The Giant, Under Attack
nytimes.com
nytimes.com
Until I moved to New York, I had no idea what hedge fund people generally did, or how much of their work and skillset was similar to what investigative journalists did, especially when it came to looking at public records and lawsuits. Indeed, the litany of alleged mishaps and deaths that short-sellers found while investigating American Addiction Centers -- including the man in the lead anecdote -- could easily be the core of an investigative project. e.g. what's described under the subhed, "Open Beds and 'Closing a Sale'"
> Mr. Drose returned to Kingsford’s offices in Atlanta, took over a glass-enclosed conference room, and made piles of documents related to each death. None of the deaths had been disclosed to investors when the stock of American Addiction Centers began trading publicly.
> The dead included Shaun Reyna, an alcoholic, who killed himself with a shaving razor in one of the company’s treatment houses. Mr. Reyna’s widow said in a 2014 lawsuit that the staff had ignored signs that her husband was suffering withdrawal symptoms that required urgent medical care. The case is expected to go to trial early in 2018.
> There was also Gregory Thomas, who hanged himself from a bridge one block from the company’s main office in Temecula in November 2010. He had been brought to the office by a company employee, but never went through with the treatment...*
> But the circumstances of Mr. Benefield’s death, as detailed in a lawsuit his wife brought in 2011, stood out.
* A GS employee scoffs at Christian Bale's character (Burry) for saying that he actually investigated the mortgages that comprised a few CDOs
* Steve Carrell's team goes down to Miami to meet realtors and mortgage buyers
Drose is a professional short-seller. Assuming he was already shorting AAC, it looks like he turned a substantial profit not on the company's weakness but on his ability to publicize it among traders.
"Short and distort" is securities fraud, the mirror practice of "pump and dump". There's no particular sign that Drose distorted the situation, but I'm curious where the lines are.
Does anyone know whether misinformation is required for this practice to rise to fraud? I assume totally-factual statements about a company would be safe, but I can imagine a lot of grey areas around opinion or hypothetical statements. If a political writer shorts a company, then starts loudly calling for it to be regulated or investigated, is that fraud? How about if a politician does so, without introducing a law?
1 https://www.institutionalinvestor.com/article/b1505px65dmmnr...
If the information is libelous, well, then it is illegal.
At least in the presence of a fiduciary relationship, offering true information can still be legally risky if it's done for the benefit of the broker instead of their client. Drose and Ackman are considerably safer because they're just making public statements, but there are quite a lot of ways to break the law around trading outside of actual libel.
It's really difficult to say that's not true, and by throwing the weasel-word "could" into the sentence you do a lot to protect yourself from consequences.
Also...I am looking very askance at your characterization of 'could' as a weasel word. There are a lot of shades of grey in the world and we need degrees of certainty like could to help communicate that doubt. I think there is a large gap between troubling uses of the word 'could' and the example you gave me...which seems honestly quite innocuous.
What is your point with this comment? To suggest that people can use words to communicate doubt without having a factual basis for those claims and protect themselves from legal retaliation party by an injured party?
To support this conjecture you give me an example which is CLEARLY true. Loot boxes are 100% like gambling. You give money to receive a probabilistic reward with addictive properties. Designers intentionally seek out whales who will drop money on buying many boxes chasing the irregular high.
It seems eminently reasonably that this could make them illegal in places where gambling is closely regulated...using could here seems 100% necessary to communicate that legal experts probably disagree about whether or not loot boxes and their ilk fall under these older statutes.
The only time I ever shorted, was because I correctly determined Krispy Kreme’s financials didn’t add up. I lost a ton of money because most of my options expired before how misleading their financials were became clear to the market, and the stock collapsed.
The bias in the public stock market is to pump stocks. Everyone (from investment bankers to brokers to media) is incented to give out rosy forecasts and valuations for companies. CNBC has always been a pumpers paradise.
Proportionately their is very few people who short stocks and with comparatively tiny amounts of money. They have a very tough job, but it’s an important one. They literally save people from being defrauded.
It’s really important that their free speech rights not be limited or stifled. Many times they have to fight bogus libel suits from the companies, like critics did in this story. It’s to easy for companies to sue to stifle legit criticisms already.
I'd expect the same here. The information doesn't have to be false for it to be a hit piece designed to profit the stock-shorting author.
Usually, it's disinformation, not misinformation, but it is possible or it to be lies of misdirection and omission rather than direct falsehoods, which may or may not literally constitute disinformation.
> The information doesn't have to be false for it to be a hit piece designed to profit the stock-shorting author.
Certainly, if you short based on not-yet-widely known true information, you want to ensure that the market discovers that information between the time that you get into the short position and the time you have to cover the short.
OTOH, trying to get the market to recognize and react to true information isn't really a “hit piece”.
However most of those deaths were suicides and there's only one that wasn't. It's tragic but if in the total life of this company they've only had one accident like this and it's not re-occurred and they cleared up any discrepancy with their workers about what sort of existing medical conditions they can handle then I have a harder time engaging my righteousness.
If an addiction treatment facility overlooked that or declined to provide urgent care, I'd impute a significant role to them even in a patient suicide. It's like hearing that someone committed suicide after a hospital ignored their need for pain relief - they may not be responsible for the death, but they're responsible for neglecting a serious need of someone in their care.
https://www.valueinvestorsclub.com/idea/American_Addiction_C...
The nut of it is: treatment centers make more top-line dollars from treatment than testing, but the margins on testing (which takes just minutes to do and scales much better than delivering treatment) are so much better that the bottom line is dominated by testing revenue.
This creates an incentive to test more than is necessary; it's essentially a vector for insurance fraud.
The original argument against AAC was that insurers would crack down on fraudulent testing and put AAC out of business.
I have quite a bit of knowledge, having worked in this industry for a few years for one of the largest providers. The industry is a weird mix of small do-gooders and people at the top who purport to do good, but their actions belie that.
Addiction treatment is insanely expensive and incredibly unsuccessful. (Part of that is insurers will generally pay for a much shorter length of stay than is shown to be successful).
It's a dirty industry, run by people who tell themselves they're good people but in reality are incredibly exploitative of a very vulnerable population. At the same time, most of my colleagues are/were decent people.
It's amazing how something bad can grow from good intentions.
At least it ends on a honest and very human touch. Sad that health should be treated as a business.
This made me think of all the jokes people made about USSR Russians drinking themselves silly because of bad times.
Is the USA like that too these days for many people?
I also have friends that are depressives, they feel everything is horrible not matter what. As soon as Trump was elected one was having trouble leaving his house because he was afraid one of his neighbors might be a Trump supporter -- ergo a closet "I HATE ALL THE THINGS" person.
See Portugal's response to a major opioid crisis versus the US response and which one had better healthcare outcomes, etc. See the links between chronic joblessness and substance abuse, etc.
>"Alcohol consumption and alcoholism are major problems in Russia. It is estimated that Russians drink 15 litres (26 pints) of pure alcohol each year. This number is nearly 3 times as much as it was in 1990.[13] In Moscow on September 24 of 2009, Russia's interior minister Rashid Nurgaliyev cited the average intake at an estimated 18 liters a year; "In Russia, each person, including babies, accounts for about 18 liters of spirits per year. In the opinion of WHO experts, consumption of more than 8 liters per year poses a real threat to the health of the nation. Russia has long exceeded this level".[14] It has even been reported that excessive alcohol consumption is to blame for nearly half of all premature deaths in Russia.[15]
A recent study blamed alcohol for more than half the deaths (52%) among Russians aged 15 to 54 from 1990 to 2001.[16] For the same demographic, this compares to 4% of deaths for the rest of the world.[17]"
For the US in 2016, it looks like alcohol and drug related deaths were close to the 4% cited above, 3.56%.[2]
[1]https://en.wikipedia.org/wiki/Health_in_Russia#Common_causes... [2]http://www.drugwarfacts.org/chapter/causes_of_death
[0] https://seekingalpha.com/author/bleecker-street-research/art...