Can Kardashians Trade on Tweets?
(Bloomberg View) -- Kardashian MNPI.
I don't really understand Snapchat. I sort of understood it for five minutes back when Snap Inc. went public and its prospectus explained how to use it -- turns out, the way I learn best is by having things explained to me by securities lawyers -- but apparently since then the product has been revamped and now nothing is where it used to be. But my limited understanding is that the basic point of Snapchat is that you open up the app and somehow a Kardashian is there, and then you consume Kardashian content in some way, and your life is, one assumes, better for it. Now however the Kardashians might be leaving?
Snap Inc.’s flagship platform has lost some luster, at least according to one social-media influencer in the Kardashian-Jenner clan.
Shares of the Snapchat parent company sank 6.1 percent on Thursday, wiping out $1.3 billion in market value, on the heels of a tweet on Wednesday from Kylie Jenner, who said she doesn’t open the app anymore.
Yes well right, when you lose one of your biggest ... customers? suppliers? products? ... you should expect that to hurt your business. The result of that tweet -- "sooo does anyone else not open Snapchat anymore," asked Jenner, "Or is it just me" -- strikes me as entirely reasonable and predictable.
Hmm ... predictable. Reader Jianchi Chen emailed to ask a great question: "Would it be insider trading for Kylie Jenner to buy short term out of money put options on Snap and tweet out that she's no longer using Snap?" Insider trading, as I am constantly saying around here, is not about fairness; it is about theft. It is not illegal to trade on your own nonpublic knowledge of your own intentions. Warren Buffett can buy stocks before he announces that he's bought them, even though that announcement will predictably make the stocks go up. Activist short sellers can, and normally do, short a stock and then go public with their objections -- which can drive down the price of the stock.
So I am inclined to allow it, though I am of course neither your nor Kylie Jenner's lawyer. But as a way to profit from celebrity, shorting a company's stock and then being mean about its products on social media seems pretty easy, and the markets would be more amusing if someone tried it. Social media companies profit because their users provide content for free; I like the idea of the users profiting by deciding to stop.
(Chen adds a twist though: "Some social/video platforms have revenue sharing agreement with their biggest content producers, and they constantly make accommodations to retain them." Snap says "we enter into strategic relationships with a variety of partners that contribute to several aspects of our business, including partners that create content for our platform," though I have no reason to think that Jenner has any actual business relationship with Snap. If she did, would that make this illegal? I still don't think so. It might create a "relationship of trust and confidence" -- or it might include an explicit nondisclosure agreement -- but in our hypothetical Jenner isn't trading on any information from Snap. She's hypothetically trading on information about her own habits.)
Of course if Jenner had sold Snap stock short, drove its price down with a tweet, and then covered her shorts for a quick profit, that would probably rub some people the wrong way. It is not insider trading, but is it ... a vague word that is often thrown around, particularly about short sellers, is "manipulation." Would it be illegal manipulation for Jenner to trash the stock when she's short? Again I do not think so, as long as her trashing is honest. Conceivably if she shorted Snap, tweeted about how she never opens Snapchat, and was secretly feverishly checking Snapchat right that minute, then that would look like manipulation. But a short sale plus an honest tweet about her social-media consumption habits seems fine.
On the other hand there are Federal Trade Commission rules requiring social-media influencers to "clearly and conspicuously disclose their relationships to brands when promoting or endorsing products through social media." If Snap handed Jenner a bunch of its stock, and she tweeted about how she uses Snapchat all the time without disclosing that relationship, then that might run afoul of those rules. But if she just bought the stock herself then that seems fine? And if she shorted the stock herself and then tweeted about how she never uses Snap, then that seems even more fine?
Anyway none of this is legal advice but if you are a law professor and you manage to get a Kylie Jenner Snap-trading scenario into your securities regulation final exam please do let me know.
Testing the waters.
Isn't it a little silly that companies can't do this already?
Securities regulators hoping to spur more initial public offerings are weighing a deregulatory move that would allow all companies—not just smaller firms—to stage private talks with investors before announcing they will sell stock, according to people familiar with the matter.
Congress in 2012 gave smaller companies and some startups the freedom to “test the waters” for an IPO through the Jumpstart Our Business Startups Act. A decision by the Securities and Exchange Commission to expand that benefit to all companies regardless of size could help advance SEC Chairman Jay Clayton’s goal to boost the number of public companies.
You can see why the rule exists. Securities offerings are scary, and if a big bad stock promoter meets with mom and pop investors before filing a public registration statement with the SEC, then he might be able to pressure them into committing to invest even before they read all the risk factors and examine the notes to the financial statements in the prospectus. But, you know, here in the real world, the important investors in an IPO are large institutions, and if a private company does a little pre-roadshow where it goes to those institutions (the "testing the waters" rules allow meetings only with qualified institutional buyers) and asks for their opinions, it is unlikely to put any undue pressure on those institutions.
The securities laws at issue here, as is often the case with U.S. securities laws, were designed for the protection of a small-scale retail stock market that hasn't existed for many years. No one designing a regulatory framework for modern IPOs would think it important to protect institutional investors from the dangers of meeting with pre-IPO companies before they file their paperwork. So if you want to make it easier to go public, changing these rules seems like pretty low-hanging fruit.
Oops!
Oops:
JPMorgan Chase & Co. suffered a glitch that gave some customers logging in to online systems access to other clients’ accounts instead of their own.
We have recently talked about foul-ups at Wells Fargo & Co., which created some fake accounts and charged them fees, and MetLife Inc., which lost track of some real accounts and confiscated their money. "Whether they are creating fake accounts or losing real ones, big financial firms always seem to mess up in ways that make them money," I noted, though to be fair Wells Fargo did recently create some fake accounts and send them money, so there are exceptions. But JPMorgan's glitch here was, you know, one-to-one and onto: It didn't create any accounts that shouldn't have been there, or lose any accounts that should have been there; it had all the correct accounts but sorted them incorrectly. It is a pleasing addition to the matrix of possible banking errors. Now though I would like to see a banking error that (1) shuffles the correct accounts incorrectly, without creating or losing any accounts, and (2) also makes the bank money. Presumably JPMorgan's glitch did not.
Larry Wolf.
This is just a good (alleged) fraud, good work everyone: "LAWRENCE H. WOLF, a/k/a 'Larry,' was arrested [Wednesday] for defrauding banks and financial institutions around the country." "As alleged," says U.S. Attorney Geoffrey Berman, "Lawrence Wolf swindled and attempted to swindle banks around the country out of millions of dollars while masquerading as an oil and gas tycoon." And:
In connection with negotiations with the Victim Firms, WOLF repeatedly made false representations about his wealth or assets, and repeatedly transmitted to Victim Firms false and forged documents – ranging from bank account balance statements to tax filings to deed assignments – in furtherance of the Oil Scheme. WOLF sought to avoid detection of the Oil Scheme by obtaining new funds to cover old liabilities. Typically, as one loan approached maturity, WOLF approached another lender, expressed interest in moving his oil and gas business to a new bank, and negotiated another credit facility.
So, first: great name. (Great nickname, too; I love a nice "a/k/a 'Larry'" in a federal criminal complaint.) Second: If you're going to masquerade as something while swindling a bank, an oil and gas tycoon is a great thing to masquerade as. I hope he wore a bolo tie and a cowboy hat. (The complaint does not say.) Third: Great strategy. The best way to get a loan is to have a loan. If you're a bank and someone comes to you for a loan, then you need to do due diligence and see if he's a good credit risk and if he actually owns his oil wells and so forth. But if he's already got a loan with your rival bank, and he wants to roll it over with you, well, what's not to like? The fact that your rival bank gave him a loan probably means he's legit, and the fact that he wants to move it to you means that you get to gain some market share.
Contributions to society.
The largest shareholder of gun makers like Sturm Ruger & Co. and American Outdoor Brands Corp. is going to work on understanding school shootings:
“Given our inability to sell shares of a company in an index, even if we disagree with management, we focus on engaging with the company and understanding how they are responding to society’s expectations of them,” said BlackRock spokesman Ed Sweeney. "We will be engaging with weapons manufacturers and distributors to understand their response to recent events.”
Everything about BlackRock Inc.'s position is awkward. The immediate awkwardness is that its chief executive officer, Larry Fink, wrote a letter last month urging corporate chief executives "to demonstrate the leadership and clarity that will drive not only their own investment returns, but also the prosperity and security of their fellow citizens," and Andrew Ross Sorkin wrote that that letter "may be a watershed moment on Wall Street, one that raises all sorts of questions about the very nature of capitalism," and was "likely to cause a firestorm in the corner offices of companies everywhere and a debate over social responsibility that stretches from Wall Street to Washington." So you might expect that the author of such a firestormy letter, confronted with a pressing issue of corporate social responsibility like the manufacture and sale of incredibly lethal semiautomatic rifles that are frequently used in mass murder, might be ... interested ... in ... doing something? Shareholders at several gun companies have filed proposals asking the companies "to report on steps they’re taking to improve gun safety and to mitigate the harm associated with gun products"; Sweeney "declined to comment on whether BlackRock would vote in favor of the shareholder proposals at proxy meetings this year." It just doesn't feel as watersheddy as it did a month ago.
On the other hand, what was BlackRock going to do, not write that letter? If you're the largest shareholder of gun manufacturers you're the largest shareholder of gun manufacturers; taking an entirely hands-off approach to governance and social responsibility isn't great public relations either. The awkwardness is structural: The U.S. corporate form separates ownership and management, and the rise of indexing and massive asset managers separates them further, and the odd result is that Larry Fink is the crucial link between millions of people's retirement savings and all of the public gun manufacturers. Somewhat accidentally, American corporate capitalism ended up in Larry Fink's hands. He has to figure out something to do with it.
Petro.
I don't know why Venezuela's "petro" cryptocurrency annoys me so much. It is partly that the promise of cryptocurrency was supposed to be trustless decentralization: You trust the thing because of objective certainties embedded in its open-source code, not because some authority tells you to. Meanwhile the petro is just the opposite. For one thing, you can't trust the code; in fact Venezuela's government can't even get its story straight on what sort of code it is:
Investors will have to overlook confusion about how the currency will operate. The white paper says the Petro is built on the Ethereum network, while the user guide the government published says it’s on the Nem network.
Also irritating is that this cryptocurrency is supposed to "promote well-being, bringing power closer to the people" but you can't buy it with Venezuelan bolivars. The reasons for this are obvious: The petro is not a currency, crypto or otherwise, but a way to raise hard currency externally now that Venezuela is cut off by sanctions from accessing the international debt markets. So the petro is just a way to hide new international debt behind a thin screen of blockchain. (The U.S. sanctions administrators, I should note, are not fooled.)
Also, I keep reading that the petro is a cryptocurrency that is "backed by oil." What does that mean? First of all: It means that you need to trust Venezuela's government to exchange oil for petros. (There are efforts to build decentralized pegged coins, but for the most part a peg requires someone to maintain it.) Obviously the petro does not give you a security interest in any oil. So the petro is unsecured oil-indexed debt of a government that is sliding into default and that has been barred from the international debt markets.
But it's worse than that! Venezuela doesn't even promise to give you any oil. The oil peg is just this:
The Bolivarian Republic of Venezuela guarantees that it will accept Petro’s as a form of payment of national taxes, fees, contributions and public services, taking as a reference the price of the barrel of the Venezuelan basket of the previous day with a percentage discount of Dv.
Imagine that someone told you, without using words like "crypto" or "blockchain," that Venezuela was planning to issue perpetual zero-coupon unsecured debt that could be used to pay taxes in Venezuela at a valuation pegged to the price of oil, but that Venezuelans wouldn't be able to buy that debt. I think it would be fairly clear that there is no use case for that debt. The Venezuelans who could use the debt to pay taxes can't buy it with their bolivars. The foreigners who can buy it will get nothing from it: It doesn't pay interest and can't be redeemed for cash. It is simply a joke, a product for nobody. But if you add "on the blockchain!" then that somehow obscures all of the actual economics of the product.
Elsewhere! Elsewhere. Elsewhere. Here is "Why New York City Needs Its Own Cryptocurrency," and it is a piece of work:
Here’s how it would work. New York simply announces that starting on a given day, a digital currency, let’s call it NYCTokens, can be purchased from subway station kiosks. These would be redeemable toward civic services inside the city, like subway rides, health clinics, utility bills, city taxes, hospital or school bills—basically any services that the city provides directly, or for which the city could work out a mutually beneficial arrangement with a third party. The city would also publish an app that would allow anyone to send or receive tokens. However, new tokens would have to be purchased in person at a physical location. The city wouldn’t sell the tokens online or let a third party set up an exchange. By blocking mass-scale transactions in this manner, scalping and mass speculative trading would be discouraged. ...
The value of each NYCToken is pegged to property values. One NYCToken, for example, could be made equal to the market value of 1 square centimeter of New York real estate. At a current costs per square foot of say $1,500, that works out to about $1.60 per token. The city maintains an up-to-date ledger of all property sales, and as the average value of property changes, the value of the NYCToken rises or falls.
Sure. I actually think that there is a lot of cool stuff going on in crypto and blockchain. But there is also this weird fetish for getting rid of currency, for abandoning the characteristics of currency that have made it a crucial human institution for thousands of years. "Let's have a thing that allows you to buy apples, Coke, subway rides and dentistry, but not bananas, Pepsi, taxi rides or psychotherapy," people always seem to be saying. Well: Why? The thing about dollars is you can use them to buy taxi rides and subway rides and Coke and Pepsi and all sorts of products and services that no one has even dreamed up yet. Dollars are infinitely useful, they can be used to buy and sell anything that can be bought or sold. And everyone is desperately trying to create something less useful.
Elsewhere in crypto, the Tezos fight seems to be over. And the ICO market is booming. And Bank of America Corp. added a risk factor about cryptocurrencies. And "Don't Sleep - Introducing Robinhood Crypto."
Things happen.
"Barclays Plc pays female employees at its investment bank division just under half as much as male colleagues on average." Chinese Regulator Seizes Anbang Insurance, Owner of Waldorf Astoria. Goldman Sachs Raises $2.5 Billion to Buy Stakes in Private-Equity Firms. MiMedx, Fast-Growing Developer of Tissue Graft Products, Didn’t Report Payments to Doctors. Mifid tips balance against active funds in favour of ETFs. How Gargantuan Can Private Equity Get? Latvian central bank governor accuses banks of trying to oust him. U.S. Bancorp Judge Slams Deals to Sidestep Criminal Prosecution. A Retirement-Savings Crisis Is Creating Lives of Never-Ending Work. JPMorgan will tear down its architecturally significant Park Avenue headquarters to build a bigger one. Dad style. Corduroy suits. Yellow cardinal.
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Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net.
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