April 16, 2021
4 minutes of reading
This story originally appeared on ValueWalk
In his first quarter letter to investors Greenlight CapitalDavid Einhorn lashed out at the managers. He stated that the market is “broken and may be in the process of completely breaking down”, for example trading on GameStop and Hometown International.
Einhorn claims that many market participants and policymakers have been effectively successful at “undermining regulators.” He pointed out the actions of billionaires Elon Musk and Chamath PalihapitiyaTheir action earlier this year helped fuel Reddit’s rally in equities, according to the value investor.
“We note that the real jet fuel on the GME comes from Chamath Palihapitiya and Elon Musk,” writes Einhorn. “The turn of people appearing on TV and Twitter at critical times further destabilized the situation.
Greenlight’s letter went on to add:
“Mr. Palihapitiya controls SoFi, which competes with Robinhood and leaves us with the impression that by destabilizing GME he can harm the competition. For Musk, we will say,” If managers wanted Elon Musk to stop manipulating shares, they should have done so with more than a slight slap on the wrist when they accuse him of manipulating Tesla stock. in 2018. The law doesn’t apply to him and he can do whatever he wants. “
The letter confirmed that the investors can get rid of these actions because “no cops can keep up.”
Companies and management are “incentivized enough to participate in the law violation nothing to fear”.
Hometown International shows a market being broken
To reinforce his point, Einhorn emphasizes two other situations that have happened recently.
The first involves a small cap company, which appears to have no or no revenue, but is worth $ 113 million:
“Someone pointed us to Hometown International (HWIN), which owns a rural New Jersey snack shop. This grocery store has $ 21,772 in revenue in 2019 and only $ 13,976. $ in 2020, as it was closed due to COVID from March to September. HWIN hit a market cap of $ 113 million on Feb. 8. The largest shareholder is also the CEO / Director. The CFO / Treasurer and Director, also the high school wrestling instructor next to the snack shop Pastrami must be amazing.People who get caught up in these situations have the possibility of harm in the end, but regulators – who are supposed to protect investors – are neither present nor curious. From a traditional standpoint, markets are being disrupted. and may be in the process of a complete break. “
The strange case of Home Expands beyond the company’s market capitalization and lack of sales. Its chairman is Peter Coker Jr., who does not hold a stake in the business but has been chairman of South Shore Holdings Limited, a Hong Kong-listed company, since 2013, according to Hometown’s annual report. . He is also a Managing Partner of Pacific Advisers, and a Partner of TDR Capital Investment Ltd. Coker is a partner of TDR capital based in Shenzhen from 2009 to 2013.
Major shareholders of Hometown International Inc. (OTCMKTS: HWIN) includes a number of other businesses based in Hong Kong and China. A Macau-based company, VCH Limited, signed a Consulting Agreement with Hometown in May 2020. According to the company’s own research results, VCH receives $ 25,000 a month on the terms of agree.
Hometown International paid $ 320,000 and $ 170,000 in consulting and professional fees, respectively, for the year ended December 31, 2020. Compared to $ 13,976 in sales for the year, this pushed the company into account. Overall net loss was $ 631,356.
Compared to other company expenses, this consulting fee seems out of the ordinary. Meanwhile, labor costs totaled $ 126 last year. The cost of food and drink is $ 10,124.
To finance this cash flow, the company raised $ 2.5 million from an issue of common shares for the year.
Another recent example of the lack of regulation in the market that Greenlight’s letter highlights is the New York Attorney General’s Tether investigation.
Tether is one of the biggest cryptocurrencies, with around $ 40 billion unpaid and its value believed to be tied to the dollar. Every Tether is said to have 1 dollar of cash in crypto support. But when it was investigated, it did not.
The Attorney General’s Office investigated for two years and discovered that “Tether deceived customers and markets by overexploiting reserves and concealing a loss of about $ 850 million globally.”
Letter asking if anyone was arrested or lost their job? “Of course not.” Tether was fined $ 18.5 million and had to agree to stop trading with the people of New York.
This relatively small penalty is “as if Bernie Madoff Einhorn has been asked to pay a small fine and stop torturing New Yorkers, but go ahead and have fun with the Palm Beach crowd, “Einhorn summarized.
This article first appeared on ValueWalk Premium