Weekend edition: In the tradition of Yves Smith’s – antidote du jour

I went to a free concert on the Opera House steps on the weekend.  The billing was very strange: Laurie Anderson (and possibly her partner Lou Reed) were giving a concert on the opera house steps for dogs.  Thousands of dogs.  It was billed as inaudible to the owners – and I could not tell whether Lou Reed was having us on.  After Lou Reed brushed off the Metal Machine Trio for an impressively loud show in the concert hall (earplugs supplied) – and he was going from something you could not listen to to something you could not hear.
I was pleasantly surprised. Dogs and family loved it.  Lou Reed did not appear but milled around the audience allowing this ridiculous photo of your blogger and his designer mongrel:


Lets call it a Walk on the Wild Side. 
Seriously though – how could I resist a connection – any connection – with the Velvet Underground and one of my favorite albums. 

Astarra weekend edition: Lockhart Road

David Morisset is the nom-de-plume of David Andrews – a former director of Astarra Capital – later Trio Capital – the responsible entity for the Astarra funds.  The Morisset persona is a self-published poet and a worthwhile writer.  He writes a blog which deserves more attention.

However as an independent director of a financial institution he has a problem – under his nose it seems about 170 million has simply gone missing.  With respect to one fund (the Astarra Strategic Fund or ASF) the judge said:

there are strong reasons to believe that a substantial part of the funds of AFS were invested fraudulently and have been lost;

It is unlikely those were lost to David Andrews or David Morisset.  Instead he was just a director when it happened.

When you hear me sing in the corridor you would (justifiably) suggest I do not give up my day job.  But seeing how well Morisset writes and his problems as a financial director I suggest that he is much better at the weekend job.  Award winning even.

And below is a riff he wrote about a fictional funds management organization.  The resemblance to Astarra is surprisingly strong… 

The Sydney Morning Herald notes that this “cracking yarn” is suddenly missing from Morisset’s blog – which is a pity.  Like many things written by Morisset it deserves more attention.

To ensure that I have reprinted it below.

 

 

John

PS.  For Michael Mascasero in the fiction substitute Matthew Littauer who was murdered in Roppongi in mafia style circumstances…

WEDNESDAY, MARCH 17, 2010

LOCKHART ROAD

The following is an excerpt from the opening pages of David Morriset's crime fiction novel set against the background of Australia's trillion dollar superannuation industry.


Michael Macasero had apparently found out the hard way that the noise and traffic on Wanchai’s Lockhart Road in the early morning hours was ample cover for discretely committing murder in a rubbish-strewn alley. Two Chinese garbage men, who had shaken with fear at their discovery, had found the blood-soaked body. Overworked but politically sensitive police had come up with an inconclusive finding on the death. Macasero was, they had surmised, just another American who got into trouble in the red light district and could not find a way out of it with all his vital arteries intact. The police reports had skirted around the demonstrably obvious facts that the weapons used and the nature of the wounds suggested Triad connections.

None of the Hong Kong law enforcement agencies had seemed inclined to give the matter any more thought until years later when the Australian Federal Police raised some questions at the instigation of investment regulators puzzled by apparent irregularities in a Sydney-based superannuation fund. Even then the Hong Kong authorities had been artfully unhelpful and the Australians appeared to give up and go away to solve less complicated problems – or at least that is what they did at first.

Macasero had been proud of his reputation as an investment guru in the baffling field of hedge funds and he had claimed the equivalent of US$100 million under management. Still in his thirties when he was killed, he had set up supposedly sophisticated vehicles in various tax shelters to provide services for his clients in Hong Kong and was expanding into Australia. He knew very little about the great southern land but he had been attracted by its various governments spruiking the notion of Sydney as a major financial centre. His young English colleague, Joel Rogers, had an Australian mother and he had already set up a small Sydney office. Rogers was ready to move there permanently as soon as Macasero made the call.

Like many Filipino Americans Macasero was the product of a family that had escaped people power with a fortune assembled during the Marcos years and had then relocated everything but its money to the land of the free. An only child, he attended college at UCLA and then set off for New York to learn about hedge funds. Tiring of the compliance obligations of working for Wall Street firms, he was seduced by a job offer from a charismatic English investment banker who was looking for a hedge fund specialist to exploit new business opportunities in Hong Kong.

By this time Macasero was unencumbered by any unbreakable links to his adopted country. His parents had died and left him with ample financial resources, which his father had cannily spread around the Caymans, the British Virgin Islands, and several other similar havens of the rich and secretive. There was even a large balance in a Swiss bank account that gave Mr Macasero senior some evident respectability when he wanted to source political donations. Where the fortune came from was not clear to Michael but he was grateful for it and determined to preserve it as a first priority and add to it as a matter of urgency before he retired to enjoy the rest of his life. Inheriting his father’s entrepreneurial gifts and distaste for traditional ways of doing things, the hedge fund industry was a natural fit. It was mysterious, gently regulated and seemingly irresistible to high net worth customers and ill-governed institutions. Returns were driven not by the overall market trend but by the wits of the investment manager. Some would say it was all a matter of luck, but Michael Macasero described himself as skilful without any embarrassment.

Rodney Hawker was more than twenty years older than Michael Macasero when they met by chance at an investment seminar in the Pierre Hotel in a huge function room overlooking the yellow taxis of Fifth Avenue and the tree-lined borders of Central Park. When the conversation switched to hedge funds and the opportunities for new business they presented, Hawker mentioned his interest in prospecting the money men of Hong Kong as a first foray into the vast wealth management sector that was ready to be born in China. Macasero was all ears. They walked over to Trattoria del ’Arte on Seventh Avenue and, while they sampled the restaurant’s paper thin pizza and home-made pasta coated with subtle sauces, Hawker talked Macasero into coming with him to Hong Kong later that month. Macasero severed his Wall Street ties, sub-let his apartment and hopped on a plane without a second thought.

To the eyes and ears of a young American, Hawker epitomised suave English manners and style. His navy pin-striped suit was expertly tailored, but a little crumpled, his sky-blue and white check shirt did not quite match his Ferragamo tie of tiny red golf clubs on a grey background, but his voice was full of rounded vowels and seemed to come from the depths of his throat where it seemed a double bass had lodged. A more urbane observer might have noticed the traces of cockney in his accent – traces that became more pronounced as he drank his favourite scotch.

Hawker was a self-made man of the most determined sort because he had reinvented himself several times over. Now well into his fifties he could look back on stints as a junior civil servant in the sprawling administrative divisions of the Foreign and Commonwealth Office, a commercial banker for Barclays at a time the bank was struggling to come to grips with the fallout from deregulation, several roles as researcher and stock-picker with small funds management groups that ended when his employers were gobbled up by bigger players, and a time as a freelance investment consultant, which was proving to be hard going to such an extent that his financial reserves were starting to diminish at a rather alarming rate. Convinced that he was finished in England, he decided to try Hong Kong.

Within six weeks of his arrival, Hawker had set up a tiny office on the fringes of the Island’s financial district near where it merged into the night life of Wanchai and then he had acquired an apartment in a nondescript building just off Nathan Road in Kowloon. He had also hired Bo, a young Filipina, as combination concubine, housemaid and procurer of alternative sexual services when he felt the need for variety or multiple partners. A veteran of two disastrous marriages, Hawker made it clear from the outset that he offered Bo sexual experimentation, a steady income that allowed her to meet the needs of her extended family in Manila’s slums, a comfortable place to sleep, ample food to eat, and a much more secure life than she had as one of the city’s unfortunate bar girls. The fact that Bo was almost thirty and losing her ability to pull customers on a regular basis meant that she was easily persuaded and, indeed, she was actually grateful for the chance to be exploited on such a generous basis.

Setting about the task of networking amongst the expatriate community and finding his way around Hong Kong’s financial labyrinth was second nature to Hawker. He had a glib tongue and his resume was edited in such a way that it looked both impressive and authentic. However, running an office and the administrative chores that went with it were a bore. When it was time to buy information technology items like computers, software and printers, Hawker was quick to surrender to the obvious. He was a twentieth century man with enough in the way of people skills to sell himself and his services to people like him. But when it came to dealing with twenty-first century office infrastructure and its suppliers, he was lost in a jumble of words, symbols and business practices that were indecipherable. So he did what any sensible twentieth century man would do – he placed an advertisement for an assistant with a superior IT skill set and an interest in starting a career in the investment industry on the bottom rung of a very high ladder.

Most of the respondents knew almost as little about IT as Hawker but one of them was different. Joel Rogers had only been in Hong Kong for a few days and he just wanted a start. Hawker offered him the job and he commenced work immediately after the interview, during which Rogers had babbled on about hedge funds and the dearth of them in Hong Kong.

Rogers was more than capable. He had graduated from the University of the West of England in business studies. While students came from all over England to study at what used to be the Bristol Polytechnic, Rogers was almost a native. He was raised in Portishead on England’s dreary west coast in a house on Blaggard Street, so named, according to regional folklore, because of its former associations with smugglers and pirates. Unfortunately his west country accent and the origins of his qualifications did not play well in the City of London and all he could manage after six years of trying was a series of low-paid but extremely stressful dealing desk jobs. One day he found himself gazing out of a Canary Wharf skyscraper window and looking east. Like many others before him, sensing failure in London, he decided to give it a go in Hong Kong.

After three months, Rogers formed the view that Hawker was a bit of a pain-in-the-neck. He delegated only the most menial tasks and left his assistant almost office-bound. However, new business opportunities were abounding. Very soon, Rogers expected, he would be managing money in a hands-on way that would have still been light years away in London. Hawker, unfortunately, had other ideas. He flew to New York, ostensibly to attend a hedge funds conference, but, in reality, his main aim was to find a fund manager. He found one in Macasero.

When Macasero landed in Hong Kong and set himself up in Hawker’s office suite in a corner offering a view over Wanchai, Rogers was disappointed at first. However, that soon changed. Macasero knew what he was doing and started taking care of all the details that were beyond Hawker and unknown to Rogers. More importantly, he adopted the role of mentor to Rogers in a collegiate fashion that reflected the small age difference between the two of them. Rogers was learning business development from Hawker and money management from Macasero so he was happy.

Within three weeks of Macasero’s arrival, the firm had adopted the catchy name of Triadica Securities and was about to launch its flagship fund, labelled, rather pretentiously, as the Masterwork Macro Fund. The word "triadica" was the name of flower common in Southeast Asia, chosen by Macasero for sentimental reasons and because it seemed to refer to the firm’s founding by three theoretically equal partners. Lack of awareness that there were other organisations in Hong Kong who might find the company’s name interesting was evidence of Macasero’s naïveté and a testimony to the entire group’s ignorance.

Philidor 2.0: Valeant and Stephen King play Chess with a lot of pharmacies

Valeant (VRX:NYSE) has managed the improbable.

It sells 

(a). Generic drugs often with close substitutes,

(b). It has raised their prices sometimes to absurd levels ($1000 acne antibiotics with full generic substitutes is an example)

(c). It claims to raise volumes of these products.

I call this the improbable trio. It seems improbable that a company could do this. Not impossible, just improbable.

The trick it appears is reliance on non-traditional distribution models. 

The size of non-traditional channels

Valeant's non-traditional channels are very large. During the dispute between Allergan and Valeant Allergan noted that the IMS sales data for Valeant products was crappy. 

Valeant responded that IMS data was unreliable for Valeant. To quote:

U.S. IMS data will cover less than 30% of Valeant’s business and, for that portion of Valeant’s business IMS covers, the IMS data will not properly collect sales through a numbers of channels (e.g., specialty pharmacy, physician dispensed sales, corporate accounts, and alternative fulfillment).

The non-traditional distribution methods are hugely important in Valeant.

The Philidor allegation

The Philidor allegation is that Valeant [through undisclosed proxies] established or owned pharmacies (such as R&O in California) and used their pharmacy numbers to deceive insurance companies into believing that scripts for expensive drugs with generic substitutes were being presented at smaller suburban pharmacies rather than at a Valeant captive pharmacy. 

Bloomberg has reported for instance that Philidor staff routinely wrote "dispense as written" on scripts to prevent generic substitution. [This is fraud.] 

If however they put all those scripts through one Valeant associated pharmacy the insurance companies would wise up.

So they put the scripts through multiple pharmacies - deceiving the insurance companies into not checking for the fraud.

How many pharmacies?

One of the games we have been playing is spot-the-Valeant proxy pharmacy.

We know pharmacies outside the Philidor web: the proxy captive pharmacies extend beyond Philidor.

But the scale of Philidor problems is not widely understood and has not been disclosed to the market. I doubt Mr Ackman would have adopted his Martingale strategy had he fully understood.

So lets start.

All these pharmacies were registered in Delaware. Many are named after chess terms (as are many previously disclosed Philidor entities) but we are also noting a distinct Stephen King theme.

This should keep the fraud investigators for various insurance companies busy. I suspect this will also get added to the list of things Congress is investigating.

Entity	State	Entity ID	Registered Agent	Notes
Fifty Moves, LLC	DE	5640758	Corporation Service Company	Chess term: Fifty Move Rule
ELO Pharmacy, LLC	DE	5762328	Corporation Trust Company	Chess term: ELO ranking system
C-K Pharmacies, LLC	DE	5762330	Corporation Trust Company	Chess term: The Caro-Kahn defence
Tarrasch Pharmacy Holdings, LLC	DE	5762881	Corporation Trust Company	Chess term: Tarrasch was a great player
NC3 Pharmacy, LLC	DE	5770687	Corporation Service Company	Chess term: The rarely used Dunst Opening
Lasker Pharmacies, LLC	DE	5770702	Corporation Service Company	Chess term: After the great player and theorist Emmanuel Lasker.
B&W Pharmacies, LLC	DE	5770706	Corporation Service Company	Black and White: the usual colours of chess pieces.
NC3 Pharmacy Holdings, LLC	DE	5770708	Corporation Service Company	Another Dunst Opening reference
Knight & Knight Pharmacies, LLC	DE	5770718	Corporation Service Company	Chess Knights I presume.
First Rank Pharmacies, LLC	DE	5770741	Corporation Service Company	Another entity is called "Back Rank: another chess term.
Forsta, LLC	DE	5774549	A Registered Agent, Inc.	Entity by same name sought wholesale pharmacy registration in AZ with Gary Tanner (Owner) and Jacob Power (Pharmacist-in-Charge), both ex-Philidor/VRX
Charmberlain Pharmacy, LLC	DE	5775980	Corporation Service Company	Named for a favourite Stephen King location...
Mears Pharmacy, LLC	DE	5775991	Corporation Service Company	Named for a repeated Stephen King character...
Marsten House Pharmacy, LLC	DE	5775997	Corporation Service Company	Named for a key location in Salem's Lot. Notably a symbol of evil.
Torrance Pharmacy, LLC	DE	5776000	Corporation Service Company	Named for key characters in The Shining.
Overlook Pharmacy, LLC	DE	5776004	Corporation Service Company	The Hotel in The Shining.
Topiary Pharmacy, LLC	DE	5776008	Corporation Service Company	Topiary animals in The Shining.
Hallorann Pharmacy, LLC	DE	5776022	Corporation Service Company	Named for the chef at the Overlook Hotel in The Shining.
Decker Pharmacy, LLC	DE	5776025	Corporation Service Company	Possibly named for another Stephen King character...
Twinner's Pharmacy, LLC	DE	5776026	Corporation Service Company	Named for Stephen King's repeated doppleganger meme.
Parkus Pharmacy, LLC	DE	5776027	Corporation Service Company	A Stephen King character in The Talisman.
Halleck's Pharmacy, LLC	DE	5776029	Corporation Service Company	Named for another major Stephen King Character.
Flagg Pharmacy, LLC	DE	5776032	Corporation Service Company	Randall Flagg is a major Stephen King Character
Derry Pharmacy, LLC	DE	5776033		Derry is a repeated location in Stephen King novels.
Pennywise Pharmacy, LLC	DE	5776037	Corporation Service Company	Pennywise the Clown is a recurring Stephen King character.
Plymouth Pharmacy, LLC	DE	5776038	Corporation Service Company	The iconic Stephen King car in The Shining and others was a Plymouth.
Hanscom Pharmacy, LLC	DE	5776039	Corporation Service Company	From Ben Hanscom, a Stephen King character
Trips Pharmacy, LLC	DE	5776042	Corporation Service Company	From Captain Trips, a virus that exterminates most the human population in The Stand, a Stephen King novel.
Delain Pharmacy, LLC	DE	5776044	Corporation Service Company	From Delain, a mythical Stephen King domain.
Creed Pharmacy, LLC	DE	5776045	Corporation Service Company	From Louis Creed, the main character in a Stephen King novel.
Odetta Pharmacy, LLC	DE	5776046	Corporation Service Company	From Odetta Holmes, a recurring Stephen King character
Hemingford Pharmacy, LLC	DE	5776047	Corporation Service Company	From Hemingford Home, a Stephen King location.
Ludlow Pharmacy, LLC	DE	5776048	Corporation Service Company	From Ludlow Maine, a Stephen King location.
Crandall Pharmacy, LLC	DE	5776050	Corporation Service Company	From Jud Crandall, a Stephen King character.
Sheldon Pharmacy, LLC	DE	5776053	Corporation Service Company	From Paul Sheldon, a major Stephen King character.
Freemantle Pharmacy, LLC	DE	5776054	Corporation Service Company	From Abagail Freemantle, a major Stephen King character.
Revlowe Pharmacy, LLC	DE	5776055	Corporation Service Company	Presumably from the Reverend Lowe in the Cycle of the Werewolf.
French Landing Pharmacy, LLC	DE	5776058	Corporation Service Company	The location in Black House, a Stephen King novel.
Wilkes Pharmacy, LLC	DE	5776059	Corporation Service Company	From Annie Wilkes, a Stephen King character.
Henreid Pharmacy, LLC	DE	5776060	Corporation Service Company	Possibly from Lloyd Henreid, a minor Stephen King character.
Beaumont Pharmacy, LLC	DE	5776062	Corporation Service Company	From Thaddeus Beaumont, another Stephen King character.
Sawyer's Pharmacy, LLC	DE	5776064	Corporation Service Company	From Jack Sawyer, another Stephen King character.
DH Stark Pharmacy, LLC	DE	5776065	Corporation Service Company	Possibly short for Dark Half from the novel of the same title. George Stark is the major character.
Shardik Pharmacy, LLC	DE	5776066	Corporation Service Company	Shardik is one of the twelve guardians of the Beams that hold up the Dark Tower (again a Stephen King reference).
TCM Pharmacy, LLC	DE	5776067	Corporation Service Company	We are fairly sure this is associated - but have not worked out the link.
Burlingame Pharmacy, LLC	DE	5776070	Corporation Service Company	Jessie Burlingame is a major Stephen King character.
Lauder & Cross Pharmacy, LLC	DE	5776071	Corporation Service Company	Try these names... http://stephenking.wikia.com/wiki/Harold_Lauder and http://stephenking.wikia.com/wiki/Nadine_Cross
Claiborne Pharmacy, LLC	DE	5776072	Corporation Service Company	Dolores Claiborne is a Stephen King novel.
Edgecombe Pharmacy, LLC	DE	5776073	Corporation Service Company	From Paul Edgecombe, who used to run Death Row in a Stephen King novel.
Georgia Pines Pharmacy, LLC	DE	5776074	Corporation Service Company	Georgia Pines is a retirement home in Stephen King novels.
Garraty Pharmacy, LLC	DE	5776075	Corporation Service Company	From Ray Garraty, another Stephen King character.
Cold Mountain Pharmacy, LLC	DE	5776076	Corporation Service Company	The Cold Mountain Penitentiary is where Paul Edgecomb ran death row.
Coffey's Pharmacy, LLC	DE	5776078	Corporation Service Company	John Coffey is another Stephen King character.
Stillson Pharmacy, LLC	DE	5776079	Corporation Service Company	Steve Stillson is the President of the United States in a Stephen King novel.
Rainbird Pharmacy LLC	DE	5776080	Corporation Service Company	John Rainbird is a Vietnam Veteran in a Stephen King novel.
Longmont Pharmacy, LLC	DE	5776083	Corporation Service Company	Longmont VA is a location in the Stephen King novel, The Shop.
Dawes Pharmacy, LLC	DE	5776086	Corporation Service Company	Barton George Dawes is another Stephen King character.
Castle Rock Pharmacy, LLC	DE	5776088	Corporation Service Company	Castle Rock Maine is a location of paranormal activity. I guess like a Valeant pharmacy.
The Shop Pharmacy, LLC	DE	5776089	Corporation Service Company	The Shop is a secret Government Agency in Stephen King novels. I guess this is a secret Valeant agency.
Cambers Pharmacy, LLC	DE	5776096	Corporation Service Company	Joe Cambers, a Stephen King character runs an auto-repair shop in Castle Rock. Probably another paranormal shop.
McGee's Pharmacy, LLC	DE	5776099	Corporation Service Company	Charlie McGee, a Stephen King character, has pyrokinetic powers - perhaps they include ripping off insurance companies.
Juco Pharmacy, LLC	DE	5776103	Corporation Service Company	A nickname for Joe Cambers rabid family dog.
Roland's Pharmacy LLC	DE	5776108	Corporation Service Company	Roland Deschain, a major Stephen King character.
Tower Pharmacy, LLC	DE	5776110	Corporation Service Company	Possibly a reference to The Dark Tower, a Stephen King novel.
Hawkmarten Pharmacy, LLC	DE	5776111	Corporation Service Company	We think this is one of the many aliases of Joe Flagg. Suggestions accepted.
Carrietta Pharmacy, LLC	DE	5776115	Corporation Service Company	The full first name of Carrie, of the infamous Stephen King novel.
PBG RX Pharmacy, LLC	DE	5794828	Corporation Service Company	We have not found the reference here. The registration details make us think it is related.
Decker Pharmacies, LLC	DE	5794834	Corporation Service Company	Another reference to Decker.
French Landing Pharmacies, LLC	DE	5794836	Corporation Service Company	Another reference to French Landing.
NC3 Pharmacies, LLC	DE	5794839	Corporation Service Company	See the above chess reference.
C-K Pharmacy, LLC	DE	5794840	Corporation Service Company	See the above chess reference.
ELO Pharmacies, LLC	DE	5794842	Corporation Service Company	See the above chess reference.
Roland's Pharmacies, LLC	DE	5794844	Corporation Service Company	See the above reference to Roland Deschain.
Hemingford Pharmacies, LLC	DE	5794849	Corporation Service Company	See the above reference to Hemingford Home
Flagg Pharmacies, LLC	DE	5794852	Corporation Service Company	Joe Flagg again.
Overlook Pharmacies, LLC	DE	5794854	Corporation Service Company	The hotel in the Shining again. Do we see a recurring theme.
Fischer Pharmacy Holdings LLC	DE	5805160	Corporation Service Company	Surely a reference to Bobby Fisher, world Chess Champion

We are just playing with one State here.

There are pharmacies in other states. And they are all we think related to Valeant.

But here is the gem. The registration of false pharmacies continued AFTER Philidor was exposed and after Valeant said that they would stop doing business with Philidor.

And the people on registration documents are also often on the pay roll of Valeant (not Philidor).

I hope the longs can explain that inconvenient fact away - because it is not obvious how you do that.





John