Awkward Emails and Unusual IPOs

Also Trump financial policy miscellanea, insider trading, the VIX and the rule of law, and unicorn precedents.

Don't do this.

Joseph Giljum worked on an oil trading desk for BP Products North America Inc. He negotiated a job offer with a competitor, and discussed his move with a former BP trader named James Chrystal who now works at that competitor. BP claims that he schemed with Chrystal to steal a bunch of confidential trading information from BP and bring it to the competitor. You are not supposed to do that. But, according to BP's complaint, Giljum had a cunning plan to avoid detection:

On March 13, 2017, Giljum exchanged text messages with Chrystal regarding “key” information Chrystal wanted Giljum to obtain, including BP’s highly valuable and proprietary information.

That same day, Giljum conducted Google searches on his personal computer that included: “permanently delete iphone texts” and “permanently delete imessages iphone” and “delete all from icloud” and “test if message deleted” and “whip [sic] icloud” amongst others.

Ahh hmm yes that does seem suspicious. Did it work? I mean, apparently not, but the important thing is that Giljum thought it did:

On April 11, 2017, Giljum and Chrystal exchanged the following email messages:

Giljum: “Will email from here on out. But text aren’t even on my icloud so nothing to trace, already looked into it. Wouldn’t send it otherwise.”

Chrystal: “just don’t text me that ...” “i [sic] don’t want to get sued” “thats [sic] toeing close to the line”

Giljum: “All good will just move to email from here on out.”

Chrystal: “paranoid as it is. on top of that, smoke a lot of weed. makes me even more paranoid.”

Chrystal: “just paranoid is all”

Giljum: “Don’t you go tweaking out on me. Will put together a proper list this week to make sure we got it all covered before I pull the plug.”

Well, just because you are paranoid, and smoke a lot of weed, that doesn't mean that your employer isn't reading your personal emails! (And search history!) Look, I don't actually know how BP's lawyers got access to Giljum's GMail correspondence, but that is not the point here. The point is that if you send emails gloating that no one will catch you doing illicit stuff because your emails are so secret, those emails are going to end up in the court case against you. Your emails aren't as secret as you think, and the universe has a good sense of humor about these things.

It goes on. Giljum also allegedly emailed "an electronic forensics specialist" to say "going to need your help cleaning out a computer. wouldn’t mind your help on a phone but i only got till tomorrow morning on that one." Also he named some folders after his dogs:

Giljum admits that he compiled over 950 business files of BP’s competitive intelligence and analytics, which are highly valuable proprietary and confidential information, into a folder on the desktop of his work computer. The folder of BP’s files is labeled “JPG,” which is both Giljum’s initials and a common file extension name for picture files.

The JPG file contains subfolders named for Giljum’s family members and dogs (“Bean,” “Elsa,” “Grace,” “Mei,” “Sharon,” and “Sophia”). However, the actual files contained in these subfolders contain BP’s highly confidential information, including many proprietary financial models. Giljum used family names to designate the “JPG” subfolders to create a false sense that the subfolders contained pictures of his family. This was a ruse designed to conceal the true nature of the subfolders.

He then allegedly uploaded the files from his work computer to his Amazon cloud account, downloaded them to his personal tablet, and "deleted all of the files in his Amazon Cloud account, apparently in an effort to cover his tracks."

You know how when people are caught doing rogue or insider trading, and they go to prison, and when they get out they can't work in the financial industry anymore, they make a good living going around to banks and being a cautionary tale, getting up on stage and saying "I used to have your life but then I threw it all away and now I have been reduced to this awkward performance"? That's what these guys should do. Not the prison, I mean, or even necessarily not working in the industry anymore.

But if you run a bank or trading firm or really any modern business, one of your biggest risks is employees sending each other dumb emails that say "ha ha ha it's a good thing no one is reading this email, since we are doing lots of illegal stuff!" And I feel like these guys would be a perfect cautionary tale. "We used to be high-powered oil traders. But then we sent each other emails boasting about how no one would read our emails. And now everyone will laugh at us forever. Don't be like us."

Don't do this either.

"If you would — write this in a positive way," Ramy El-Batrawi, who was once banned from acting as a public company officer for five years by the Securities and Exchange Commission, pleaded with Business Insider reporters about his new company, YayYo, Inc., a supposed ride-sharing comparison-shopping app company that doesn't have a working app, that claims to have relationships with Uber Technologies Inc. and Lyft Inc. that Uber and Lyft deny (Lyft has sent YayYo a cease-and-desist letter and says that "their CEO's characterization of our relationship is wildly inaccurate"), but that does have a fancy television commercial featuring actor John O'Hurley telling potential investors to buy stock in YayYo now, "before all the shares are gone."

And they did, I guess? I mean, they wrote it in a more positive way than I just wrote that sentence? (We have previously discussed YayYo, which projected $30 billion of revenue in 2021 -- almost five times Uber's 2016 revenue, and infinity times YayYo's own current zero revenue.) And this seems kind:

Past performance is no indication of future results. El-Batrawi's colorful past doesn't mean YayYo isn't real. It's no doubt a highly risky investment, but its executives say they are true believers.

"That is our intention here: to build a great company," Vanech said.

Board member Bob Vanech also said YayYo "has some 'clever strategies' to deal with the fact that Uber and Lyft are denying companies like YayYo access to their information -- and that too much "journalistic scrutiny at this stage of the business" is unwarranted.

But YayYo does seem to be raising money from investors by advertising on television, and the SEC seems to be cool with that. "What if you were an early investor in Uber or Lyft, what would you be worth today?" asks O'Hurley in the ad:

All of the early investors made millions if not tens of millions with just a modest investment. Now, are you interested in investing in initial public offerings, but you never got to participate because the banks and the institutions scooped up all the stock? Well, the future is here today in YayYo. Yes, YayYo. It's the first meta-search for the ride-sharing industry, where users can compare prices and the distance of the rides with companies like Uber and Lyft, and then book directly.

The hints of huge returns, and the questionable claims that YayYo has a usable app and that works with Uber and Lyft, seem ... odd? For a securities offering? But:

Vanech, the board member, said the ad was approved by lawyers, and then filed with the SEC, which contacted YayYo's attorneys and requested changes to the visual background behind O'Hurley, which had imagery that looked too much like the New York Stock Exchange and the SEC logo. He said regulators did not object to the script. The SEC declined to comment.

I guess it would be worse with the SEC logo on it! 

Elsewhere in dumb emails.

So some guy sent an email to Barclays PLC Chief Executive Officer Jes Staley pretending to be from Barclays Chairman John McFarlane, and mild hilarity ensued. Staley replied:

You are a unique man, Mr McFarlane.

You came to my defense today with a courage not seen in many people. How do I thank you?

You have a sense of what is right, and you have a sense of theatre. You mix humor with grit.

Thank you John. Never underestimate my recognition of your support. And my respect for your guile.

And some day I want to see an ad lib guitar run. You have all the fearlessness of Clapton.

Hee hee. "You are a unique man" is such a perfect thing to say to someone impersonating your boss. "There's no one quite like you," you say, to the random stranger whom you have mistaken for your beloved colleague. "You are inimitable," you say, to the imitator who fooled you with almost no effort.

The prankster tried to bait Staley into saying something bad -- "Begs the question, who should we seek to silence next," asks the pretend-McFarlane -- but Staley didn't take the bait and stuck to guitar banter. Honestly he comes off rather well in this exchange; an important part of the job of a bank CEO is to remain unruffled and flattering in the face of dopey emails from important people. You'd hope that if he got a similarly bizarre email from a client -- or his actual chairman -- he'd handle it with similar aplomb.

Trump financial policy.

There is a persistent but strange view that Donald Trump's administration might be interested in breaking up the big banks by bringing back the Glass-Steagall Act. Why? Just because he's said that? It seems very unlikely to me, and to Trump's acting Comptroller of the Currency, Keith Noreika:

Mr. Noreika said the administration is in the “very beginning stages” of looking at a new version of Glass-Steagall, but he seemed skeptical about the benefits of reinstituting a strict separation between commercial and investment banking.

“There is a diversification element and even a safety and soundness element of having them affiliated,” he said, referring to the idea that banks can benefit from having more diversified businesses. “But we want to make sure that risk from the affiliates doing this activity doesn’t come back to the bank. And so that is our challenge.”

On the other hand, Noreika is -- unsurprisingly -- interested in rolling back the Volcker Rule, and hinted that the OCC could do it unilaterally if other agencies wouldn't sign on. That seems unlikely to be necessary: "At a closed-door meeting in Washington on Monday, Treasury Secretary Steven Mnuchin directed five key agencies to re-examine what’s permitted under the Volcker Rule, said two people familiar with the matter." 

Another popular but strange belief is that Donald Trump, the debt-financed real-estate developer, might want to end the deductibility of interest for corporate borrowers. That seems false:

The administration’s “preference” is to keep so-called interest deductibility, which allows companies to subtract interest payments from taxable income, Treasury Secretary Steven Mnuchin told The Economist in a joint interview with Trump.

And the endless efforts to figure out what to do with Fannie Mae and Freddie Mac are coming back.

Insider trading.

Here is a partner at a law firm, Walter C. Little, who is accused by the SEC and federal prosecutors of accessing confidential information about clients on his firm's computer system and then trading on that information, as well as tipping his next-door neighbor so the neighbor could trade too. Needless to say, they allegedly violated the Second Law of Insider Trading by buying short-dated out-of-the-money call options on merger targets. For variety, though, they also allegedly bought short-dated out-of-the-money put options, and sold some short-dated call options, on companies that were about to announce disappointing earnings.

Incidentally the post-Newman/Salman law of insider trading remains a baffling mess. It was illegal for Little to trade on inside information, sure. But what about his alleged tips to his neighbor, Andrew Berke? The law seems to be that if Little received a "personal benefit" for tipping Berke, then that would be illegal; if instead he intended "to make a gift of confidential information" to a close friend or family member, that would also suffice. Here's how the SEC charges that:

Little tipped Berke with material, nonpublic information (1) for a personal benefit, consisting of a reputational gain by enabling his neighbor with whom he was in near-constant communication to profit from securities trading; and (2) to make a gift of confidential information to Berke, whom he knew, consciously avoided knowing, or was reckless in not knowing would trade upon the information.

"Gaining reputation with the neighbor" feels like a very minimal sort of personal benefit; if that meets the personal benefit requirement, then everything does.

People are worried that people aren't worried enough.

Gillian Tett is worried that the rule of law, which "is supposed to be a bedrock of America’s political culture (and its capital markets)," is being undermined in the U.S., but that the CBOE Volatility Index does not reflect those concerns. I share that worry, but here we are. It seems like a lot of people are going to have a lot of worries, over the next few years, that are not reflected in the VIX. Elsewhere, Deutsche Bank AG research thinks that low volatility doesn't necessarily mean that bad things are coming, at least for equity returns:

So in conclusion ultra low vol doesn’t necessarily predict bad returns going forward but returns are generally higher when vol starts at a higher point than current levels or when it is ultra high. Quite high but not ultra high tends to be the worst starting point. There is therefore some evidence that future returns from this starting point might be sub-trend but no particular evidence of an imminent big problem looking at the historical data alone. That clearly doesn’t mean there won’t be a big problem just that the data doesn’t support such a thesis.

People are worried about unicorns.

I don't quite understand this worry:

But on Wednesday, Snap issued its disappointing earnings, sending the company’s stock down more than 21 percent on Thursday. The virulent market reaction turned Snap into a cautionary tale for venture capitalists and start-up entrepreneurs, some of whom are now reassessing the prospects for their companies’ going public and how prepared those companies really are to deal with the aftermath — especially if the start-ups, like Snap, are deeply unprofitable.

How is Snap Inc.'s experience "a cautionary tale" for start-up founders? The public market allowed Snap's co-founders to sell tiny slivers of their stock in Snap for hundreds of millions of dollars, and to retain control of the company forever by issuing non-voting stock. Then, months later, Snap announced bad earnings, and the stock price dropped back to just a bit above the initial public offering price. Snap's founders, it seems to me, made out great here. If they had waited to go public until they'd had a few more quarters of disappointing growth and earnings, they might not have cashed out as much, or retained as much control. "It's better to disappoint investors after you've taken their money than before," as I pointed out yesterday.

Oh of course Snap's results are bad news for other unicorns and venture capitalists, but not because Snap's founders and VCs were ill-used by the market. Snap's results are bad news because investors feel ill-used by Snap (though not that ill-used -- again, the stock is still above the IPO price), and so might be a bit more skeptical of the next unprofitable unicorn to come to market. Other founders and VCs shouldn't feel sorry for Snap; they should be mad at Snap for slamming the door behind it on the way out.

Meanwhile Scott Alexander is pretty bullish on unicorns generally, noting that most startups that actually get funding have "an altruistic or international development focus," or "really exciting cutting-edge technology," or at least are "boring meat-and-potatoes companies aimed at businesses that need enterprise data solution software application package analytics targeting management something something something 'the cloud,'" while only a small minority are the "ridiculous niche Uber-for-tacos startups that we all know and love":

So although meat-and-potato business/software companies do outnumber really high-tech or altruistic ventures, there’s not a lot of evidence for silly Juicero-style startups being much of the Silicon Valley business community at all. So how come everyone thinks that they are?

Here’s my theory. If you’re an average well-off person, leading your average well-off life, consuming average well-off media and seeing ads targeted at the average well-off demographic, and going over to your average well-off friends’ houses and seeing their average well-off products, which are you more likely to hear about? A structured-light optical engine for cytological research? Or a juicer?

People are worried about bond market liquidity.

Well, no, they are worried about a U.S. criminal investigation into "funds suspected of inflating the value of debt securities in their portfolios to juice the fees they collect," but deep down that is a liquidity issue too. If the bonds traded a lot on transparent public platforms, then the value of the bonds would be their trading price. It's hard to mis-mark Apple Inc. stock. But if the bonds trade rarely, then you can mark them to quotes you get from dealers, and if your dealer has somewhat flexible ethics, then you can just ask him to send you the quote you want.

Things happen.

‘Brexit’ Imperils London’s Claim as Banker to the Planet. FCA delays decision on probe into Barclays’ Qatar ties. Merrill Lynch Eases Ban on Commission-Based IRAs. Money From Chinese State Giants Helped Fund Aluminum Stockpile. Banks and consulting firms don't love entrepreneurship MBA programs. Is Uber a transport company or internet service? Judge Asks Federal Prosecutors to Investigate Uber’s Driverless Car Program. Goldman Sachs to launch new 'dark pool' for stocks on Friday. Home Capital Says Reputational Hit Casts Doubt on Bank Survival. Housing Regulator Is Pushed to Crack Down on Sales of Foreclosed Properties. Dow and DuPont to review spin-off plans after investor unease. "To see the world through the lens of sucking and awesomeness is to evaluate the world as one would evaluate a music video: in terms of its ability to entertain, and generate positive experiences, and wow with its beauty, magnificence, and amazing displays of skill." Why You Can’t Concentrate at Work. Cellino sues Barnes. dOGUMENTA. Gun testicles.

If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Thanks! 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Matt Levine at

    To contact the editor responsible for this story:
    James Greiff at

    Before it's here, it's on the Bloomberg Terminal.