To me, the craziest thing is that he basically lucked into an insanely profitable position and STILL ended up losing so much on his dumb hedge fund he started stealing from clients...
In short his hedge fund tanked, he started some new companies, retrospectively backdated the shareholding of the new company to make his loss making investors from the previous failure shareholders, that company ended up being successful and floated, those investors made a lot of money.
But everything about what he did to make that possible is entirely dodgy/illegal.
Shkreli got in trouble for lying to his investors about losses in his hedge fund. He paid them back later, but to the feds that was a little like robbing a bank, then winning the lottery a few years later and deciding to give the bank its money back.
I watched the full NYT interview today and he's either an amazing well-coached liar (very possible) and or he really is a kid in way over his head, who got to take advantage of reputation circles (VCs, media, politicians, etc) to make reckless massive gambles without any adult risk-adverse old-school finance guys in the room.
Basically demonstrating zero personal responsibility for the the money he had control over.
Maybe more will come out to show he's is in fact a modern Bernie Madoff, with a grand hidden scheme at work to directly enrich himself, but that's not 100% obvious yet. I'm looking forward to what comes out in the future.
Hedge Fund in Connecticut (aren't they all). Someone's first job after grad school. Someone and his boss are trading, and things go very well the first year. Its a small fund ($1-$10 million). The idea is to get a track record and then make the big bucks.
The second year things are way down. Almost half the fund has evaporated. Someone comes to work to find he can't place trades. Sees that the shares are there but the liquid money in the cash account seems to be gone. Panics. Calls the major investors to tell them.
Investor calls cops on him who arrest him. Turns out the boss had run off with the liquid cash in the account (worked out to about $60,000). The fund was down but it was a small fund.
Someone was released from jail and not charged, but the boss was.
It is just wild that someone would try to make a run for it and ruin their lives and go to jail for that sum.
He also bought a mansion and a few cars and divorced and gambled a lot in Vegas and online casinos and hot stock tips?
What's amazing is that this person put his name in the WSJ as a gullible fool who can now be targeted by spearphishing scams (including that Crypto Recovery scam that has was even spamming HN recently) and shunned by his peers and potential clients.
It's weird though that people who actually cause their investors to lose money go Scott free because of connections and to my understanding shkrelis investors all made huge profits, one going so far as to say it was the best investment of his life.law is law but clearly there is something wrong here.
I think Madoff's is worst. It's so ironic. While he was executing one of the greatest financial schemes in history, he was saying that it's impossible to violate the rules.
He didn't destroy money, he transferred it from whoever trusted him to the people he bought things from or made losing trades with on the market. He destroyed wealth by directing it away from honest business, and that's very hard to quantify the effects of. If I had to guess how he justifies it all in his head, it's that he was taking money away from the financial sector and giving it to the Future Fund.
This is an absolute guess because I don't know, but I think a lot of it was average joe crypto-curious investors having their money stolen and then given to the smart financial firms who were on the winning side of his secret bad bets. There may also have been some pension fund involvement because they seem to be caught up in this stuff on a regular basis. (Because of the way bonuses work, managers can skim off the top by investing in known Ponzi schemes and taking the credit for the 20% returns. They know they're not going to have to pay those bonuses back when they're inevitably "surprised." This happened with Madoff and was a big contributor to his success.)
The guy was the "smartest guy" in the room. He's able to pay a fine of $40 million. He was an offshore accounts juggling inventor, he mentored ethics and craft to Wall Street and investment banking, who gave us 2008. What else available wealth does he have out there? How much does $40m "timed served" buy, and who did the selling?
This is it exactly. He was running a confidence game. There are some big parallels with Bernie Madoff in fact. Spinning a story of financial genius out of a lucky break he got early on that had higher than typical returns, but in a market small enough to fly under the radar of the big players. The big difference is that SBF had less sense and let it spin out of control way too fast and hastened his own demise. At least Madoff got to live most of his life before he got sent to jail.
What's crazy is this story went even further than what's been disclosed. He had working relations with know scammers/crime groups in the Middle east. If you want to read about how crazy this guy was, read the court docs for his divorce.. To say he was a piece of work is an understatement.
Edit: There's also numerous cases ongoing for fraud relating to loans / purchases under these companies. One of the things he did was buy dormant LLCs around the US so they'd have logenvity making it easier to secure loans.
Source: Worked with a National Paper on the story back when it started.
I was wondering how he got into this, did he set out to run a ponzi scheme from the get go? Interesting to see that it was not like that. He was running an honest fund that ran into some trouble during a down turn. He convinced himself that he could just fudge things a little, just until the downturn passed and then he'd go straight again. Of course he never went straight again. Life lessons for everyone there.
Amazing book. Truly astounding sequence of events.
Greatest irony of all, they named their firm "Long-term Capital Management", while taking hugely leveraged short-term positions ($1 trillion dollars worth of derivatives backed by about $100 billion or so assets) that were beyond the understanding of anyone else. Didn't last 4 years before they blew. They did show 40% annual returns when they started and I guess that's what kept them going without much regulation. But man, did they crash hard. Investors who were returned their money after a year or 2, and those who were turned down from even investing must have thanked their Gods for saving them from absolute destruction.
There is another book by Michael Lewis (who also wrote "The Big Short") called "The Liar's Poker", where he talks about his time at Salomon Brothers and how they collapsed in a very similar fashion. Highly levered derivatives with a magic formula that has worked well (so far..). It's fascinating how they were allowed to do what they did. Open gambling with client's money, and no repercussions on loosing it all. "Blowing up a customer" was apparently common and chalked up to a rookie's mistake. "Baptism by fire". How did the rookies even get access to millions of dollars of money to bet on crazy derivatives!!
I feel that every time a major upset in the financial markets lands on us, it is because some group of really talented people managed to convince everyone that they discovered something that no one else has and have "cracked the market" by showing consistently high returns for a period of time, and gain access to huge pools of capital. Only, after a few years the market turns around, showing a side of things that they did not take into account and the whole thing goes belly up, market crashes, loads of people loose money, mostly its everyone else but that group (leverage, borrowing, access to someone else's capital etc).
And because everyone who was supposed to keep them in check did not do it because despite it being their job not to, they did take them for their word, they try to cover it all up by paying the very people who caused all the trouble and who were supposed to watch out for all this.
Banking world seems to have a lot of conflict of interest all around. It is much better now, with lots more rules and regulations, but it is still there.
1MDB is the most bizarre scandals I’ve ever heard. A 27-year-old convinces the Prime Minister of Malaysia to let him manage country’s sovereign wealth fund, and then he proceeds to fritter almost $2 billion away throwing multi-million dollar parties and funding the Wolf of Wall Street. How did he get away with all of it for so long?
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