One of the frustrating things about the 2008 Global Financial Crisis was how few of those responsible went to jail for their actions. Only one relatively junior banker went to jail and some loan officers from Countrywide. The senior executives all got off lightly. This speaks to two things:
The complex nature of the securitized products (CDOs, CDSs) that were poorly understood by those using them. There was active fraud in those writing loans but for the banks, the issue was more ignorance and incompetence amplified by greed.
The successful efforts by the executive class to take maximum credit when things go well and then walk away whistling when the proverbial hits the fan. As my good friend Jack Welch once said to me: The true test of a Leader is that when something goes wrong, it’s always someone else’s fault.
So it has been, I dunno, terrifying refreshing to see some crimes happening that are so mind-bogglingly stupid and blatant that those responsible seem unlikely to escape jail. In part, this is simply a function of the economic cycle of the last decade. Zero interest rates and cheap money inspired many investors to bet on highly speculative assets in the search for sick gainz. Fed policy can be seen as a sort of fiscal Trenbolone. Money poured into “hot” asset classes like property and startups like gaoline from a Fahrenheit 451 firetruck. Con men entrepreneurs happily obliged in meeting this ravening desire for growth assets.
Eventually, as always happens, the money stopped. As my good friend Bernie Madoff once told me, the thing about Ponzi schemes is that while the money is coming in, every is good. It’s only when the tides goes out that you find out who’s been swimming naked.
As noted previously, the impact of rising interest rates on startups has been akin to Vietcong guerillas gradually picking off a platoon of US marines one by one at night somewhere in the jungle. The big names such as Meta, Microsoft, Google, etc exited a bunch of people when their share prices looked a bit wobbly. But little of this activity has been criminal. Perhaps these companies should not have hired so many people during the pandemic but I’ll just refer you to the words of my mate Jack Welch above.
Of course the biggest criminal case involved Bitcoin. Not so much because Bitcoin is inherently fraudulent but because it attracts over-confident tech bros like productivity hacking moths to a flame of burning money. There is no scientific way that finance can be as hard as coding, is there? The joke in NoCoiner circles is that crypto is speed-running the last 500 years of financial scandals.
Crypto has been providing a steady stream of criminality-on-the-blockchain entertainment for a while. Mt Gox, Moulah, and DAO were all noble efforts. But 2022 delivered on so many levels - Terra and Celsuis were great warm-ups until we hit the big one with FTX and SBF - both now FUBAR. What was most shocking to observers was the basic bitch nature of SBF’s crimes. Lots of people thought FTX was up to something but the betting was that it was front running the trades of its customers to skim some extra cream off the top. Not wholesale robbing their accounts to prop up its dodgy hedge fund. It’s like Hans Gruber getting caught shoplifting an Aldi Titan Bar Multipack. The SEC Chapter 11 filing was a such work of rare beauty that I wanted to decorate our lounge with framed copies of all 30 pages until my wife told me to stop being such a twat.
In 2023, the focus shifted somewhat. Yes we had the SBF court case where he yet again demonstrated the decision-making prowess that got him to where he is today. We also had Binance finally get the kicking from the SEC that has been in the works for years. Meanwhile Hindenburg Research had a blow out year. Hindenburg investigates public companies it views as suspect, takes “short” positions (i.e. effectively bets that their share price will drop) and then issues reports into them. In January in identified a whole stack of financial dodginess in massive Indian Conglomerate Adani Group. In May, with more than a hint of poetic justice, it went after legendary corporate raider Carl Icahn. And then in June it released a report into the Tingo Group that has just resulted in the SEC filing charges against its executives.
Tingo is a Fintech business providing mobile phones and financial services to millions of Nigerian farmers and it got listed on NASDAQ through a couple of nifty reverse takeovers with accounts audited by Deloitte Israel. The CEO even tried to buy Sheffield United. Making the world a better place and making money for investors in the process. Oh and the Chairman is the UK Home Secretary’s cousin.
It also appears to be a fraud of almost Platonic perfection. Research by Hindenburg and the FT has failed to find any trace of an actual business. Those mobile phones, the over $400m in cash on the balance, the millions of customers, even factories where their products are made and office where their staff work? All yield a 404 - Not Found error of epic proportions. Please view the video by Patrick Boyle below. In fact, if you like this kind of thing then please subscribe to his channel. He very much wins the hotly uncontested category of “Funniest Financial Markets Commentator”.
Whilst some would find in the success of Hindenburg comfort that markets are working as they should, their current hit rate does indicate that regulators and trusted parties like auditors may not be playing their roles with necessary vigour.
As ever, buyer beware. I hope that nothing in 2024 reaches the outrageous levels of FTX or Tingo but something almost certainly will.