Monday, May 1, 2017

The World According to a Free-Range Short Seller With Nothing to Lose

An oldie but goodie on an interesting guy.
(actually not that oldie)
From Bloomberg, February 9, 2017:

Marc Cohodes, the scourge of Wall Street, is back. And he’s passing along his “dying art” to a new generation of troublemakers.
The roosters start crowing at 4 a.m. on Alder Lane Farm, about an hour north of San Francisco on the edge of Sonoma wine country. While horses stir in their stables and chickens begin to roam the 20-acre property, one of the world’s most fearsome short sellers puts on his usual attire—shorts and flip-flops—and makes his way in the dark to the room behind his garage. Six pinball machines, a gigantic flatscreen, and a pingpong table compete for attention. If not for the Bloomberg terminal in the corner, you might assume this was your typical man cave.

But let’s not dwell on Marc Cohodes’s pastured chickens, or his show-jumping horses, or even his homemade apricot jam that, on special occasions, San Francisco’s Una Pizza Napoletana puts on its pies in lieu of tomato sauce. Some of the most respected people in the investing industry say that, dating back to the 1980s, nobody has had a better nose for sniffing out fraud than the 56-year-old Cohodes. He’s exposed suspect accounting at a number of high-profile companies, including the Belgian speech-­recognition software developer Lernout & Hauspie, which went bankrupt in 2001 after being valued at about $10 billion, and mortgage lender NovaStar Financial, where his efforts earned him a Harvard Business School case study published in 2013.

“I would not want to be his adversary if I was still a criminal today,” says Sam Antar, who was sentenced to six months of house arrest and 1,200 hours of community service for cooking the books at New York consumer-electronics chain Crazy Eddie in one of the largest securities frauds unearthed in the 1980s. “A character like Marc”—the two crossed paths later in his life when both were focused on detecting fraud—“you stay away from.”

And that’s been relatively easy for at least part of the past eight years. In 2008 the hedge fund Cohodes worked at for more than two decades went out of business under controversial circumstances. He maintains that Goldman Sachs, its prime broker, closed it too hastily by making needless margin calls, a claim Goldman disputes. The fallout spurred a bout of what Cohodes likens to post-traumatic stress disorder. “What happened to me would put the average person under,” he says. He retreated to his farm, where he recuperated by spending his days delivering eggs to San Francisco, cheering on the Oakland Raiders, and traveling to see a friend’s rock band, Collective Soul. Besides, the vast majority of stocks were rising because of central bank stimulus, depriving him of ideal opportunities as a short seller.

Now Cohodes is back. His time among the horses and chickens—outside the money management industry—may even have helped him return to the top of his game. Slimmed down and fighting fit, he’s been winning big on a series of short bets against Canadian companies since he made his comeback. Cohodes says he’s been betting against embattled Valeant Pharmaceuticals International since the summer of 2015. Around the same time, he began shorting another debt-laden Canadian drugmaker, Concordia International, which he calls “the poor man’s Valeant.” Both stocks lost most of their value last year.

Cohodes says he’s committed to exposing companies that he believes may be ripping off ordinary, unwary investors—“Joe Six-pack,” as he puts it. “Legitimate companies don’t know who the f--- I am. And they don’t care,” Cohodes says. “The bad guys? They know. And they do care.” And he’ll go to great lengths to chase them down: dumpster-diving to find clues of wrongdoing, lambasting enemies on Twitter (where his rambunctious character is on full display), and hotfooting it across Las Vegas to check whether new business offices reported by NovaStar were real. (They weren’t, according to Cohodes; one was a private home, another a massage parlor.) “I’m a pretty driven guy,” he says.

Indeed, press him on his return to the markets, and Cohodes will reveal another reason that brought him back from the wilderness. Short selling—borrowing stock and selling it, hoping to profit by buying it back later at a lower price—is a “dying art,” he fears. Short-biased funds managed only $5.5 billion in assets as of the end of September, a tiny fraction of the roughly $3 trillion the hedge fund industry oversees, according to Hedge Fund Research. The number of short-biased funds had fallen to 18 at that time, from 50 in 2009. Cohodes wants to make sure the “old-school” craft gets passed along to a new generation of people with—he jokes—that “genetic defect” that makes them want to take on all of Wall Street.

As the bounty hunters of the stock market, short sellers have uncovered some major failings over the years. Think Jim Chanos’s role in highlighting the fraud at Enron, or David Einhorn’s call on Lehman Brothers. But the long list of allegations against short sellers is as old as the markets themselves. They spread false rumors to profit when stocks fall, a practice dubbed “short and distort” that has sometimes gotten them into trouble with regulators. They conspire to torpedo share prices in “bear raids.” They destroy good companies and cause people to lose their jobs. They have many natural enemies, including investors betting shares will rise, analysts issuing buy recommendations, and executives whose whole careers are suddenly called into question when short sellers level charges against them. And they’re not regulated the way Wall Street analysts are, so they aren’t as accountable.

To short a stock and then publicly recommend selling it “absolutely should be illegal,” says Amir Anvarzadeh, head of Japanese equity sales at brokerage BGC Partners in Singapore, stressing he doesn’t know Cohodes and is talking about short selling in general. “It’s morally wrong. It’s called front-running, and it’s wrong.”...MUCH MORE
Previously on Cohodes:

June 2013 
Lest We Forget: The Hedgefunder That Goldman (may or may not have) Crushed and Forced to Become a Chicken Farmer
These are a few of my favorite things:
Goldman and hedgies and farmers and chicken...

Julie Andrews I ain't.

And neither is this guy. From the New York Times March 25, 2012:
July 2016
Meet the (former) Wall Street Short Seller Betting Against Canadian Real Estate

And on Sam Antar:
Convicted Felon and Former CPA (insert family shame joke here) Has a Question for Green Mountain Coffee Roasters (GMCR)

Sam "Crazy Eddie" Antar on Solyndra
Takes one to know one (A Fraud on Fraud)