Last August, Citigroup Inc. wired $900 million to some hedge funds by accident. Then it sent a note to the hedge funds saying, oops, sorry about that, please send us the money back. Some did. Others preferred to keep the money. Citi sued them. Yesterday Citi lost, and they got to keep the money. I read the opinion, by U.S. District Judge Jesse Furman, expecting to learn about the New York legal doctrine of finders keepers—more technically, the “discharge-for-value defense”—and I was not disappointed. But I was also treated to a gothic horror story about software design. I had nightmares all night about checking the wrong boxes on the computer.

source: ML

Okay let’s do payment for order flow again, because people are talking about it and that always stresses me out. Here’s an intuitive description of how it works.

source: ML

They had $19 million, a deal with Disney, and dreams of becoming the next Ben & Jerry’s. Then everything fell apart.

source: ML

Maybe the biggest capital markets story of 2020 was the boom in special purpose acquisition companies. A SPAC raises money from investors in a “blank check” initial public offering, puts the money in a pot, and goes out and looks for a private company to merge with. 1 In the merger, the target private company gets the money in the pot and the SPAC shareholders get shares in the new combined company; the result is that the target company has raised cash and gone public through the merger. It is an alternative to an IPO that can offer more speed and certainty and perhaps even a better price.

We have talked about SPACs before, but I have somehow neglected to express appreciation for the clever and elegant bit of financial engineering at the heart of the SPAC structure. Here’s how a SPAC works:

source: ML

A man in California is haunted by the memory of a pop song from his youth. He can remember the lyrics and the melody. But the song itself has vanished, completely scrubbed from the internet. PJ takes on the Super Tech Support case.

Or: https://podcasts.apple.com/us/podcast/reply-all/id941907967

source: ML

By the time Garden headed back down the driveway, he was well on his way to a SoftBank investment of $375 million, with double that money on the table if his business gained traction. But that’s not what happened. Instead, Zume marks one of the biggest recent disappointments in SoftBank’s port­folio. As of this year it no longer makes or ­delivers pizzas. In January, Zume cut 360 jobs, leaving a little over 300 employees, and said it would focus on packaging and efficiency gains for other food delivery companies.

Levine commentary: https://www.bloomberg.com/opinion/articles/2020-02-14/robot-pizza-trucks-hit-some-bumps

Just, what a closed loop it is. You run a pizza delivery business. You craft a pitch calculated to convince Masayoshi Son that your pizza delivery business will change the world. You meet with Masayoshi Son. He convinces you that you will change the world. Now you are all believers, all in it together. He hands you piles of money. You go home and weep to your friends, “I am going to change the world.” The friends are like “wait what with the pizzas?” But it is too late for skepticism, you have the money, the robots are in the trucks, they are fanning out across town, the cheese is everywhere, they cannot turn back.

source: ML

Despite their growing numbers and valuations, the performance of unicorns has been a mixed bag. On the whole, an investor in the second half of the decade was likelier to have put money into a unicorn that was unprofitable and whose value has dropped as a public company than an investor in the decade’s first half, The Wall Street Journal found.

source: ML

Some commenters have recently brought up the perennial question of when speech becomes constitutionally unprotected blackmail. As I’ve mentioned before, this is one of the thorniest conceptual questions in all of jurisprudence.

What’s the explanation? Legal scholars have debated this for decades, and to my knowledge have not come up with a perfectly satisfactory answer.

source: ML

Also tech companies as banks, the bank of crypto and index funds.

A weird feature of U.S. tax law is that, if you do a thing purely to get around tax rules, then that is bad and a sham and the IRS can look through it and make you pay your taxes. But if you do the thing not only to get around tax rules but also to get around other rules (like margin requirements), then from the IRS’s perspective you have a valid business purpose and you might be able to keep your good tax treatment. “We’re not just gaming your rules, we’re gaming other regulators’ rules too” is, surprisingly, an argument that might persuade the IRS.

The advertising for the Apple card calls it “A new kind of credit card. Created by Apple, not a bank.” That appears to be true of the appearance of the physical card. But the credit algorithms were created by a bank, to Apple’s eventual embarrassment. It is just a little odd that Apple seems to have been so incurious about the algorithms. It’s a tech company!

source: ML

“We’ve been waiting for the music to be over. And now the music is over, and it’s time to dance,” Mr Sarva said.

This article has been corrected. Mr Sarva’s sweatshirt slogan was “Grave Dancer”, not “Crave Danger”.

More on WeWork: https://www.nytimes.com/2019/11/02/business/adam-neumann-wework-exit-package.html

source: ML

In politics, stock markets, space, and the battlefield, tiny software calculation mistakes have had enormous consequences.

Sometimes those fractional cents aren’t stolen—they simply vanish. In the early 1980s, a new stock index at the Vancouver Stock Exchange tracked a steady and mysterious loss in value. An investigation revealed that floor() was being used instead of round(), with the lost fractions of cents accumulating to almost a 50 percent loss of value in 22 months. The programming mistake was finally fixed; the index closed around 500 on a Friday and reopened the following Monday at over 1,000, the lost value restored.

source: ML

In better times, really not that long ago at all, we talked about WeWork as a clever financial arbitrage, segmenting the market so that it could appeal to debt investors as a boring stable real-estate company while appealing to equity investors as a fast-growing high-multiple tech company. Now, in worse times, it is the opposite: If you invest now, you can get some terrifying debt that lenders don’t want combined with some cursed equity that the stock market doesn’t want.

Did WeWork founder Adam Neumann disturb a mummy and trigger an ancient curse? Was a WeWork built on a haunted graveyard, unleashing powerful dark energies and also elevated levels of formaldehyde? How do you have such a relentless parade of negative financial news and then find out that your phone booths cause cancer? “Our phone booths might cause cancer” was not an IPO risk factor. Nobody had “phone booths cause cancer” on their WeWork Disaster Bingo cards.

source: ML

Mostly about buying college admissions through donations, but also how he runs his house.

The 68-year-old Shaw made his estimated $7.3 billion fortune by bringing the computing revolution to finance. D.E. Shaw & Co., the legendary hedge fund that bears his name, pairs proprietary trading algorithms with obsessive risk management. Less well publicized, however, are the various ways in which Shaw has applied his fund’s risk-averse, quantitative approach to nearly every aspect of his life. Employees tell stories about Shaw wanting Chinese food or a comfortable mattress, and Shaw staff exhaustively researching and testing the options in advance. It was company lore that before Shaw traveled, an assistant would take the exact same trip — same car service, same airport, same seat on the plane — to eliminate any inefficiencies. Shaw has been said to purchase tickets for several different flights on the same day in case his plans change.

source: ML

On the other hand if you have valuable stuff you can leave it with the bank, and the bank will keep it in a box for you, but that is sort of an accident. It is not a core banking function, not really a banking function at all except for historical reasons. And sometimes they’ll drill open the box and throw your stuff out!

Original story: https://www.nytimes.com/2019/07/19/business/safe-deposit-box-theft.html

It turns out that, statistically, heart surgeons are better at heart surgery than barbers are. What about dermatologists, are they better at sourcing and identifying private-equity and venture-capital investments than private-equity professionals are?

Original: https://www.nytimes.com/2019/07/19/your-money/diy-private-equity.html

source: ML

Also racing sponsorships, credit ratings, ice-water celebrations and Trump on crypto.

This was a good one.

source: ML

This may be equal parts hilarious and infuriating.

source: ML

In today’s edition of edit a URL and go to jail...

KPMG sent participants in training programs a hyperlink that directed them to the applicable exams. Embedded in the hyperlink was an instruction to the server that specified the score necessary to pass the exam. Thus, the characters “MasteryScore=70” meant participants were required to answer at least 70 percent of the answers accurately to pass the exam. By changing the number in the hyperlink, audit professionals could change the score required to pass.

58. For a period of time up to November 2015, certain audit professionals, including one partner, altered the URLs for their exams to lower the scores required to pass. Twenty-eight of these auditors did so on four or more occasions. Certain audit professionals lowered the required score to the point of passing exams while answering less than 25 percent of the questions correctly.

Also: 25%??? Come on guys, that’s worse than random chance!

source: ML

Second: It’s a thing that happens often enough that ICE Futures has a procedure to report trades like this as errors and adjust their prices. A normal part of electricity futures markets is people buying the wrong contract because they didn’t read the name all the way through, and then going to the exchange and saying “whoops wrong contract,” and the exchange fixing the trade.

Instead he’s accused of doing it basically as a form of … protest art, I guess? It happened to him, he was mad, so he did it to other people “to prove the point that” … that … that you’d be mad too if it happened to you? He was driven by that most universal of human motivations, the desire to annoy other people with the thing that was annoying him. Really it’s the most relatable kind of market manipulation.

source: ML

In this paper we examine how, even when faced with this statistical improbability, ISE discovered 732 private keys as well as their corresponding public keys that committed 49,060 transactions to the Ethereum blockchain. Additionally, we identified 13,319 Ethereum that was transferred to either invalid destination addresses, or wallets derived from weak keys that at the height of the Ethereum market had a combined total value of $18,899,969. In the process, we discovered that funds from these weak-key addresses are being pilfered and sent to a destination address belonging to an individual or group that is running active campaigns to compromise/gather private keys and obtain these funds. On January 13, 2018, this “blockchainbandit” held a balance of 37,926 ETH valued at $54,343,407.

In an experiment, we picked a private key of 1, for no reason other than that it is the lower bound of a possible private key for secp256k1 and it also lies within the 1 to 232-1 range of a 32-bit truncated key. We use the private key 0x0000000000000000000000000000000000000000000000000000000000000001 to derive the public Ethereum address 0x7e5f4552091a69125d5dfcb7b8c2659029395bdf.

source: ML

A lot of banking businesses are mysterious, but the exotic-derivatives business is actually very straightforward and normal. It is a sort of manufacturing business. You think about a product that customers might want, a need that they have that can be filled by a product you can build. Once you have an idea for a product, you design it and figure out how to manufacture it efficiently.

Unlike in a regular manufacturing business, you are not exactly manufacturing the product, delivering it to the customer and walking away. In fact manufacturing a derivative normally requires continual trading — “dynamic hedging” — throughout its life. You are manufacturing it prospectively; you sign up the trade, give the customer her money, and then spend the life of the trade trying to make it worth what your model said it was worth.

Triple lizard! Wouldn’t you buy a triple lizard just for the joy of saying it? “Give me three triple lizards please!” Who even cares what they are, they’re triple lizards.

source: ML