What was it like to be a Stanford salesman?

I can’t resist.  Some things really are funny in their sad sort of way.

Justin Hare was a marketer who sold hedge funds for Onyx Capital.  Justin also worked for Stanford (the alleged ponzi).

Onyx (and its principal Jeff Schneider) at a minimum introduced Paradigm (a firm owned by the Vice President’s family) to two alleged frauds (Alan Stanford, Ponta Negra).  

Anyway Justin Hare (like several people involved in this) is not registered as a salesman for anything financial even though that is how he made a living.  (Justin – fix your registration.)

Justin did not hide it though.  He is a young good looking man, recently married to an equally young good looking wife.  He goes to church and at least on his myspace page he has enough attractive young women as friends to meet Nouriel Roubini’s preferred ratio.  

Being young and naïve he almost certainly thought that there was nothing wrong with his employer (the allegedly ponzi Stanford) and so he proudly put on his myspace page the photos of his business trip to Antigua.  

I have repeated them below.  People who lost money at Stanford probably will find this less grimly amusing than me.

First two photos - both posed - in the private jet

And here is Stanford's own private jet hangar in Antigua

With its own entrance to customs

Just to make sure you were in the lap of a really big-spending company the whole thing is labelled "Stanford Aviation".  

And whilst the road to Stanford Aviation was not paved with gold it was paved with something peculiar...

From here they were taken to the upmarket resort at Jumby Bay...

And I guess it surprised nobody that the Pavillion at Jumby Bay had its own dedicated Stanford wine cellar...

Or that Sir Allen's boat was parked in harbour.

What amazes me about this though is the lack of self reflection.  Justin Hare is young.  He is 25.  Nobody showers ordinary 25 year olds with this much lavish attention.  

But there is no evidence that the salesman in question thought this sort of excess unusual or indicative of something smelly.

We live in a society where the appearance of money - and the possibility of having some - gets people to leave either their conscience or their judgement at the door (or in this case the departing aircraft hanger).  

And that is why I found these photos grimly amusing.

John

PS.  The Myspace page has been set on private so you can now no longer see the photos without being one of Justin Hare's "friends".

Given that people who sell products like this tend to resurface I have decided to put a single identifying photo up.  This is Justin Hare on the plane.

Also - the (US) Stanford receiver is suing 66 Stanford salesmen for their sales commissions received.  Justin Hare is not on the list.  

I have not forwarded a copy of this post to the receiver - but if people feel strongly about it they are most welcome.

J  

PPS.  Here he is skiing at Whistler.  Stanford money hard at work!

Final postscript:  I tracked Justin Hare down again.  He appears to have taken an entirely honest sales job.  It probably pays less - and it certainly does not come with trips to Antigua.  I almost feel like taking this down now Justin is working an honest job for honest money.  But hey - lets keep it here as a reminder for Justin.

Just how sloppy is Paradigm Global?

Paradigm Global is a fund of hedge funds owned and controlled by Hunter Biden and James Biden.  Hunter and James are the Vice President’s son and brother respectively.

The SEC recently alleged a fraud by Ponta Negra – a small hedge fund run out of an office in Stamford Connecticut.  This blog first observed that Ponta Negra also maintained an office with Paradigm Global.

Moreover in SEC filings they gave their phone number as the Paradigm Global switch and they used the same marketer as Paradigm Global.

This was first exposed on this blog here.  Read this post first.

Now Paradigm have – through their lawyer – sought to defuse this issue.  Their lawyer summed up the story as follows (as reported in the Politico):

"They were subtenants," he said, adding that marketer Jeff Schneider "who did some marketing for paradigm over the last couple of years introduced us to Ponte Negra, and we had some available office space."

"That's 100% the extent of the relationship," he said.

"There's no smoke or fire as relates to this unfortunate Ponte Negra situation. There's nothing there at all," he said.

Jeff Schneider was a full time employee of Paradigm (according to their own marketing material) until relatively recently (January 2004 to February 2008 according to FINRA records).  To say that he did some marketing for Paradigm over the last few years is understating the extent of the relationship.

Anyway the excuse is that Ponta Negra is a subtenant – and in no way associated with Paradigm.

The excuse comes down to Paradigm being careless about their reputation rather than in any way involved in the alleged Ponta Negra fraud.

And I admit it – the only hard evidence I have is for Paradigm being unduly careless about their reputation.  

And in this light I thought I might have a look at just how careless by looking at Jeff Schneider’s FINRA record.  Jeff Schneider it seems has a history that might make him difficult to employ by anyone who does thorough due diligence and cares about their reputation.  

Remember this guy was a full time employee in a senior position at Paradigm. 

• Whilst working for CIBC markets immediately before taking the position at Paradigm he allegedly temporarily transferred securities from a customer account to another member of the firm allowing the other member of the firm a bonus.  He is acused of but denies sharing in this bonus.  He settled this for a fine, a non-admission of guilt and a 90 day industry suspension.  

• There were several allegations that at CIBC he recommended inappropriate investments and excessively traded client accounts.  Damages in most these cases was under half a million dollars and some cases were settled by CIBC for amounts up to one hundred thousand dollars.

• There were also allegations of unauthorised trading of client accounts which were settled by CIBC for amounts in excess of $50 thousand.
  

Needless to say he was dismissed by CIBC.

• At Paine Weber he was accused of failing to respond to client requests causing damages to clients of $18000.  Paine Weber settled for $10 thousand but Mr Schneider denies any liability.

• He was permitted to resign from Merrill Lynch after allowing foreign clients to exercise (losing) trades and to not pay for their losses.  He argues that he was following Merrill Lynch procedures and that the clients just disappeared.
  

You can find the details here in his FINRA report.

Given this history are you surprised that Jeff Schneider is the marketing agent for Ponta Negra – an alleged scam?  

Or are you more surprised that a firm owned by the Vice President’s son and brother continued to employ Jeff Schneider as a marketing agent?

At best the Biden’s firm is sloppy.  Sloppy enough that it is highly surprising that the main stream media is not asking questions.

John

PS.  I am a life-long adherent of slightly left-of-centre politics.  I campaigned against John Howard in his own electorate and was (proudly) at Maxine McKew's election party when she pulled off the improbable win.

I would have donated to the Obama campaign except that - for a non-US citizen - that would be illegal.  My problem with Obama is that he is too centrist.

If the election were held again tomorrow and I could vote it would be for Obama/Biden.

There are some people aruging I am writing these posts because of some right wing political agenda.  They are just wrong.  

This issue just deserves exposure.  I did not set out to expose the Bidens.  I found Ponta Negra and followed where it led me.  I almost collapsed in surprise when I found the strong Biden link.  

J

AIG – a really neat run through

I do not do links unless they are really good.

This is really good.

The Aleph Blog has a simply wonderful piece on AIG – going through and asking in a clear way which (if any) AIG operations were sound.

It helps if you have some expertise in insurance – for instance it helps if you know instinctively that when insurance company A owns insurance company B it winds up with some double counting of capital and hence lower solvency than if the companies are independent and jointly owned by a holding company.

That said Mr Merkel has done what nobody in the press has done and really analysed AIG.  His bit on security lending is really useful.

The formatting however is awful so I suggest you read the PDF.  And put the blog on the RSS feed.

--

Finally when AIG went under I thought the life insurance companies were sound.  I later decided otherwise.  Mr Merkel explains why in very simple terms though I suspect the life companies are even worse than he makes out.

Happy reading - and don't buy any of the debt because there is no value left in my view.

John

A statement by Paradigm - and some questions

Message to readers: if you are new to the Paradigm/Biden/Ponta Negra connection read this post first.  

Marc LoPresti – the regular lawyer for Paradigm Global has apparently made a few statements regarding this blog’s suggestion that Ponta Negra (an allegedly fraudulent hedge fund) and Paradigm Global (a fund of funds controlled by the Biden family) were very close.  

I can’t find the statements, only a second hand reference to them at the Politico.  However to quote:

"They were subtenants," he said, adding that marketer Jeff Schneider "who did some marketing for paradigm over the last couple of years introduced us to Ponte Negra, and we had some available office space."

"That's 100% the extent of the relationship," he said.

"There's no smoke or fire as relates to this unfortunate Ponte Negra situation. There's nothing there at all," he said.

Let’s pick this apart.  

First I suggest you ring (212) 271-3388.  This is the phone number for Paradigm.  Do it after hours and you will get a choice on their automatic menu.  Ask for extension 213 on their automatic switch.  You get the following message:

You have reached Francesco Rusciano at the Ponta Negra Fund 1 LLC.  Please leave your message at the tone.

You get this message several days after Ponta Negra has been closed by a Federal Judge.

They were (at best) subtenants using the same phone system.

Secondly the LoPresti statement downplays the extent of the relationship between Jeff Schneider and Paradigm.  I have posted several old Paradigm marketing documents that place Schneider as the second most important marketing person at Paradigm (see here for an example).  

Moreover the senior marketing person at Paradigm (Alla Babikova) is given as running the New York office of Onyx (Schneider’s organisation).  She does this whilst still working in Paradigm’s office.  She is warranted as a full time employee of Paradigm in a few Paradigm marketing documents.  

I have some questions for the respected Marc LoPresti.  

• Did Paradigm implement any procedure after your dealing with Alan Stanford to ensure that Paradigm's name would never again be used by scamsters?  If so have these procedures failed?  If not, why not?
  
  
• Did Francesco Rusciano actually have an office at Paradigm as suggested by the message on the answer phone?  The SEC filings suggest that Ponta Negra was run by Mr Rusciano from his home in Stamford.  How often was Mr Rusciano in his tenancy?  Did he use the tenancy for marketing purposes – so as to trade off either Paradigm or the Biden’s name?

• Could you please list the other subtenants of the 17th Floor of 650 Fifth Avenue? I can find other stuff there which looks suspect and I want you to assure us that it has nothing to do with Paradigm and is no way trading off your reputation.  Remember Alan Stanford traded off your reputation listing you as one of his investment strategies (and noting the joint branded fund).  

• Could you please also answer the question as to how many staff you have?  The answer is six to ten in the SEC IARD filings – and 28 in some marketing documents.  Did you ever have 28 staff?  Were Schneider and Babikova full time staff as listed in your marketing documents?  If so when (if ever) did they cease to be full time staff?

• Could you please also answer the allegation made in James Biden’s sworn statement that your returns were misrepresented?  By whom and to who were they misrepresented?  Did you approach legal authorities to report staff or agents of yours for misrepresenting your returns?  Or was James Biden’s statement perjury?
  

Thanks in advance.

The economics of Paradigm Global – alleged substance abuse and alleged ponzi schemes

Paradigm Global is a fund of funds owned and controlled by Hunter Biden and James Biden.  These two are Vice President Joe Biden’s son and brother respectively.

Oh yes, and it does involve substance abuse and ponzi schemes (both alleged).

Paradigm Global on its website still contains the assertion that they have never had a down year.  

COMPANY HISTORY

The PARADIGM Group of Companies was founded in 1991. PARADIGM Global Advisors, LLC is the asset allocation and investment advisory arm of the Group. PARADIGM Global Advisors, LLC is an SEC-registered investment adviser, is registered with the Commodity Futures Trading Commission as a commodity pool operator and commodity trading advisor and is a member of the National Futures Association. 

PARADIGM's portfolios of hedge funds have not suffered a down year since the firm's inception in 1991 and have consistently outperformed stock and bond markets. Volatility has steadily declined over the years. We proudly attribute our performance to our investment philosophy and its application to managing a portfolio of funds.

At various stages Paradigm Global has claimed to have 1.8 billion in funds under management or advice.  That would make it a good business.

Paradigm Global has however been in some reputation trouble twice lately.  Firstly they co-branded a fund with Alan Stanford which (at best) suggests sloppy due diligence.   This was reported here in the WSJ.

Secondly they housed Ponta Negra – an allegedly fraudulent hedge fund that has just been charged by the SEC.  Not only did they allow Ponta Negra to use their offices but they allowed Ponta Negra to use their marketing machine.  This was first reported on this blog here.

Sloppy two times over calls for a little more due diligence on Paradigm Global.  

Firstly the business was not started by the Bidens – it was purchased by them.  It was started by Dr James Park.  When the Bidens purchased the business they believed it to have 1.5 billion of funds under management.  This little section from an affidavit signed by James Biden (the VP’s brother) is revealing.  The affidavit is here.

(a).  The Paradigm Hedge Funds had only between two and three hundred million dollars under management, which were leveraged to over five hundred million, not the more than $1.5 billion under management represented to us by Lotito and Fasciana.  

(b) The returns on the Paradigm Hedge Funds were not as represented to us by Lotito and Fasciana; and (with editing)

(d). The primary manager of the funds, Dr. James Park, had an apparent substance abuse problem and had been an absentee manager for several years...

Now please put this in perspective.  The Bidens – mostly through failure to do proper due diligence – seem to have wound up in control of a fund of hedge funds which they claim (in sworn affidavit) that 

• Had less than a fifth the funds under management that they represented to their customers,

• Had misrepresented their returns and 

• Had a primary manager who had “an apparent substance abuse problem”.

Now if you were told a fund manager only had a fifth the funds that he represented to the world, had misrepresented his returns and had a primary manager with a substance abuse problem what you say it is?  

Whatever – it quacks.

Now this affidavit was signed 13 April 2007.  I presume it is the truth otherwise James Biden is guilty of perjury.

The affidavit is signed a few months after Hunter Biden resigned as the CEO of Paradigm Global – a position he took up in late 2006.

Now I am going to give you one more detail.  In 2006 Paradigm represented that they had 28 staff.  They represented that they had offices in multiple cities including a largish office in New York on Fifth Avenue.  I have uploaded a few of their marketing documents here and here and here.

Two hundred to three hundred million in funds under management would represent less than 5 million in revenue and probably less than 3 million after any third party costs.  Most funds of funds of that period took a percentage of the performance fees – and given the performance of the funds the revenue would have been less than 1% of net funds under management however Paradigm's fee structure was somewhat higher suggesting revenue about 5 million per annum.  

With 28 staff mostly in New York and (according to this marketing document) with representative offices in Los Angeles, Monte Carlo and Tokyo you can’t make this business work very well.

Of course you could make it work if all the staff members were paid well under $70 thousand dollars (which does not seem likely in finance in New York, Los Angeles, Tokyo and Monte Carlo).  You could also make it work if you subsidized it. 

None of this would allow the senior manager to fail to show at the office and indulge a drug habit (as sworn by James Biden).  

Now go back and look at this marketing document.  It contains a few staff members on the marketing side.  Alla Babikova is still given as an email contact on the Paradigm website.  She is also listed on this document as working for Onyx Capital.  Onyx was the marketer of the allegedly fraudulent Ponta Negra hedge fund.  Onyx – or at least staff that worked for Onyx – were also marketers of Stanford.  

Jeffrey Schneider is the contact on this document from the allegedly fraudulent Ponta Negra fund.  He was the founder of Onyx.

I see lots of possibilities: all of them reflect very poorly on the Bidens.

• They were and remain controllers of a fund of funds which they allege misrepresented its returns and yet which they kept operational.

• They were and remain controllers of a fund of funds which houses an alleged fraud in its offices (Ponta Negra).

• They were and remain controllers of a fund of funds which employed a marketing organisation (Onyx) which was associated with distributing alleged frauds (Ponta Negra and Stanford).  

• They were and remain controllers of a fund that claimed to have 28 staff many of whom are difficult to trace and where the revenue to fund those staff did not obviously exist.  This suggests that either the staff were not paid, did not exist or (more sinisterly) they were paid by stealing from the small amount of funds under management.  You could only steal the client money if the asset custody safeguards were not robust.  There is an audit statement on the SEC files qualified as to the robustness of these protections – however there is no evidence that the lack of robustness was exploited.
  

All of this was done from the 17th Floor of 650 Fifth Avenue New York.  There are a few other things housed on that floor and you need to walk past Paradigm’s desk to get to them.  

Whatever – it quacks and it is controlled by the Vice President’s family.

The first post I did not make on Ponta Negra and its link to the Bidens

Note - an error in this post has been corrected - see the end note...

Being a blogger you sometimes need to hold your horses.  Lawyers do threaten.  I wrote this post.  I circulated it to a few friends but on the promise that they would not further circulate it.  

I did not post it.

I suggest you read the FIRST POST ON THE BIDEN/Ponta Negra connection before you read this.  However you should enjoy this...

It was originally titled "The Scorpion Post".  You will see why.  Some of the links in the post do not work because - under legal threat - I deleted some posts and some documents.

You will also note that since I wrote this (hitherto unpublished) post the amount of information I have linking the Bidens to various ponzis/frauds has increased.

A Scorpion Post - Chasing down a Ponzi

If you are a Republican political obsessive please read this to the end. There is a really big sting in the tail… you might like it…

This blog would – on average – have readers considerably more financially sophisticated than the average person. Indeed looking at where my emails come from its not quite a roll call of Wall Street’s finest– but the crowd is well heeled and well connected.

The fund I put up yesterday is almost certainly a Ponzi. Indeed just reading the numbers as posted I was pretty sure it was a Ponzi – and in this post Madoff/Stanford world I would have thought that most of my readers would be trained to look at results which do not in any way resemble plausible and scream Ponzi.

I did not reveal the name of the Ponzi fund in yesterday’s post but I will today. It is called Ponta Negra Fund LLC and its manager is the Ponta Negra Group.

Surprisingly about a third the emails I got and a fair few of the comments did not even raise the possibility it was a fraud.

Fraud was the first thing that I thought of – and it was the first thing I thought of when I first heard of this fund in June last year. I thought Ponzi in a pre-Madoff world. I am really startled that all my readers did not think Ponzi in a post-Madoff world.

I have two fund marketing documents, one containing results to May last year – the other containing results to February this year. I have uploaded them to Scribd – and you can find them here and here. Download them if you really want to follow the scam.

I was fairly sure it was a Ponzi before I observed the other tell-tale signs – but - for the sake of completing the experiment I will reveal them to you.

Firstly both documents are formatted in a very strange way. If you cut and paste text you get words without spaces. So a cut and past will look like this:

Aswehadanticipated,interdayvolatilitybegantospike...

Rather than just saying:

“As we had anticipated inter-day volatility…”

This format takes some doing. The spaces are formatted as pictures rather than text. The reason for doing this is that it makes the documents non-searchable and hence unable to be found using Google. I guess that indicates that they have something to hide.

Now take a look at the February document. The contact is "Jared Toren" whose phone number is 512 306 0300. The fund has an address of Level 17, 650 Fifth Avenue New York. The first problem is that the phone number for the sales contact – for a fund headquartered in New York City – is in Austin Texas. Very strange.

If you Google the phone number you get a link to Eagle Rock Capital LLC. Here is their website (click here). Because I expect the site to disappear I have taken a picture of it for posterity.

There is not much there. No contact address, nothing really except a place holder and phone number.

But Eagle Rock Capital has a history – as a personal lending company. This is an extract from the San Marcos Record – which describes the company as providing personal loans (click here). I have reproduced below:

In the earlier Ponta Negra document you find a different contact – a

Jeffry Schneider from Onyx Capital, LLC. Onyx Capital is a funny entity. It too has a website or two (click here for one).  [Editors note - this site has changed...]

The Onyx website is constructed almost entirely of pictures not text. Nothing is searchable by Google. On their home page they offend with stray apostrophes – but that would not be noticed because it is not text and so never went through a spelling checker. Here is the cover page:

And here is their contact page:

Note no physical address is given. That is very strange indeed.

Jared Toren and Jeffrey Schneider do appear together in – you guessed it – civil litigation. I have filed the complaint on Sribd (click here).

The allegation in that suit is that Jared Toren and Jeffrey Schneider worked at Hedgeco – an internet based marketer of hedge funds – and that they stole the client list. They either joined or established Onyx. [EDITORS NOTE - SEE END]

In other words Jared Toren and Jeffrey Schneider are alleged to have stolen a client list and are seemingly using that list to market a Ponzi scheme (Ponta Negra). They possibly also used it to market New World.

Ok – all of this would not have interested me. I have numerous times reported frauds like this to the SEC and even to the FBI – and I have yet to see any action. Mr Markowitz and Madoff is an experience that anyone who has dealt with the SEC has seen before.

I have simply given up

This is however a Scorpion Post. Here is the sting.

The address given in the second Ponta Negra marketing document is 17th Floor, 650 Fifth Avenue New York. I can’t find any reference to Ponta Negra there – but there is a fund-of-hedge-funds based there. It is Paradigm Global Advisors and they manage roughly 270 million dollars according to the Wall Street Journal and 500 million on some other estimates I have seen.

Now Paradigm is a name that will ring a few bells. The firm is owned by Hunter and James Biden. Hunter is Vice President Joe Biden’s son and James is the Vice President’s brother. (I told the Republican activists to read to the end…) You can see a picture of Hunter Biden with his dad at the Obama inauguration below.

Paradigm Global does not have an entirely pristine reputation. Here is a Wall Street Journal article about a fund that they co-branded with Stanford Financial (click here). I copied the picture from that WSJ article.

According to the WSJ article Paradigm claims that the Bidens never met or communicated with Mr Stanford. I believe them. They lent the name Paradigm to the Paradigm Stanford Capital Management Core Alternative Fund without ever having met the principals of Stanford. Such is the standard of due diligence on Wall Street.

I was worried at first that Ponta Negra might be a legitimate fund headquartered in another cubicle on the 17th Floor of 650 Fifth Avenue. It turns out that there are several funds also HQ'd there. Paradigm it seems does all the signage on the floor – but once you get past the couple of Paradigm people on the front desk you find several doors behind which reside several hedge funds – a hedge fund hotel if you want. Most of the offices were empty mid-morning – which was very surprising. These funds are largely marketed by Paradigm.

Still there could be a fund (Ponta Negra) independent of Paradigm on the 17th floor. There could be – they too would need to employ a Jeffrey Schneider as a marketing agent. To quote the Wall Street Journal story:

A Paradigm marketer, Jeffrey Schneider, confirmed accounts provided by others that he brought in the Stanford business. Stanford would bring clients to the fund and Paradigm would manage it, according to Mr. LoPresti. The fund is mentioned on the Web site of a Stanford entity called Stanford Trust Co. as one of its "investment management strategies."

Ok – by this point you should at least be open to the possibility that the Vice President’s son and brother employ someone who uses the good Biden name and a stolen client list to market Ponzi schemes.

There is no allegation here that the Bidens are involved. Just that their standard of due diligence is low. Very low.

Now the Biden’s hedge fund hotel contains an assortment of other colourful funds. One of them is a SIPC registered broker dealer who also manages client money. This broker dealer does not list their auditor anywhere on their website. However they report startlingly good funds management results for 2006 and 2007 though they have surprisingly failed to update their website to include 2008 results. Their website boasts that their trades will be completed with zero commissions and transaction charges allowing them to focus exclusively on the investments that best meet the needs of the clients without the concern of transaction charges and hidden revenue sharing…

Any resemblance to Bernie Madoff is purely coincidental.

EDITORS NOTE.  I originally referred to Capital Group Holdings as marketing a previous Ponzi.  It was HOLDING CAPITAL GROUP.  I sincerely apologise for the error and have deleted a section of this post.

Alleged fraudulent hedge fund associated with the Vice President’s family harasses blogger

I wrote a post about Ponta Negra – a hedge fund that I thought was more likely than not to be fraudulent.  I did not name Ponta Negra in the post but I put two of their marketing documents on the web and some people found them.  

I withdrew that post after threats from lawyers.  I also removed the documents from the web.

I have reposted the two marketing documents I have from Ponta Negra here and here and the first threat from the lawyer here.  

I have done this because Francesco Rusciano of Ponta Negra has formally had his assets frozen by a Federal Judge at the request of the SEC.  Also see here for the formal charges.  

Anyway I asked the lawyers for the things that I would need to do due diligence on Ponta Negra – that is the identity of the auditor, permission to talk to the auditor, identity of the prime broker and permission to talk to the prime broker.  

I was denied.  The lawyers argued that I was “just a blogger”.  Their denial letter is here.

The first marketing document however identified a supposed prime broker as Citigroup.  I wrote to citigroup several times – and spoke to senior people in their government relations area and told Citigroup the entire story.  I believe that Citigroup did not react appropriately to a fraud committed in their name.

Anyway I will save you the suspense.  All of this would not be the biggest story on my blog except that Ponta Negra is marketed out of the office of Paradigm Global – a fund of hedge funds owned and controlled by Hunter Biden and James Biden.  Hunter and James are the son and brother of Vice President Joe Biden respectively.

You can find this several ways.  

1. Ponta Negra gives its address in the second marketing document as 650 Fifth Avenue, 17th Floor.  This is the same address as Paradigm Global.  

2. The contact on the first marketing document for Ponta Negra is Jeffry Schneider.  This is the same Jeffry Schneider who is quoted in this Wall Street Journal article as being the marketer for Paradigm Global and effectively spins for the Bidens.

3. This SEC filing gives an address and phone number for Ponta Negra.  The address and phone number is a number through the switchboard of Paradigm Global and until recently it was a way of getting into contact with Ponta Negra.

At a minimum Paradigm Global – a fund of fund managers owned the Vice President’s family, housed an alleged fraudster.  The alleged fraudster used the same phone number as the Vice President’s family business, the same marketing machine and traded off the good name of the Vice President’s family business.

There are numerous posts about Ponta Negra, Paradigm and other assorted entities (Onyx Capital for one) that I have withheld posting on.  I will put them up as a series.  The ties between the Vice President’s family and some very questionable dealings are very strong.

The next step for the SEC has the surname Biden.  Are they up to it?

To be continued.

John

A last hurrah for the rational markets hypothesis - Biota Holdings redux

You know we should all give this game away – at least when it comes to short term trading.  Rationality doesn’t work and I am not a good gut instinct trader.

I have posted on Biota (see here and here) – a stock very unlike my usual stock market picks.  I purchased it after it had risen 60 percent on swine flu.  It is clearly a big beneficiary of the flu as it is entitled to a 7% royalty on sales of Relenza – one of only two drugs that is likely to be effective against swine flu and one of two drugs that governments stockpile to deal with events like this.

I figured that if you believed the movement in Glaxo’s share price on the swine flu outbreak then you should believe that Biota would triple in Tuesday’s trading.  I also suggested that that was not going to happen.  The stock was up pennies.  However I observed that the relative movements was proof – if any more was needed – that markets are (at least medium term) irrational.  

Now there is a reason I was willing to speculate in Biota – which is that it simply is not that expensive.  I mentioned that Biota’s cash holdings were about AUD60 million.  Well I understated it.  It was 60 million before recent cash inflows.  

It is receiving a fairly big royalty payment on sales of Relenza before the swine flu outbreak.  Here was Biota’s last press release.  The company is not promotional – and there has not been a single release since the swine flu outbreak (if anything the CEO has talked down the stock).  

For Immediate Release

Melbourne, Australia — 23 April 2009

Relenza Royalty for March 2009 quarter $32.3 million

Biota Holdings Limited (ASX:BTA) today announced that it had received notification from GlaxoSmithKline (GSK) that Relenza sales were $462 million and indicative royalties were $32.3 million, for the three months ended 31 March 2009.

Indicative royalties for the nine months to 31 March 2009 total $36.1 million.

Biota CEO Peter Cook attributed the performance to recent significant orders for pandemic stockpiling from the UK and Japanese Governments.

After that cash inflow the cash holdings of Biota are closer to 100 million.

Now does anyone seriously believe that Swine Flu won’t cause a substantial increase in pandemic ordering of Relenza?  

I have no idea how big that that inflow will be – but five times the most recent quarter is hardly implausible.  (Though I am more than happy to say that it was just a guess...)

In that case Biota would have cash backing almost equal to its market cap.  And it could be bigger.  You would guess on a small possibility of very big Relenza ordering and massive and repeated stockpiling of the drug.

More to the point – the emergence of reports of psychological and resistance problems with Tamiflu will probably shift the market towards Relenza.  And Biota has a second generation flu product which should be out before Relenza runs out of patent.

Of course the dear stock market can price up the 93% of Relenza revenue for Glaxo by 6 billion and ignore the 7% owned by Biota.  In fact I frankly expect them to do so.  Rational markets don’t exist – and don’t consider this to be a stock tip because the insane relative movements can exist quite a long time and I figure the rise in market cap for Glaxo is probably wrong too.  But if you ever wanted a clear rational markets counter-example then this is it.

J

PS.  To me the strongest reason for buying the stock is that Biota is by far the cheapest financial protection against a very nasty global pandemic.  That ultimately is why I purchased it.  Though I admit - if the stock is super-strong I will take some profits...

Can the stock market count?

The title is a rhetorical because I have been long enough in the market gain to know that the stock market does not come close to counting accurately.  The rational expectations hypothesis is just nonsense. 

That said I have a single highly topical example.  

I purchased Biota Holdings yesterday.  Biota is a one-product company – a biotech with a line in influenza drugs.  It is also a small cap company listed in Australia.

Biota invented Relenza – one of two drugs that are effective against swine flu – and one of two drugs stockpiled by governments in anticipation of an event like this influenza outbreak.

More precisely Biota is entitled to a royalty of 7 percent of Relenza sales.  Glaxo funded Biota’s development and much research and as a result Relenza is essentially a Glaxo drug.  (Incidentally Gilead is to Roche as Biota is to Glaxo.  Gilead developed Tamiflu.)

Glaxo’s stock price went up by 7.5 percent in a sharply down market on the news of swine flu.  It was quite specifically a swine flu reaction in that pretty well only the companies that would benefit from swine flu (Glaxo, Roche, Gilead etc) went up.  

7.5 percent on Glaxo’s huge market cap is a lot.  Indeed as Glaxo’s market cap at the end of the day was USD79.8 billion the rise in Glaxo’s market cap of about USD6 billion.

Now Biota is entitled to 7% of the sales of Relenza – without any expenses – just a pure royalty – so whilst it is entitled to 7% of the sales – at a minimum it should be entitled to say 8% of the economics.

Now if Glaxo’s market cap rose by USD6 billion then Biota’s market cap should rise by 8% of USD6 billion or USD480 million.  USD480 million is AUD676 million.  

I do not expect it to happen.  Biota’s market cap at close of business yesterday (and after a 80% rise) was AUD276 million.  

If the market could count then Biota would approximately triple today on the open.

I doubt it will happen because (a) the market can’t count and (b) fund managers would rather speculate a lot on Glaxo for small gains than a little on Biota for big gains because.  Well frankly nobody was ever sacked for buying Glaxo/IBM.  

The effect of swine flu is hard to calculate.  But the stock market effect of swine flu on Glaxo is highly visible and it should be reflected in Biota’s share price.  But even when things are easy to calculate (as this post demonstrates) the market does not price consistently.  At least one of the Biota/Glaxo stock price moves is demonstrably wrong.

When things are hard to calculate – eg losses in the financial system – is it any surprise that the market is entirely schizoid?

John

Post script... the extent to which the stock market can not count is indicated by the fact that Biota opened a penny down albeit still above my midday yesterday purchase.

Now I do not think the move in Glaxo was necessarily rational... but one of the Biota or Glaxo moves is clearly wrong.

Biota - a wild speculation

Biota is an Australian listed company.  It has a share in a drug that cures influenza and almost certainly works on swine flu.  The stock went about 60% today.

The drug (Relenza) is a true wonder except that it has several features that make it very difficult to market.

First – and foremost – it must be taken very early in an influenza infection.  Indeed it is most effective if taken at the first sniffle.

The problem is that influenza – which can be debilitating and is sometimes fatal – starts life with about the implied threat of a common cold.  There is absolutely no way you would be crawling to the doctor to get some Relenza when you have the slightest sniffle.

By the time the influenza has taken hold – and you are running fevers and have joint pain and feel near death then the drug is ineffective.

The second problem is that the drug is inhaled through a turbo-inhaler.  Taking it is somewhat more pleasant than having an injection – but certainly less palatable than a tablet.

The third problem is that there is a competitor drug (Tamiflu) which is taken orally and is a little more consumer palatable.  Against this there are some links to psychological problems (especially in Japan) with Tamiflu.  More importantly there are resistance problems with Tamiflu that appear absent with Relenza.  

The main market for Relenza is stockpiles by government health authorities who are holding it as protection against bird flu going super-contagious.  Some governments tend to prefer Relenza stockpiles because of the lesser resistance problems.  The German Government stockpiles Relenza because they believe it more effective than Tamiflu.  That said the market is dominated by Tamiflu.

Biota is a company that has been living on very little money – the moneys made almost entirely from selling to Government stockpiles.  Needless to say governments are reliable if parsimonious payers.

Still Biota has AUD60 million cash (and equivalents) on hand and a market cap of AUD250 million.  

If Swine flu is the real deal then Biota will be a huge stock.  And if not – then maybe the fear will encourage more government stockpiling.

I speculatively purchased Biota today.  It is unusual that I purchase anything after a rapid 60% rise… and I may do some dough.  But this looked to me to be a sensible speculation – and not a bad hedge against global catastrophe.  Now I guess I have to be prepared to do my dough.