The Daily Alpha: Alternative Thinking on Lending Club’s Crash, Mickelson’s Slice and Hedge Fund Lobbying

The Daily Alpha – May 19, 2016
By Garrett Baldwin

“The SEC said that Walters called and then sent text messages to Mickelson, who ultimately bought a $2.4 million position in three accounts he controlled.”

First, it was Martha Stewart. Now, it’s looking like Phil Mickelson is in hot water for alleged insider trading. Whose next? Frank Stallone? No, don’t take Frank Stallone away from me.

The SEC has accused Mickelson of profiting off two trades provided to him from gambler William “Billy” Walters – who received inside information from former Dean Foods chairman Tom Davis.

Walters allegedly sent text messages to Mickelson, who then bought about $2.4 million in three accounts. These kids and their damn phones.

It was the first time that Mickelson has ever owned Dean Foods positions…and his holdings in this one stock dwarfed his other trading accounts. He made a little more than $930,000 in about a week.

So… why the hell would someone be this careless? The SEC says that Mickelson owed Walters money, and the gambler encouraged him to make the trades. Mickelson says he will return all of the money.

Is anyone more curious how and why the hell a gambler is getting insider tips from a former Chairman of an company about quarterly earnings results and the performance of a spinoff of Whitewave-Alpro?

This sounds like the plot of a Bradley Cooper, Christian Bale and Jennifer Lawrence Cooper plays Mickelson, Bale as the bookie, and Lawrence as Mary Jo White?

Let’s call it… “A Slice off the Top.” Come on, you’d watch it.

“That's like saying because one car crashes, no one should take cars anymore.”

That’s Anil Stocker, cofounder and CEO of MarketInvoice, talking about the ongoing crisis at peer-to-peer lending giant Lending Club and the possible impact on the industry.

Things aren’t going well at Lending Club, to use words in their most basic function. The “poster child” of online lending has seen its stock fall by 50% last week after the firm’s CEO Renaud Laplanche resigned over a series of doctored dates regarding loans it had invested in.

I’m pretty sure that Renaud Laplanche was also the name of the bad guy in Quantum of Solace (a somewhat underrated Bond film, people.)

That said, the SEC is paying close attention to the situation right now, two other New York regulators are stepping in, and Goldman Sachs and Jeffries have “paused” business with Lending Club (which isn’t surprising. As we all know, Goldman only engages in shady activities when there isn’t a public investigation going on and the SEC is oblivious to any form of deception.)

It’s quite the fall from atop the mountain for Lending Club. The firm has financed around $18 in loans since 2007. And it had the industry’s first IPO in 2014. But it’s stock is in freefall…

So is this the end of the peer-to-peer lending industry – a newcomer to finance that hasn’t seen too much regulation and one proving why libertarians can’t have nice things.

Stocker says no: "If this was about defaults, I may have had a different view of it."

Stocker makes his case, here.

But before we go agreeing, it’s important to point out a piece written by a colleague named Shah Gilani. Last year, Shah warned about how these banks actually operate, and sounded the alarm far before the Lending Club scandal. Take a look.

"There’s a sense on Wall Street that Hillary is extremely smart and will figure out what to do that’s in the best interests of the country, which at times will not be in the best interests of Wall Street."

That’s longtime Clinton donor and Avenue Capital Management chair Marc Lasry telling a joke about Hillary Clinton’s commitment to the holding Wall Street accountable.

Wait, he was being serious? Oh, you’re sure about that? I mean. Come on, who interviewed him? Bloomberg?

Did the writer do this interview over the phone? Did Lasry turn the phone speaker on mute after this statement, break out laughing, and high five his public relations specialist?

Because there are a lot of things that I highly doubt about that sentence--that’s why.

Did you see the video “Hillary Clinton lying for 13 minutes straight?”

It’s Hillary Clinton lying for 13 minutes straight.

I don’t have the time or the energy for this one today, so let’s just cut to the numbers.

Hedge funds, private equity and insurance executives have donated nearly $25 million to Clinton and her supporting super-PACs, according to Bloomberg. If her idea is to put Bill Clinton in charge of revitalizing the economy – because, you know, why not at this point – Americans are going to need to pay very close attention to how and where any money is spent.

“This is what the country needs right now.”

Finally, that’s Carl Icahn.

The hedge fund industry is creating a lobbying group to defend and educate on Activist Investing.

It’s called the Council for Investor Rights and Corporate Accountability, or CIRCA.

Where do I send my resume? I pointed out that the hedge fund industry needed a lobbying effort in Washington in our current issue of Modern Trader. Why?

Because Senators Warren, Sanders, Merkley, and Baldwin have no idea what activist investing actually is. The only way to get through to people in Washington is to spend copious amounts of money on a public education platform.