10Foot Capital declares morals ‘non-core’, diversifies into fraud manufacturing
reprinted with permission from financialnews.net.com.network.au.
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FNNCNAU reporter Fiona Mastodon recently conducted a live interview with Yeti Bigfoot, founder of controversial activist investment fund 10Foot Capital. 10Foot Capital is in the midst of a major restructuring program as it attempts to rectify market-lagging performance.
Yeti Bigfoot, founder of 10Foot Capital, at a gala event in late 2013.
Here’s the interview transcript for those who missed the original:
Financial News Network: Yeti Bigfoot, you stated in your recent market update that your performance has persistently lagged the wider market. We understand you’re divesting some core businessses as a result?
Yeti Bigfoot: Non–core businesses Fiona, but yes you are correct. We have determined that major parts of our ethics, morals, and compliance divisions don’t immediately contribute to our competitive offering, and may in fact be a burden relative to peers who are not weighed down by these cost-intensive, low-ROE legacy businesses. We will look to divest them in a way that maximises value for shareholders, such as via a trade sale or IPO.
FNN: Your latest quarterly report shows that you are up 3% since inception, versus 6% for the index. Are these legacy businesses a key cause of that? We understand that you’ve taken radical steps to turn your performance around.
YB: Yes, we’re lagging the market significantly, a common occurrence for value funds in the late stages of a bull market. However, unlike most funds we’re not forced to simply lay down in the face of the underperformance and outflows. I think it was you who reported several months ago that 1,700% of our listed shares were sold short. We have since conducted an extensive buyback – I now personally own 104% of 10Foot Capital’s common stock on issue – but due to regulatory issues in Uzbekistan we have not been successful in closing our discount to portfolio fair value. As a result we’ve turned to unconventional means to make up the shortfall. Fraud is a real area of expertise for us and we think we have an edge by focusing our attention on fraud manufacturing.
FNN: But fraud manufacturing? Surely that carries risks?
YB: Quite the contrary. Most frauds persist far longer than those who identify it are ready to admit, and fraud carries a high bar to prosecution so it is difficult to convince the regulator to stir themselves to take care of it. You do have a point, a poignant one. However, I would point out that most frauds are artisanal and bespoke – usually created by a small handful of people and enabled by a few brokers or financial advisers. There is a limit here to both production capacity and ultimate size – most frauds collapse under their own weight once they pass a certain degree of mass or complexity. What we’re doing is industrialising fraud on an institutional scale. The ROI on these types of ventures is astronomical, and our proprietary algorithms have identified this as a real gap in the market and something that buyers will pay a premium for.
FNN: That sounds exciting. Can you give us a little taste?
YB: Sure, well, we’ll carry all the markers – mark to model accounting, opaque private equity holdings, ‘misunderstood’ tech investments, regular dividends, cash flow misalignment with revenue, hockey stick profit forecasts, routine equity raising to fund the dividends, and possibly an ICO if they’re still hot by the time we finish our white paper. We’ll have a handful of corporate advisors and other enablers posting suspiciously detailed analyses under nom de plumes on Hotcopper and SeekingAlpha. In due course we’ll also raise serious cash from large pension funds and use sophisticated cornerstone investors to rubber stamp our operating model.
The difference between us and other frauds is that we’ll own it and we’ll take it big. Most frauds try to stay small, thus sowing the seeds of their own destruction as I mentioned. What we’re looking to do is create a story so colossal that no one would believe that someone ‘could have the impudence to distort the truth so infamously’. Regulators are notoriously slow off the mark against large frauds, and research shows a direct inverse correlation between the size of fraud and likelihood of achieving convictions.
FNN: In our experience here at FNN we find that the media usually brings corporate skulduggery undone, not regulators. 10Foot Capital is already controversial, fraud manufacturing will just paint a target on your back?
YB: Disagree. Fraud against white collar and wealthier individuals is generally seen as more acceptable, so we expect minimal if any media outrage. One thing we do intend to do is found a charity to provide affordable home loans to those of humble means. We see this as an effective hedge against media risks, as it’s unlikely that a market reporter could convincingly attack a company that runs a charity that lets poor people leverage into the Australian Dream with irresponsibly large loans. We will, of course, lay off any risk via securitisation and special-purpose vehicles. Additionally we expect to attract a number of well-connected but not particularly skilled directors who we feel will bring additional security to the table.
Look, I’m not calling it a fraud here, but our goal is to create frauds the size of Valeant. I’d like to count Pershing Square as a co-investor one day.
FNN: Yeti, I’m not as familiar with Valeant as you are, but my understanding is that there’s been no fraud proven at Valeant, nor any criminal charges laid against its executives?
YB: Exactly.
FNN: Yeti, thank you for your time. Everybody, Yeti Bigfoot.
I have no financial interest in, or relationship to, any person or company mentioned or implied. This is a disclosure and not a recommendation. This post is satire. Any resemblance to any individuals, living or dead, is strictly coincidental.
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