Unstructured Finance

FBI not waiting for Silk Road owner’s Bitcoin password

From the frenzied coverage of the U.S. Federal Bureau of Investigation’s takedown of the online drug marketplace Silk Road early this month one story has emerged as particularly popular among Bitcoin insiders: A report from Forbes on Oct 4 said the FBI had tried and failed to seize alleged Silk Road owner Ross Ulbricht’s personal stash of the digital currency, supposedly worth $80 million.

The FBI is now saying that’s just not true.

According to the Forbes report, the feds managed to seize all the Bitcoin Silk Road had in its accounts, but when it came to going after Ulbricht’s “personal” Bitcoin account, the job wasn’t that easy. Ulbricht had a higher level of protection on his own account than he did on Silk Road’s digital “wallets,” as they are called, and the feds are stuck waiting for Ulbricht to cough up his password before they can take his Bitcoin.

It’s a detail befitting a story whose main character is named Dread Pirate Roberts, as Ulbricht is said to have called his online persona. Bitcoin users who recount it are citing the out-of-reach money as an example of Ulbricht’s one heroic victory over the army of government authorities who crashed his Silk Road personal freedom party.

The criminal complaint against him filed in New York claims Ulbricht pulled in a grand total of 600,000 Bitcoin, worth roughly $80 million by current exchange rates, over the course of two years, as commission on sales of drugs and other illegal goods and services on his black market website. U.S. prosecutors filed a corresponding civil forfeiture action against Ulbricht and Silk Road, authorizing the FBI to go in and seize any assets tied to the operation of the website. In the end, they took hold of about 27,000 units of Bitcoin, which an FBI spokesman said on Monday is all they were authorized to take.

“We have seized everything we were entitled to seize under the civil forfeiture action,” said the spokesman, Peter Donald.

Breaking bad, the Bitcoin addition

It wasn’t too long ago that Ross William Ulbricht was writing his master’s thesis for a degree in chemical engineering. Now the 29-year-old San Franciscan is looking at spending many years in jail after being arrested by federal authorities on a variety of drug trafficking charges.

The purported founder of Silk Road, the notorious drug trafficking website, was arrested Tuesday by the FBI and appeared in a San Francisco federal court on Wednesday.  A bail hearing was set for Friday. Silk Road, an online marketplace where more than 900,000 registered users bought and sold everything from cocaine to heroin to molly (aka the new ecstasy craze) was shut down after roughly three years in operation.

Reuters reporter Emily Flitter spoke to Ulbricht’s parents in Austin, Texas, and the couple not suprisingly seemed shocked by the allegations against their son. Said Ulbricht’s mother, Lyn Lacava: “I know he never meant to hurt anyone.”

Ackman’s Penney-sized revenge?

It’s hard to say that Bill Ackman came out of the J.C. Penney debacle looking good. But in one regard the hedge fund manager did score a minor victory: he and his Pershing Square Capital Management sold their shares before the bloodbath began in the ailing retailer’s stock.

In hindsight, the $12.90 a share price that Pershing Square sold its 18 percent stake in Penney to Citigroup doesn’t look so bad compared to the $8.73 a share price the stock closed at on Tuesday. There was much made in the press about the $473 million loss Ackman’s fund was saddled with after the hedge fund manager’s push to remake Penney into an upscale retailer failed. The criticism was justified as even Ackman conceded he isn’t great at retail.

But Ackman’s quick late August exit from the stock after first blistering the company’s board for taking too long to find a permanent CEO doesn’t look as bad in retrospect. Forbes’ Nathan Vardi even went so far a few days ago to write that Ackman’s decision to bolt on Penney looks like a “brilliant” decision.

Home gold rush is over

The pressure keeps building on small players in the buy-to-rent trade to cash out and flip the foreclosed homes they snapped up to the biggest investors in the space.

The news that Oaktree Capital Management and Carrington Mortgage Services are putting the 500 homes they’ve acquired and leased out up for bid may well be an indication of more to come. With increases in rents leveling off, the economics of buying single-family homes to rent them out becomes more dicey–especially given the 20% or greater surge in home prices in the markets favored by investors .

People familiar with Oaktree and Carrington say the two firms expect to make a sizeable profit on their portfolio because the homes are leased and producing decent cashflows. These people note the ability of a larger player to buy a portfolio of leased homes is attractive given the difficulty some of these firms have struggled to bring the homes they have acquired on line.

For SAC employees, it’s not any given Thursday

By Katya Wachtel and Peter Rudegeair

At SAC Capital Advisors’ sprawling Stamford, Connecticut headquarters on Thursday morning,  security guards barred reporters from getting too close to the office building, holding them to an intersection a few hundred yards from the driveway.

A security guard said SAC had not added any extra security at 72 Cummings Point Rd today, when federal authorities charged Steve Cohen’s $15 billion hedge fund with wire and securities  fraud in connection with its long-running insider trading probe. But those who know the location  disagreed.

Grace DeVito, a portrait artist who lives around the corner from the Cummings Road office, said there was a “different feel” around the place today. She walked past the so-called campus with her two dogs and her daughter on Thursday morning and observed that two security guards were inspecting incoming cars to see if they had a sticker to park in the SAC parking lot. “Usually there’s no one out,” Grace said, referring to the guards.

SEC vs. SAC give rise to many legal theories

It seems everyone has their own pet theory about why the SEC chose now to move against hedge fund titan Steven A. Cohen after years of being part of the hunt along with the FBI and federal prosecutors.

Here are few of them that I got from talking to a number of legal eagles: including former prosecutors and regulators.

The most obvious one is that securities regulators, unlike federal prosecutors, are bumping up against  a pretty hard and fast five-year deadline for filing charges against Cohen and it was pretty much now or never. In pursuing a failure to supervise  charge against Cohen in an administrative proceeding, the Securities and Exchange Commission is gunning to put Cohen out of business without actually charging he has done any insider trading himself.

This summer, it’s the John Paulson show

Hedge fund manager John Paulson has shunned the limelight in recent years but in recent weeks it’s a different story, with the 57-year-old manager not only giving his first ever TV interview, he’s also set to take the stand in one of the most closely-watched trials in the country – the civil case against former Goldman Sachs trader Fabrice Tourre.

Tourre’s lawyer Sean Coffey said in a Manhattan federal court on Friday morning they intended to call Paulson to testify in the trial. The U.S District Judge overseeing the trial estimated Paulson would probably take the stand August 1.

Tourre is accused of misleading investors on a 2007 subprime mortgage deal that Paulson’s hedge fund, Paulson & Co, was betting against. Paulson’s firm had actually helped to select the securities that were packaged into the deal. The SEC says Tourre told investors that Paulson’s firm was investing in Abacus, suggesting he expected the price of the securities to rise, when actually the hedge fund was shorting it.

Home sweet home, Blackstone

Kay Chapman and her boyfriend were saving up money to buy a home in the Las Vegas metro area while renting a home in a nearby town. But after months of plotting a strategy to buy a home at a foreclosure auction, they’ve given up for now and will soon move into another rental home–this one owned by private equity giant Blackstone Group.

Chapman and her boyfriend had to alter their strategy because the owner of the home they are currently renting from decided to sell after seeing how quickly home prices have surged in Sin City in the wake of all the institutional buying firms like Blackstone. Chapman’s current landlord wants far more for the house than she and her boyfriend are willing to pay.

So soon they’ll be moving into a Blackstone owned home, one of some 26,000 single-family homes the private equity giant has bought in US markets hard hit by the housing bust.

Was Jon Corzine insane?

In the complaint against former MF Global CEO Jon Corzine filed in federal court on Thursday, the U.S. Commodity Futures Trading Commission depicted the former New Jersey Governor as a negligent leader who should never be allowed back into the financial industry because he did not try hard enough to stop his employees from raiding the brokerage’s customer accounts to cover its own trading losses.

The suit stops short of an important accusation, however: intent. Though Corzine and MF Global’s former assistant treasurer Edith O’Brien should have known better, according to the CFTC, they did not mean to make the inappropriate money transfers or to lie about them or try to cover them up.

“Mr. Corzine did nothing wrong, and we look forward to vindicating him in court,” said Corzine’s lawyer, Andrew Levander, in a statement emailed to reporters shortly after the CFTC unveiled the suit.

Ray Dalio’s all seeing reputation takes a hit

There are storm clouds on the horizon at Ray Dalio’s $150 billion Bridgewater Associates.

Yeah, excuse the weather imagery but it’s hard to resist given the sudden sharp reversal of fortunes with Bridgewater’s $70 billon All Weather portfolio. As Jenn Ablan and Katya Wachtel first reported, the portfolio that Dalio has long marketed to pension funds as an innovative investment strategy for navigating storm markets, isn’t doing so well in this stormy market.

The fund, as of last Friday, was down 6% for the month and down 8% for the year.

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