Untethered

Tether, NSCC, Church of AI, Dine and Dash, and Scam Tequila

Tether

Remember Tether? It’s the so-called stablecoin behind a lot of Bitcoin trading. Its detractors seemed certain that once the NY Attorney General’s office finished investigating Tether and its founders it’d be exposed as a fraud and the market would crumble. Well, this week Tether and Bitfinex settled with the AG’s office and, uh, that didn’t happen:

iFiniex, Tether and related entities were ordered to cease trading and pay $18.5 million in penalties. The groups were also told to increase their reporting and transparency with respect to Tether's U.S. dollar backing.

“Bitfinex and Tether recklessly and unlawfully covered-up massive financial losses to keep their scheme going and protect their bottom lines,” James said. “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie. These companies obscured the true risk investors faced and were operated by unlicensed and unregulated individuals and entities dealing in the darkest corners of the financial system. This resolution makes clear that those trading virtual currencies in New York state who think they can avoid our laws cannot and will not."

Quite a searing statement, but really all she’s doing is collecting a modest settlement and banning the currencies in the state, which is already a thing because banked crypto exchanges in the US don’t sell Tether. Bitcoin dropped 10% after the AG’s announcement, but who knows if that’s related or whether Elon Musk tweeted again.

For now, people who hate Tether and think it’s a scam will have to wait for something else to put it out of business.

NSCC

I wrote about NSCC, the clearinghouse behind the RobinHood trading debacle that lit Reddit on fire for a few days. In recent testimony to Congress the CEO of RobinHood shed some light on how the whole thing went down, and boy is it dumb:

At approximately 5:11 a.m. EST on January 28, the NSCC sent Robinhood Securities an automated notice stating that Robinhood Securities had a deposit deficit of approximately $3 billion. That deficit included a substantial increase in Robinhood Securities’s VaR based deposit requirement to nearly $1.3 billion (up from $696 million), along with an “excess capital premium charge” of over $2.2 billion.

[…]

In total, the NSCC automated notice indicated that Robinhood Securities owed NSCC a total clearing fund deposit of approximately $3.7 billion. Robinhood Securities had approximately $696 million already on deposit with NSCC, so the net amount due was approximately $3 billion.

At 5am on a Thursday morning, the NSCC sent an automated email to RobinHood saying hey, you owe us $3 billion dollars. I am not defending RH in any way, but I can only imagine the mad scramble that morning. Imagine being a business that sends $3 billion dollar IOU notices. Pretty good system!

RobinHood was able to get NSCC on the phone and negotiate it down by, uh, around 2 billion dollars:

NSCC initially notified Robinhood Securities that it had reduced the excess capital premium charge by more than half. Then, shortly after 9:00 am EST, NSCC informed Robinhood Securities that the excess capital premium charge had been waived entirely for that day and the net deposit requirement was approximately $1.4 billion…

So NSCC tried to charge $2.2 billion dollars for…a premium? I assume this is all legal and within SEC guidelines or whatever, and maybe it’s grimly funny that this clearinghouse is gouging its clients who are a bunch of rich banks and hedge funds, but is this is becoming parody.

Oh, and because our finance system is dumb and runs on bad technology, 1 million shares failed to deliver on that same day because…there wasn’t the proper amount of cash in the system. Great job, everybody.

Church of AI

Bad news!

The first church of artificial intelligence has shut its conceptual doors.

Anthony Levandowski, the former Google engineer who avoided an 18-month prison sentence after receiving a presidential pardon last month, has closed the church he created to understand and accept a godhead based on artificial intelligence.

Remember this fuckin guy? I certainly do. Anyhow, the news of his sham church is part of a pattern with Levandowski - it was one of the ways he hid the more than $100 million dollars he made working at Google. He’s been ordered by a judge to pay Google $179 million dollars, and recently filed for bankruptcy, and now it’s come out he spent years trying to hide his wealth:

Uber claims in court filings that he "immediately put in motion an elaborate scheme to shield his assets from creditors."

Court documents filed by Uber's attorneys claim Levandowski has sheltered more than $66 million in entities belonging to family members and friends, including investing in family residences, personal side projects and exotic tax shelters by founding and funding his own church of artificial intelligence, which he called The Way of the Future.

[…]

During the 90-day period prior to filing Chapter 11, Levandowski transferred more than $9.2 million to his company, Pronto, as well as to his fiancée, family and attorneys.

Uber is also challenging Levandowksi's insistence that a Roth IRA he opened in 2016 "be kept out of reach of creditors," according to recent court filings. The retirement IRA account has accumulated nearly $17.2 million in five years, which Uber attorneys claim doesn't add up when the maximum amount allowed by the IRS per year was $5,500, now $6,000.

Uh, yeah! That doesn’t seem above board. Despite receiving a pardon from Trump and not having to serve a day in jail for theft of trade secrets, it appears Levandowski’s troubles are not yet over. I have little doubt he’ll be seen as a Silicon Valley thought leader within a year or two, but for now he’s facing down a federal judge and two teams of lawyers who want their money back.

Dine and Dash

As if restaurants weren’t dealing with enough bullshit during the pandemic, the LA Times details a spike in order fraud, with diners using stolen cards or charging back orders to get free food:

Koko’s Mediterranean Cafe owner Shant Bogharian said he started to notice more people claiming missing order items and requesting refunds through third-party food ordering and delivery services about two months ago. The largest refund request was for more than $140. Bogharian said the reason given for the refund requests is often “change of plans.”

“It’s insane that someone tries to get a refund maybe 10 minutes after they pick up the order,” he said. “It’s insulting. We just went through the effort to make the food for this person, they picked it up, then they ask for a refund.”

For restaurants in an already precarious situation, losing hundreds or thousands of dollars to fraud can be crippling. It’s also forcing some restaurants onto third-party gig platforms, where they have a better chance of resolving customer disputes - or not being put out of business because their processor shuts off their merchant account for fraud.

It’s gone mostly unnoticed due to the many horrors of the pandemic but credit card fraud has increased dramatically during the pandemic, with the US responsible for an eye-popping one third of all global credit card fraud:

Julie Conroy, a research director for Aite Group’s fraud and anti-money laundering practice, said, “Our estimate was that at the end of 2020, the U.S. was seeing about $11 billion worth of losses due to credit card fraud.”

The pandemic has been fertile ground for fraudsters, as stores and restaurants are unable to verify identity in usual ways. Industry experts think this may continue for the next two to three years, as businesses shift the way they collect payments. For large gig companies - who exist purely to burn through investor money anyhow - fraud is a cost of doing business, but for the local stores who have to eat the losses, it’s just another problem they can’t do anything about.

Scam Tequila

The founder of a California tequila brand has been arrested and charged with fraud for misusing investor funds he raised for his tequila brand. I am writing about it purely to make a terrible dad joke:

The US Attorney’s Office for the Southern District of New York announced yesterday (17 February) that it had arrested Cimino and charged him with one count of security fraud and one count of wire fraud due to his ‘fraudulent solicitation of investments’ for 6 Degree Tequila.

6 Degree? More like 3rd Degree! Folks? Is this thing on?

Short Cons

Yahoo! Finance - “Buoyed with youthful confidence, Qin, a self-proclaimed math prodigy from Australia, dropped out of college in 2016 to start a hedge fund in New York he called Virgil Capital. He told potential clients he had developed an algorithm called Tenjin to monitor cryptocurrency exchanges around the world to seize on price fluctuations.”

NY Times - “Six weeks into the second run of the Paycheck Protection Program, $140 billion in emergency aid has been distributed by banks, which make the government-backed loans, to 1.9 million small businesses. But a thicket of errors and technology glitches has slowed the relief effort and vexed borrowers and lenders alike.”

Lawfare - “The Anti-Money Laundering Act of 2020 (AMLA), part of the National Defense Authorization Act for fiscal 2021 that Congress enacted over President Trump’s veto, significantly expands the U.S. government’s authority to subpoena documents held by foreign banks overseas.”

Tips, thoughts, or bottles of tequila to scammerdarkly@gmail.com