Archive for the ‘Royal’ Category

I can almost write a book on Longfin (LFIN), but given their unbelievably crazy trading history and company antics, I’m sure it will prove too irresistible to a more seasoned author like Michael Lewis (of “The Big Short” fame).

Yes, this really is a Hollywood kinda story!

Sorry in advance for financially geeking out here.  :)

Simply put, in an investment industry that’s been going on for decades and centuries, Longfin seems to be in unchartered waters… every professional that I’ve spoken with at Schwab, Nasdaq, and the Options Clearing Corporation (OCC) have all said they’ve never seen anything like this.

LFIN, a “FinTech” company, went public on Nasdaq via a newly-simplified “Reg A+” offering last December.  Two days after it went public, it acquired a cryptocurrency firm.  Smack-dab in the middle of the full-blown crypto craze, LFIN stock rocketed from an already richly-priced $5 a share to over $140 in just a few days… that’s a $10 billion valuation!

And, just a few months after issue, LFIN is headed to $0.

Here’s how we got from there to here:

*  LFIN didn’t have the correct requirements to go public, even on the easier “Reg A+” path.

*  There’s a question whether they’re even a U.S. based company (which they have to be to trade on Nasdaq).  People have swung by their New York “headquarters” to find three empty desks in an incubator space.

(I know you might be thinking, “well, then, this is obviously a scam… and it may very well turn out to be one… but that’s what makes this story so perversely fascinating… please read on!)

*  LFIN’s original accountants quit after just one month on the job (February 2017), leaving the company to operate the entire year — and going public! — with unaudited financials (that’s what first attracted my attention).

*  That may be one of the reasons why I believe they are waaay overstating revenue… they’re a trading platform, so they should recognize trading fees as revs… yet, for some reason, they’re booking the sales transaction as revenue.  This is material… it’s the difference between recognizing $66.6m in physical commodity trading revenues vs. $1.6m in fees.

*  The CEO purchased a nascent cryptocurrency company — with zero revenues — two days after they went public… without any mention of the possibility of this in the offering document.  But it’s not like this wasn’t contemplated… or that this company was just any company… the CEO owned 92% of this crypto company!  This, of course, is a massive conflict of interest.

*  Half the board of directors are employees… that’s not just bad corporate governance, but irresponsible governance.

*  On January 22nd — just a month after the company went public and supporting about a $35 billion marketcap — LFIN literally gave their company away.  They entered into what can only be described as a truly awful financing agreement with notorious bad-boy financier Hudson Bay Capital, a company that had previously been busted by the SEC for short-selling violations and stock manipulation.  In the best of circumstances, this meant painful dilution for existing shareholders.  In the worst of circumstances, well, keep reading.

*  On March 16th, Longfin issues a press release that it was being added to the prestigious Russell 2000 and Russell 3000 indexes.  This is a big deal because that meant that Russell ETF’s are now required to buy the stock.

*  On March 26th — just 10 days later! — the Russell Indexing organization issues a release that it is removing Longfin from their index due to “insufficient free-floating shares”.  In other words, Longfin simply didn’t sell enough shares to the public and the stock should never have been included in the first place.

*  On April 2nd, LFIN turns in its tardy 10-K annual report.  There’s a little nugget in the report that doesn’t go unnoticed:  Longfin is being investigated by the SEC!

*  This is all way, way, way too much for intelligent investors (i.e., not “pump & dump” traders).  Short-interest builds to epic proportions because, well, we all believe this may actually be THE SHORT OF THE CENTURY!

CNBC interviews the CEO for a second time on April 4th.  The first time was difficult to watch it was so bad.  Unbelievably, the second interview was worse.  Trouble is, I can’t tell whether to feel empathy for someone who was really trying but was just out of his element… or anger because this guy was brazen enough to try to pull the wool over our eyes right in front of our faces.  

*  On April 5th their second accounting firm quits, after being on the job only two months (Feb and Mar 2018).

*  On April 6th Nasdaq, which has not only grown tired of waiting for required compliance material, but maybe more importantly embarrassed by this whole situation, issues a non-compliance note… with accelerated due dates (rare)… and, more significantly, stops stock trading with a dreaded “T12” halt (the worst halt Nasdaq can issue).

*  On April 6th the SEC lowers the boom on LFIN, charging them with “illegal distributions and sales of restricted shares” involving the company, its CEO, and three other affiliated individuals.

*  Remember bad-boy financier Hudson Bay?  They’re baaack!  April 13th was the 5th consecutive day LFIN stock was halted, triggering one of the loan covenants with Hudson Bay.  Longfin had received an initial payment of $5 million and, subject to registering a bunch more stock, LFIN would have then received the next big traunch of money.  Well, they didn’t get that stock registered (so they didn’t get any more money)… and they didn’t trade for five consecutive days (so they violated the terms of the financing)… so, guess what?  Hudson Bay called the loan on them… BUT, it’s not just for the $5 million they received, the truly awful financing agreement LFIN signed gives Hudson Bay the rights to call a total of $33.6 MILLION of the financing, money they haven’t even received yet!  Payment was due on Friday, April 20th.

*  LFIN has no money.  It appears they’ve spent their IPO funds, as well as the $5 million in initial financing from Hudson Bay ($1.3 million of which was spent just on “deal fees”).  So the only way they can pay this back is to get new financing, which won’t happen (and even if it did it would mean completely washing out all shareholders), OR renegotiate with Hudson Bay, which can only mean, again, completely washing out all shareholders.

So here we sit on Saturday, April 21st.  Presumably TONS of interesting things happened behind the scenes yesterday:

—  Did LFIN and Hudson Bay renegotiate a deal by the 4/20 deadline?  It doesn’t really matter to shareholders… either they did and shareholders get completely washed out… or they didn’t and LFIN declares bankruptcy.

—  4/20 was also the earliest part of the Nasdaq’s response window for the original non-compliance, so did Nasdaq accept LFIN’s original non-compliance plan OR decide to proceed with delisting — essentially kicking LFIN off the Nasdaq exchange and subjecting it to the dregs of the “Pink Sheets” where only of little consequence companies — also known as “Penny Stocks” — trade?

— Was it just a coincidence that Hudson Bay’s 4/20 deadline corresponded exactly with a major options expiration date?  Will we find out that perhaps Hudson Bay is up to their old antics by playing both the long and short sides of the aisle?

Thanks for your patience thus far!  We’re now at the subject of this post.

Even if this company was stellar — which it isn’t — Longfin is still hosed because Hudson Bay Capital is either going to wash everyone out OR bankrupt the company.

But, because of the EPIC short position, there are some people that think that if the company ever trades again — even on the Pink Sheets — we could see the MOTHER OF ALL SHORT SQUEEZES… given everyone has to BUY shares to close out their short positions.

I know, I know, crazy but true… there’s a possibility that this halted, SEC sanctioned, all but bankrupt company could still be worth billions — or tens of billions — again, even if for only a short period of time!

And, what about option holders?  Options have expiration dates… but the stock is halted… which means those positions can’t be closed out.  Such an expiration date — 4/20 — was yesterday, wiping out MILLIONS AND MILLIONS in trading profit.

To be SO RIGHT… and yet LOSE EVERYTHING!

But even that doesn’t tell the whole story.  Normally, option holders have the right exercise their options (and pay a hefty margin fee for the pleasure to do so)… but since the stock was halted, there was no way to exercise… well, until the OCC issued a memo yesterday saying it would offer a “delayed settlement,” which essentially said, “we’ll let you exercise and it won’t count until the stock begins trading again.”

That sounds like good news, right?  Uhm, maybe not.

First, not all brokers took the OCC up on their offer.  TD Ameritrade and Interactive Brokers did.  Schwab didn’t.

Second, you won’t really have a choice when to close out your position because participating brokers will buy-in or sell-out during the first trades possible.

So is the stock going to sky-rocket due to a massive, massive short squeeze and maybe even ignite a new feeding frenzy of momentum players?  If it does, PUT holders may be screwed (depending on expiration and how long the frenzy lasts).  Or will LFIN plummet because the company is essentially washed-out/bankrupt?  If it does, CALL holders may never again see the last marked trading price of $28.19.

Whew!  If you stayed with me this long, bravo, you now have a front seat to a history-making trade!

 

 

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Mark Zuckerberg, CEO and chairman of Facebook, just posted a good piece about this whole “data scandal.”

Not only does it appear that Facebook plugged up holes in their system years ago — as in, Facebook is not asleep-at-the-wheel…

… but Cambridge Analytica, the company accused of abusing the data, is categorically denying that any data was even used.

So it will be nice to find out the real story here.

With this said, the market is all about valuing in today what it thinks will happen tomorrow.

And in that regard, I think the market has overreacted about Facebook.

Because, regardless of what is actually discovered, the most likely fallout will simply be greater regulatory scrutiny… but not just affecting Facebook, but all ad platforms… and, in fact, all advertisers… which is essentially the entire business complex on the planet.

And, practically speaking, if something affects everyone, will it really affect anyone?

Businesses will still have to advertise.  Facebook will still control over 2 billion sets of eyeballs.  Unless we see a mass exodus from Facebook properties (Facebook, Instagram, WhatsApp, Oculus VR, etc), Facebook will still be raking in a lion’s share of ad dollars from advertisers desperate for any kind of targeting.

Honestly, I believe Facebook has more to fear from the changing generational preferences in sharing tools — as in, my friends use Facebook but their kids don’t — than they do from the government.

I’m still trying to figure out all this Facebook stuff.

Seems like everyone’s trying to figure out if whatever happened really did sway elections and destroy the democratic process as we know it.

Well, if it did, I guess no one cared when Obama and the democrats used Facebook data to help them win elections.

I’m just sayin’.

P.S.  If Putin did try to use social media to sway our elections, I wonder how he’s feeling about that now?  My guess is he’s probably thinking Hillary would have been a lot more predictable than Trump.  Good luck, Emperor Putin, trying to negotiate with a 4th grader!

On the 31st anniversary of “Black Monday” — where the Dow dropped 23% in one day — I have to share a great “sign of the times” quote.  I can’t find the source right now, but it went something like:

     ‘When the Dow drops 23% in one day, we call it “Black Monday.”  When Bitcoin drops 23% in one day, we call it Monday.’

;)

Last week was a helluva week:

Tariffs… almost every single person in the world screaming “THEY’RE BAD!”… yet, we have more of them now*

Quitting… Gary Cohn resigns as White House chief economic advisor… something to do with the working dynamic he had with Trump

More quitting… rumors that Trump is going to “clean house” re: his staff… after such a short time in office, that doesn’t seem quite right

Meeting… Trump and Kimmy of North Korea are going to meet… then conditions to meet seem insurmountable

Scandal… given Stormy Daniels developments, looks like Trump might have some ‘splain’ to do to Melania… and the American people

Campaigning… Trump is helping out some special election in Pennsylvania… and overtly reminds us what an immature, embarrassing, divisive 4th grader we have for a President

The market should have been roiled (I love saying that :)… but we had an interesting jobs report on Friday:  More jobs… which is good… but less pay… which apparently is also good (although it sounds counter-intuitive) because it keeps inflation in check… which may keep rising interest rates in check.

All of those things should have meant “off-setting penalties” (so to speak).  But instead we rallied sharply on Friday… almost like the market said, “who cares how screwed up our politics  are?!”

Feels more manic than normal to me.

 

*Disclaimer:  If the U.S. is really getting jerked around in international trade, then I like what Trump did.  (Here and here.)  Problem is always can you really believe Trump?

I just read something that had this quote in it:

But the government quickly mounted a propaganda push, blocking some articles and publishing pieces praising the party.

Is this a quote about the Trump Administration?

Nah, it’s just about, oh, CHINA TAKING A MASSIVE STEP BACKWARD AND ELIMINATING TERM LIMITS FOR THEIR DICTATOR, ER, I MEAN PRESIDENT.

But it’s telling — SCARY — that it’s exactly what the Trump Administration does.  EXACTLY.

 

P.S.  It’s also scary that Trump’s response was:

I think it’s great. Maybe we’ll give that a shot some day.”

People aren’t sure whether he was joking or not… it doesn’t matter… that’s something The President Of The United States — defender of the U.S. Constitution — doesn’t joke about in public… unless he wants to invite comparisons with a Chinese dictator!

Stocks were one of the things my dad and I enjoyed together.  He really got me started in trading.  I couldn’t wait for the morning paper so we could pour over — in 3-point type! — what the stocks we were following did the day before.

One of the stocks he followed — literally about 50 years ago — was Transamerica.  Probably best known for its office building (the Transamerica Pyramid in San Francisco, one of the world’s most iconic buildings), Transamerica was founded by A.P. Giannini… the guy who also founded the Bank of Italy… which turned into Bank of America… and the same guy that had his car designated as a firetruck so he could speed between business meetings.  (Now that’s intense!)

My little sister absolutely, positively believes that my dad still takes care of her from above.  She has dozens of examples of needing a bit of cash and then somehow magically finding some money in an old coat pocket, or getting a delayed commission check that she didn’t know she had coming, and so on.

I think I’m feeling a bit of that today, too.  I haven’t thought of Transamerica for a long time, and just today, I see a Transamerica ad… and, literally, I can’t remember ever seeing a Tranamerica ad… in fact, I wasn’t even sure the company was still in existence.

That, and the fact that IT’S MY DAD’S BIRTHDAY, makes me think my dad had something to do with the ADSK pop today.

Thanks, dad!  :)

 

 

Transamerica Pyramid