Fraud:

Fraud.

I recently finished Nicolas Nassim’s Taleb book, Anti-fragile. The first ethical principle he cites is ‘if you see fraud and do not say fraud, you are a fraud.’

I am not a fraud.

There’s a lot of fraud going on in the world right now that needs to be called out.

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The first one in my mind is Citadel. Wrote a blog post about it here.

The largest market maker on Wall Street has been committing fraud for years with minimal damages.

No one paid attention.

No one looked at their financials.

How does someone on Reddit with a masters in accounting go through all of Citadel’s finances and find fraud everywhere, when this is the government’s job.

Citadel is using the same playbook Enron used.

Because they’ve shorted the whole market, the whole world is likely going to suffer. They and other hedge funds artificially manipulated the price of a few stocks illegally.

They created fake shares that didn’t exist to flood the market. The idea behind this is to increase supply enough so the demand looks like it’s staying the same and therefore the price drops. However, we’ve known for weeks now that retail has continued to buy shares in AMC & GME, even as the prices have dropped.

Their prices should be so much higher (AMC ~13 right now, GME around 160). It’s simple supply and demand. If demand goes higher and supply is supposed to stay the same, because there’s supposed to be a fixed number of shares in a company, then the price should go up.

It hasn’t because they got caught.

It’s plausible to assume that Robinhood and others stopped buying in January 2021 because of Citadel. However, the SEC and US government might have found out that Citadel was so over leveraged it could’ve crushed the entire world. Why? Because there is infinite downside for the shorts. If people keep holding, then even when the hedge fund goes bankrupt, the bank has to close the transaction. If they don’t have the collateral, they have to pay that out.

People don’t understand how much leverage has been operating in the financial system ever since the Fed started printing money after Covid.

Other great investors including Stanley Druckenmiller and Michael Burry have talked about how dangerous this precedent is. The US federal reserve is actively creating inflation that they likely won’t be able to get a hold off, which would ruin the US dollar as the global reserve currency.  That outcome is likely in the next 10-15 years at this rate.

The government has printed so much money that it’s raised the price of anything, but most of this has gone into the market. You know where else this money has gone into for retail traders?

Cryptocurrencies, and Bitcoin in particular.

Crypto has shot up like a rocket this year and it’s made a few people look like geniuses because they were early into it. Cathie Wood, Mike Novogratz, Anthony Pompliano, etc. They keep touting Bitcoin as the new Internet gold that revolutionizes everything.

But wait a second, what value does Bitcoin produce for society?

It burns tons of fossil fuels. 95% of the supply is controlled by a very small number of people. It goes up and down 10% in a single day every so often.

That’s just the tip of the iceberg.

Cryptocurrencies have brought along so many new fraudsters because it’s such an easy way to fraud people.

If you can get enough people to pay you for your charade in USD for ‘fake coins’ that you’ve created, you can earn millions of dollars and then disappear.

John Oliver discussed this years ago, and there was a recent Netflix episode on Explained: Money discussing new fraudsters. 

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Frauds have existed for as long as time.

In the 20th century, Charles Ponzi was the first one who understood you can take people’s money, and pay them back with other people’s money. You don’t create actual value but just take money, keep it all for yourself, and then when people ask you for it, you give them other people’s money.

This is how Bernie Madoff was found out to be the largest ponzi scheme in history.

Tether, the crypto currency that’s supposed to be pegged to the US Dollar, could be found out to be the same.

Saw this tweetstorm about Tether from Stephen Diehl. It’s worth reading the whole thing but essentially Tether, a single company which offers stable coins doesn’t hold enough US dollar reserve currency to back up their statements. If you have a situation in which the prices crash and people want to withdraw all their money, they won’t be able to get it.

They’ve issued 59 billion virtual dollars and there’s no way they have that in reserve. No bank would ever touch that because you have no idea who’s conducting those transactions. Listen to this:

‘For every 1 USDT that they’ve issued, they hold $0.03 US dollars.’

What happens if everyone starts withdrawing because it starts dropping? They’re screwed.

It’s likely the crypto market is just as leveraged as the real market. Because US institutions, banks, and hedge funds don’t have to declare their cryptocurrency holdings, people have no idea what’s happening in these markets.

They’ve been pumping Doge Coin like no tomorrow. Another thing they’ve been pumping, which no media outlet discussed, is CXC. 

It’s a shitcoin that got pumped from $0.09 to $3500 in a single day, yet no media outlet discussed it. The opinion online is its hedge funds pumping it to raise capital for margin calls, but who knows.

The charade works when everything is going great but when the sky is falling because the stock market crashes, people are going to want to withdraw their money.

Guess what? They won’t be able to.

There will be lawsuits everywhere the next few years once all of this gets exposed.

The question is will these fraudsters be prosecuted properly for what they’ve been doing?

Don’t think so.

Sadly, America is run by money. When you have money, you can pay off a lot of people through backdoors to make sure you survive. It’s likely what Ken Griffin and his Citadel employees will try and do to try and game the system.

Until the people who commit these frauds are properly prosecuted and pay for their crimes, this will happen again.

The system needs to be redesigned such that those who committed criminal acts by creating fake money through fake shares need to never be allowed to trade again.

Harsher penalties need to be enforced.

There needs to be more transparency.

Everyone should be able to see what is going on.

Derivative exposures should be available.

Will that happen?

I hope so but who knows. Money talks in America.

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Fraud has existed since as long as humanity has existed.

In history, those who committed fraud paid the ultimate price with their lives.

In today’s world, a lot of people will get away with it.

I hope for the sake of the world this fraud gets exposed and prosecuted properly.

Otherwise we’ll all suffer.