The returns shown in the document are not indicative of fraud—those sorts of returns are very possible when skilled traders deploy short-term trading strategies in inefficient markets, which crypto markets surely were at the time. The default risk when borrowing at 15% might have been very low, but not zero as they suggested. The “no downside” characterization should have been caught by a lawyer, and was misleading.
Nobody with an understanding of trading would have [EDIT] I would not have concluded they were engaged in Ponzi schemes or were misrepresenting their returns based on the document. There are plenty of sloppy, overoptimistic startup pitch decks out there, but most of the authors of those decks are not future Theranoses.
Good points, Brian . . . I’m sure there are lots of overoptimistic pitch decks, and that a 15% return might be feasible, and maybe I’m just looking at this with the benefit of hindsight.
Even so, an investment firm normally doesn’t do anything like this, right? I mean, I assume that even Renaissance Technologies wouldn’t want to offer one single investment opportunity packaged as a loan with a legally guaranteed 15% rate of return with “no downside.” https://www.bloomberg.com/news/articles/2021-02-10/simons-makes-billions-while-renaissance-investors-fume-at-losses#xj4y7vzkg They might brag about their past returns, but would include lots of verbiage about the risks, and about how past performance is no guarantee of future returns, etc.
Thanks for your reply. I do think it would be unusual to see such promises, particularly from a firm looking for large investments. And I would expect to see a bunch of disclaimers, as you suggest. There might have been such language in the actual investment documents, but still. The excerpt shared on Twitter would have set off red flags for me because it seems sloppy and unprofessional, and it would have made me particularly concerned about their risk management, but I wouldn’t have concluded it was a Ponzi scheme or that there was something fraudulent going on with the reported returns.
It will be interesting to see if all of the FTX/Alameda fraud (if there was fraud, which seems very likely) took place after the most recent investment round. Investors may have failed not in financial diligence but in ensuring appropriate governance and controls (and, apparently, in assessing the character of FTX’s leadership).
The returns shown in the document are not indicative of fraud—those sorts of returns are very possible when skilled traders deploy short-term trading strategies in inefficient markets, which crypto markets surely were at the time. The default risk when borrowing at 15% might have been very low, but not zero as they suggested. The “no downside” characterization should have been caught by a lawyer, and was misleading.
Nobody with an understanding of trading would have[EDIT] I would not have concluded they were engaged in Ponzi schemes or were misrepresenting their returns based on the document. There are plenty of sloppy, overoptimistic startup pitch decks out there, but most of the authors of those decks are not future Theranoses.Good points, Brian . . . I’m sure there are lots of overoptimistic pitch decks, and that a 15% return might be feasible, and maybe I’m just looking at this with the benefit of hindsight.
Even so, an investment firm normally doesn’t do anything like this, right? I mean, I assume that even Renaissance Technologies wouldn’t want to offer one single investment opportunity packaged as a loan with a legally guaranteed 15% rate of return with “no downside.” https://www.bloomberg.com/news/articles/2021-02-10/simons-makes-billions-while-renaissance-investors-fume-at-losses#xj4y7vzkg They might brag about their past returns, but would include lots of verbiage about the risks, and about how past performance is no guarantee of future returns, etc.
Thanks for your reply. I do think it would be unusual to see such promises, particularly from a firm looking for large investments. And I would expect to see a bunch of disclaimers, as you suggest. There might have been such language in the actual investment documents, but still. The excerpt shared on Twitter would have set off red flags for me because it seems sloppy and unprofessional, and it would have made me particularly concerned about their risk management, but I wouldn’t have concluded it was a Ponzi scheme or that there was something fraudulent going on with the reported returns.
It will be interesting to see if all of the FTX/Alameda fraud (if there was fraud, which seems very likely) took place after the most recent investment round. Investors may have failed not in financial diligence but in ensuring appropriate governance and controls (and, apparently, in assessing the character of FTX’s leadership).