have never been better and I’m rich!”

      Obama: “Jack, I'll get right to the point, the SEC just called me and they're concerned about the viability of your business model”
      BST: “The SEC has been reading DeepThroatIPO and they’ve determined that your entire business is a Ponzi scheme.”

      Jack: “That’s absurd….what could they be thinking?"
      BST: “Shit….he’s on to me. I better call my friends at GS, JPM, etc. and find out what they know.”

      Obama: “Be that as it may, I have a proposal. Would you consider talking to Xi, raising the funds necessary and taking Alibaba private back in China? ….Hopefully at a price at or above $80 a share?”….so US Shareholders don’t get hurt?
      BST: “I gotta get this pig off of the NYSE or the global economy is at risk…..Yahoo!, Softbank, & the US IB’s that sold this POS are all going down....…the last thing I need is a bunch of Congressional hearings in my last few months in office.”

      Jack: “I’ll consider it, but there will be a lot of details to work out…”
      BST: “Sure, I’d love to take the company private again……I’m thinking more like $20 a share though…..I’ll call JPM, GS, Citi, et. al. and make it happen!”

      Obama: “Of course, there can be no US Banks involved in the financing.”
      BST: “If Jamie, Lloyd, Mike or any of those guys give this knucklehead another nickel I’m going to blow a gasket.”

      Jack: “That will be tough…..but I’ll see what I can come up with.”
      BST: “What???....NO US BANK MONEY?....are you out of your mind? Chinese banks would never bankroll this mess!”

      Obama: “Thanks Jack…I knew I could count on you!”
      BST: “Bastard.”

      Jack: “Anytime…happy to help!”
      BST: “A-hole.”




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    2. Haha, I'm starting to like your blog for the humor even more then the research =)

      I spent my teens under communism and have seen first hand, a full blown inverse raddish grocery clerk yield more influence then a doctor. With all the opacity in our government now, feels like i made a mistake getting a bachelors, should have honed in my shelf stocking skills. Tibla.

      https://www.youtube.com/watch?v=Ug75diEyiA0
      On that note. Would love to hear your opinion.

      Inflation or Deflation?

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    3. In the near term....neither. The mechanisms of our financial system(s) as currently constructed are funneling all of the "inflation" into asset valuations. There is comparatively little price pressure on consumer goods, wages, etc., or for that matter any real economic growth. Thus, "inflation" as measured by the CPI will continue to be controllable. I've said this before, after a certain point, the FED trying to use stimulus to goose the economy and hit an inflation target is like a carpenter trying to drive a nail with a saw. It's the wrong tool for the job and all you end up with is a broken saw.

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  2. Why Did Jack Ma visit the WH yesterday? Offering a board seat as a way to head off...?

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