Legal Fraud vs. Intellectual Fraud: The Growing Challenges Activist Short Sellers Face

Real Vision: Finance & Investing

Real Vision

Business News, News, Investing, Business

4.1 • 1.1K Ratings

🗓️ 5 February 2021

⏱️ 46 minutes

🔗️ Recording | iTunes | RSS

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Summary

Carson Block, CIO of Muddy Waters Capital LLC, joins Real Vision managing editor Ed Harrison to discuss the different forms that financial fraud can take in the corporate world, what happened with GameStop last week, and how changing market structure makes activist short selling increasingly more difficult. Block distinguishes between two types of fraud that corporations can commit—legal fraud and intellectual fraud—and explains how insidious and corrosive the latter type is for companies. Harrison and Block then consider why these companies committing intellectual fraud are not being held accountable and how that leads to decaying faith in public institutions. Block also provides his perspective on the short squeeze in GameStop from last week, exploring how initially a smart retail trade morphed into a different sort of animal. He touches on the financial plumbing occurring behind the scenes and whether it truly is efficient or not, and he shares how he sizes positions for shorts, the growing challenges activist short-sellers face, and his experience while investigating American Tower in 2013. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Transcript

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0:00.0	It is Thursday, February 4th, 2021. This is the Real Vision Daily Briefing. I'm at Harrison,
0:18.6	joined by the CIO of Muddy Waters Capital. Thank you very much, Carson Block.
0:25.8	Thanks, Ed. Good to be here. You and I, we spoke yesterday. I can talk to you for hours about
0:34.8	many different topics, I have to tell you. But I want to start this out, sort of from a broad
0:41.4	perspective. Just as an introduction, Muddy Waters, people know you because you're an activist,
0:48.5	short seller. You're looking at financial frauds in particular. And in order to do that, I think
0:55.6	you know, the economic backdrop, the macro backdrop, I think is important in certain aspects.
1:00.5	That's why I want to start broad. And let me paint the picture for you. And you, you can give me
1:05.2	some pushback and tell me how you think about the picture. This is how I'm thinking of it.
1:10.7	You know, we're in the middle of a mania right now. You know, one of my colleagues who just
1:15.8	tell me about games, stop down another 35% today. That's one of the, the low guy of the mania.
1:22.2	And the backdrop, more broadly, even still, is that this is happening under a, you know,
1:29.3	an atomization of media, an implosion of the traditional media, especially in terms of long-term,
1:36.4	long-form investigative side of things. So really, there's a vacuum that's being filled by social media.
1:44.3	And a lot of people are just grabbing onto sound bites. We're reducing complexity in a situation
1:53.7	where financialization has run amok and the complexity in the financial system has run amok.
2:00.4	And that's all happening simultaneously. As we're locked down, I'm talking to you from my
2:05.4	basement during a pandemic. So that's the macro backdrop that I see. And I look at that as one
2:12.8	in which financial fraud can happen very much. Yeah. Well, you know, there's, I want to break down
2:22.8	what we do into two different buckets. So there is from the legal perspective fraud. So that's where
2:30.0	a company has crossed the line and can be held liable for fraud. But then there's also this
2:36.0	other bucket, which is actually more of what we do, which is intellectually fraudulent,
	...

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