Tuesday, March 6, 2018

Up the "Wasu".....and why Jay Clayton will resign...

Before we get to the meat of this post, I'd like to acknowledge that much of the material herein has been provided anonymously by a few of my loyal readers.  These wonderful folks have entrusted these references to me, I presume, in hopes that I might be able to assemble these puzzle pieces into a beautiful full-table jigsaw, suitable for framing.  I'm honored by their faith and I'll do my best not to let them down.   

The first item of interest was located on a Public Facebook Page (Urban Farmer) in Singapore.  To date, the video has roughly 200,000 page views.  I doubt that very many US Investors have seen it yet.


The text from my reader/source:  "Genuine Chinese e-commerce. The subscript is just telling people to join the WeChat group that follows eCommerce. The last caption says 'This is how your package arrives in Guizhou'."



Given Alibaba's self proclaimed dominance of "all that is eCommerce" it would not be a reach to believe that the lion's share of these packages are Alibaba/Cainiao deliveries in progress. At 45 seconds into the video we observe the highly skilled eCommerce specialists using sophisticated "hand scanners", presumably powered by Alibaba AI, enabling up-to-the millisecond tracking of every package placed in the capable, caring hands of Alibaba eCommerce "ecosystem" employees. I'm dismayed that it's not being used as a training video at Cainiao.



I know Jack, Joe, Maggie and Daniel must be so proud that their "New Retail" eagle is finally soaring....Look out Amazon, Chinese high-tech is coming to get ya....


An Apology to my Analyst Friends.....

Have you ever experienced that feeling, right after an Investor Call or Conference, once you've had a chance to digest the content, that there was a topic you had wished that you (or another analyst) might have brought up? I'd like to take a minute to apologize to my analyst friends, Eddie Leung (Bank of America-Merrill Lynch), Alicia Yap (Citigroup Global Markets), Alex Yao (JPMorgan Securities),  Piyush Mubayi (Goldman Sachs), Youssef Squali (SunTrust Robinson Humphrey, Inc.), Grace Chen (Morgan Stanley) and Gregory Zhao (Barclays Capital, Inc.).  

I just didn't think of this question until a few of my loyal readers refreshed my memory and therefore, I apologize. ....I let you all down. 

Here's the question that I wish one of you might might have asked:

"So Joe.... for my first question, I see that, according to the last 20-F (F-61, Note 4(ad)) that you've been carrying your interest in Wasu Media Holdings at roughly a US$ 1.2 Billion on the balance sheet.  Now that trading has been suspended (12/25/17) and the CEO has resigned and been replaced, has there been any thought given to writing down/off the carrying value of the investment, or has there been any demand on the US$1.2 Billion of the WMP collateralized loan guarantee or the additional US$ 300 Million 'interest payment' loan that you've given to Simon Xie for his 'personal' investment in same?  The exposure to this transaction seems to be at least $1.5 Billion now, although we can't tell from the 6-Ks.  I also notice that the 6-Ks have been silent on Wasu's current condition since the 20-F.....can you give us an update?."

"For my second question, I was curious, since you've guaranteed these loans to Simon Xie, who is also in partnership with Yuzhu Shi, another revered Chinese Media executive, do you have any comment on the reports that Mr. Xie, Mr. Shi and Yunfeng Capital have been making 'heads I win, tails you lose' cryptocurrency bets, indirectly using US Shareholder funds, by virtue of the Alibaba loan guarantees?    

Of course, I'll explain the genesis of these questions and the implied accusations in the following paragraphs.  My guess is, the reason the questions weren't asked is that once any of my analyst friends would have brought up Wasu Media in the Investor Call, they would have suddenly experienced "phone problems", been quickly summoned into the bosses' office and after a short, one-sided debate, asked to pack up their desk.  On the other hand, if indeed they had chosen to ask the above questions, the discussion would have gone down in history as one of the greatest management/analyst exchanges in ever....right up there with the Richard Grubman/Jeff Skilling "Asshole" Q&A.....

Don't get me wrong.  I'm not un-empathetic.  I fully understand. The choice to become an unemployed hero is always a difficult choice to make.  





































So, As Always....Let's Look at the SEC Filings!

We touched on this in the comments of my last post.  The last reported carrying (Balance Sheet) value of Wasu Media was roughly US$1.2 Billion as of the last 20-F (F-61, Note 4(ad)).  In April of 2015, when the Wasu stock was trading in the CNY 50.00 (US$8.00) range Simon Xie jumped into this with borrowed money guaranteed by Alibaba.  After a fitful couple of years Wasu Media trading was suspended on 12/25/17 with the final closing price settling in at CNY 11.40 (US$1.83).  As of today, trading has not resumed.  Since then there have been a few cryptic "all is well....not to worry" press releases, but I'm sure that the current Wasu situation is much different than the hundreds of other Chinese stocks that have "gone dark" leaving shareholders SOL (Shenzhen outa' luck) over the years.  No doubt, the company will emerge from this trading suspension ready, willing and able to create untold wealth for the remaining minority shareholders who are determined and patient enough to stick it out.  Yup....that's the way these things sometimes go (not).   

Unfortunately, the collapse of the share price and updates on the financial condition of Wasu Media were conspicuously omitted from the June, September and December 6-K's, just like the collapse of Alibaba Pictures (until the US$2.8 Billion current quarter loss which I had maintained should have been booked on last years Audited 20-F) and Alibaba Health (HK:0241) Roughly US$6 Billion Loss yet to be written off per the 20-F, F-61 Note 4(h).  I'm sure management views the "possibly other than temporary" losses as immaterial, or perhaps this is yet another oversight in the disclosures.  In any case, an update on the loan guarantees, collateral, the probable $7+ Billion write-down/off and, of course, a well thought out go-forward plan would have been, I'm sure, appreciated by investors.

Below are the key, painfully written passages from the 3/31/17 20-F with citations re: Wasu Media:

If you don't have the time or intestinal fortitude to read this financial art work, crafted by highly skilled legal counsel (like Jay Clayton for example) and prime PWC accounting talent, I'll fully understand.  Feel free to skip forward to "Alibaba Health....More self-dealing..." if it's too much for you....

Pg 41 of the 3/31/17 YE 20-F (Emphasis Added)

Furthermore, a company controlled by Jack serves as one of the general partners of a PRC limited partnership that made a minority investment in Wasu. Yuzhu Shi, the founder, chairman and a principal shareholder of Giant Interactive, a China-based online game company that was previously listed on the New York Stock Exchange, and an entrepreneur with significant experience in and knowledge of the media industry in China, serves as the other general partner and the executive partner. The interest of the general partner controlled by Jack in the limited partnership is limited to a return of its RMB10,000 capital contribution. In addition, Simon Xie, a former employee who is one of our founders and an equity holder in certain of our variable interest entities, is a limited partner in this PRC limited partnership. To fund this investment, in April 2015 Simon was granted a financing with an aggregate principal of up to RMB6.9 billion by a major financial institution in the PRC. The financing is secured by a pledge of the Wasu shares acquired by the PRC limited partnership, and a pledge of certain wealth management products we purchased. In addition, we entered into a loan agreement for a principal amount of up to RMB2.0 billion with Simon in April 2015 to finance the repayment by Simon of the interest under the above financing. We expect that these arrangements will strengthen our strategic business arrangements with Wasu to pursue our strategy of expanding entertainment offerings to consumers. See "Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Pledge for the Benefit of and Loan Arrangement with a Related Party."

We cannot assure you that Jack Ma will act in our interest given his ability to control one of the general partners of the PRC limited partnership invested in Wasu, nor can we assure you that he will not breach his obligations to us as our director, including obligations not to compete with us. In addition, the interests of Mr. Shi, as an independent third-party, may not coincide with those of Jack as the other general partner in the PRC limited partnership, or with our interests in pursuing our entertainment strategy. If any conflicts of this kind arise between Jack and Mr. Shi in conducting the business of the PRC limited partnership, it could potentially have a material adverse effect on our relationship with the shareholder of Wasu and, consequently, on our ability to achieve the strategic objectives of our alliance with Wasu. Furthermore, there is no assurance that Simon will have sufficient resources to repay the loans in a timely manner or at all. The loan that we provided to Simon is secured by a pledge of Simon's limited partnership interest in the PRC limited partnership. However, if Simon fails to repay the loan, our enforcement of our secured interests could be costly and time-consuming and would be subject to the uncertainties in the PRC legal system.

Page 198 of the same 20F


In May 2015, we entered into a pledge with a financial institution in the PRC in connection with certain wealth management products with an aggregate principal amount of RMB7.3 billion we invested in to secure an RMB6.9 billion financing provided by this financial institution to Simon Xie, one of our founders and an equity holder in certain of our variable interest entities, to finance the minority investment by a PRC limited partnership in Wasu, a company listed on the Shenzhen Stock Exchange and engaged in the business of digital media broadcasting and distribution in China. In addition, we entered into a loan agreement for a principal amount of up to RMB2.0 billion with Simon Xie in April 2015 to finance the repayment by Simon of the interest under the financing. These arrangements strengthen our strategic business arrangements with Wasu to enhance our entertainment strategy. Our loan to Simon will be made at an interest rate equal to SHIBOR as specified by us from time to time and is repayable in five years. The loan is secured by a pledge of Simon's limited partnership interest in the PRC limited partnership. As of March 31, 2017, the balance of this loan was RMB749 million (US$109 million). We have entered into strategic cooperation agreements with a major shareholder of Wasu in order to enhance our capabilities and influence in the entertainment sector in China. A company controlled by Jack Ma serves as one of the general partners of the PRC limited partnership. Yuzhu Shi, the founder, chairman and a principal shareholder of Giant Interactive, a China-based online game company that was previously listed on the New York Stock Exchange, and who is also an entrepreneur with significant experience in and knowledge of the media industry in China, serves as the other general partner. Jack, through his control of one of the general partners, and Mr. Shi, as the other general partner and the executive partner, jointly control this PRC limited partnership. The interest of the general partner controlled by Jack in the limited partnership is limited to the return of its RMB10,000 contributed capital.

F-61, Note 4 (ad), of the Same 20F

(ad) Investment in wealth management products in relation to a founder's investment in Wasu Media Holding Co., Ltd. ("Wasu")

In April 2015, the Company entered into an arrangement with a bank in the PRC to invest in wealth management products with an aggregate principal amount of RMB7.3 billion, of which RMB420 million was early redeemed in January 2017 and the principal amount was reduced to RMB6.9 billion as of March 31, 2017. The wealth management products carry an interest rate of 5% per annum, with a maturity of five years and the return of principal and interest income on the products are guaranteed by the bank. The wealth management products have been served as collateral to the issuing bank for the issuance of a financing amounting to RMB6.9 billion to one of the founders of the Company to support his minority investment through a PRC limited partnership in Wasu, a company listed on the Shenzhen Stock Exchange which is engaged in the business of digital media broadcasting and distribution in the PRC. The financing has also been collateralized by the equity interests of Wasu held by such PRC limited partnership. The founder has also pledged his interest in the PRC limited partnership to the Company. The founder is exposed to the risks and rewards of the Wasu shares held by the PRC limited partnership. The Company does not have the power to direct the activities of the PRC limited partnership. The Company entered into strategic cooperation agreements with a major shareholder of Wasu in order to enhance the Company's capabilities and profile in the entertainment sector in the PRC. Such investment in the wealth management products is accounted for as a held-to-maturity security (Note 11).

In addition, the Company entered into a loan agreement for a principal amount of up to RMB2.0 billion with the founder in April 2015 to finance the repayment by the founder of the interest under the above financing. The outstanding loan balances were repayable in ten years and charged at a compound annual interest rate of 8.0%. Loan balances of nil and RMB749 million were drawn down as of March 31, 2016 and 2017, respectively.

Alibaba Health...more self-dealing....

I also mentioned the looming US$6 Billion "other than temporary" write down of Alibaba Health above.  The thumbnail sketch of this transaction is: In 2014 Alibaba and Yunfeng Capital (a group of investment companies controlled by Jack Ma) completed an "acquisition" of a 54% interest in a newly created HK listed entity, Alibaba Health.  The purchase price was roughly US$110 Million.  In July of 2015, Jack (through Yunfeng), gave up Yunfeng voting rights (to himself) for no consideration, permitting consolidation of Alibaba Health at a then current value of RMB 50.1 Billion (US$8 Billion) for both the controlling and noncontrolling interests.  Because of this magic, Alibaba was also able to book a Controlling Interest valuation gain of about $3 Billion.


The current consolidated value of Alibaba's 38% interest in Alibaba Health (HK:0241) has been trading in the US$2 Billion range for more than two years.  Therefore, the US$6 billion (US$8 Billion book value less US$2 Billion market value) should have been marked to market and written off long ago.  On a positive note, unlike Wasu Media, at least Alibaba Health trading hasn't been officially suspended yet.       








































As with the Wasu Media language above, I fully encourage you to make an effort to read the Alibaba Health transaction description below, but again, I'll also understand if you throw up your hands (or just throw up) in disgust at the opaque, undecipherable nature of both the construction and language of this mess.  Feel free to skip ahead to "Heads I Win...Tails You Lose" if you can't take it....

Conveniently located in the footnotes of the Same 20-F at F47-48
(h) Acquisition of Alibaba Health Information Technology Limited ("Alibaba Health")

In April 2014, the Company and Yunfeng completed an acquisition of newly issued ordinary shares representing a total equity and voting interest of approximately 54% in Alibaba Health through their investments in a special purpose entity. The principal activities of Alibaba Health, a company that is listed on the Hong Kong Stock Exchange, consist of pharmaceutical e-commerce, a medical services network business and the operation of product tracking platforms in the PRC. The Company holds a 70% equity interest in the special purpose entity and Yunfeng holds the remaining 30% equity interest. Cash consideration of HK$932 million (RMB741 million) was paid upon the closing of the transaction by the Company to acquire its equity interest in the special purpose entity. Although the Company controls the board of the special purpose entity, the investment and shareholders agreement provided that the underlying shares in Alibaba Health are voted by the Company and Yunfeng separately based on their respective effective equity interest, including voting rights. The Company exercised significant influence over Alibaba Health through its effective equity and voting interest of approximately 38% in Alibaba Health, and accounted for Alibaba Health as an equity method investee.

In July 2015, in preparation of the transfer of the Tmall online pharmacy business operations of the Company to Alibaba Health (of which the agreement was subsequently terminated), the investment and shareholders agreement was amended under which Yunfeng agreed to irrevocably give up its separate voting rights with respect to its indirect interest in Alibaba Health at no consideration. Such control is important for the Company to execute its digital and data-driven healthcare strategy through Alibaba Health as its flagship vehicle in this sector, indirectly benefiting all shareholders including Yunfeng economically. As a result of the amendment, the Company obtained control over the entire 54% equity interest in Alibaba Health through its control over the board and majority of voting rights of the special purpose entity. Consequently, Alibaba Health became a consolidated subsidiary while the Company's effective equity interest in Alibaba Health remains at approximately 38%.

The equity value of Alibaba Health of HK$64,319 million (RMB50,723 million), estimated based on the market price of the issued shares of Alibaba Health listed on the Hong Kong Stock Exchange which was the more readily determinable fair value as of the deemed acquisition date, was used to allocate the fair value of net assets acquired and the fair value of noncontrolling interests, and calculate the gain of RMB18,603 million. Such gain was recognized in relation to the revaluation of previously held equity interest relating to obtaining control of Alibaba Health in interest and investment income, net in the consolidated income statement for the year ended March 31, 2016.

Conveniently located on Pg. 197 same 20-F

Relationship with Investment Funds Affiliated with Our Executive Chairman
Jack Ma currently has an approximately 40% interest, held directly and/or indirectly, in the general partners of each of three Yunfeng Capital-sponsored investment funds in which he is entitled to receive a portion of carried interest proceeds, namely, Shanghai Yunfeng Equity Investment (Limited Partnership), Shanghai Yunfeng New Innovation Enterprise Equity Investment (Limited Partnership) and Smart System Investment Fund, L.P. Jack Ma also currently has an approximately 26.7% indirect interest in the general partner of Yunfeng Fund II, L.P. and KHL, L.P., each of which is also a Yunfeng Capital-sponsored investment fund in which he is also entitled to receive a portion of carried interest proceeds. Of the five Yunfeng Capital-sponsored funds in respect of which Jack Ma holds an interest in the general partner entities thereof and is entitled to receive carried interest proceeds, one is a U.S. dollar denominated fund, or the U.S. Dollar Fund, two are RMB denominated funds, or the RMB Funds, one is a co-investment fund of the U.S. Dollar Fund and one is a parallel fund of the U.S. Dollar Fund. We refer to these funds collectively as the Yunfeng Funds. Jack Ma also currently has a 40% interest in each of Shanghai Yunfeng Investment Management Co., Ltd. and Shanghai Yunfeng New Innovation Investment Management Co., Ltd., which are the investment advisor entities of the RMB Funds and which, together with Yunfeng Capital Limited, the investment advisor entity of the U.S. Dollar Fund, we collectively refer to as Yunfeng Capital. Jack Ma, his wife, a trust established for the benefit of his family and an entity controlled by Jack and his wife have committed, directly or indirectly, approximately US$4.0 million and US$26.0 million as general partners and limited partners, respectively, to the U.S. Dollar Fund, and approximately RMB20.0 million and approximately RMB201.1 million as general partners and limited partners, respectively, to the RMB Funds. The U.S. Dollar Fund has accepted approximately US$1.1 billion in capital commitments and the RMB Funds have accepted over RMB5.0 billion in capital commitments.


Jack has agreed to donate all distributions of (x) carried interest proceeds he may receive in respect of the Yunfeng Funds and (y) dividends he may receive with respect to his holdings of shares in any member of Yunfeng Capital, which we collectively refer to as the Yunfeng Distributions, to, or for the benefit of, the Alibaba Group Charitable Fund or other entities identified by Jack that serve charitable purposes. In addition, Jack has agreed that he will not claim any deductions from his applicable income tax obligations resulting from payment of the Yunfeng Distributions to the Alibaba Group Charitable Fund or any other entity identified by Jack that serves charitable purposes. See "— Commitments of Jack Ma to Alibaba Group." We expect that, through its expertise, knowledge base and extensive network of contacts in private equity in China, Yunfeng Capital will assist us in developing a range of relevant strategic investment opportunities.

Yunfeng Funds have historically, and may in the future, enter into co-investment transactions with us and third parties. We have also invested in other businesses in which Yunfeng Funds are existing shareholders, such as Damai, a leading online ticketing platform for live events in China. In addition, in May 2014, we committed US$80 million as a limited partner of Yunfeng Fund II, L.P. through one of our investment vehicles, Alibaba Investment Limited. In addition, Yunfeng Fund, L.P. was an indirect holder of approximately 84,600 convertible preference shares purchased by an entity wholly-owned by it in September 2012, and the convertible preference shares were automatically converted into our ordinary shares upon the completion of our initial public offering in September 2014.




Heads I win Tales You Lose.....fun with Simon and Yuzhu!

So now we've established that, in April of 2015, Jack, Simon and Yuzhu Shi have taken the US$1 Billion personal bank loan, guaranteed by Alibaba (US Shareholders) collateralize by pledged Alibaba Wealth Management Product(s) (WMP's) and invested the proceeds in Wasu Media (or whatever their little hearts desired) at the apparent peak market valuation of Wasu.

We also know that Yuzhu Shi was run out of the NYSE under a flurry of shareholder lawsuits, re: Generally, his failure to disclose material events, failure to act in the best interest of US Shareholders and his involvement in YunFeng Capital when he "confiscated" Giant Interactive at an artificially deflated price per share.  The players never seem to change. 

We've also seen all sorts of off the books machinations with Alibaba Health resulting in book gains and carrying values well above the current market value for these shares with no hint of a required write down/off in the filings.

We fully understand that throughout these filings, Alibaba Management has continually given notice to US Investors that Jack Ma and other managers and "partners" are engaged in numerous other transactions with Ant, Yunfeng, and other related parties that may or may not be in the best interest of US Shareholders.

In the good old days, when management acted in their own best interest, casting asunder the interests of their shareholders we used to call it "white collar crime".  Now it seems to be SOP. (Shanghai Operating Procedure)

But wait, there's more.....in a recent Morningstar article (You know Morningstar.....the wonderful organization which rates all of your mutual funds and investments...) we find that Simon Xie and Yuzhu Shi have formed yet another set of formidable, world changing ventures.  I'm hoping that Morningstar, since the article was displayed prominently in their "Market News" tab, has verified at least some of the information in this article, after all, they are indeed a trusted platform giving investment advice to millions of US Investors.  Here's a condensed summary of the article:


  • Qlink and Block Array today announced that they have signed a Memorandum of Understanding (MoU) to work together........Qlink was co-founded by a team of blockchain and telecom innovators.....Qlink has a strong investor and advisory board such as Xie Shihuang (Simon Xie), one of the co-founders of Alibaba...........Block Array is a blockchain startup based in Chattanooga, TN focused on applying vertically integrated blockchain solutions to amolerate issues facing 3rd-party logistics companies, supply chain management and the logistics industry......The joint partnership was defined and put together by Amplifi Capital, an early stage investor in both companies.  


Who is Qlink you ask? Qlink was founded by Alan Li and the folks from YouYou Mobile of course.  Alan Li is the founder and former CEO of the company, which after only a few short years in business, apparently no longer exists?  Here's the video of the YouYou "Manager" giving the YouYou pitch in May of 2015. At the time she represented that they were growing at "35% to 40% per month" and caught up to their much bigger, ten year old competitor in just a couple of years. Apparently they invented the "mobile hot spot". 


Their dubious website coverage map indicates they have coverage just West of Hudson Bay, Northern Siberia and Iran. They don't offer coverage in places like "London" and "China". You can get WiFi in NYC for RMB 39/day. They even have a picture of the Statue of Liberty illustrating their commitment to the United States market!  Perhaps they haven't heard that many places in America, like, for example, nearly every hotel, coffee shop and restaurant, etc. already provide free Wifi..... and nearly every smart-phone sold today can also be used as a WiFi hot-spot.  I'd guess that this development might have hurt their business model, but they are apparently unfazed and marching on. 


I also have to admit that it was strategic brilliance for a tech titan like Qlink to team up with a cutting edge, secretive, block-chain innovator like BlockArray, located in the silicon valley of the Bible-belt, Chattanooga, Tennessee. I also have to admit that, presumably because of BlockArray's high security and secretive nature, it was a little difficult to track down anything about this company.  When I started my detective work, I knew I had to start out in the birthplace of all that is tech in America, the Wyoming Secretary of State.   


According to the State of Wyoming, BlockArray LLC was first incorporated in Wyoming on 12/4/17 with its principal address at 1953 WATERBURY LN, CHATTANOOGA, TN 37421 USA.

Here's the Google view of the address at 1953 Waterbury Lane which, oddly enough, is a nice, single family home in an upscale Chattanooga, residential neighborhood.




















Even more confusing, when we perform searches on this address, the only business that comes up is Larry Schmitt Construction per the Chattanooga Chamber of Commerce. Like any good detective/journalist/blogger, I decided to give them a call (Phone: 423-344-0076) since both BlockArray and Larry Schmitt Construction were apparently living under the same roof.  But after several failed attempts, no answer and no ability to leave a message, I tried to call the phone number listed on the Larry Schmitt Construction's SIC Listing (Phone: 423-899-6177), again with no answer and no ability to leave a message.  Maybe I'm being overly critical, but I'd think that the inability to get someone to answer the phone and/or leave a message must really cut into their business.

Next, when we go to the Hamilton County Assessors office we see that 1953 Waterbury Lane is actually owned by a doctor and his wife who bought the home in September of 2002.  So you can imagine my confusion when I found that BlockArray and Larry Schmitt Construction were both registered with agencies such as D&B, SIC, the Wyoming Secretary of State and the Chattanooga Chamber of Commerce all listing their principal business location as a private residence of a pulmonologist currently practicing at Tennova Health Care located in Cleveland, Tennessee.  Talk about a paperwork mix up!  I'll bet it's really hard to keep all of these records and filings straight.  I sure wish, after a half dozen calls to the two listed numbers, that someone would have answered the phone to help explain this silliness to me.

Per the Morningstar Report, the third company involved in this triumvirate of Tech Superstars is Amplifi Capital.  Unfortunately, when I clicked on the Amplifi link listed in the Morningstar report, my anti-virus software gave me the dreaded DO NOT OPEN THIS LINK! message so I won't post the link here. Moreover, when we perform a "WhoIs" search for Amplifi.Capital's (infected) website listed in the Morningstar report we see that the Website was created on 1/20/2018, with the registered owner listed as "Anonymous" with a street address of:  


P.O. Box 0823-03411
Panama, Panama
Phone 507-836-5503
Fax 511-705-7182

That makes perfect sense.  Reputable financial businesses usually put up a new, infected website in Panama a few weeks before their first documented public appearance in Morningstar.

I did indeed also locate another, similar "Amplifi-Capital" link which is a Singapore based small business loan company specializing in "daily payment" auto-bank-draft, high interest rate loans for quasi-un-bankable businesses.  Interest rates at Amplifi-Capital generally run between 30% and 75% APR.  They are apparently the saints of the e-Lending loan shark industry.  Interestingly, there is no mention of "knee caps" on the website.

If I were to guess, the Amplifi Capital mentioned in the Morningstar press release is actually the small business lender "partnering" with BlockArray and Qlink.  The "DO NOT OPEN THIS LINK" site is probably just another fake site dedicated to making the rough lives of already desperate, naive borrowers just a little bit worse than they already are. 


The Amplifi.Capital moniker was also probably chosen by the operators of the infected/fake site to misdirect naive investors into believing that the company actually exists.  People being scammed usually feel more comfortable handing over account numbers if the truly believe an enterprise is legitimate.  As an aside, if I were coming up with a fake scheme like this I might have created fake financing websites with more credible names such as JPMorgin.com or CityBank.com.....these site names might have been more believable.   


So now that we've figured out the parties involved, lets dig down a little further.....

Oh my goodness!  How fortuitous!  Qlink has also pioneered a brand new cryptocurrency!  Beginning on 1/16/18 their currency (QLC) began trading with a "Market Cap" of US$ 112 Million.  I'm absolutely sure that this must be Simon Xie's brainchild.  Isn't that wonderful!  Simon's QLC currency trades primarily on the KuCoin (HK) exchange right now, but I'm guessing, for reasons described below, that it will soon be a mainstay cryptocurrency dominating the OKCOIN crypto-exchange.

https://coinmarketcap.com/currencies/qlink/

Not to be outdone by his long time friend and partner, we also note that Yuzhu Shi has also gone "all in" on the cryptocurrency phenomenon and has been identified as spending "tens of millions" to acquire a 10% stake in OKCOIN.  Here's the text from one of many press releases.

Giant Network Group and its founder Yuzhu Shi operate one of the largest internet ventures in China. The market valuation of Giant Network Group is more than $11 billion, and its investment into OKEx is said to be the first direct investment made to a cryptocurrency exchange by a multi-billion dollar Chinese conglomerate.

I ask you, can the exploits of these high flying executives get any goofier?  I mean really?  Cryptocurrency?  Brand new fake companies?  Untraceable documentation?  Filings with the Wyoming Secretary of State and D&B?  Infected websites hosted in Panama?  Addresses referenced leading us to residential neighborhoods in "Good Old Rocky-Top"?  Are you kidding me?   

Connecting the Dots...

Is any press release "real" anymore?  As investors, do we have to investigate the veracity of every statement made to us?  Do we really need to question everything that the armies of promoters tell us?  Has "telling the truth" just become an occasional foray from the norm or perhaps an unachievable Utopian condition to aspire to? 

The point I'm making here is that, first, all of these parties, the principals, businesses, financiers and lawyers (Sullivan & Cromwell, Skadden-Arps, Fangda, etc.) are all horrifically interconnected. Jack Ma, Simon Xie, Yuzhu Shi, Yunfeng, Giant, Ant, etc. and their bankers and lawyers are listed, mentioned and referenced all over every one of these press releases and filings. The same names keep coming up everywhere we look. No matter how absurd, self serving and opaque the layers of these deals appear, the connections are indisputable.

Second, given the above, could you imagine what might happen to the credibility of US Markets and the resulting capital formation if it became widely known that Warren Buffett, Jamie Dimon, Lloyd Blankfein, Larry Fink, or any number of other iconic American Investors were routinely setting up special purpose transactional entities specifically designed to take advantage of minority shareholders, siphoning off cash from whatever real (or fake) earnings there might be?  Could you imagine what might happen if the SEC sat idly by while the giant-sucking-siphoning-sound went simply unheard and unnoticed by any regulatory body, for any period of time?  I'd think it might be logical that the giant-sucking-siphoning-sound would become so deafening, and the playing field become so uneven that it would be impossible for even the most naive retail shareholders not to hear it.  Consequently, the acceleration of the capital formation process that congress and the SEC seem so concerned about promoting, would be irreparably damaged.    

Here's a list of the current "Capital Formation" brought to US Investors courtesy of Chinese entrepreneurs as a result of the unfettered involvement of US Investment Banks and Wall Street Lawyers.       






As we see from the above, at of the end of February we currently had 183 Chinese Stocks trading on US Exchanges with an aggregate Market Cap of roughly US$2.23 Trillion.  If I were to guess (I'm sure one of my readers has the actual number), roughly 600 or so Chinese stocks were initially listed (IPO'd) on US Exchanges over the last decade or so, the above, unfortunately are all that are left.  The remaining 400+ "China Dream" businesses have been de-listed, taking US Shareholder money with them. 

Moreover, if I were to take an educated guess, right now total Market Cap of all foreign stocks listed on US Exchanges is approaching US$9 Trillion or roughly 20% of total US Exchange Traded Equities, presuming that the ratios from my "An IPO Investors Snapped up...." post last April still hold.  In that same post I also reflect on the uneven, advantageous, playing field that foreign stocks/ADR's are granted when listing on US Exchanges.  The short answer is, unlike US Companies, foreign IPO's listing on US Exchanges are comparatively unregulated, with any penalties or sanctions for misconduct substantially unenforceable against foreign "Bad Actors".  I'd invite anyone reading today to revisit that post if you are not already familiar with it.  Based on the current regulatory climate, rather than tighten up the filing requirements and review process on dubious foreign listings, it looks like Congress is going to level the playing field and encourage capital formation by removing oversight on US stocks.  Well, though not the direction I would have gone, I guess that's one way to even the score card.        

Jay Clayton
The first thing I'd like to say about Jay Clayton is that he's absolutely brilliant.  Any professional who is at all familiar with his work would be hard pressed not to come to the same conclusion.  The second thing I'll say is that Jay seems like a really nice guy.  He handles himself well.  He seems affable and genuine.  Frankly, when this is all over and the dust clears, I'd love to sit down, have a Yuengling or two with him and get his thoughts on what happened.  

Unfortunately, as investors learn time and time again, things aren't always as they appear to be.  Given the above, I'll also suggest that the best course of action Jay could possibly take for himself, his wonderful family and US Investors would be to resign and go back to Sullivan & Cromwell where he presumably had a great career and a wonderful, charmed life.  I truly hope he's listening.

As my readers know, I don't make these career suggestions lightly.  When I first wrote in December of 2015 that Yahoo!, as was currently constituted, would soon be out of business and Marissa Meyer would have to resign, I had recognized and described Marissa's situation in detail roughly a year and a half before she actually chose to step down.  

Like Jay's current plight, at the time, Marissa was a victim of an unalterable circumstance of her own creation, trying to manage her way out of an inevitable future.  Because both Marissa and Jay were/are examining their options through the only lens they know, the same lens that clouded their vision initially, Marissa never stood, and Jay doesn't stand any chance at all of succeeding.  

Jay and Marissa are the type of folks that any compassionate person just can't help but feel empathy for.  I believe I expressed my feelings pretty well in my comment on Ms. Meyer at the time.....

"As if Mother Theresa's frock were caught on railroad tracks.....there's nobody rooting for the train."
Of course, as an Investor, I'm pulling for Jay to somehow get us all out of this mess, but again, I'm sorry to say I don't see any chance of that happening.  Since Jay is a fighter, like Marissa, Id also expect him to keep throwing punches and hang in to the bitter end.  It really is a shame.
Don't get me wrong.....Marissa and now Jay will do fine.  They'll somehow land on their feet.  Again, what's happening today is just another somber illustration of good people finding themselves in the wrong place at the wrong time.
All of that said, the best starting point for us to get to know Jay and see how he thinks, is through the video of his 2 hour, 39 minute confirmation hearing and related transcript, as well as his recent SEC white paper on Cryptocurrency.  Links below:
Jay Clayton Confirmation Hearing - Transcript
https://www.gpo.gov/fdsys/pkg/CHRG-115shrg24998/html/CHRG-115shrg24998.htm

Jay Confirmation Hearing - Video
https://www.banking.senate.gov/public/index.cfm/2017/3/nomination-hearing

Jay Clayton's view on crypto-currency
https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11

Jay's Confirmation Hearing

Well, as always, in my zeal to save my readers some valuable time and effort, I've pasted some of the more relevant exchanges between Jay and the Senators on the Senate Banking Committee below.    

Surprisingly, at least to me, the only mention of Alibaba was Jay's veiled reference to his work on the "World's Largest IPO" min 27:50 of the video.  That's it!  As I've said in previous posts and is well documented, Mr. Clayton's fingerprints are all over Alibaba.  Beginning with his relationship and friendship with Joe Tsai when they worked together at Sullivan & Cromwell, to his authorship and participation in every piece of intentionally confusing, back-peddling SEC Q&A correspondence leading up to the IPO, Mr. Clayton's stamp of "what can I say to make this go away?" obfuscation was apparent at every turn.  

For whatever reason, none of the Senators chose to ask any questions as to how this amazing, US$500 Billion Chinese ADR gorilla, that nobody understands, came to be listed on the NYSE.  

As expected in these hearings, the Senators favoring the appointment generally went on record describing what a great SEC Chair Jay would become once he's confirmed, further explaining how he would protect their "little guy" constituents.  The non-supportive Senators circularly talked in circularity regarding potential conflict(s) of interest.  These less than complimentary exchanges, as you would expect when appointing a highly regarded securities lawyer from a large Wall Street firm to regulate securities issued by other large Wall Street firms with significant PAC and lobbying resources, largely fell on deaf ears.

Given the aforementioned, I'd be remiss If I didn't use all of my available resource to get to the bottom of what really happened in the hearing.  To that end, presumably to wild enthusiasm on your part, I've once again brought out our patented Dick Fuld Banker-Speak Translator (BST) to interpret exactly what was "really" said in the hearing.  Feel free to follow along on the video clip as you read the interpretation:

The General format of the 5 minute Q&A is as follows:

Republicans: "I'd like to use my first 4 minutes talking about what a great job I'm doing for my constituents.....and the last minute explaining while you'll make a great SEC Chair......then you can say what you like...."

Democrats: "I hate you and here's why......don't you say a F$%^#ing word...."


Min 29:30
Mr. Clayton. I am 100 percent committed to rooting out any fraud and shady practices in our financial system. I recognize that bad actors undermine the hard-earned confidence that is essential to the efficient operation of our capital markets. I pledge to you and to the American people that I will show no favoritism to anyone.

Mr. Clayton. (BST):  Let me see....yes here it is in my notes.....If I can find any bad actors
that are not former or current clients of my former firm I will absolutely throw them under the bus.



Min 30:20

Mr. Clayton. In recent years, our markets have faced growing competition from abroad. U.S. listings by non-U.S. companies have slowed dramatically. More significantly, it is clear that our public capital markets are less attractive to business than in the past. As a result of these developments, investment opportunities for Main Street investors are more limited. Here I see meaningful room for improvement.
Mr. Clayton. (BST): Hey...things are tough out on the streets. It's getting nearly impossible to find even close-to-believable Chinese Ponzi schemes ....right now there are only US$9 Trillion in foreign stocks listed on US exchanges....how are lawyers supposed to generate billable hours?  Sullivan & Cromwell would go bust without all of these shams!  We get paid to get them listed and paid again for the related defense work when they go bust....and the work is drying up......THIS IS UNACCEPTABLE!


Min 32:00

Mr Clayton: As far as the extent of my practice and whether the recusals that would be required and the potential conflicts will impair my ability to act as Chair of the Securities and Exchange Commission, I do not believe they will do so. I have discussed this at length with the SEC Ethics Office, with the Office of Government Ethics. This is not a new issue. There is a protocol in place for dealing with those matters. Most importantly, I believe that if I am recused, that my fellow Commissioners will be able to handle the matters ably and to good effect.
Mr. Clayton. (BST): I probably won't need to recuse myself very often, remember, I'll be the boss. I can direct resources wherever I think they should go and decide who we go after.  If some staff attorney comes into my office asking for permission to look into something I'm not all that keen on investigating......off to the mail room they go! 

Min 38:00
Mr. Clayton. Senator, as I said in my opening statement and I will repeat, if I am lucky enough to be confirmed, I am committed to showing no favoritism to anyone in this position.
Mr. Clayton. (BST):  Jeezzz....I really hate repeating myself.  These guys just don't get what's happening here.
Min: 43:00

Senator Shelby:  I believe attorneys should never be judged by the parties that they represent but, rather, by the quality of the representation that they provide.
Senator Shelby (BST):  Hey I really like that line....I can't believe I came up with it.....maybe I can use it again when we get rid of Chris Wray and try to appoint Bruce Cutler, Gotti's lawyer, as the new FBI director.....he'll know where all the bodies are buried....theoretically of course...and I'm sure if he has a disagreement with the Gambino Family that they'll work it out amicably.
Min 55:20
Senator Corker: I just want to close with this, Mr. Chairman. I know there has been some criticism of the type of people that Mr. Clayton has represented. I used to build shopping centers around the country and feel like I know the business pretty well and think if this body decided there was going to be some shopping center regulatory body, I think that would be really good. [Laughter.] Because I know the business. And, look, I know that you have represented numbers of large clients, and my guess is some of them were jerks. OK? And you watched-- seriously, you watched some of your clients do some really jerky things. And then you watched some of them do some really great things. And my sense is that someone like you who has represented the broad array of people that you have represented really knows the good actors from the bad actors more so than people who come from the outside.
Senator Corker (BST): I thought it would be better if I referred to your criminal clients as "jerks doing jerky things".  It just sounds more "down home". I hope you don't mind,
Mr. Clayton. (BST): (Thinking...not out loud)....Thanks for the courtesy Senator.  The truth is, that I've always liked working with criminals.  I can charge the "jerky criminals" much higher fees.

Min 1:10:40
Senator Cortez Masto. So it just comes down to the issue of strict liability. In other words, can executives--or do you believe executives should be held liable for misconduct that occurs under their watch, whether or not they had the initial intent to do it or knowledge of wrongdoing? In other words, whether it was just reckless, whether they intentionally did it or whether it was just reckless disregard, do you agree with this proposal that there should still be strict liability and they should be held accountable? 
Mr. Clayton. Strict criminal liability without mens rea, I am not--you know, I am not sure about that. Not something I have really thought about, but it strikes me as a big step. 
Senator Cortez Masto. OK. Is this something that you intend to look into and really--I guess my concern is the enforcement side of this and your lack of ability or familiarity with it. And as you step into this position, that is a key piece of oversight, and I am just curious your thoughts on how you intend to pursue or familiarize yourself with the enforcement side of the job. 
Mr. Clayton.  Let me try and answer your question as quickly as I can. In all aspects of this job, if confirmed, I am going to have to rely extensively on the very good people at the SEC, both the Division Directors and the staff. I have a lot of respect for the people at the SEC that I have interacted with, including on the enforcement staff. And I do have more familiarity with prosecutors, working with prosecutors, and, in particular, investigations than most transactional lawyers, and I hope to bring that experience to bear.
Senator Cortez Masto (BST).  Mr. Clayton, are you prepared to pursue criminal sanctions and jail time against executives who acted recklessly, condoning illegal acts on their watch, when any reasonable person could conclude that they knew or should have known the illegal activity was taking place?
Mr. Clayton (BST).  No.

Min 1:13:30

Senator Kennedy.  Let me ask you about Sullivan & Cromwell. It is a big place, blue-chip clients, you know, one of the premier firms in the world. You do not get to pick your clients, do you? I mean, if you are a lawyer there and a client comes in and says, ``I am in trouble, and I need help,'' you do not say, ``Well, I do not like the color of your suit, go away''? 
Mr. Clayton. Generally not. [Laughter.]
Senator Kennedy (BST).  Mr. Clayton, we just want to get it on the record that you haven't spent your entire career working with con artists and scumbags....and the ones you've defended were just assigned to you....you had no choice.  Correct?
Mr. Clayton (BST).  Oh...yes....I see what you're getting at.  Of course, most US Investors just don't understand exactly how large Wall Street law firms work.  Let me fill you in.  First, there is absolutely no competition for clients between firms.  None!  It's all random.  Here's the way it works.  When I come into my office in the morning there's usually a long line of prospects waiting at my door.  Most of them are destitute, bordering on homelessness.  I meet with them and listen to their pitch.  After a few minutes I tell them all the same thing.  If you can come up with my $5 million dollar retainer we'll get to work on your case right away!....no promises though.

Min 1:25:20
Mr. Clayton. To your point, it is also my experience that the bad actors, they have been bad for a long time until they are caught. And, you know, early on detection would be much better than later.
Mr. Clayton (BST).  I think it's absolutely critical that we catch these steaming-dog-turd frauds well before they reach a $1 Trillion market cap as long as they aren't any of my firm's former clients.

Min 1:29:30
Senator Warren. Under the President's Executive order for ethics, the first 2 years of your tenure as SEC Chairman you would have to recuse yourself from participating in any enforcement matter involving a former client of yours. That is about half of your term as Chair. So based on your personal client disclosures then, for half of your tenure as SEC Chair, you would not be able to vote to enforce the law against several big banks, including Goldman Sachs, Deutsche Bank, Barclays, and UBS. Is that right? 
Mr. Clayton. Yes, Senator. The way---- 
Senator Warren. Thank you. Those banks have repeatedly violated securities laws in the past few years, but if they violate securities laws again, in your first 2 years as SEC Chairman you cannot vote to punish them, and I think that is a problem. But it is just the tip of the iceberg. Your recusals would not be limited just to your own former clients. The ethics Executive order also requires you to recuse yourself for 2 years from any matter in which your former law firm, Sullivan & Cromwell, represents a party. Now, Sullivan & Cromwell is a leading New York law firm with a very long list of Wall Street clients. So for half of your term as SEC Chair, you would not be able to vote to punish any corporation or bank that uses Sullivan & Cromwell as their lawyer. Is that right? 
Mr. Clayton. I believe that is a fair summary, Senator, yes. 
Senator Warren. Thank you. More potential cases with a deadlock and no enforcement, and that is a problem. And even beyond Sullivan & Cromwell's already long list of Wall Street clients, any reasonably strategic company that wanted to try to avoid an SEC enforcement action could simply hire Sullivan & Cromwell to represent them before the agency, and then you could not vote for enforcement against that company. Is that right, Mr. Clayton? 
Mr. Clayton. I am not sure about that, Senator. 
Senator Warren. Well, you do know the rule that if they are represented by Sullivan & Cromwell in front of the agency, then you are going to be banned from being able to vote against them. 
Mr. Clayton.  If they are represented by Sullivan & Cromwell in front of the agency, I would not be able to participate---- 
Senator Warren. That was my point. 
Mr. Clayton. ----but that does not mean that it would not be---- 
Senator Warren. So more cases--more cases potentially that you cannot participate in, meaning more cases potentially here with a deadlock and no enforcement. I think that is another problem.
Senator Warren (BST).  This guy is the worst.....I wonder why the Republican's hate me so much?  I can't believe Clayton didn't have anything to say while I was talking over him, cutting him off and interrupting him.  What a wimp.
Mr. Clayton (BST).   She just doesn't get it.  I have the votes.  I'm in.

Min 1:39:20
Mr. Clayton. Yes, Senator, and if I wanted to say what I thought my--if I had to pick a single strength that I believe I would bring to this position in that regard, it does go back to what I said at the beginning. Being a transactional lawyer, building a consensus is what your job is. People have different views. They want to get to a place that is happy for everyone, and that is very much what my job has been, and I want to continue to do that if I am confirmed.
Mr. Clayton (BST). Yup....I'm the king of the happiness fairies....I think my personality is perfect fit for this job.  Everyone knows that a good regulator has to be a trusting, nurturing, compassionate soul....sunshine, lollipops and rainbows 24x7....if we are going to fulfill the primary directive of the SEC, which is of course, CAPITAL FORMATION, we have to be facilitators.  For example, throughout my career, I was able make Chinese oligarchs rich, generate huge fees for my firm and the Investment Banks we represent while writing protective/defensive filings that nobody could possibly understand!  That way when my clients got, get or will get sued we can point to the language and say....see....it's disclosed right here on page 345.....you F-d up....you trusted us!  At MY SEC we'll be Capital Formation-ing our asses off.....moving huge amounts of cash out of the pockets of investors who don't know what's going on right into the pockets of promoters and advisers who do!  Say Hallelujah!

Min 1:42:30
Senator Menendez.  Well, let me ask you this: Does taking away subpoena power from senior enforcement attorneys better protect investors and deter misconduct? 
Mr. Clayton. That is--I do not know the answer to that question. 
Senator Menendez. Really?
Mr. Clayton. No, I do not because the subpoena---- 
Senator Menendez. In the abstract--forgetting about--just the proposition that taking away subpoena powers from those line entities that are engaged in investigating misconduct and limiting it to only one person and then having to go through a whole process, it seems to me that we are going to largely deter and delay investigations. 
Mr. Clayton. I think those are good questions. 
Senator Menendez. Well, the question--I am looking for good answers.
Senator Menendez (BST) So you're fine with taking away subpoena power from SEC staff?
Mr. Clayton (BST).  I'm sorry Senator, It's actually moot.  We're going to issue so few subpoenas I can probably just take care of it myself on weekends.  I'm a hands-on guy.  I think the SEC even reimburses mileage.

Min 1:47:20
Mr. Clayton. In particular, I believe, for medium-sized companies, companies that are in their growth phase, we have made it more difficult and less relatively attractive for them to be public companies. I think that almost all---- 
Senator Tillis. What do we have to do to get on a positive trajectory? 
Mr. Clayton. You know what? We have to reduce the burdens of becoming a public company so that it is more attractive----
Senator Tillis (BST). Do you have any hot stock tips? 
Mr. Clayton (BST).  We can talk later....

Min 1:59:00
Senator Perdue. What do you think the SEC can do to help us become more competitive with the rest of the world?
Mr. Clayton. Yes, Senator, and I agree with you. I believe that a reduction in the number of public companies, which is a function of fewer companies becoming public, is a problem for our capital markets. The ability to invest in a public company is one of the most efficient ways for a Main Street investor to invest. The price is there. Our equity markets have become very efficient. You can invest. You can divest very easily. It is very important. Who chooses to become a public company? The management of the company. When they come to make that choice as to where they are going to raise capital or how they are going to incentivize their employees or other things that are important when you make these decisions, they look at the landscape now and very often say, ``It is just too burdensome.'' And I think that is a problem. 
Senator Perdue.  Do you think that puts us at a competitive disadvantage with other countries? 
Mr. Clayton. I think it puts us at a competitive disadvantage with other countries, and in particular, it puts us at a competitive disadvantage in terms of something uniquely American: the participation in the capital markets.
Senator Perdue (BST).  So what can we do to keep this "level playing field" charade going? 
Mr. Clayton (BST).  Well, we did the dot.com thing, then the Mortgage thing, now we've got the ADR thing, when that blows up we're going to have to come up with another systemic excuse, drag Lloyd, Jamie and the boys in front of Congress and bitch 'em out...... and then invent yet another dumb-ass thing to sell to US Investors.....I'm thinking cryptocurrency is a possibility....but we're still working out the details on it. 

Min 2:22:00
Mr. Clayton. I worry about where the risks are today. Now, the risks in 2007, 2008 were in one aspect of our economy, and it got away from us, very much got away from us, and we did not--I worry about where those risks are housed today and making sure that we do not have a repeat of that type of situation.
Mr. Clayton (BST).  I know exactly where these risks are and I'm glad my colleagues and I could pull enough money out of this looming train wreck before it goes off the rails.  Hopefully we can keep it together a little while longer....and make a few more bucks off of this pony ride before the pony keels over and the music stops. 

Min 2:26:50
Senator Cortez Masto. My question to you, though, was: At the end of the enforcement matter, once it is settled and done, at that point in time would you be willing to even change a policy if it is different than what I am asking you to identify 1.) if you recused yourself on that particular matter, and then 2.) why you had to recuse yourself? 
Mr. Clayton. I am very open to having that dialog with the SEC Ethics Officer and the people at the SEC who have experience with this--it is not a new issue--finding out what has been done in the past, and discussing it with you.
Senator Cortez Masto. (BST) So are you going to tell us anything about your position on any enforcement actions?

Mr. Clayton (BST).  Nope....That ain't happenin'....

Mr. Clayton's View on Crypto Currency


Finally, the chair of the SEC, the head of the only organization standing between promoter fraud and naive investors, the cop on the beat, our protector and the enforcer of sanctions against "bad actors" has commented, in shockingly vague, wishy-washy detail, on the role of Cryptocurrency in the new economy.  Here's his conclusion. 



Conclusion
We at the SEC are committed to promoting capital formation.  The technology on which cryptocurrencies and ICOs are based may prove to be disruptive, transformative and efficiency enhancing.  I am confident that developments in fintech will help facilitate capital formation and provide promising investment opportunities for institutional and Main Street investors alike. 
I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers and apply good common sense when doing so.  When advising clients, designing products and engaging in transactions, market participants and their advisers should thoughtfully consider our laws, regulations and guidance, as well as our principles-based securities law framework, which has served us well in the face of new developments for more than 80 years.  I also encourage market participants and their advisers to engage with the SEC staff to aid in their analysis under the securities laws.  Staff providing assistance on these matters remain available at FinTech@sec.gov .
Jay then follows up with a list of things for investors and their advisers to think about so they don't get taken advantage of when "investing" in cryptocurrencies.  I'm not kidding.
BST Interpretation of the New SEC under Mr. Clayton:
"Good Luck folks....You're on your own!"

Conclusion

Well, there you have it.  It's become clear to me that Mr. Clayton, with loads of help and encouragement from his friends at Sullivan & Cromwell, Skadden-Arps, Fangda Partners, the Caymans, Bermuda, Panama and  BVI banking systems and virtually every global Investment Bank, has spent the last decade of his career as one of the primary architects of our next global financial apocalypse.  Now, by some incredible, frightening twist of fate, he has been made the chief regulator of same.  In short, we have a regulator who isn't going to regulate.  It's the perfect storm.


As he repeated many times in his confirmation hearing and nearly every opportunity since, Mr. Clayton's main focus as SEC chairman will be on facilitating Capital Formation.  The SEC, going forward, will likely be run less as a regulator and more like a loving nurturer, destined to quench American main street investors' perceived thirst for even more IPO's like the hundreds of abandoned Chinese ADR's, the virtually un-vetted pipe dream foreign listings immune from sanctions and prosecution, and of course, the numerous home grown success stories like Zynga, Snap, GoPro, Twitter, Valeant, etc. etc., soon to be followed up by FinTech, CrowdFunding and Crypto-products popping up on US Exchanges as I type.  There will be enormous commissions and fees paid to money managers (who, by law, are not required to act in their client's best interest) as incentives to bury this valueless junk in the pensions, mutual funds and portfolios of America's naive retirees, widows and orphans.  

It conflicts with human nature to think that Mr. Clayton, who has accepted this relatively low paying, pain-in-the-ass, public service job, in a cacophonous administration which is highly skilled at blame delegation, will suddenly find religion and begin to relentlessly hunt down and prosecute his (former) friends.  That just doesn't happen.  It has now officially become impossible for this story to have a happy ending, at least for most of us. 

The way I see it, today, Mr. Clayton can wake up to reality and choose to leave the SEC now, for personal reasons, while times are still good, return to private practice and finish his career in relative peace, out of the public eye, just like Mary Jo White and now Gary Cohn just did.  On the other hand, if Jay chooses to stick it out at the SEC, he will inevitably go down in history as the regulator who presided over the greatest financial calamity in history, hated and reviled by both sides of the aisle and the object of derision for every "little guy" investor in America.  He will be the face of the apocalypse.  The collapse will have happened on his watch and there will be no forgiveness or olive branch extended during his "what did you know and when did you know it" required testimony at the obligatory congressional hearings.

If I were Jay, and I truly understood what was going to happen to me, I'd have to admit that the idea of spending my days fishing for trout in the cold, clear Allegheny mountain streams or hitting some golf balls at Westchester or Winged Foot on a regular basis, would actually be looking pretty darn good right about now.




Additional Reading

This is another big event regarding investment in digital currency following Shi Yuzhu, an online gaming giant, acquired 10% of OKCoin Share yesterday.


CHINESE BILLIONAIRE AND GIANT NETWORK CEO INVESTS ‘TENS OF MILLIONS’, ACQUIRES 10% STAKE IN OKCOIN
South China Morning Post - (Alibaba Property) Crypto Currrency Summary 
2017 Chinese IPOs on US Exchanges
ENRON TRANSCRIPT
What follows is a transcript of that short exchange, taken from the now-infamous Enron conference call of April 17, 2001.
Operator: Richard Grubman of Highfield Capital.
Grubman: Good morning. Can you tell us what the assets and liabilities from price risk management were at quarter-end, what those balances were?
Skilling: We do not have the balance sheet completed. We will have that done shortly when we file the Q. But until we put all of that together, we just cannot give you that.
Grubman: I’m trying to understand why that would appear to be an unreasonable request, in light of your comments about daily control of all your credits. I mean, you have a trading desk with a $21 million matched book that’s two times your book value, and you cannot tell us what the balances are?
Skilling: I’m not saying we can’t tell you what the balances are. We clearly have all of those positions on a daily basis, but at this point, we will wait to disclose those until all of the netting and the right accounting is put together.
Grubman: You’re the only financial institution that cannot produce a balance sheet or cash flow statement with their earnings.
Skilling: Thank you very much, we appreciate that.
Grubman: We appreciate that?
Skilling: Ass-hole.
History of Joe Tsai's relationship with Sullivan & Cromwell (Joe is an S&C Alumnai) https://dealbook.nytimes.com/2014/01/13/the-man-behind-alibabas-eventual-i-p-o/

Joe Tsai - Sullivan & Cromwell 
https://dealbook.nytimes.com/2014/01/13/the-man-behind-alibabas-eventual-i-p-o/