So I previously talked about
being a huge fan of vaporware and the figureheads that hype them
. This weekend I even rounded out my '08 crash trilogy
with its Enron prequel.
I highly recommend the documentary though I should say that the wiretaps of Enron traders joking about exploiting the recently-deregulated California energy sector is a tough listen
. Anyway, while Kenneth Lay and Jeffrey Skilling didn't have the social media polish (or the existence of social media, for that matter) that Elizabeth Holmes and Billy McFarland did, they had all the "fake it til you exit" gusto.
I first read a Hindenburg writeup last year when it revealed that Nikola
's prototype truck "in motion" was actually just rolling down a hill. And some other stuff. It's a pretty good read and has largely or entirely been validated since initial publication.
While it may come as a surprise to GME squeeze-era Reddit accounts, Hindenburg discloses its short positions and writes "hit pieces" that may drive the short positions rather than justify them. The more recent Lordstown
report pairs nicely with my running chronicle of their Reddit astroturfing and was rewarded with this week's ouster of their Billy McFarland, Steve Burns
I mean, Rusty, thanks for pointing that out but only bots and newbs think this is a revelation.
Indeed, this puts Hindenburg's short research at odds with the very-very-artificial notion that WSB is about taking down shorts and putting institutionals against the wall
. These astroturfing campaigns have three levels of hilarity, each more significant than the last:
- Finance-sector marketers are so oblivious that they don't understand how to correctly manipulate Reddit.
- Reddit is so unable to manage fraud that the dumb finance-sector marketers easily dominate the conversation and create the zeitgeist, rather than steer it.
- I observe/lurk, looking for legit DD and meme stonks, then write about bots "not getting it". Lol.
Whoa! If only they disclosed this, /u/DiBalls, account created during the GME sqeeze.
Finance citizen journalism
Having read a small sampling of their work, Hindenburg's MO seems to be to call up former employees to find leads
and then validate them with open source research and FOIA requests. While this is only as sophisticated as "a needledick with a wifi connection", that makes the work pretty easy to validate/replicate. As far as I'm aware, Nikola's gravity drive system wasn't widely recognized until Hindenburg published it
And since the Nikola saga predated the January 2021 GME squeeze, it's not widely understood by bots
. They jump in the conversation and say "burn the hedgies", not realizing that the Nikola piece saved a lot of WSB money and - more importantly - generated several high quality memes.
I enjoy the Hindenburg writeups, in part because they are very approachable and lack the "I'm in finance, you wouldn't understand" attitude that's common in the industry. Is their simplicity probably a way to reach both institutionals and retail to maximize impact? Probably. But to echo the common investing refrain, "do your own research". The Hindenburg hit pieces provide most of their source material (save whistleblower identities) rather than simply say, "Trust me, my investment firm is worth $x billion."
The Eye of Sauron turns to Draft Kings
It wasn't hard to be on board with the Nikola and Lordstown pieces, especially after each company responded with rhetoric and reorgs
. The new one is about Draft Kings
. Unlike the previous refrains of "this is vaporware", the DKNG piece has a little more nuance. My TLDR of the Hindenburg contentions:
- The Draft Kings SPACquisition included a Bulgarian company that supports non-US black market gambling, particularly in Asian markets that largely ban the enterprise
- Draft Kings is overvalued based on its fundamentals
Right away, this isn't the smoking gun
of "that truck wasn't driving itself" or "you talked about $12M preorders from a guy working out of his garage".
Black market connections
From the writeup (emphases mine):
Based on conversations with multiple former employees, a review of SEC & international filings, and inspection of back-end infrastructure at illicit international gaming websites, we show that SBTech has a long and ongoing record of operating in black markets.
This is basically the crux of the first point. DraftKings merged with SBTech (an international sports betting technology company). Upon smelling US exposure with recent SCOTUS cases, SBTech decided to push its partnerships with illicit clients to a spinoff
, BTi/CoreTech. Bots will ask for a "smocking gun" but, for me, the evidence is damning enough for trading:
- Testimony of anonymous former employees
- LinkedIn pages and emails connecting SBTech and BTi/CoreTech
- InspectElement-type captures of SBTech/BTi/CoreTech interfaces appearing in illicit gaming portals
This comes with a slew of connections to triads and shipping-container gambling site hosts
and binary options trading scams.
As an investor, one has to ask, "does this matter?" I'm not sure
. Here are the risks to a DKNG position that I can think of:
- It appears SBTech has had dealings with Oregon's lottery, state and federal prosecuters may be less inclined to look the other way than, say, Credit Suisse. I don't know enough about the subject matter to guess the implications of United States v. Draft Kings.
- Major sports organizations like the NFL may be concerned with maintaining their brand. Any bad press could have the three-letter leagues moving to Vegas-backed betting storefronts.
Continuing with quotes from the writeup:
Insiders have dumped over $1.4 billion in stock since the company went public a little over a year ago, with SBTech’s founder leading the pack, having personally sold ~$568 million in shares.
These numbers might matter to me if I did more research. As they are, these numbers don't mean a lot
. I'm (perhaps falsely) conditioned to a system wherein execs are constantly receiving huge stock grants and regularly sell large tranches
as a primary or supplementary income. I'd also expect a C-level employee to convert a lot of shares to cash after a SPAC merger since, you know, it lets them enjoy/diversify their new wealth.
Now, if you told me that Shalom Meckenzie liquidated 80% of his DKNG holdings and had no more coming in
, I might be inclined to believe he was skittering from a sinking ship.
We spoke with several industry experts and competitors who questioned the viability of DraftKings’ model of aggressively burning cash on promotion and marketing to acquire customers in the near term, despite a lack of evidence of long-term customer brand loyalty.
Lolllllllllll reachingggg. You guys have heard of Amazon, right?
Or any other company that operates at a loss to create a user base. Uber. Ant. Pied Piper. I'm not saying it's a great business model, but it's certainly worked enough to not be considered an investing black mark - especially when you're trying to create a user base in a new(ly legal) market.
Astroturfers, do your thing
As usual, four month old accounts tell fellow Redditors
that this means there's squeeze potential.
Credit Suisse, cool. They ate a huge L on the Archegos thing
and, well, fresh in my mind is their negligence in the Enron thing.
GME-era account vs real account.
Maybe Draft Kings should consider civil action against Hindenburg.
/u/trading123456 may just be DKNG's /u/DawgPound98. It's hard to say if his mil invested in DKNG is real or paper since he's been around since... *checks notes* the GME squeeze.
He's a bit short on anything that isn't personal plaudits/attacks, but at least he knows the correct use of you're/your.
Feel free to translate out of Reddit stockbro speak.
Dammit. Uhhh, this is not investment advice.
Putting up the 2x2s is slow, slow work.