Is the real purpose of this deal money-laundering by organized crime? DraftKings was supposedly losing money, while SBTech makes money illegally.
The BTi/CoreTech CEO was formerly the CEO (and previously CTO) of SpotOption, the binary option scam run out of Ramat Gan, Israel.[1] That was a big operation. Out front were the fake "binary option brokers", in reality bucket shops, such as Banc de Binary. SpotOption provided the back-end services, while the front companies ran call centers to recruit more suckers. Some of the front companies appeared to be operated directly by SpotOption, although that was never entirely clear.
Until 2017, it was legal for Israeli companies to scam non-Israelis in this way.[2] When the binary option business was made illegal in Israel, the companies were given three months to move to another country. "Officials say that numerous Israeli-owned binary options firms have already begun moving to countries where the activity has not yet been banned." SpotOption moved to Bulgaria.
The scam goes on, under new names.[3] "Since then, some scammers have shifted to schemes involving forex trading, CFD or cryptocurrency speculation."
It's interesting to me that people like this can continue to succeed in modern democracies. There seems to be no consequences for massive financial crimes anymore, and the more brazen you are the more you are rewarded.
If I broke into the homes of millions of people to fleece them of their life savings I'd never be seeing the outside of a prison but these guys do it via a confidence scam and the internet and never see the inside of a prison. Then they become CEO of another company and start all over agin.
I stop believing in democracy when I read stories like these.
The nuance is slightly different - it's like the CEO's breaking into the homes of millions of Americans. The fellow participants in his democracy (in Israel) were not affected; there are two separate jurisdictions.
"Well, we barred them from doing it within our borders" is not a great example of a democracy in action. These firms were allowed to operate a criminal enterprise until 2017 on the voters' home soil. Just because it wasn't against the laws at that time doesn't absolve the political leadership of responsibility.
The entire Times of Israel series on binary options [1] tells a sad, sordid story. It came out slowly. At first, it just looked like a few minor scammers. But as the Times dug deeper, publishing over 50 articles, it came out that at peak, the binary options scam was 40% of the Israeli financial sector and had enough political connections to stall enforcement.
The Israeli crackdown came only after the scam was starting to hurt Israel's foreign relations.[2] Israel's "public diplomacy" minister:
“Leaving aside the profound moral questions this raises,” [referring to reports estimating that billions of dollars have been stolen from unwitting customers by fraudulent Israeli binary options firms], “I come from the field of foreign policy, protecting Israel from delegitimization and BDS [the boycott, divest and sanction movement]… These activities threaten Israel’s legitimacy. [The industry] will “contribute to those who want to delegitimize us if these charges turn out to be absolutely true. It’s very, very disturbing… horrible.”
So now there's a large community of scammers who, having been kicked out of binary options in Israel, are looking for new areas in which to operate. Forex, contracts for difference, and cryptocurrency scams have been found. DraftKings has some of the same people involved.
This is one of the worst things that can happen to a country - developing a large, successful criminal class. It's really hard to get rid of them, and they may end up running the country, as happened to Russia after the downfall of the USSR.
> "Well, we barred them from doing it within our borders" is not a great example of a democracy in action.
It kind of is, though. The voters voted to protect themselves. And while you could think of that as selfish and not be wrong, at least they were able to protect themselves against a well-funded lobby that almost certainly would have liked to prevent them.
> There seems to be no consequences for massive financial crimes anymore, and the more brazen you are the more you are rewarded.
Finance is too big to fail.
Number must go up or everything breaks and there is chaos in the streets. If we hold huge scale financial criminals accountable, it could spark financial contagion and number may not go up.
Virtually all countries are in this boat to some extent.
The difference is that people in a Democracy are supposed to combat corruption like this. In an Autocracy it is just the order of the day, nobody tries to seriously oppose it. Or they die trying.
Not related to your main point, but I was reading about historical bucket shops on wikipedia yesterday. It's my understanding that they are inherently a scam. They are basically people betting on the movement of stocks without ever taking a position in the stock market. They were outlawed in the US in the 20s.
Are you using the same definition I am, and in practice are modern bucket shops basically always a vehicle for fraud? (I mean, why wouldn't you just buy the stock if you are legit. The barrier in 2021 is so low.)
The definition of "bucket shop" has not changed. The question is always "who's the counterparty". Who has to pay up if you win? Do they have the assets to do so? Can you make them pay up if they don't want to?
With a real broker, the broker is not taking any risk. They just take a commission between buyer and seller. With a bucket shop, the broker has a risk, so it's in their interest to make the customer lose.
A big market move can wipe out a bucket shop. See "Madoff scam". Madoff was a bucket shop operator. The assets his statements said the investors owned did not really exist.
Market makers in the US are required to have enough capital of their own so that they don't default on their obligations.[1] This requires substantial assets. All countries with significant international market making activity have similar requirements. Institutions will not trade with parties that don't have that kind of backup.
US market makers have to settle and pay within three days. (Was that changed to two days?) Missing that deadline is a huge event and puts a market maker out of business within hours. See Bear Sterns, although that was a slightly different situation. Because the business does not allow long-term outstanding balances, it doesn't lend itself to scams.
British bookmakers are highly regulated. "UK licensed operators are required to hold customer deposits and stakes in ring fenced independent accounts in case they do fail".
The binary options business thrived in the UK for a while because they were considered gambling by the financial regulator and a financial product by the gambling regulator. That ended in April 2018, when they were banned.
I've also seen bucket shop used somewhat pejoratively when discussing crypto exchanges: not accusing them of never taking a position, but rather that they are under-collateralized or exposed to risk.
An exchange, much like a ponzi scheme, could spend 10% of customer deposits and no one would notice until there is a 'run on the bank'. Similarly, they could choose to not execute orders to effectively take a position in the market - if the market moves in their direction gains can be huge, but if it moves against them it can be disastrous.
Yeah, if you're a legit buyer, there's no reason not to use a legit broker. Bucket shops today offer higher leverage, and sometimes binary options. They are also basically a black hole for your money. If you're lucky enough to win, they'll make excuses and never actually return any cash.
I’d be very interested in any bucket shop wikipedia articles you might have stumbled across if you care to share! Or any historical cases of securities fraud that pre-date/coincide with the Martin Act, ‘33 Act, and ‘34 Act, if anyone happens to know of any worth sharing.
Bucket shops have historically offered high leverage, something that is not possible when buying equities outright.
There's a whole gamut of different kinds of bucket shops, some being on the less shady side others on the outright take your money and don't let you withdraw it side.
EU has poured HUNDREDS of billions in Eastern EU. Corruption there is more honest than in USA: no government contract unless you kickback xx%. Then think of the public land thefts, tones and tones of drugs and you get the idea. That money has to be laundered in industrial size machines.
Drugs in Eastern EU? Did you perhaps mean Spain (cannabis), Italy (heroin), Belgium (cocaine), Netherlands (mdma, amphetamines etc). You can pull rightwing ideas out of tabloids, or you could you know, read some of EU own reports - just google "European Drug Report. Trends and Developments".
Note: I can't blame them after their resorts closed due to COVID, they were pressured by investors to ramp up profit - ex: canceling stock dividends, investing heavily in Disney+ content, get into sports gambling.
But being so close to children (family values), having their corporate values corrupted was a big disappointment.
I haven't been a disney fan for a while, because their lobbyists are arguably the primary reason copyright terms have been extended to such absurd lengths: they want complete control of the mouse.
Steamboat Willie was created in 1928. It won't enter public domain until 2024 (assuming Disney isn't successful in extending copyright yet again...)
Disney raided the public domain to build it's animated films empire, then pulled up the drawbridge to the magic kingdom behind themselves.
Steam boat willy doesn't bring in any $$$. When one of the early classics that still sells (Bambi, snow white, etc) comes up please believe an extension is right around the corner
I agree with you that they will want an extension before Bambi, but Steamboat Willie does bring in money. When it goes public domain so does the original Micky and Minnie Mouse. In 2025 you could produce a non-Disney Micky Mouse movie.
And they do sell steamboat merch, or have in the recent past:
Forget mere investments, there are several Disney-property games on the App Store right now that include gambling mechanics. The sooner this stuff gets the same regulatory treatment as traditional gambling the better.
If a company chooses to rise its stock price by buybacks, shady business practices (SPACs, ads) and covering with PR, or investing in R&D to create real value.
In a world where not being evil is considered "leaving money on the table," I have little faith that there are many that don't resort to these practices.
There is the Disney brand and the Disney company. They aren't really the same thing. Disney the company owns ESPN, for example. They have TV stations, radio stations, all kinds of things which you wouldn't associate with the Disney brand. I highly doubt they intend to pollute children/families with sports betting. They intend to use it for their sports businesses like ESPN.
A company creates the brand: without company values, brand (public perception) is nothing.
Do you think upper management won’t have a say in all its brand constituents? Disney can brew an entire generation of children values with its animation movies, then upsell them when they become adults- in fact that is Disney+’s strategy.
https://insidethemagic.net/2020/11/disney-plus-star-mature-c...
I was making a different point - there is a legal entity at the top which is really just a holding company akin to Berkshire Hathaway. Inside that entity there are a number of completely different businesses. Disney (the thing humans think of when you say Disney) is one of them. ESPN is another. ABC is another. You can see an overview here:
When were their corporate values not corrupted? Walt Disney was a Nazi sympathizer [1] in manners that seem a lot less family friendly than a token investment from one entertainment company into another. I agree with you that it's still not a great look for a supposedly family friendly company to do. What I question is whether it ever was very family friendly to begin with rather than simply family targeted.
I'm surprised Disney has been allowed to buy up so many media companies. They control the box office, have a major interest in sports and news, and seem to have an appetite for more.
Everyone smells money on this industry and is trying to capture market share (ex: Microsoft Bing and Amazon Search). Disney might not be that different than Google after all, except for targeting a different demographic (closer to Facebook) - making it more disturbing.
Of course, should they not get compensated for calling out fraud and protecting investors?
“Infamous” short sellers play a big part in public market ethics after all - contrary to current Reddit sentiment. The real villains hide behind anonymous forums like WSB, using social media media to pump and dump stocks and change the public narrative.
A catalyst towards proper price discovery and liquidity. These are correctly aligned incentives.
If the entire market doesn't care, as it shouldn't, then its merely informative and helps more investors be aware of the great revenue printer.
If the market freaks out because they think others will freak out, those traders are the stupid ones and Hindenburg played the gullible people.
From what I read, the money losing company will likely have some brand conscious companies disassociate, while the money winning company will continue printing revenue.
It would be a pretty stupid business plan to do a ton of fake research about a company just to make a quick buck off the initial drop in the stock. If NKLA turned out to be a great company that was on their way to huge success the researchers would look incompetent, regardless of if they made any money off of shorts.
I don't see this as a conflict of interest or foul play if their assertions are correct and truthful, although I get a sense of your potential hesitation with the practice.
To abstract it a bit for the sake of argument: the police profit from policing, and can continue to do so as long as it remains a societal net good -- if it tips into nepotism then of course it should be corrected.
I view these sorts of firms as a mechanism of reversion to the mean.
IMO These shorters are doing an enormous service to the economy exposing corruption and malfeasance in (relatively) early stages.
If they profit from it, good for them.
Contrast this shorting behavior with massive scale market manipulation done by some multinational powerhouses with strong political connections.
In the absence of any meaningful regulation/enforcement by the FTC/DOJ/SEC/etc, these mechanisms are what the world is left with. Kind of like class action lawsuits, I would prefer a better mechanism, but at least it provides some mechanism to combat these things.
> Unbeknownst to investors, DraftKings’ merger with SBTech also brings exposure to extensive dealings in black-market gaming, money laundering and organized crime.
> Based on conversations with multiple former employees, a review of SEC & international filings, and inspection of back-end infrastructure at illicit international gaming websites, we show that SBTech has a long and ongoing record of operating in black markets.
> Contrary to representations made to Oregon’s state lottery, a former employee told us SBTech had extensive operations in Iran, violating local laws in a market subject to heavy U.S. sanctions. We were told SBTech knowingly operated there for 4-5 years with the founder directly overseeing the operation.
on the other hand, when I visited Ireland a couple years ago I was kind of shocked at how common sports betting establishments were there, much like you'd see payday loan-type places here in poorer areas of the States
Betting on the horses is a very Irish thing to do grin
You'd rather have illegal off course betting ala Peaky Blinders or like IRL my Great Great Great Uncle ran in Birmingham (does make watching peaky Blinders interesting)
I don’t know enough about online gaming in Asia to be informed, though some of it looks suspicious. The Iran talking point is strange-They discovered it, shut it down and moved on it seems. The talking points of selling shares is stupid-that is the point of being public so you can start selling stock. And transferring shares to a trust doesn’t relieve the trust of public reporting requirements when the insider is still responsible for the trust. Valuations for a lot of companies are strange but being valued at 2x a peer when it has agreements with the NFL is not absurd.
> And transferring shares to a trust doesn’t relieve the trust of public reporting requirements when the insider is still responsible for the trust.
It looks like TFA author is correct that they structured the transfer specifically to avoid Meckenzie or the trust falling within the definition of “beneficial ownership” that would trigger a 13D reporting obligation and since they transferred 0.7% of outstanding shares (less than 1% with a bit of wiggle room for market movement) I’m assuming the shares were transferred to an irrevocable trust so they’d be outside the scope of Form 4 unless he’s serving as trustee which is unlikely (although, not entirely impossible) judging by the way the disclosure is phrased in his SEC filing:
> On May 26, 2021, Mr. Meckenzie transferred his beneficial interest in 19,075,875 shares of Common Stock (the “Shares”) for no consideration to a trust for the benefit of his spouse and children and remoter issue and for which an independent trustee has been appointed (the “Trust”), and the Trust immediately transferred the Shares to a company (the “Company”) wholly-owned by the Trust (the “Transfers”). Mr. Meckenzie does not exercise voting or dispositive power over the Shares or have a right to reacquire the Shares. As a result of the Transfers, Mr. Meckenzie no longer has or shares, directly or indirectly, voting or investment power over the Shares.
If he’s acting as co-trustee alongside an independent trustee and phrasing it in such a way to insinuate he’s not at all involved that would be very shady indeed.
Aren't SPACs just nonoperating shell companies that own only cash? I thought the whole point of them was to be allowed to disclose nothing and report nothing.
In the merger process, the target can issue more information and forward projections. In an IPO, you cannot issue forward projections. The point of the SPAC is to take companies public that are more forward oriented. As they are learning though, it is hard to be a publicly traded company. You still have to comply with regular SEC requirements once the merger is complete.
Hindenburg got a decent hit with Nikola, they have to keep constantly producing those or their business will vanish very rapidly.
It frequently happens with short-focused groups. There are dramatically fewer hits to be had on the short side of the sort like Nikola, than there are hits to be had on the long side (you could have practically closed your eyes and tossed darts at cloud stocks and hit homerun after homerun after homerun for the past decade). Inevitably short groups get desperate and overreach, constantly walking the line between revealing something legitimately suspicious and conjuring a fake short tale (they do that through blending the story, one part something bad, three or four parts bull, and the one bad thing is meant to fool people into believing it's all super bad). Which isn't to suggest that shorts are any worse than lying pumpers / bulls that blast positive propaganda all over the Internet, rather, it's that there are always far fewer short homeruns to be had inherently (outside of comprehensive black swan events like the banking & housing crisis). As such the shorts are stuck in a far more difficult segment with fewer legitimate targets, and I think it pushes them toward desperation more often than almost anywhere else (perhaps outside of penny stock pumpers).
As a Jew in Israel, I've grown quite skeptical of these Israeli startups. On multiple occasions, some of these founders have been caught doing shady things and they get away with them (mostly)...
In general these israeli startups tend to be way overvalued
Hmm...A sports book hires the wife of one of the leading NFL quarter backs for "governance issues". "Hey Gisele, can you 'govern' us on how Tom doing this week? His elbow seem OK?"
I like this report, just enough scandal and shady characters to make sense. But also, you have to think the SPAC sponsor and DraftKings performed a good level of due diligence on SBTech? The one thing I really took out of reading this report was how many breadcrumbs we all leave out there on the internet.
Which then, to me, boils this all down to: A) the due diligence was sufficient and the lawyers signed off on everything or B) this is some sort of scheme to launder money and the whole thing is dirty.
Or, C) they did their due diligence and decided it was worth the risks.
More black market companies should be publicly traded so that exposure and price discovery is established. Or certain categories of vices whether they are legal or illegal in their jurisdiction.
Whats the revenue multiple or the price to equity ratio on a brothel? If you don't know, thats the reason to float those shares.
People treat being publicly traded as a reward, and thats the mistake that clouds their judgement.
Maybe companies that went public via SPAC are going to become attractive targets for short sellers? I know Matt Levine has been writing about how SPACs can market their "upside" without the normal scrutiny that an IPO would bring.
Any of our HN readers playing around with shorting the stock of public companies as an individual investor?
Shorting is a more time consuming investment approach. You need high conviction to open a PUT without owning a CALL or the stock as well.
One thing I have learned is that a SPAC or any company with a low stock price may have low liquidity, particularly for longer-dated options. This risks making a short position dramatically less profitable. So SPACs end up not being the gold mine for shorts that you might expect.
For me a short position is not about speculating but instead about being strategically "long volatility". Which means you can actually make money when the rest of your stocks (which are "short volatility") are tanking and provide a better return for your portfolio. So I now try to always have PUTs open (along with CALLs that balance each other out).
Don't buy your short position with margin: that introduces short volatility to what should be a long volatility position.
> Any of our HN readers playing around with shorting the stock of public companies as an individual investor?
This seems really risky without any institutional backing. If the market is volatile or "irrational" (WSB + GME for example), you can be margin called and lose a lot of money even if you're eventually right. Unlike a normal equity you can't just hold your short through volatility.
You can buy a long-term short with cash rather than margin. You can hold onto such an option until it expires. Options have a reputation for risk, but this mostly seems to come back to using margin.
1) These markets aren't "black market"...they are unregulated. Operating in unregulated markets is fairly normal, investors don't like it because it is risky but there are other operators doing this (Entain is one).
2) It is also fairly normal to white label your product in Asia. Betfair does this, almost everyone does this because the Asian market is the largest in the world. Again, totally unregulated but it is not particularly shady (there are larger gambling companies than DraftKings in Asia owned by individuals).
3) The FBI has repeatedly accused people in this business of being linked to the Triads. So far, this has been unproved but, whether this is true or not, these businesses are legitimate and are some of the largest gambling companies in the world.
I don't doubt that the merger pre-listing is suspicious, this is why SPACs aren't a very good idea. I don't doubt that DK is an overpriced PoS (their marketing RoI is terrible). But, as ever, much of what people just coming to the industry write is nonsense (and usually related to whether they grew up somewhere where gambling was illegal...the ironic thing about the weird moralism about gambling in the US is that the unregulated companies are usually far more ethical than firms operating in the US).
The BTi/CoreTech CEO was formerly the CEO (and previously CTO) of SpotOption, the binary option scam run out of Ramat Gan, Israel.[1] That was a big operation. Out front were the fake "binary option brokers", in reality bucket shops, such as Banc de Binary. SpotOption provided the back-end services, while the front companies ran call centers to recruit more suckers. Some of the front companies appeared to be operated directly by SpotOption, although that was never entirely clear.
Until 2017, it was legal for Israeli companies to scam non-Israelis in this way.[2] When the binary option business was made illegal in Israel, the companies were given three months to move to another country. "Officials say that numerous Israeli-owned binary options firms have already begun moving to countries where the activity has not yet been banned." SpotOption moved to Bulgaria.
The scam goes on, under new names.[3] "Since then, some scammers have shifted to schemes involving forex trading, CFD or cryptocurrency speculation."
So that's the back story here.
[1] https://www.timesofisrael.com/sec-charges-israels-main-binar...
[2] https://www.haaretz.com/israel-news/business/israel-bans-bin...
[3] https://www.timesofisrael.com/german-police-raid-call-center...