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October, a federal courthouse in lower Manhattan, Trevor Milton, founder of the Nicola
Corporation, is sitting at a defense table listening to a jury read back a verdict.

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Guilty, guilty, guilty.

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Three counts.

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Wire fraud, securities fraud, the whole thing.

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Here's the part that should make your stomach drop.

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By the time that jury said those words, the damage was already done.

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Completely, totally.

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irreversibly done because Trevor Milton had already sold and pledged about $280 million in
Nikola shares.

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He'd cashed out.

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The SPAC merger that took Nikola public in 2020 had already happened.

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The stock had already peaked above $65 a share.

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And the retail investors, the people who bought in because they saw a hydrogen truck
company on CNBC and thought, this is the future.

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They were already holding shares that would eventually fall below a dollar and become
delisted.

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The fraud conviction did not give them their money back.

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The four-year prison sentence handed down in December 2023 did not give them their money
back.

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Nothing gave them their money back.

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And here's the thing that should keep you up at night because it keeps me up at night.

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Nikola never had to prove the trucks worked.

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It never had to show revenue.

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It never had to demonstrate a viable business.

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It just had to go public because going public was the product.

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The IPO was not a means to build something.

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The IPO was the exit.

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The offering was the mechanism, which by private risk got quietly legally structurally
handed to people who could least afford to absorb it.

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That is not a bug in the system.

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That is a system working exactly as certain people designed it to work.

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William?

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Joshua.

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Welcome back everyone.

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This is The Overlap.

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I'm the aforementioned William.

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And I'm Joshua.

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So today we are talking about share dilution, which I know how that sounds.

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I know that that phrase makes people's eyes glaze over.

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think, the finance bros are at it again.

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But that's exactly why this specific scheme, this Kickstarter product that never actually
happens, continues to work.

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and why it's sapping your pension dollar by dollar.

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Stop for a second here.

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Dear listener, if you're listening to this on your commute or folding laundry or whatever,
stay with us.

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Don't zone out entirely because this episode is not about finance.

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It's about a mechanism, a very specific, very legal, very repeatable mechanism for moving
money from people who have less of it to people who already have lots more.

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It's a pipeline and like any pipeline, it looks boring until you trace where it actually
goes.

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So here's what we're gonna do for you today.

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We're gonna walk you through how public offerings, IPOs, SPACs, secondary assurances,
toxic convertible notes, I know that's all a word and letter soup right now, but it's

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gonna make sense by the end of this episode, become something that functions less like
capital formation and more like a structured transfer of risk onto whoever is standing at

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the end of the line.

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And the people at the end of the line are almost always the same people, right?

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Individual investors, retail holders, people who saw a ticker symbol and believed the
story that was actually attached to it.

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So travel back in time with us, dear listener, to 1929.

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To Samuel Insull and his utility holding company pyramid, where retail investors got the
most eluded, most exposed position in a structure that insiders had already quietly exited

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before the whole thing collapsed.

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And we're gonna come all the way forward to right now to 2026 where the SEC under Paul
Aitken's is revisiting disclosure rules around at the market offerings, which are

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mechanisms basically that let companies continuously issue new shares without a formal
prospectus for each transaction, very quietly, very continuously while you're not

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watching.

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Which means your shares become worth less every time they do that.

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Now we're gonna see this structure over and over again.

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The names will change.

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The structures get more sophisticated.

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The distance between the person designing the offering and the person absorbing the loss
gets longer and more technical and harder to see.

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but the direction of the money never changes.

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Let's get into it.

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So Samuel Insull is standing in a Chicago courtroom in 1934, 74 years old, extradited from
Greece because that's where he fled when the whole thing came tumbling down.

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And the charge he was charged with is actually mail fraud, embezzlement.

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But the real crime, like the thing that destroyed the retirement savings of 600,000
individual investors,

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was something far more boring and far more deliberate than anything the indictment
actually captured within its language, right?

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He built a pyramid, not metaphorically like a literal pyramid of holding companies, each
one owning shares in the one below it, each one issuing new securities to the public to

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fund the purchase of the layer underneath it.

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And those retail investors, the people who actually bought shares in the outer shell, were
always at the widest part of the base, the most exposed, the most diluted, the last to get

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paid, first to lose everything.

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And Insull wasn't even bothering to hide this.

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That's the part that gets me every time I hear this case.

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The structure was visible.

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holding companies were publicly registered.

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Securities were sold openly.

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But the complexity was the camouflage.

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By the time you traced the ownership back from the share that you bought to the actual
power plant generating actual electricity, you'd pass through so many layers of

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incorporated entities that no ordinary investor could map where their money was or what it
was actually worth.

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The structure was the fraud.

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The disclosure existed, right?

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Like the disclosure was basically meaningless.

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So the whole pyramid collapsed in 1932 and it collapsed because Insull's holding companies
were leveraged to the point where a single bad quarter, right?

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In the underlying utility revenues could actually trigger a cascade and retail investors
lost everything.

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So Insull himself,

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had already extracted an enormous amount of money through management fees, insider
transactions, and early share sales at prices the public never had access to.

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Now he was acquitted entirely, by the way.

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So all counts, the jury was literally out for five minutes and they were like, innocent,
fine.

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Five minutes, you can't introduce yourself in five minutes as a jury.

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I certainly couldn't, which tells you something about how 1934 juries understood
securities law.

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mean, right, exactly.

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But also something about how hard it is to convict somebody for doing something that was
technically disclosed.

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And here's why that case matters for everything that comes after.

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Ferdinand Pecora, the prosecutor who ran the Senate Banking Committee hearings that
exposed all of this, basically wrote the intellectual blueprint for the Securities Act of

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1933 and the Exchange Act of 1934.

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Roosevelt signed both.

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The SEC was created.

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Mandatory disclosure before public offerings became federal law.

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And the explicit goal was to make sure that what Ansel did

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which has used public offerings to extract insider value while retail investors absorbed
all the risk, could never happen again.

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It took about 40 years to find the next vehicle.

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Yeah, that's how long never is in case you're keeping track.

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50 years maybe.

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Yeah, Michael Milken in 1987, Drexel Burnham Lambert.

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And if you wanna understand what Milken actually did, like not the Hollywood version, not
the suspenders and green is good shorthand, you have to understand that he did not invent

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junk bonds.

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just, right, he just industrialized the dilution.

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He found a way to use the public capital markets.

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to fund leveraged buyouts where the existing shareholders of a target company were wiped
out.

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The new company was loaded with high yield debt and the fees generated by structuring and
selling that debt went to Drexel and Milken personally.

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In 1987 alone, he earned $550 million in compensation in 1987.

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That's not a typo, right?

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That is one man in one year.

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Wow.

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Has a person ever been named better than Michael Milken?

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The people absorbing the cost from Milken's were the workers whose pension funds bought
those junk bonds.

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The shareholders who got bought out prices that looked like a premium until you understood
the debt being loaded onto the company, but they no longer owned.

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And eventually the savings and loan institutions that bought the bonds and then failed
when the bonds were defaulted.

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The SNL crisis cost taxpayers $130 billion.

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B-b-b-b-billion.

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Bobovillion, right?

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And Mr.

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Meanwhile Milken paid 600 million in fines and settlements and went home.

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That's one year's salary for him.

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The math there is, I mean, look, you do the actual adding and subtraction on that trade,
and it's really hard not to laugh or cry, but both, honestly.

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And here is the through line from Insulet O'Milken that I want you to kind of hold onto,
because it's the same mechanism wearing different clothes.

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In both cases, the public offering,

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which is the formal regulated disclosed act of selling stock or shares, right, to the
public was not primarily a way to raise capital for a productive enterprise.

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It was a way to create a liquid pool of risk absorption.

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People who would buy in at a price that reflected the story rather than the product or the
substance and who would be left holding the bag when the story ended.

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the sizzle, the steak, right?

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I mean, the story is always the product.

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The shares are just the delivery mechanism.

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And what we see is that this just becomes more more transparent as you go through the
different iterations of this scheme.

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Yeah, so then we get to 1999, right?

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The dot com bubble.

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And this is where the mechanism gets refined in a way that is still with us right now,
today, in 2026.

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Because the junk bond era was at least honest about the fact that it was debt.

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You knew you were buying a bond.

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The dot com era introduced something more insidious, which is the dual-class share
structure.

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Companies going public with two classes of stock.

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You have class A share and that's for the public.

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That's for everyday Joe who wants to just go on Fidelity.com or their brokerage account
and type in the stock ticker and buy some.

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But then you get class B shares.

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Those are for founders where the public shares had sort of one vote in the annual meeting,
right?

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And the founder shares had 10 or 20.

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and sometimes even more votes than that.

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And if you ever want to see an example of this in real time, look at the two different
Google stock issuings, formerly Alphabet.

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I think it's now back to Google, but yeah, that's basically an example of that.

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They've got the two different shares that you can buy and you can see them both listed on
the exchanges.

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So you're buying economic exposure, meaning you participate in the gains and losses of the
underlying company, but you have no actual say in how the company's run.

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You're a shareholder in name, but in terms of governance, you might as well be furniture.

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Yeah, I mean, it is weak, right?

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I mean, you still technically get a vote.

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If you own any stock whatsoever, you get this sort of proxy thing and they send it to you.

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And it feels like you're making a choice in any of this, but believe me, you're really
not.

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um Right.

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You're, this matters, I guess, for this dilution part of it specifically, because it means
that

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When the company later decides to issue more shares to more people, right, to raise more
money, to pay executives in stock, to fund actual acquisitions, the people who hold the

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voting power are not the public, right?

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So when we say it's a publicly traded company, the individual investors don't really have
that power.

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It's the insiders.

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It's the CEO, the CFO, the person who accepted half of their salary for five years in
equity, right?

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who would be diluted the most is the public shareholders because they really don't have a
vote to stop it.

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The structure that was sold to you as sort of democratizing access to great companies is
really just a way for permanent insider control over that dilution lever that when they

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need to add more water to the tea, they add more water to the tea.

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And let's not forget about the investment bankers who make all this magic happen.

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Like Henry Blodgett, which again, these names, I these are people who were just born to be
financial supervillains.

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Henry Blodgett was at Merrill Lynch during this period, recommending stocks publicly that
he was privately calling garbage and internal emails.

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Frank Quattrone at Credit Suisse First Boston was allocating hot IPO shares to executives
of companies that were doing banking business with the firm.

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A practice called spinning, which is a very general word for it is essentially a bribe.

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paid in pre-dilution equity.

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And none of this was hidden.

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It was happening again out in the open, in the filings, in the allocations.

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Again, the complexity is the camera.

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Five trillion, trillion dollars.

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That is the market capitalization that evaporated when the dot com bubble collapsed.

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Now that's probably the first of many financial major catastrophes that have happened
within our millennial timeline.

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uh If you remember it at all, before or after.

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Yeah.

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So the average retail investor who

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bought into this dot com IPO at their offering price and held it through the crash lost
somewhere between 60 and 90 % of their entire investment.

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And not because the market turned, right?

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Like all of a sudden the market went bad.

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It was because the structure of the offering was designed to put them at the end of the
risk chain on the lowest totem of the creditors, quote unquote creditors from a value

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perspective when those companies were liquidated.

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Right, and to say that it's not because the market turned, really the reality is there,
when they lost all that value, their shares were finally appropriately priced.

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The market was actually pricing in the real value there.

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So it's not like the market collapsed.

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It's just that they were holding shares that were worthless because of this mechanism.

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So then you fast forward to 2008, which is a slightly different version of the story, but
one that I think is actually the most clarifying.

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Because in 2008, the dilution happened to people who already owned the stock.

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They didn't make a bad decision to buy into a fraudulent IPO.

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They owned shares in Citigroup.

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Bank of America, the stagiest, most staid institutions that had existed for decades.

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And when those institutions needed to recapitalize, when they destroyed themselves with
mortgage-backed securities and needed actual cash to survive, they issued new shares,

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massive quantities of new shares.

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Yes, Citigroup actually raised $45 billion through TARP and share issuance.

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So Vikram Pandit was the CEO at the time and the people who absorbed that dilution were
the existing shareholders.

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Those were pension funds, yeah, but also individual investors who had bought Citigroup
stock thinking they owned a piece of a bank.

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After the issuances, right.

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After the issuances, they owned a smaller piece of a much weaker bank at a fraction of the
price that they paid.

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So the share price went from around $30 in early 2008 to under a dollar by early 2009.

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Oh, and here's the thing we need you to sit with for a second.

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If you're listening to this, those shareholders did not do anything wrong.

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They did not buy a fraudulent startup.

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They did not chase a meme stock.

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They bought Citigroup, one of the largest financial institutions in the history of the
world.

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And the mechanism of dilution was used on them anyway, not as punishment, not as fraud,
but as a completely legal capital raising tool.

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that transfer their losses on their existing position while the people who caused the
crisis negotiated their severance packages.

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Also, Ken Lewis at Bank of America was overseeing the acquisition of Merrill Lynch while
Merrill was paying out billions in bonuses that it had not disclosed to shareholders.

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So, acquisition was dilutive.

211
00:16:07,674 --> 00:16:14,994
So the bonuses were hidden, the shareholders voted on the deal without the material
information that they should have been given.

212
00:16:14,994 --> 00:16:19,654
And the SEC eventually settled with Bank of America for $33 million.

213
00:16:19,655 --> 00:16:30,121
which the judge initially rejected as inadequate, which is one of the few moments in this
entire history where someone with authority looked back at the math and was like, this

214
00:16:30,121 --> 00:16:30,792
sucks.

215
00:16:30,792 --> 00:16:32,344
This sucks for everybody.

216
00:16:32,344 --> 00:16:34,386
And it's not good.

217
00:16:34,386 --> 00:16:35,898
This is not a balance sheet.

218
00:16:35,898 --> 00:16:37,689
This is a nightmare.

219
00:16:37,689 --> 00:16:39,906
Yeah, it never balances in these deals.

220
00:16:39,907 --> 00:16:43,438
Yeah, it never balances because it's really not designed to balance.

221
00:16:43,438 --> 00:16:57,289
And the thing that connects Insult to 1932 to Milken in 1987 to the dot com bankers in
1999 to Pandit and Lewis in 2008, it's not a series of separate scandals.

222
00:16:57,289 --> 00:17:00,800
It's just the one mechanism running continuously.

223
00:17:00,800 --> 00:17:02,640
It's just finding a new vehicle to do it.

224
00:17:02,640 --> 00:17:07,571
The public offering, the formal regulated disclosed act of selling shares.

225
00:17:07,571 --> 00:17:09,583
keeps getting repurposed.

226
00:17:09,583 --> 00:17:13,125
Not to form capital to create value, right?

227
00:17:13,125 --> 00:17:19,859
It's to transfer the risk downward, always downward to whoever's at the end of that line.

228
00:17:19,860 --> 00:17:23,813
Since this is technically legal, it just made me think maybe we should do this for the
United States.

229
00:17:23,813 --> 00:17:33,009
You know, just form a new country to take on all of our bad debt and let us all walk away
with lots of money and then sell the shares to the rest of the world in the worthless.

230
00:17:33,270 --> 00:17:34,681
Yeah, step three profit.

231
00:17:34,681 --> 00:17:36,333
We haven't even gotten the specs yet.

232
00:17:36,333 --> 00:17:43,027
No, so we've not gotten to Trevor Milton standing in a field next to a hydrogen chuck that
didn't work telling the world that it did.

233
00:17:43,028 --> 00:17:46,373
That one, I mean I'm still angry about that one in a very specific way.

234
00:17:46,374 --> 00:17:55,630
Yeah, we're going to get there, but I want you to understand that by the time we get to
Trevor Milton, you should be recognizing the structure because you've seen it before

235
00:17:55,630 --> 00:17:56,280
several times.

236
00:17:56,280 --> 00:18:03,306
Now the vehicle in no pun intended, but pun intended is new, but the mechanism is not.

237
00:18:03,306 --> 00:18:12,970
Trevor Milton, like we said, stood in a field next to a truck that had no working drive
train and he was on CNBC talking about how it was this technological breakthrough in

238
00:18:12,970 --> 00:18:13,541
hydrogen.

239
00:18:13,541 --> 00:18:14,523
technology, right?

240
00:18:14,523 --> 00:18:16,626
That is the origin point.

241
00:18:16,626 --> 00:18:19,881
But the origin point is not where the fraud actually happened.

242
00:18:19,881 --> 00:18:22,706
The fraud is almost secondary to this.

243
00:18:22,706 --> 00:18:29,565
The origin point is that the SPAC structure that made the fraud irrelevant to the people
who designed it.

244
00:18:29,566 --> 00:18:34,477
Okay Joshua, I'm going need you to explain that a little bit more because I think people
hear a SPAC and their eyes glaze over.

245
00:18:34,477 --> 00:18:36,788
The acronym does the work of obscuring the mechanism.

246
00:18:36,788 --> 00:18:38,038
Yeah, so let's do that.

247
00:18:38,038 --> 00:18:41,890
So we said SPAC a couple of times now, it's time we actually define it talk about what it
is.

248
00:18:41,890 --> 00:18:47,063
So special purpose acquisition company, a blank check company.

249
00:18:47,063 --> 00:18:49,264
You raise money from the public.

250
00:18:49,264 --> 00:18:53,856
In Nicola's case, Vecto IQ raised it first.

251
00:18:53,856 --> 00:18:57,387
And then you go and you find a private company to merge with.

252
00:18:57,387 --> 00:19:01,979
And the structure has a feature baked into it from the beginning that has nothing to do.

253
00:19:01,979 --> 00:19:05,123
with the target company's actual value, right?

254
00:19:05,123 --> 00:19:17,240
The sponsors get founder shares, that class B that we talked about earlier, about 20 % of
the post-merger company for almost nothing, fractions of a cent per share.

255
00:19:17,241 --> 00:19:20,609
So before the retail investor buys a single share.

256
00:19:20,610 --> 00:19:27,540
Before they buy a single share, 20 % of the company has already been handed to the people
who set up that blank check mechanism.

257
00:19:27,540 --> 00:19:29,161
Now that's not a side effect, right?

258
00:19:29,161 --> 00:19:30,664
That is the product.

259
00:19:30,664 --> 00:19:34,759
So this dilution is not a risk, it's the business model.

260
00:19:34,760 --> 00:19:36,582
Right, so hang on to that idea of a blank check.

261
00:19:36,582 --> 00:19:44,281
we're talking about somebody who understands that they've been handed a blank check by
these investors, these investment companies, and then told you get a percentage of

262
00:19:44,281 --> 00:19:48,526
whatever you're able to raise or to pour into this fake company.

263
00:19:48,526 --> 00:19:51,411
mean, Trevor Milton knew what he was doing.

264
00:19:51,411 --> 00:20:02,794
Yes, he, Milton sold or pledged about $280 million worth of Nicola shares around the time
of that SPAC merger.

265
00:20:02,794 --> 00:20:04,726
And in the months immediately after.

266
00:20:04,726 --> 00:20:06,127
Now the truck didn't work.

267
00:20:06,127 --> 00:20:07,258
We know this now.

268
00:20:07,258 --> 00:20:08,910
The company had zero revenue.

269
00:20:08,910 --> 00:20:15,848
the hydrogen technology he was describing publicly did not actually exist in the form that
he claimed it existed.

270
00:20:15,848 --> 00:20:18,363
And none of that mattered to the actual extraction.

271
00:20:18,363 --> 00:20:24,624
The shares existed, the market was liquid, the exit was available, and he took it.

272
00:20:24,625 --> 00:20:31,939
Not to burden this already dense topic with an overly raw pun, but Nicholas shares was
probably the most transparent thing they ever called it.

273
00:20:31,940 --> 00:20:33,362
We'll that process a little bit.

274
00:20:33,362 --> 00:20:35,222
So unsurprisingly, Mr.

275
00:20:35,222 --> 00:20:40,906
Milton was convicted of fraud in October 2022, since because he committed fraud.

276
00:20:40,906 --> 00:20:41,286
Yes.

277
00:20:41,286 --> 00:20:48,548
ah Since he was sentenced to four whole years in December of 2023 and Nicholas share price
went from

278
00:20:48,548 --> 00:20:51,079
over $65 to under $1.

279
00:20:51,079 --> 00:20:53,451
which usually gets you delisted from the market.

280
00:20:53,451 --> 00:21:01,515
Just if you're not familiar with the stock market, that will get you delisted from the New
York Stock Exchange and the NASDAQ as well if you do it for a long enough period of time.

281
00:21:01,515 --> 00:21:09,351
uh Right, and Nikola stock was eventually delisted.

282
00:21:09,351 --> 00:21:16,728
So this means that retail investors bought in at like 30, 40, $50 per share.

283
00:21:16,729 --> 00:21:19,681
F they didn't get four years, right?

284
00:21:19,681 --> 00:21:20,372
They got nothing.

285
00:21:20,372 --> 00:21:27,576
They got a certificate representing a fractional claim on a company that was hollowed out
before they actually got there.

286
00:21:27,576 --> 00:21:28,736
There was no money left.

287
00:21:28,736 --> 00:21:29,957
There was no technology left.

288
00:21:29,957 --> 00:21:33,990
There was no actual IP intellectual property there at all.

289
00:21:33,990 --> 00:21:35,231
It had all been hollowed out.

290
00:21:35,231 --> 00:21:43,246
And since they don't actually get physical share certificates anymore, uh they basically
got a digital version, but you can print it out and put it on your wall as a souvenir of

291
00:21:43,246 --> 00:21:44,639
the time you got had.

292
00:21:44,639 --> 00:21:50,974
But there's something, exactly, there's something about not being worth the paper it's
printed on.

293
00:21:50,974 --> 00:21:53,787
But there's something philosophically precise about the timing.

294
00:21:53,787 --> 00:21:56,480
The damage is structured to occur after the exit.

295
00:21:56,480 --> 00:22:01,064
It's not that they ran and left a mess, it's that the mess was the point of arrival for
everyone who came after.

296
00:22:01,064 --> 00:22:04,184
Samuel Insull did this in 1929, right?

297
00:22:04,184 --> 00:22:13,077
His utility holding company issued layers and layers of securities of different stocks, of
different shares, preferred stock, common stock, bonds.

298
00:22:13,077 --> 00:22:18,619
And the public always ended up holding the most junior, the most diluted, most exposed
layer.

299
00:22:18,619 --> 00:22:28,927
And when that whole structure collapsed in 1932, the insiders had already taken the
dividends and management fees for years and years and years while people were filling,

300
00:22:28,927 --> 00:22:30,692
figuring out that this was a scam.

301
00:22:30,692 --> 00:22:36,327
And the retail investors lost everything because they were by design the last in line in
the creditor scheme.

302
00:22:36,329 --> 00:22:39,155
Ninety years later, the mechanism is identical.

303
00:22:39,155 --> 00:22:42,662
Only the acronyms have been changed to facilitate the further fraud.

304
00:22:42,662 --> 00:22:43,282
Yeah.

305
00:22:43,282 --> 00:22:46,482
And so here's what you're, what you should be sitting with right now.

306
00:22:46,482 --> 00:22:59,093
If you've ever bought shares in a company that went public through a SPAC between 2020 and
2022, the SEC's own research and independent academic analysis found that investors in

307
00:22:59,093 --> 00:23:06,424
those deals lost an average of 50 % or more within 12 months of the merger closing.

308
00:23:06,424 --> 00:23:08,855
Not 50 % of the bad ones.

309
00:23:08,855 --> 00:23:09,686
Average.

310
00:23:09,686 --> 00:23:15,626
Across the entire category, the structure itself generated that loss.

311
00:23:15,626 --> 00:23:17,866
because they're all bad ones.

312
00:23:17,867 --> 00:23:27,200
our Jamath Palipataya, excuse me, raised over $4 billion across his social capital, Hedda
Sophia SPAC vehicles.

313
00:23:27,200 --> 00:23:29,731
And I want to be careful here because he was not convicted of anything.

314
00:23:29,731 --> 00:23:35,342
But Clover Health, one of his SPAC targets, went from $15 a share to under $2 a share.

315
00:23:35,342 --> 00:23:36,921
That is not a rounding error.

316
00:23:36,922 --> 00:23:47,873
Yeah, Clover Health also had an undisclosed DOJ investigation at the time of that merger
that Hindenburg Research surfaced in 2021.

317
00:23:47,873 --> 00:23:51,304
The SPAC merger documents did not mention that fact.

318
00:23:51,304 --> 00:23:57,995
Retail investors who bought in at $15 didn't know they were buying into a company already
under federal investigation.

319
00:23:57,995 --> 00:24:02,085
And can I just point out the beauty of the naming Hindenburg research?

320
00:24:02,085 --> 00:24:05,369
Because that's all I could think about with a hydrogen vehicle that doesn't work.

321
00:24:06,690 --> 00:24:10,814
Yeah, the Hindenburg, which is it felt like everybody was riding on when this all
happened.

322
00:24:10,814 --> 00:24:12,985
But the disclosure rules at the time.

323
00:24:12,986 --> 00:24:16,186
Yeah, they were written for traditional IPOs, right?

324
00:24:16,186 --> 00:24:22,728
So the IPO initial public offering, that's when a company first offers public stock for
sale.

325
00:24:22,728 --> 00:24:30,188
The SEC finalized new SPAC specific disclosure rules in 2024 after the boom, right?

326
00:24:30,188 --> 00:24:40,217
After the losses, after tens of billion dollars in retail capital, retail money had
already been transferred upward, of course, through the founder share structure, right?

327
00:24:40,217 --> 00:24:44,342
The regulation arrived to address a crime scene, not prevent one.

328
00:24:44,343 --> 00:24:50,407
And that's the second through line you identified in the research, which is the regulatory
response surprise always lags.

329
00:24:50,407 --> 00:24:50,965
Always.

330
00:24:50,965 --> 00:24:52,276
to be fair here.

331
00:24:52,276 --> 00:24:53,366
Yes, it does.

332
00:24:53,366 --> 00:24:56,189
It does always lack, but it is the nature of our system, right?

333
00:24:56,189 --> 00:24:58,040
Like we are responsive.

334
00:24:58,040 --> 00:25:04,356
We can't be proactive in some of these things because otherwise we would have people that
just tried to come up with scams all day, right?

335
00:25:04,356 --> 00:25:07,618
Like the SEC should just be sitting there trying to create a scam.

336
00:25:07,618 --> 00:25:09,711
No, I mean, I don't think that that's reasonable.

337
00:25:09,711 --> 00:25:11,312
I think we need to react to these things.

338
00:25:11,312 --> 00:25:18,851
But because of the slow moving cogs of our legislative process, we end up with very, very
slow, very, very

339
00:25:18,851 --> 00:25:24,807
unresponsive laws that usually come about when they've moved on to a new vehicle at this
point.

340
00:25:24,807 --> 00:25:30,473
And I am going to mention a possible upcoming new vehicle before the end of this podcast.

341
00:25:30,473 --> 00:25:33,545
But we'll hold off on that just for now.

342
00:25:33,546 --> 00:25:34,502
So,

343
00:25:34,503 --> 00:25:43,555
The 1933 Securities Act, we just talked about, was written to address what Insel did in
the 1920s.

344
00:25:43,555 --> 00:25:53,575
So by the time Milken was running that junk bond LBO in the 80s, he had found a completely
different vehicle that the 1930s rule didn't think about.

345
00:25:53,575 --> 00:25:56,126
They didn't figure it out by then, right?

346
00:25:56,126 --> 00:25:59,966
Milken made $550 million in compensation in 1987.

347
00:25:59,966 --> 00:26:03,137
One year, he paid $600 million in fines.

348
00:26:03,137 --> 00:26:05,348
in 1990 and went home.

349
00:26:05,348 --> 00:26:17,599
Like his interest alone on one year in 1987 would have been more than any of us could have
handled from a monetary perspective in our lifetime.

350
00:26:17,599 --> 00:26:24,339
And he barely paid the principal back on that in 1990.

351
00:26:24,339 --> 00:26:25,499
And then he was just done.

352
00:26:25,499 --> 00:26:30,030
So the math on that settlement is kind of its own sad, dark comedy.

353
00:26:30,030 --> 00:26:37,518
He paid back slightly more than one year's earnings and just kept everything else,
including whatever vehicle he placed it into.

354
00:26:37,519 --> 00:26:39,212
The, and the pattern continues.

355
00:26:39,212 --> 00:26:51,784
The.com bankers used dual class share structures to give founders disproportionate voting
power while retail investors received diluted economic and governance rights

356
00:26:51,784 --> 00:26:52,764
simultaneously.

357
00:26:52,764 --> 00:26:57,448
You bought the share, but you did not buy your vote within the company.

358
00:26:57,448 --> 00:26:58,909
And that's the way it's supposed to work, right?

359
00:26:58,909 --> 00:27:02,522
Like you own a piece of the company, you get a decision in the company.

360
00:27:02,522 --> 00:27:03,889
Henry Blodgett.

361
00:27:03,889 --> 00:27:10,504
at Merrill Lynch was publicly recommending stocks that he was privately calling garbage in
internal emails.

362
00:27:10,504 --> 00:27:19,919
Frank Quattrone at Credit Suisse, First Boston was allocating these hot IPO shares to
executives at companies that were also banking clients, right?

363
00:27:19,919 --> 00:27:22,370
Which, which Will talked about earlier called spinning.

364
00:27:22,370 --> 00:27:30,586
So it generated loyalty by giving insiders access to these pre-diluted prices that retail
investors never actually got to see.

365
00:27:30,586 --> 00:27:33,460
Okay, so let's pause again here for a second because it's getting complicated.

366
00:27:33,460 --> 00:27:36,494
But I think our listeners need to feel the geometry of that.

367
00:27:36,494 --> 00:27:39,087
The insiders buy in before the IPO.

368
00:27:39,087 --> 00:27:41,249
The public buys in at the IPO price.

369
00:27:41,249 --> 00:27:44,002
The insiders' shares were cheaper to start with.

370
00:27:44,002 --> 00:27:49,118
The public shares are immediately worth less than what the insiders, excuse me, paid per
unit of ownership.

371
00:27:49,118 --> 00:27:50,619
The dilution is not a future event.

372
00:27:50,619 --> 00:27:52,891
It's already happened before the opening bell.

373
00:27:52,892 --> 00:27:57,794
Right, and in 2025, 2026, this is not really history.

374
00:27:57,794 --> 00:28:05,765
Right now on OTC markets and in micro cap stocks, there's a financing structure called a
toxic convertible note.

375
00:28:05,765 --> 00:28:11,047
A lender gives a struggling small company a loan, a bank or whatever, right?

376
00:28:11,047 --> 00:28:16,938
The loan converts to shares at a discount, typically 30 to 60 % below market price.

377
00:28:16,938 --> 00:28:19,424
So the lender converts the debt.

378
00:28:19,424 --> 00:28:28,026
receives the shares at a very, very steep discount, it's 30 to 60 % on average, and
immediately sells those shares back into the open market.

379
00:28:28,027 --> 00:28:37,852
Which of course, anytime that you have a large investor selling a lot of shares, that
pressure is gonna drive the price of the stock down, right?

380
00:28:37,852 --> 00:28:44,796
If we're still talking about availability, more shares available means price gets lower.

381
00:28:44,796 --> 00:28:46,127
That's really all it comes down to.

382
00:28:46,127 --> 00:28:47,298
The lender converts

383
00:28:47,298 --> 00:28:52,084
More debt at the new lower price receives more shares, sells again.

384
00:28:52,084 --> 00:28:56,379
It's this mechanical self-reinforcing funnel of share value.

385
00:28:56,379 --> 00:29:03,906
And every single retail investor holding that stock watches their position in that company
evaporate in real time down the drain.

386
00:29:03,906 --> 00:29:06,237
from the inside of the blender, so to speak.

387
00:29:06,237 --> 00:29:13,148
FINRA and the SEC flagged multiple cases of exactly this happening in 2025, not the past
2025.

388
00:29:13,148 --> 00:29:14,639
At one time, that was even the future.

389
00:29:14,639 --> 00:29:16,790
It's the past now, but just barely.

390
00:29:16,790 --> 00:29:22,490
The thing they get to me is the transactions are technically disclosed in SEC filings.

391
00:29:22,490 --> 00:29:26,441
However, written in language that a securities attorney could parse and a retail investor
cannot.

392
00:29:26,441 --> 00:29:29,097
Because the average retail investor doesn't have an attorney.

393
00:29:29,097 --> 00:29:36,853
I mean, it's just, it's a ticker that you believe in for a minute to try to convert it
into something valuable over time, right?

394
00:29:36,853 --> 00:29:39,400
it's on the stock exchange with all the legitimate companies.

395
00:29:39,400 --> 00:29:40,131
Right.

396
00:29:40,131 --> 00:29:45,342
And so, so what we now know is that this disclosure is not really transparency.

397
00:29:45,342 --> 00:29:48,513
That's the gap that the entire system lives in.

398
00:29:48,513 --> 00:29:51,173
The 1933 Act required disclosure.

399
00:29:51,173 --> 00:29:51,944
Okay, great.

400
00:29:51,944 --> 00:29:55,204
But it didn't require you to be able to understand that disclosure.

401
00:29:55,204 --> 00:29:57,215
It could be written in Greek for all you know.

402
00:29:57,215 --> 00:30:02,675
It didn't require that the person handing you the document also had to explain it to you,
right?

403
00:30:02,675 --> 00:30:06,175
And explain what it means in your specific financial situation.

404
00:30:06,175 --> 00:30:07,206
You signed

405
00:30:07,206 --> 00:30:08,269
The prospectus.

406
00:30:08,269 --> 00:30:11,867
This is the promise of what this could be and what it could be worth.

407
00:30:11,868 --> 00:30:15,948
The prospectus mentioned this convertible note on page 47.

408
00:30:15,948 --> 00:30:19,486
You bought the shares, you lost 80%, you were warned, it's fine.

409
00:30:19,487 --> 00:30:27,847
And there's a cruelty in that framing that I find genuinely difficult to sit with, which
is that the legal protection of the disclosure and the actual protection, which doesn't

410
00:30:27,847 --> 00:30:29,709
exist, are not the same thing.

411
00:30:29,709 --> 00:30:31,600
They're the same only in name only.

412
00:30:31,600 --> 00:30:32,051
Yeah.

413
00:30:32,051 --> 00:30:44,948
Meanwhile, the SEC under Paul Atkins in 2026 began revisiting disclosure requirements for
at the market offerings, ATMs, which they are called, which is either completely

414
00:30:44,948 --> 00:30:50,292
obliviously accidental or the most honest branding in all of financial history, right?

415
00:30:50,292 --> 00:30:56,476
An ATM offering allows a public company to continuously issue new shares into the market.

416
00:30:56,476 --> 00:30:59,788
without having to file formal prospectus for each transaction, right?

417
00:30:59,788 --> 00:31:02,721
Drip by drip, continuous dilution.

418
00:31:02,721 --> 00:31:10,676
And if you really wanna think about this, I think tea is the best way because to me, tea
makes the most sense and I'm drinking a little bit of tea right now.

419
00:31:10,676 --> 00:31:12,327
You're adding more water to this tea.

420
00:31:12,327 --> 00:31:13,718
It's getting more and more diluted.

421
00:31:13,718 --> 00:31:17,579
Every time you add a drop of water to your glass, it's gonna get more and more diluted.

422
00:31:17,579 --> 00:31:20,052
That's why concentrates exists, right?

423
00:31:20,052 --> 00:31:20,912
So.

424
00:31:20,913 --> 00:31:32,545
Proposed, the proposed amendments, right, would reduce the disclosure burden for smaller
companies doing these offerings under the guise of, we're being pro small business.

425
00:31:32,546 --> 00:31:39,800
So the regulatory direction in 2026, that's now, is toward less visibility into the
dilution mechanism.

426
00:31:39,800 --> 00:31:48,072
I mean, with our current administration, I don't think that's likely a surprise to anybody
listening to this podcast, but at the same moment that SPAC activity is seeing finally

427
00:31:48,072 --> 00:31:58,645
this sort of renewed wave and special acquisition companies are coming around everywhere
again, over $10 billion raised through these SPAC structures in the first quarter of 2025

428
00:31:58,645 --> 00:32:05,923
alone, according to SPAC research data, the boom that the 2024 rules were supposed to
address is actually back.

429
00:32:05,923 --> 00:32:07,154
It's alive and well.

430
00:32:07,154 --> 00:32:12,238
with the rules in place and the enforcement posture actually softening.

431
00:32:12,239 --> 00:32:15,865
Now ask yourself something, not rhetorically, actually sit with this.

432
00:32:15,865 --> 00:32:18,720
When you hear that a company went public, what do you assume that means?

433
00:32:18,720 --> 00:32:20,362
That they needed capital to grow?

434
00:32:20,362 --> 00:32:22,825
That they had a product and needed resources to scale it?

435
00:32:22,825 --> 00:32:24,999
Because that assumption is doing a lot of work for you.

436
00:32:24,999 --> 00:32:27,974
And in a meaningful percentage of cases, it's dead wrong.

437
00:32:27,974 --> 00:32:28,455
Right.

438
00:32:28,455 --> 00:32:32,417
The hometown international case is one that I keep returning to, right?

439
00:32:32,417 --> 00:32:35,380
It's a single deli in New Jersey.

440
00:32:35,380 --> 00:32:38,435
$35,000 in annual revenue.

441
00:32:38,435 --> 00:32:44,978
One location, market capitalization of about $100 million in 2021.

442
00:32:45,688 --> 00:32:53,144
For a single deli, David Einhorn, not a regulator, a hedge fund manager, writing a letter
to his own investors.

443
00:32:53,144 --> 00:32:58,825
looked at that number and said out loud, this company exists to be diluted.

444
00:32:58,825 --> 00:33:01,450
The company status is the product.

445
00:33:01,450 --> 00:33:03,933
The deli is the cover story.

446
00:33:03,934 --> 00:33:10,534
And federal prosecutors eventually charged individuals connected to affiliated entities
with securities fraud in 2022.

447
00:33:10,535 --> 00:33:13,097
The scheme was not sophisticated, it was brazen.

448
00:33:13,097 --> 00:33:17,508
The sophistication was in how long it persisted before anyone with the authority looked at
the map.

449
00:33:17,508 --> 00:33:28,708
Which is the same thing Judge Jed Rakoff said in 2009 when he rejected the $33 million
settlement with Bank of America over the Merrill Lynch bonus disclosures, right?

450
00:33:28,708 --> 00:33:38,710
He looked at the math, a settlement where the penalty is paid by the shareholders who are
the ones who are actually harmed, not the executives who made the decisions and said on

451
00:33:38,710 --> 00:33:40,861
the record, this doesn't add up.

452
00:33:40,861 --> 00:33:43,952
He was overruled on the appeal.

453
00:33:43,952 --> 00:33:46,932
So the settlement actually stood at 33 million.

454
00:33:46,933 --> 00:33:51,005
So the judge noticed and the system resorted to noticing and continued.

455
00:33:51,006 --> 00:33:52,997
That is the sentence, write it down.

456
00:33:52,997 --> 00:33:57,389
The system absorbed the noticing and continued.

457
00:33:57,389 --> 00:34:08,774
Because from Insul's holding companies to Milken's junk bonds to Quattrone's spinning to
Milton's fake hydrogen truck to these toxic convertible notes draining micro cap investors

458
00:34:08,774 --> 00:34:13,121
right now in 2026, the mechanisms did not change.

459
00:34:13,121 --> 00:34:16,093
The names rotated, the vehicles evolved.

460
00:34:16,093 --> 00:34:19,180
The direction of transfer never reversed.

461
00:34:19,180 --> 00:34:27,476
It's always the same direction, always toward whatever is furthest from the room where it
happened, where the structure was actually designed.

462
00:34:27,477 --> 00:34:30,419
And these rooms are still there and the meetings are still going on.

463
00:34:30,419 --> 00:34:37,722
Before we go into the next case, I want to stay in that room for one more second because
there's something that gets lost when we talk about market capitalization numbers and

464
00:34:37,722 --> 00:34:39,143
settlement figures.

465
00:34:39,203 --> 00:34:44,999
The people who bought shares in Hometown International's single location deli were not
institutions.

466
00:34:44,999 --> 00:34:48,031
They were not hedge funds running dilution arbitrage strategies.

467
00:34:48,031 --> 00:34:51,983
They were people who saw stock moving and thought maybe this is the one.

468
00:34:51,984 --> 00:34:52,705
Exactly.

469
00:34:52,705 --> 00:34:56,498
They were like, maybe, maybe Pestrami is on the rise.

470
00:34:56,498 --> 00:34:59,021
The Nikola corporation, right.

471
00:34:59,021 --> 00:35:00,032
Nikola corporation.

472
00:35:00,032 --> 00:35:05,376
Let's go there because this one has an actual conviction to it with real teeth.

473
00:35:05,376 --> 00:35:15,941
Trevor Milton took Nikola public in June, 2020 through that SPAC merger with Vecto IQ, no
revenue, a truck that as it would later emerge.

474
00:35:15,941 --> 00:35:25,753
had been filmed rolling down a hill under its own gravity because it could not drive under
its own power, the share price hit $65 per share.

475
00:35:25,753 --> 00:35:36,064
The market capitalization for a small period of time exceeded that of the Ford Motor
Company, like Ford, a company that has been manufacturing actual vehicles for well over a

476
00:35:36,064 --> 00:35:36,884
century.

477
00:35:36,885 --> 00:35:41,979
Yeah, Milton sold or pledged about $280 million in...

478
00:35:41,979 --> 00:35:46,775
personal shares about the same time as that merger in the period immediately after.

479
00:35:46,775 --> 00:35:59,221
yeah, this was in the SEC versus Trevor Milton, United States versus Trevor Milton in the
Southern Department of New York, 2022.

480
00:35:59,221 --> 00:35:59,833
Southern District.

481
00:35:59,833 --> 00:36:04,298
Yeah, that's where a lot of these cases end up because it's the financial headquarters
where the Wall Street's located.

482
00:36:04,298 --> 00:36:05,329
Right.

483
00:36:05,329 --> 00:36:07,029
$280 million.

484
00:36:07,030 --> 00:36:13,622
While retail investors were buying it at 50, 60, 40, based on claims that Milton was
making publicly.

485
00:36:13,622 --> 00:36:15,042
And we all thought it was true.

486
00:36:15,042 --> 00:36:21,504
mean, Twitter, in interviews, promotional videos, commercials about a technology that did
not exist.

487
00:36:21,505 --> 00:36:25,496
And the SPAC structure bypassed the scrutiny of the traditional IPO altogether.

488
00:36:25,496 --> 00:36:31,576
No underwriter doing the extended due diligence that a conventional offering would
actually require.

489
00:36:31,577 --> 00:36:33,151
The merger was the mechanism.

490
00:36:33,151 --> 00:36:34,921
The mechanism was the point.

491
00:36:34,922 --> 00:36:37,173
And for all those people who bought it in at 65.

492
00:36:37,173 --> 00:36:39,304
Yeah, the stock's under a dollar now.

493
00:36:39,304 --> 00:36:50,135
Um, when Trevor Milton was convicted of fraud in October, 2022 and sentenced to four years
in prison in December, 2023, that is the justice system working.

494
00:36:50,135 --> 00:36:56,187
A conviction, sentence, a man going to prison, but the shares are still under a dollar.

495
00:36:56,188 --> 00:37:04,439
Which the part I don't want us to rush past because the conviction is real and it matters
that it happened and yet it does not return a single dollar to a single person who bought

496
00:37:04,439 --> 00:37:04,760
it 40.

497
00:37:04,760 --> 00:37:08,155
The legal system can establish that a wrong occurred.

498
00:37:08,155 --> 00:37:12,362
It's much less capable of reversing the direction of a transfer that already happened, a
legal transfer.

499
00:37:12,362 --> 00:37:12,853
Right.

500
00:37:12,853 --> 00:37:16,035
The law is better at naming the crime than undoing it.

501
00:37:16,035 --> 00:37:16,346
Right.

502
00:37:16,346 --> 00:37:22,636
And this is this is not I mean, I am guilty of these cynical observations, but it's a
structural observation.

503
00:37:22,636 --> 00:37:22,876
Right.

504
00:37:22,876 --> 00:37:24,088
The money moved.

505
00:37:24,088 --> 00:37:25,880
The shares were weakened.

506
00:37:25,880 --> 00:37:29,383
The sentence doesn't flow backwards through the transaction.

507
00:37:29,383 --> 00:37:34,368
There is no mechanism we currently have in place to claw this money back for retail
investors.

508
00:37:34,368 --> 00:37:37,503
And again, those retail investors are the people on the other side of those trades.

509
00:37:37,503 --> 00:37:38,804
That's what sticks with me.

510
00:37:38,804 --> 00:37:40,037
It's not an abstraction.

511
00:37:40,037 --> 00:37:44,365
Specifically, people who are retail investors, their pensions, you know, it's...

512
00:37:44,365 --> 00:37:46,345
And look, we don't, we don't always get their names, right?

513
00:37:46,345 --> 00:37:47,686
That's kind of part of the design.

514
00:37:47,686 --> 00:37:51,008
The retail investor is this anonymous structure.

515
00:37:51,008 --> 00:37:52,549
They're a liquidity source.

516
00:37:52,549 --> 00:38:03,314
The founder, the SPAC sponsor, the underwriter, those peoples have names in these filings,
but the buyer in a retail brokerage account at 1130 on a Tuesday morning does not have a

517
00:38:03,314 --> 00:38:04,044
name.

518
00:38:04,045 --> 00:38:04,874
Right.

519
00:38:04,875 --> 00:38:05,547
All right.

520
00:38:05,547 --> 00:38:11,156
Now the one that I actually, I, I per I bought into Luckin coffee.

521
00:38:12,640 --> 00:38:15,106
this was, did you, did you as well?

522
00:38:15,106 --> 00:38:15,677
I did not.

523
00:38:15,677 --> 00:38:16,699
Unfortunately I missed this one.

524
00:38:16,699 --> 00:38:19,705
I bought it in my share, don't get me wrong, but not this one particularly.

525
00:38:19,705 --> 00:38:20,026
Sure.

526
00:38:20,026 --> 00:38:26,682
I was, uh, I was paying for a Motley Fool or something and Motley Fool came out hardcore
in support of this one.

527
00:38:26,682 --> 00:38:29,108
Luck and Coffee from May of 2019.

528
00:38:29,108 --> 00:38:36,085
This was a Chinese coffee chain that was listed on NASDAQ and the pitch deck was entirely
straightforward.

529
00:38:36,085 --> 00:38:37,627
The perspective, everything.

530
00:38:37,627 --> 00:38:40,529
They are the Starbucks of China.

531
00:38:40,530 --> 00:38:43,762
And I'm thinking China's got it over a billion people.

532
00:38:43,763 --> 00:38:45,299
and Starbucks, right?

533
00:38:45,299 --> 00:38:45,520
In 2019...

534
00:38:45,520 --> 00:38:46,197
What's that?

535
00:38:46,197 --> 00:38:46,519
though.

536
00:38:46,519 --> 00:38:47,912
I'm gonna drink coffee though.

537
00:38:47,912 --> 00:38:52,912
Who knows, but that was the promise, right?

538
00:38:53,072 --> 00:38:56,503
That's a billion people that could be the next Starbucks of China.

539
00:38:56,503 --> 00:38:58,363
They were growing faster than anyone.

540
00:38:58,363 --> 00:38:59,183
Here's the numbers.

541
00:38:59,183 --> 00:39:05,643
know, like the IPO raised $600 million from US public investors.

542
00:39:05,644 --> 00:39:16,404
And then in January of 2020, this was right before the big crash of COVID, but the
secondary offering raised another $865 million.

543
00:39:16,405 --> 00:39:18,747
Those numbers were fabricated.

544
00:39:18,747 --> 00:39:25,460
Approximately 2.2 billion Chinese yen in sales were entirely invented.

545
00:39:25,461 --> 00:39:27,822
Inflated to justify the share price.

546
00:39:27,822 --> 00:39:37,497
So to justify that secondary offering, to justify insiders selling into the public market
at prices that the real underlying businesses could not have supported.

547
00:39:37,497 --> 00:39:43,798
And the secondary offering is the part that makes this specific because by January 2020,
it already been public for eight months.

548
00:39:43,798 --> 00:39:49,709
People were watching the stock, you know, they had it in their portfolios or watching it
go up as people continue to buy in.

549
00:39:49,709 --> 00:39:53,009
They'd seen the growth story told up or hold up apparently, right?

550
00:39:53,009 --> 00:39:55,580
Everybody assumes everyone's buying in because it's viable.

551
00:39:55,580 --> 00:39:58,731
They bought into the secondary at prices that reflected the fraudulent metrics.

552
00:39:58,731 --> 00:40:00,822
They were not buying a pig in a poke at the IPO.

553
00:40:00,822 --> 00:40:02,453
They thought they were buying a proven story.

554
00:40:02,453 --> 00:40:07,453
And the stock went from over $50 per share to $2.

555
00:40:07,454 --> 00:40:12,445
The company agreed to pay a $180 million penalty.

556
00:40:12,445 --> 00:40:14,145
$180 million.

557
00:40:14,145 --> 00:40:17,225
They had made like a trillion dollars.

558
00:40:18,105 --> 00:40:20,347
Like literally, do the math on it.

559
00:40:20,347 --> 00:40:24,618
It's like 1.4 something trillion dollars.

560
00:40:24,618 --> 00:40:26,881
And they agreed to pay just over...

561
00:40:26,881 --> 00:40:28,092
$180 million.

562
00:40:28,092 --> 00:40:32,703
And then they were immediately delisted from NASDAQ in June.

563
00:40:32,703 --> 00:40:37,223
So the penalty sounds big.

564
00:40:37,224 --> 00:40:45,055
Until you divide that across the retail investors who lost money in that collapse, it
covers almost nothing.

565
00:40:45,055 --> 00:40:49,795
1.4 trillion versus 180 million.

566
00:40:49,796 --> 00:40:51,422
And here's what I keep coming back to.

567
00:40:51,422 --> 00:40:52,097
Sorry, go ahead.

568
00:40:52,097 --> 00:40:54,536
It was 1.4 billion, not trillion, sorry.

569
00:40:54,536 --> 00:40:57,619
so here's what I keep going back to about Luckin specifically.

570
00:40:57,619 --> 00:41:00,692
The secondary offering is where the dilution argument becomes sharpest.

571
00:41:00,692 --> 00:41:04,065
The IPO you can say, well, these are sophisticated actors, right?

572
00:41:04,065 --> 00:41:07,248
IPOs, they understand what happens when you launch a new business.

573
00:41:07,248 --> 00:41:09,600
There's risk disclosure, there's a prospectus.

574
00:41:09,600 --> 00:41:16,865
Of course it was all made up, but the secondary offering is where ordinary investors who
had watched the company for eight months watch the stock price go up and down.

575
00:41:16,865 --> 00:41:19,307
They'd done what they were told to do, wait, watch, and verify.

576
00:41:19,307 --> 00:41:24,182
And then they got in, and the verification was impossible because the data they were
verifying was manufactured.

577
00:41:24,182 --> 00:41:27,296
Not like we'd all travel to China and see how many people are drinking Luckin.

578
00:41:27,296 --> 00:41:28,997
And the full thing was exposed too.

579
00:41:28,997 --> 00:41:30,207
Like it was all exposed.

580
00:41:30,207 --> 00:41:32,158
It was all like a big plot from the CEO.

581
00:41:32,158 --> 00:41:34,599
remember, cause I kept getting the filings.

582
00:41:34,599 --> 00:41:40,082
They were like, you know, like they had to disclose all this stuff now and the SEC got
involved and all this other stuff.

583
00:41:40,082 --> 00:41:46,678
so the disclosure regime assumes that the, of the information is real, right?

584
00:41:46,678 --> 00:41:50,430
I mean, there is, it doesn't really have an answer for

585
00:41:50,430 --> 00:41:55,301
a complete lie that's entirely fabricated with the help of the CFO.

586
00:41:55,301 --> 00:41:57,461
In this case, that's what it was.

587
00:41:57,742 --> 00:41:58,873
At scale.

588
00:41:58,873 --> 00:42:07,135
I mean, this was, this was supposed to be a trillion dollar, multiple trillion dollar
company, and it was just going to, it's supposed to just blow up like Starbucks, but in

589
00:42:07,135 --> 00:42:13,016
China, China, and the, the SEC rules require you to tell the truth, right?

590
00:42:13,016 --> 00:42:17,507
Like they can't, they can't force the truth to exist when it didn't exist before.

591
00:42:17,507 --> 00:42:17,848
Right.

592
00:42:17,848 --> 00:42:22,543
There's no mechanism for figuring out whether the numbers are real.

593
00:42:22,543 --> 00:42:24,545
But again, that's where the gap comes in.

594
00:42:24,545 --> 00:42:26,061
And that's where I want to keep coming back to.

595
00:42:26,061 --> 00:42:28,588
I know it's not like a broken record, but it's the important part.

596
00:42:28,588 --> 00:42:29,800
This is the real message.

597
00:42:29,800 --> 00:42:33,775
The weight of all this fraud falls on the people who don't have the resources to absorb
it.

598
00:42:33,775 --> 00:42:34,236
Yeah.

599
00:42:34,236 --> 00:42:36,797
So let's come back to the micro cap situation, right?

600
00:42:36,797 --> 00:42:38,878
Because it's happening right now in 2026.

601
00:42:38,878 --> 00:42:43,622
It involves a financial instrument that most people have never heard of.

602
00:42:43,622 --> 00:42:49,917
And that is doing consistent documented, devastating damage to retail investors in small
stocks.

603
00:42:49,917 --> 00:42:53,250
These toxic convertible notes that I was talking about.

604
00:42:53,250 --> 00:42:56,572
The mechanics are not complicated, right?

605
00:42:56,572 --> 00:42:59,164
Like this is not a hard concept to understand.

606
00:42:59,164 --> 00:42:59,985
The company

607
00:42:59,985 --> 00:43:02,656
A small public company is struggling.

608
00:43:02,656 --> 00:43:06,516
They can't get a bank loan because they're already in the negative, right?

609
00:43:06,516 --> 00:43:09,496
And they can't do a traditional offering.

610
00:43:09,497 --> 00:43:14,748
So it takes a loan from a specialty lender and there's plenty of specialty lenders out
there.

611
00:43:14,748 --> 00:43:16,828
The loan converts to shares at it.

612
00:43:16,828 --> 00:43:17,419
Exactly.

613
00:43:17,419 --> 00:43:22,290
The loan converts to shares at the discounted market price, the 30 to 60%.

614
00:43:22,291 --> 00:43:24,132
and let's walk through what it actually does.

615
00:43:24,132 --> 00:43:28,092
the lender converts the debt into shares at say 40 cents, right?

616
00:43:28,092 --> 00:43:35,123
And then when the stock is trading at 70 cents, they immediately sell those into the
market, driving the price down.

617
00:43:35,123 --> 00:43:41,945
Then the next conversion happens at a discount to the new lower price, which drives it
lower, which triggers another conversion.

618
00:43:41,945 --> 00:43:50,857
And the retail investors who bought in at 70 cents, who are still holding, Watch the price
go to 50 and then 30 and then 10.

619
00:43:50,857 --> 00:43:52,803
and they have no conversion rates.

620
00:43:52,803 --> 00:43:54,257
They have no discount.

621
00:43:54,257 --> 00:43:55,470
They bought at market.

622
00:43:55,470 --> 00:43:56,613
They are the exit.

623
00:43:56,613 --> 00:43:59,137
by the time the bag gets to them, it's thoroughly empty.

624
00:43:59,137 --> 00:44:06,299
You like you open it up and the moths fly out like the old comics, cobwebs and moths.

625
00:44:06,299 --> 00:44:08,474
And this is all perfectly legal.

626
00:44:08,474 --> 00:44:10,086
because it's disclosed.

627
00:44:10,086 --> 00:44:11,818
It's in the SEC filings.

628
00:44:11,818 --> 00:44:18,063
Written in language that, as our research describes it directly, is inaccessible to
non-specialists.

629
00:44:18,063 --> 00:44:25,512
The FINRA, the SEC enforcement actions in 2025 are flagging the most egregious versions of
this, right?

630
00:44:25,512 --> 00:44:30,876
But the structure itself, a company in distress taking convertible financing, isn't
prohibited.

631
00:44:30,876 --> 00:44:41,592
the people losing 70 to 90 % of their investment, their retirement, their 401k funds,
their IRAs, they are in these situations, they're not being defrauded in the way that the

632
00:44:41,592 --> 00:44:52,458
law can easily reach and easily understand, they are being correctly, technically
disclosed to in a document that they can't read, like your end user license agreement that

633
00:44:52,458 --> 00:44:54,249
you agreed to when you got your phone.

634
00:44:54,250 --> 00:44:58,822
You know, I don't know what Stephen King's up to these days, but he should be writing
these disclosure forms, right?

635
00:44:58,822 --> 00:45:07,158
They're basically telling an amazing story, completely made up, whole-claw, and yet it
ends in a horrible disaster, which is kind of perfect for Stephen King now.

636
00:45:07,158 --> 00:45:09,341
But that's neither here nor there.

637
00:45:09,341 --> 00:45:14,606
I want the listener to feel the specific cruelty of this, though, not the systemic
cruelty, the specific kind.

638
00:45:14,606 --> 00:45:15,907
You're told the information.

639
00:45:15,907 --> 00:45:17,219
The information is there.

640
00:45:17,219 --> 00:45:21,332
And the information is written in a way that requires years of financial and legal
training to understand.

641
00:45:21,332 --> 00:45:23,774
And so the disclosure sort of becomes their own alibi.

642
00:45:23,774 --> 00:45:26,126
Yes, the disclosure is the alibi.

643
00:45:26,126 --> 00:45:28,318
That's the exact way that it works.

644
00:45:28,318 --> 00:45:29,730
The filing exists.

645
00:45:29,730 --> 00:45:33,243
The filing was read by no one who bought the stock.

646
00:45:33,243 --> 00:45:35,075
The filing protects the lender.

647
00:45:35,075 --> 00:45:40,118
The retail investor loses 90 % and everyone followed the rules.

648
00:45:40,119 --> 00:45:49,317
When we say working people, we're talking about people without financial advisors, without
Bloomberg terminals, without access to anybody who reads Convertible Node Indentures for a

649
00:45:49,317 --> 00:45:51,879
Living, which is a miserable life, if ask me.

650
00:45:51,880 --> 00:45:53,991
We say these people are in the stocks, we mean it literally.

651
00:45:53,991 --> 00:45:56,693
These are over the counter markets, OTC markets.

652
00:45:56,693 --> 00:46:04,007
These are stocks that get discussed on Reddit threads and small investing forums, where
the Beardstown ladies get together to decide where they're gonna put their money.

653
00:46:04,007 --> 00:46:10,290
The people buying it, although they're less sophisticated than probably the Beardstown
ladies were, they're doing what they can with the information they have access to.

654
00:46:10,908 --> 00:46:21,639
And what they have access to is a market that was designed by its very structure at every
layer to move risk toward them, not away from them, which is a violation of their

655
00:46:21,639 --> 00:46:23,103
fiduciary capacity.

656
00:46:23,103 --> 00:46:27,638
Right, and that's really the lie, but again, they can always point back to the disclosure.

657
00:46:27,638 --> 00:46:28,679
We told you about the risk.

658
00:46:28,679 --> 00:46:30,440
We put it, it's right in there, right on page 47.

659
00:46:30,440 --> 00:46:35,403
Yeah, and yet here we are, right?

660
00:46:35,403 --> 00:46:38,165
The direction of the risk transfer never reverses, right?

661
00:46:38,165 --> 00:46:41,978
This is never, CEO's putting all their billions or millions on the line.

662
00:46:41,978 --> 00:46:44,751
It's the retail investor that keeps getting hit every time.

663
00:46:44,751 --> 00:46:45,552
Yeah.

664
00:46:45,553 --> 00:46:47,519
And of course the room keeps meeting.

665
00:46:47,520 --> 00:46:54,983
So we have three cases, a convicted founder, a fabricated coffee empire, a convertible
note draining a microcap stock this week.

666
00:46:54,983 --> 00:46:57,776
The details are different, but the math is the same.

667
00:46:57,776 --> 00:47:00,959
Someone designed the structure, someone else absorbs the loss.

668
00:47:00,959 --> 00:47:03,591
The difference between those two people is the story we keep telling.

669
00:47:03,591 --> 00:47:06,584
Yeah, so let's sit with what we've established, right?

670
00:47:06,584 --> 00:47:10,538
This is not a story about a few bad actors who just slipped through the cracks, right?

671
00:47:10,538 --> 00:47:12,551
It's a story about a system.

672
00:47:12,551 --> 00:47:14,384
The system has a direction.

673
00:47:14,384 --> 00:47:15,936
It always had a direction.

674
00:47:15,936 --> 00:47:21,651
And the direction is away from the people who designed it toward the people who trusted
it.

675
00:47:21,652 --> 00:47:24,133
because nobody's going to design a system that puts them at risk.

676
00:47:24,133 --> 00:47:27,134
ah The three cases, yeah, right?

677
00:47:27,134 --> 00:47:31,586
But these three cases, they may sound like it, but they're not outliers chosen for
dramatic effect.

678
00:47:31,586 --> 00:47:32,667
These are just examples.

679
00:47:32,667 --> 00:47:38,189
These are the ones that have risen through to be prosecuted ultimately, but they are very,
I there's so many more stocks out there.

680
00:47:38,189 --> 00:47:42,301
For every one that we mentioned, there are hundreds, if not thousands that are going by
unnoticed.

681
00:47:42,301 --> 00:47:44,653
They're just examples of three different structural forms.

682
00:47:44,653 --> 00:47:55,318
a SPAC that bypasses IPO scrutiny and let a founder cash out before anyone confirms the
trucks even exist, a secondary offering built on fabricated revenue, and a convertible

683
00:47:55,318 --> 00:47:59,921
note converting at 50 % discount while a Reddit forum debates whether the company was
undervalued.

684
00:47:59,921 --> 00:48:02,072
Three forms, one function.

685
00:48:02,073 --> 00:48:09,299
While we're at it, I'm going to, I'm going to talk about a future upcoming IPO that I
think is going to follow a very similar structure.

686
00:48:09,299 --> 00:48:13,234
Um, it's one that you might've heard of called open AI.

687
00:48:13,234 --> 00:48:16,616
Open AI is going to be doing a giant IPO.

688
00:48:17,758 --> 00:48:18,529
I'm sorry.

689
00:48:18,529 --> 00:48:19,369
I've got to do it.

690
00:48:19,369 --> 00:48:23,553
It's, it's just, it's that real because it's really starting to come about, right?

691
00:48:23,553 --> 00:48:25,945
Like, I mean, it's, can find it out there on YouTube.

692
00:48:25,945 --> 00:48:29,199
There are other podcasts that are starting to talk about this sort of thing, but

693
00:48:29,199 --> 00:48:42,392
Currently, OpenAI is valued at $852 billion in 2026, as of May 4th, is the latest data.

694
00:48:42,392 --> 00:48:46,944
I heard apparently just surpassed by Anthropic, which is not supposed to be worth even
more.

695
00:48:46,944 --> 00:48:49,721
But Anthropic has not announced an IPO yet.

696
00:48:49,721 --> 00:48:51,862
OpenAI has actually announced it, right?

697
00:48:51,862 --> 00:49:06,722
So this company, in order to keep its valuation at $852 billion, the company has to
continuously secure massive capital injections to service this unprecedented technical

698
00:49:06,722 --> 00:49:07,133
debt.

699
00:49:07,133 --> 00:49:10,446
And currently the burn rate for OpenAI

700
00:49:10,497 --> 00:49:15,220
just for 2026 is currently already standing at $14 billion.

701
00:49:15,220 --> 00:49:29,378
Meaning OpenAI is currently losing money at the rate of $14 billion so far with a
long-term infrastructure commitment totaling to around $1.15 trillion, like more than the

702
00:49:29,378 --> 00:49:30,649
A22 jet.

703
00:49:30,649 --> 00:49:36,193
So a lot of critics are arguing that the valuation is kind of decoupled from revenue
reality.

704
00:49:36,193 --> 00:49:45,223
sustained primarily by hype and that the future of AGI, which we've talked about before,
artificial and general intelligence rather than the current cash flow.

705
00:49:45,223 --> 00:49:49,628
Because if you look at it from a current cash flow perspective, they're burning money.

706
00:49:49,628 --> 00:49:54,212
They can't continue to survive like this without a capital injection.

707
00:49:54,212 --> 00:50:01,499
And this is the perfect rife environment for exactly this type of mechanism to happen all
over again.

708
00:50:01,499 --> 00:50:03,069
but with different words.

709
00:50:03,070 --> 00:50:13,232
So one of the things I want you to look out for is look out for exact situations like
this, especially in this AI driven world where we're all kind of hyped up on AI in one way

710
00:50:13,232 --> 00:50:16,173
or another and we can't remove it from the conversation.

711
00:50:16,173 --> 00:50:17,233
That's the perfect scenario.

712
00:50:17,233 --> 00:50:18,994
was the same thing with the dot com bubble.

713
00:50:18,994 --> 00:50:22,286
It was the same thing with the public utility back in thirties, right?

714
00:50:22,286 --> 00:50:28,059
Like the idea of having electricity in every home was the latest and greatest uh thing in
the thirties.

715
00:50:28,059 --> 00:50:28,879
So

716
00:50:28,880 --> 00:50:30,801
What do you, what do you do with that?

717
00:50:30,801 --> 00:50:32,501
What do you do with that information?

718
00:50:32,501 --> 00:50:35,172
That's, that's one of the things that we try to give you here on the podcast.

719
00:50:35,172 --> 00:50:37,404
We try to give you like, okay, great.

720
00:50:37,404 --> 00:50:39,965
Everything sucks, but how do you do something?

721
00:50:39,965 --> 00:50:41,856
Well, there are some things that you can do.

722
00:50:41,856 --> 00:50:45,427
And the first thing I would do not, not like as a gesture, right.

723
00:50:45,427 --> 00:50:53,310
But like as a real move is to learn to read about capital structure before you buy shares
into it.

724
00:50:53,310 --> 00:50:54,712
And look, here's the thing.

725
00:50:54,712 --> 00:50:55,363
Most.

726
00:50:55,363 --> 00:50:56,965
Retail investors now.

727
00:50:56,965 --> 00:50:58,216
They just have a 401k.

728
00:50:58,216 --> 00:51:06,074
They're not really directing it It's inside of a target fund If you have a 401k if you're
lucky enough to have a 401k if you have an IRA or something like that You you likely have

729
00:51:06,074 --> 00:51:17,324
a more advanced strategy But the average 401k users in a target fund and let me tell you
they are heavily heavily investing in AI right now right, so Take take your 401k.

730
00:51:17,324 --> 00:51:18,535
Take your 403 B.

731
00:51:18,535 --> 00:51:23,319
Take take whatever Retirement mechanism you have and make sure

732
00:51:23,319 --> 00:51:25,600
that they're not over leveraging inside of AI.

733
00:51:25,600 --> 00:51:26,662
That's the first thing.

734
00:51:26,662 --> 00:51:37,600
But read and use the common sense that you already have to go, there's no way they can,
they're burning, they're negative 14 billion already.

735
00:51:37,601 --> 00:51:42,735
And they're asking for 852 billion in injectable capital.

736
00:51:42,735 --> 00:51:48,429
There's no way for them to profit without in-shitification, which is exactly how
in-shitification has happened.

737
00:51:48,429 --> 00:51:52,823
is they cannot continue in the way that they're currently doing things and make money that
way.

738
00:51:52,823 --> 00:51:59,587
So they make it objectively worse by making our lives worse by trying to rip more money
out of our hands.

739
00:51:59,588 --> 00:52:00,388
do your homework.

740
00:52:00,388 --> 00:52:03,310
That's really what this suggestion is about, right?

741
00:52:03,310 --> 00:52:04,071
It's homework.

742
00:52:04,071 --> 00:52:13,663
Yes, it sucks, but it's the only way that apparently we're allowed to continue in this
capitalist hellscape, in this post-capitalist hellscape.

743
00:52:13,663 --> 00:52:14,695
It's to do your homework.

744
00:52:14,695 --> 00:52:16,866
But there are specific tools that make this easy, right?

745
00:52:16,866 --> 00:52:19,377
You can go to the SEC's Edgar tool.

746
00:52:19,377 --> 00:52:21,788
It's a full text search.

747
00:52:21,788 --> 00:52:25,450
You can go to that at EFTS.SEC.gov.

748
00:52:25,450 --> 00:52:27,891
That lets you pull any company's S1 filings.

749
00:52:27,891 --> 00:52:31,903
They're 10K, they're 8K filings, and you can search the text inside of them.

750
00:52:31,903 --> 00:52:36,485
So it does OCR, optical character recognition, and you can search for specific words.

751
00:52:36,485 --> 00:52:40,560
You're looking for three words, convertible, warrant, and dilution.

752
00:52:40,560 --> 00:52:47,929
If those are words appear very frequently in a filing for a micro cap stock, that is the
lender already inside the room.

753
00:52:47,929 --> 00:52:50,871
And that is the structure already in motion.

754
00:52:50,872 --> 00:52:54,238
Maybe you're hearing this and saying, well, it's not fair that I have to do the homework.

755
00:52:54,238 --> 00:52:54,919
You're right.

756
00:52:54,919 --> 00:52:56,121
It's not fair.

757
00:52:56,121 --> 00:52:57,323
These things should be vetted.

758
00:52:57,323 --> 00:53:00,479
But keep in mind who's writing the memos, right?

759
00:53:00,479 --> 00:53:04,516
But maybe you don't think it's fair, or maybe you just don't have time to do the homework
that way.

760
00:53:04,516 --> 00:53:05,696
There is another path.

761
00:53:05,696 --> 00:53:08,087
It's not ideal either, but it's what we've got.

762
00:53:08,087 --> 00:53:10,038
And that's the legislative path.

763
00:53:10,038 --> 00:53:17,450
The SEC under Paul Atkins is revising or revisiting, sorry, Rule 415, which governs at the
market offerings, right?

764
00:53:17,450 --> 00:53:20,341
These are not the IPOs, but the secondary offerings.

765
00:53:20,341 --> 00:53:25,433
This is the mechanism that lets companies issue new shares continuously without a formal
prospectus per transaction.

766
00:53:25,433 --> 00:53:28,045
That rulemaking process has a public comment period.

767
00:53:28,045 --> 00:53:33,257
It's open for comments right now from real people who can make real comments to move those
processes.

768
00:53:33,257 --> 00:53:40,053
Not in a feel-good way, but in a documented, on-the-record way that becomes part of the
administrative record and can be cited in future litigation.

769
00:53:40,053 --> 00:53:43,085
The place to submit your public comments is Regulations.gov.

770
00:53:43,085 --> 00:53:45,917
Search Rule 415 or At-the-Market Offerings.

771
00:53:45,917 --> 00:53:47,869
And when the comment window opens, use it.

772
00:53:47,869 --> 00:53:53,202
A paragraph from someone who lost money in one of these structures carries different
weight than a paragraph from some securities lawyer.

773
00:53:53,202 --> 00:53:54,213
Write it plainly.

774
00:53:54,213 --> 00:53:54,975
Get help from AI.

775
00:53:54,975 --> 00:53:56,256
AI while it still exists.

776
00:53:56,256 --> 00:53:58,378
ah Write it plainly.

777
00:53:58,378 --> 00:54:00,721
Say what happened to you or someone you know.

778
00:54:00,721 --> 00:54:02,942
The luck and coffee story is out there.

779
00:54:05,265 --> 00:54:09,668
That is the input the rulemaking process is theoretically designed to receive.

780
00:54:09,669 --> 00:54:09,939
Yeah.

781
00:54:09,939 --> 00:54:15,074
So there's an organization also that I kept finding in looking for suggestions for this.

782
00:54:15,074 --> 00:54:22,341
And I want to you to know about them because I want you to help you understand all of this
stuff without a law degree.

783
00:54:22,341 --> 00:54:25,524
And so that's BetterMarkets at bettermarkets.com.

784
00:54:25,524 --> 00:54:31,789
They're a nonprofit uh that specifically fights for retail investor protections in
financial rulemaking.

785
00:54:31,789 --> 00:54:32,699
That's really boring.

786
00:54:32,699 --> 00:54:36,703
This is a very dense topic, but essentially this has to

787
00:54:36,703 --> 00:54:37,667
is kind of important.

788
00:54:37,667 --> 00:54:38,227
Right.

789
00:54:38,227 --> 00:54:41,039
It is in the world that we're given.

790
00:54:41,039 --> 00:54:43,880
This is what we, the mechanisms that we have to fight.

791
00:54:43,880 --> 00:54:44,491
Right.

792
00:54:44,491 --> 00:54:51,444
And so we wanted to bring this to you because it's, it's another example of a mechanism
that this is not a left and right divide thing.

793
00:54:51,444 --> 00:54:57,008
This does not hurt Republicans or does not hurt Democrats more than it hurts everybody
else.

794
00:54:57,008 --> 00:54:58,650
This is a top and bottom thing.

795
00:54:58,650 --> 00:55:02,203
The top is creating new mechanisms to hurt the bottom.

796
00:55:02,203 --> 00:55:04,075
That's the way that it always goes.

797
00:55:04,075 --> 00:55:06,127
So bettermarkets.com.

798
00:55:06,127 --> 00:55:16,805
uh You can they translate every single major SEC proceeding into normal human language and
They tell you exactly when you can show up and do things.

799
00:55:16,805 --> 00:55:17,835
They're not a charity.

800
00:55:17,835 --> 00:55:26,930
They're not asking for your money Primarily, I mean, they're still a nonprofit so you can
donate there if you want to but they're asking for your attention at specific regulatory

801
00:55:26,930 --> 00:55:33,126
moments So you can sign up for their alerts go and put in those paragraphs go in and sign
up for their their mailing lists

802
00:55:33,126 --> 00:55:36,370
so that you can be aware of when we can fight for these things.

803
00:55:36,370 --> 00:55:42,598
And they also, I mean, they expose candidates who are also paid for by these
organizations.

804
00:55:42,599 --> 00:55:51,824
And for those of you out there who want your investor protection with a little more of a
litigation edge, the Public Investor Advocate at piaba.org, that's the Public Investor's

805
00:55:51,824 --> 00:55:58,928
Advocate Bar Association, maintains a directory of attorneys who specifically handle
retail investor loss cases involving dilutive securities fraud.

806
00:55:58,928 --> 00:56:05,731
So if you or someone you know has been in a toxic convertible note situation and lost
significant money, that's not just a personal loss to absorb.

807
00:56:05,731 --> 00:56:09,764
There are legal theories, there are attorneys who work these cases, and their database is
free to search.

808
00:56:09,764 --> 00:56:17,646
So you need to find an attorney, although keep in mind, rarely are you gonna actually get
your money back, but you may be able to get somebody penalized who took away your money.

809
00:56:17,646 --> 00:56:21,058
Yeah, might be able to stab them a little bit back in the back.

810
00:56:22,901 --> 00:56:26,544
Something else you can go to the, the sec's investor complaint portal.

811
00:56:26,544 --> 00:56:32,820
Given the current administration, it's, it's hard to say what that's actually going to do,
but it's, it's at sec.gov slash TCR.

812
00:56:32,820 --> 00:56:34,082
And you can file a tip there.

813
00:56:34,082 --> 00:56:42,041
here's the thing, the employees at the sec, they're still nonpartisan people who are
trying to do their best to do their jobs.

814
00:56:42,041 --> 00:56:48,464
even if the legislative side is and the the leadership side is letting us down currently.

815
00:56:48,464 --> 00:56:52,297
So you can still go and file a complaint there about a company that kind of fits this
pattern.

816
00:56:52,297 --> 00:56:55,879
Convertible notes, you know, share price destruction, OTC markets.

817
00:56:55,879 --> 00:57:03,022
The SEC whistleblower system is technically a tip system that is underfunded in terms of
human attention.

818
00:57:03,022 --> 00:57:08,396
So tips from retail investors about specific tickers, specific filings, specific lenders.

819
00:57:08,396 --> 00:57:19,092
That creates a paper trail that enforcement can act on later and can also help out the
public investor advocate bar association when they actually come to try these cases.

820
00:57:19,092 --> 00:57:22,115
So you don't need a lawyer to file a tip, right?

821
00:57:22,115 --> 00:57:28,201
You just need the actual ticker symbol on the offering and a description of what happened
or what you saw.

822
00:57:28,202 --> 00:57:29,724
Okay, one more thing.

823
00:57:29,724 --> 00:57:36,072
I know we've given you a lot of homework, but if you're still interested in more, this
dual class share structure problem we talked about with the class A and the class B

824
00:57:36,072 --> 00:57:42,468
shares, where the founders retain voting control and the retail investors don't get really
a meaningful say at all.

825
00:57:42,468 --> 00:57:45,430
It's a live debate at every major stock exchange right now.

826
00:57:45,430 --> 00:57:53,708
The Council of Institutional Investors at cii.org has been fighting this dual class
structure for years and they published specific company level scorecards.

827
00:57:53,708 --> 00:58:01,492
If you hold shares in any company through a retirement account, you can contact your fund
manager and ask how they vote on shareholder resolutions related to share issuance

828
00:58:01,492 --> 00:58:02,103
authority.

829
00:58:02,103 --> 00:58:08,376
Most people don't know their index fund votes on their behalf, but most index funds vote
with management.

830
00:58:08,376 --> 00:58:11,077
So asking out loud can change the calculus even slightly.

831
00:58:11,077 --> 00:58:16,732
Just embarrass them a little bit by habit voting with the management instead of the uh
retail owner.

832
00:58:16,732 --> 00:58:17,103
Yeah.

833
00:58:17,103 --> 00:58:25,260
The system basically moves risk in one direction until enough people make that movement
too expensive to move.

834
00:58:25,260 --> 00:58:26,901
So that's, that's not optimism.

835
00:58:26,901 --> 00:58:29,193
I'm not, I'm, I'm almost never guilty of that.

836
00:58:29,193 --> 00:58:32,535
That's how the 1933 act actually happened, right?

837
00:58:32,535 --> 00:58:40,482
Samuel Insull's victims were loud and specific and their losses were documented and a
Senator, Senator by the name of Ferdinand Pecora put it on the record.

838
00:58:40,482 --> 00:58:43,775
The mechanism for that still exists today.

839
00:58:43,775 --> 00:58:45,671
The committee hearings are still happening.

840
00:58:45,671 --> 00:58:48,007
The comment periods are still open.

841
00:58:48,007 --> 00:58:50,203
The tips still get filed.

842
00:58:50,204 --> 00:58:52,536
We're not saying this is fixable by next Tuesday.

843
00:58:52,536 --> 00:58:59,143
We're saying that the system responds to specific, documented, persistent pressure from
people who understand exactly what was done to them.

844
00:58:59,143 --> 00:59:00,535
And now you're one of those people.

845
00:59:00,535 --> 00:59:02,176
The disclosure was the alibi once.

846
00:59:02,176 --> 00:59:03,658
It doesn't have to stay the alibi.

847
00:59:03,658 --> 00:59:04,820
and the room keeps meeting.

848
00:59:04,820 --> 00:59:08,033
The question is whether or not you are gonna be in that room.

849
00:59:08,033 --> 00:59:16,529
So look, before we get out of here, one thing that I was thinking about this week was that
Michael Milken made $550 million in a single year in 1987.

850
00:59:16,529 --> 00:59:20,692
In today's dollars, that is well over a billion dollars.

851
00:59:20,692 --> 00:59:24,985
And Vinny only paid $600 million in fines and completely walked away from it.

852
00:59:24,985 --> 00:59:27,708
And the math on that is hilarious.

853
00:59:27,708 --> 00:59:28,889
But really not, right?

854
00:59:28,889 --> 00:59:40,682
It's really pretty sad because he essentially rented the entire American capital market
for 10 years, a decade, and then handed it back slightly used, paid a cleaning fee, and

855
00:59:40,682 --> 00:59:42,814
then got a presidential pardon in 2020.

856
00:59:42,814 --> 00:59:45,706
That's not a cautionary tale.

857
00:59:45,706 --> 00:59:48,127
That's a business model with a bad quarter.

858
00:59:48,128 --> 00:59:50,860
And my standout example is a little quieter than that.

859
00:59:50,860 --> 00:59:55,825
And it's not just because I'm hungry for a sandwich now, but the hometown international
deli.

860
00:59:55,825 --> 00:59:59,596
mean, one location, $35,000 in annual sales.

861
00:59:59,596 --> 01:00:03,220
That's not million, that's not billion, that's thousand.

862
01:00:03,220 --> 01:00:05,092
$100 million market cap.

863
01:00:05,092 --> 01:00:06,964
And the thing that got me wasn't the fraud.

864
01:00:06,964 --> 01:00:14,711
It wasn't that David Einhorn, a hedge fund manager with the research staff, had to write a
letter to his own investors just to get anyone to look at it.

865
01:00:14,711 --> 01:00:16,453
The mechanism for catching this existed.

866
01:00:16,453 --> 01:00:18,205
The SEC filing was public.

867
01:00:18,205 --> 01:00:19,787
The revenue numbers were public.

868
01:00:19,787 --> 01:00:24,291
Nobody corrected it until someone with resources and a platform made it impossible to
ignore.

869
01:00:24,291 --> 01:00:26,323
That's not a gap in the law.

870
01:00:26,323 --> 01:00:27,644
That's a gap in attention.

871
01:00:27,644 --> 01:00:29,846
And attention is not equally distributed.

872
01:00:29,847 --> 01:00:32,229
Yeah, so you can find us at fof.foundation.

873
01:00:32,229 --> 01:00:35,161
That'll lead you to our podcast website on Cast a Pod.

874
01:00:35,161 --> 01:00:42,724
So you can subscribe to us there uh if you have a Mastodon account or if you use Apple
Podcasts or Spotify, you can subscribe to us there as well.

875
01:00:42,724 --> 01:00:45,757
Leave us a review if you want more people to find this conversation.

876
01:00:45,757 --> 01:00:55,425
Every single time you share one of these, you know, podcasts with one of your friends or
something, a quiet transfer of risk onto someone smaller.

877
01:00:55,425 --> 01:00:57,818
So we said that at the top, right?

878
01:00:57,818 --> 01:00:58,780
Here's what we didn't say.

879
01:00:58,780 --> 01:01:05,039
The someone smaller has a ticker symbol, a filing number, a conversion discount rate, and
a comment period.

880
01:01:05,039 --> 01:01:09,485
The fire is real, the exits are labeled, read the signs before you sit down.

881
01:01:09,486 --> 01:01:14,521
Remember the disclosure was designed to protect you, but it became the alibi that they hid
behind.

882
01:01:14,522 --> 01:01:16,677
So don't let them keep doing it.

883
01:01:16,677 --> 01:01:19,144
The line has moved before, it will move again.

884
01:01:19,144 --> 01:01:20,656
And that's it from the overlap.

885
01:01:20,656 --> 01:01:21,343
Till next time.

886
01:01:21,343 --> 01:01:24,585
and maybe don't buy OpenAI at the IPO.

887
01:01:24,624 --> 01:01:25,944
Maybe, just maybe.

888
01:01:25,944 --> 01:01:26,927
Bye.