#15 The Short Seller - Carson Block on Finding Frauds, Europe’s Challenges & his Shorts Research Process

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Carson has been on a lot of podcasts so we agreed to spend less time on his journey to becoming a short seller, fascinating though that story is, and more on where he finds frauds and what he looks for. I was surprised but delighted that he was prepared to share some of the techniques used an investor can employ to dodge these bullets. You don't want a fraud in your portfolio. And in an exclusive, Carson explains why he's become dissatisfied with the description activist short seller and his new term for what he does. This was a fascinating exposition of the difficulties of a business which is essential to the honest operation of markets yet whose economics have become much less attractive. You'll be left in no doubt as to why Carson's firm Muddy Waters is one of the last men standing. So Carson, welcome to the podcast. This is so exciting for me because I've been wanting to do this for ages and it's taking a little bit of time to organize. I'm so grateful to you for giving up the time. And it's very funny that we should be doing it today because it's the 21st of September when we're recording. And in my inbox, just before I got on the call with you, there was an email from my Paul Whitney Tilsen talking about short selling. And what he said was he said, "Over 15 years of short selling, I made a lot of money in 2008 and in early 2009 and in 2015. But otherwise, I mostly took a beating. It cost me a lot of money and sometimes I have a huge amount of time." And the thing about short selling is people that aren't having been involved with it, I don't think they understand, psychologically very difficult. I mean, I don't think people realize how hard it is when I was at the hedge funds. I mean, I always found shorts that were much harder than longs. The psychology is different when you're in loss. You need more of them because you've got smaller positions and they require you to be much cuter in the timing. That's obviously for a fundamental short sale. Why did you get involved in short selling? What do you think are the things that make a good short seller? Talk about psychology of it. Sure. Okay, so first of all, thank you for having me, Steve. Long time in my erbures and you've also been on zero's TVs. So yeah, really excited to do this as well. As far as the frequent futility of short selling, I will second what Whitney wrote. Some years ago I met one of the legends of the hedge fund world, somebody whose last name starts with an S. There are two of them. And he said to me, he said, "When we were short selling, we did far more work than anybody on the long side did." I used to say that we knew these names, we'd done more work on these names than anybody when we were short these names. And after all that, over all of the years that we were hedge funds, I think on our short book NetNet, we were flat. So there is in many ways a, there can be a futility to short selling or it certainly can seem that way. Now why I got into it and that dovetails with your question somewhat about the psychology. I grew up in the industry on the long side. My father was an equity analyst who is also an institutional sales person and he was focused mostly on microcaps and small cap companies. And he literally was known as the most bullish or credulous analyst on the street. And after I wrote my first short report in 2010 on an Orient paper, I sat down with a journalist Bill Alpert, Zett Barons and Bill is grizzled veteran of financial investigative reporting. And Bill said to me, referring to my father, his first name is also Bill, he said, "I first heard of Bill Block when I took a sabbatical from journalism and I worked at a hedge fund. And we had a strategy where we shorted everything your father ever put a buy recommendation on." And it was really funny to me because my father's guy who used to work for him as a trader for many years used to sometimes rip my father and say to him, "Bill, the day you retire, there's going to be this one guy who's devastated because he shorted everything you ever put a buy on." And I'm meeting the guy, number one, then number two, God, there must have been a lot more than just one guy who was shorting everything my father put a buy on. And the reality is, my father was never, you know, was nothing craven on his part. I mean, he was never in on the joke. He was easily taken by charisma, still is to this day, Trump voter. So he loves charismatic management, stories, and I guess, you know, for getting to, you know, how I got, how I ended up here and what the makeup of a short seller should be. I worked with my father. There was a little bit out of, I was a little bit out of undergrad. So I had gone to China right after I graduated in '98, tried to start an investment research business there, realized I was like a decade too early, came back to the States, worked at a large eye bank for nine months, loaths did, maybe only eight months, and then I teamed up with my father. And so I made good money the first year and a half, but that was, we're talking now, 2000 through 2002. And 2002 was just different. Every, you know, it seemed that all of these management, or many of them, had been lying to us and using us to get our institutional clients to buy their stocks. And then we'd turn around and we'd see, get 45 days later, because we had more time to file the forms for, we'd see that they dumped the stock. And it was very imbitering time. And, you know, my father at that point, he said to me, because I was always, you know, on the long side then I was I was I was always willing to take profits really early and say, "Look, we thought it was going to go up 30 percent one year. It's up 40 percent. I'm going to sell my holdings and my father wouldn't sell his." And he would come, you know, he'd say, "Oh, you get hit with taxes." And I'd say, "Yeah, that doesn't matter if you're going to lose money." So the irony is, he was telling me at that time, he said, "You know, I think you're just much more conservative than I am, and maybe you should look into short selling." Okay, well, who do you know who does that? Like, "Oh, I know one guy in San Francisco, but I think he's an asshole, so I'm not going to call him." All right, thanks. So I left the investment industry and went to law school. And I went to law school because I was trying to learn how to better protect myself against financial predators. I mean, it's hard to overstate just how fucking furious I was at this point in time after what I perceived as, I mean, well, reality, for having been lied to by a number of these managements. So I fell out of the markets and got back into it by accident. So I wasn't looking to be a short seller when I got back in. It's just years later, I diligence to company in China. My father asked me to look at, did not expect it to be a fraud. I mean, to me, the question was, is the guy stealing too much a more than acceptable amount of money out of the company? Because, you know, it's China, like, to steal something. But it turned out to be a total fraud. And I just put this report together for the hell of it. I didn't really have a business plan. And then, when I mean, that report went viral, all of a sudden, you know, the next generation of big hedge fund guys is emailing me wanting to take meetings. And when I realized, like, wow, okay, there's this part of my personality that, not per part. I mean, this dominant aspect of my personality that I think a number of people had maybe thought was somewhat anti-social, was troublesome, argumentative. I'm just like, there's actually a way I can monetize this. You know, I've been, I've, I mean, I've had people dislike me for a long time because I would say things out loud that were just unpopular. And sometimes I mean, I would, I'd love the debate. I'd love to push people on their positions. And even if I agree with them, I'm often taking the other side just for the debate. And that's how I love to think. I love to take, you know, a narrative and then think about the counter narrative and test it. So, I think that those traits are necessary to be a short seller. And I was just, I really felt like I found myself all of a sudden when I realized I could get paid and paid reasonably well for being openly skeptical and challenging authority and malding off. Now there's an aspect of my business that's quite different from that of the conventional short seller. I mean, traditionally or conventionally as a short seller, you take a short position and you don't talk about it. Now there are a few reasons for this. And whereas my model is, I talk about it. Because as an activist short seller, you know, what we're called and I want to get into that nomenclature because I do think the nomenclature should be changed somewhere. But we're investigating what happened or did not happen generally. So when I really, you know, our theses don't revolve around what's going to happen. So the vast majority of short sellers are taking shorts for fundamental reasons. They are short. What they see is a melting ice cube. They think it's going to melt faster than the market does. Or maybe they think the new product is going to be a failure or a competition is going to blow them out of the water. Those are all great valid reasons to short a stock. But those are not those do not make good activist shorts because you cannot be provably right in the present. So this gets to my nomenclature point, but also really the substance of what we do as activist short sellers. I mean, we're basically investigative journalists. We're investigative financial journalists. And we're usually saying the company is deceiving you in some way. But telling you this, that's not accurate. They're telling you that. That's not the whole picture. And they've completely failed to tell you about this other thing. So that's what we do. And if you're a traditional short seller, your goal cannot be to make money, to generate games in your book every year because that's not why it's there. It's there to create alpha. And that's a noble pursuit. But as far as I'm concerned, you can't eat alpha and you can't buy a house with alpha. So when you're more in the investigative journalistic, so you know, journalist investor side of things, that's what I would like to change the nomenclature to. When you wear a journalist investor, you have to actually find things that are profitable. You have to find stories that people are going to care about and where it's material enough. And you know, there's a lot of apathy to overcome and there's a very crowded information environment with which we need to compete. But you know, make up why to do what we do as investor journalist investors. This is the first time I've used this term publicly. So to do that, I think that you need a little bit more than just what the traditional short seller needs. You really need to be, you really need to have thick skin and maybe even get a rise out of provoking people and provoking a Serbic reactions to what you say and what you write. And psychology those the same, right? Because you've still got the same issues that people don't believe you. It's almost worse for you because unless you have an instant fall in the share price, then you're sitting with a pressure if your story's not believed. So the psychology's actually quite the same, yeah? I mean, there are definitely parts of it that are. I think that for most of us who short stocks, I mean, we probably have a belief, probably believe most of our lives that were smarter than a lot of people around us. But even the people who are more successful and more popular than we are, and we probably have a burning desire to show them up. But I mean, I'm not saying that that's the most healthy psychological trait, but if I'm being honest, yeah, I think that that's probably a big part of what the psychological makeup of people who go on the short side or at least are successful on the short side. And when I say successful, I'm largely referring as well to traditional short sellers, not just active as short sellers. But yeah, I mean, you've got to be a tolerance for pain. You have to, and when positions are going against you, I mean, you, that's going to be the norm a lot of times. And you have to learn number one not to live and die with every tick of a stock. And especially for those of us who openly publish our work, the journalist investors, that one's hard because we're so public on a name. And especially if there's a lot of controversy around it. And that, you know, every day it goes up, the people on the other side are basically, you know, they're on Twitter, you know, egging us on, touchdown dancing. And you have to be able to, you have to be able to handle it. And how do you know, how do you handle that? These people are tunting you. I mean, how do you keep calm and not get sucked into the argument? And, you know, in the early days, for the first several years, maybe mo, I'd say probably up until 2020, I generally try to be classy about it. And when we won, I didn't touch down dance back on guys who were doing it all the time to me every day, the stock went up. But 2020, something kind of changed, some things changed for me in terms of my mentality toward the business and life. I mean, in one hand, with COVID and all of us being locked down, I felt that that imposed a layer of honesty and transparency that's, many ways lacking from just how we in the investment industry present ourselves. And it was liberating in a way because here I am sitting in home like everybody else. But I said, you know what, I'm not going to put on suit and tie. And, you know, while I'm sitting in a broom closet and pretend, you know, like, and while I'm really worried that my kids are going to burst in and like start shouting while I'm on CNN. NBC and like, I'm not going to do that. You know, I'm going to dress the way I normally dress. And so I, so I, most days I wear a t-shirt. I'm wearing one now. So I, I dress, you know, so I started dressing down a lot, but I also, I just also felt like the world is falling, like the world is burning and there's so many horrible things happening. And you know what, I'm just going to give my id some more license here. So when guys who have fucked with me, when it, when it finally, when the stock finally implodes right back at you. Now I don't know if my therapist would say that's healthy, but I don't know, I just, yeah, I think, you know, for everybody who does this, you know, just do what you, just do what you feel like in that sense. I used to be, I used to be really worried that, oh, you know, this will reflect so poorly on me. And I, you know, reporters see that I'm, that I'm tweeting this and, you know, what, I don't know, man, at some point I stopped caring. So, you know, that's, so sometimes it helps. Sometimes I get a little childish in response. I don't, I don't start these things, at least I like to think that I'm not the first one to go there, but, you know, you just, we're all human and, you know, nobody's, nobody copes with this perfectly. And you just, you know, I, just sometimes you have to give in to your, to your baby. baser desires in this business. - It's funny this term, which is new to me, the investor journalists, because I was thinking there's a big overlap. I saw Dan McCrumm last week, the FT guy that did the War card. He's such a nice guy. Brilliant storyteller. He was on podcasts like three months ago. And that was such a traumatic and extended experience for him. He relies, and people like him, rely on tips from conventional short sellers. And John Hempson, the Bronti capital, Australian hedge fund manager gave him the original tip about War card. And then Leo Perry of Ennis Moore partners. I don't know if you know that for him in London. Met him in a coffee shop and gave him more ammunition. And you think back to the old days, when Jim Chenos was short of Enron, I mean, Twitter didn't exist. There wasn't a way that he could disseminate the information. And today, short sellers and the people on the other sides are all over Twitter, which makes it a very different kind of arena. I mean, this thing with journalists. I mean, I get quite a lot of interaction. And I find it quite interesting because I've got some good contacts that are quite senior in London. And they're meeting with chief executives of companies. And the companies are whispering in their ear about their competitors. So I get quite a lot of that feedback. I mean, do you have a good relationship with, because obviously, a big community in the US, right? Are you competing with the investigative journalists in a way? It's a good question. So I generally have a good relationship. I think sometimes we're competitors and other times, there's other times we're not. But maybe we're not, to the extent we're not, it's because people perceive us, given that we are putting investment risk on, as being different from an investigative journalist. Now, one thing that I do say, and I think some journalists' chief, I've been telling them this privately for years, that we are investigative journalists, it's just a non-traditional model, non-traditional media. Some of them genuinely chafe at that. And they say, well, you have a financial interest in the outcome and therefore you're not objective. All right, well, look, William Randolph Hearst, didn't become so wealthy by not having a financial interest in the reporting. Now, maybe it's not a direct financial interest in each story, but the reality is that the financial investigative journalism business is almost completely more abarmed. There's so many stories out there to be investigated. And journalists don't get the time to do it because everything needs to be clickbait. And that's one of the things that I've noticed and it frustrates me and my interactions with media, how sometimes I'll do an interview and I want it to be taken seriously. And instead they just turn it into some bullshit clickbait headline about crypto, which I always tell them, I don't care about crypto, I don't know much about crypto. But if you really need me to talk about crypto, then I'll say a lot of it scam me and boom, there's your headline. So, but yeah, the journalists just don't have the money and time to do this work anymore. It's not a good business model. So I think the only business model that support that actually pays for investigative financial journalism is married to a fund that is taking short positions. Now the FT or another large publication every now and then, they'll look at it as a lost leader. You know, this is good for us in terms of prestige and they'll let Dan run with the story. And the FT is fantastic. I mean, I think by far the best in the world, or at least the anglophonic world, at pursuing investigative financial stories, but they are the exception. And even then, when you read Dan's book, you'll see that there were issues with bureaucracy and legal considerations. And the nice thing about what we do as journalists investors is we bake all this in. You know, we say, okay, well, if this goes according to plan, like my, you know, we're gonna generate an expected PNL of blah. Okay, so if I know that on average, it's gonna cost me half a million dollars to get rid of a harassing lawsuit, then, you know, I make this decision, is it worth it? And we expect to get sued. I mean, we don't like it, but we expect to get sued. And your traditional media outlets for this sort of thing really don't want to get sued. I mean, they spend their time, they spend a lot of effort, as seriously trying to avoid being sued. And so I would argue that one of the advantages of our model is that we remove a lot of the fear from, you know, from the fear of litigation. And so we can really, you know, be balls out when we have these stories. So, but at the end of the day, I mean, there are, you know, also differences like, we can't talk to any, we can't get MNPI, material non-public information, right? Like, if you're gonna be trading the stock, you must avoid that. A lot of Dan's later reporting, the reporting in 2019 that really, you know, inflicted the fatal wounds on Wirecard came from a company insider. I mean, it would have been material non-public information had somebody traded on it. So that's an advantage that the traditional journalist has, but as I said, for us, the advantage we have, is that we don't care about being sued. And so we can layer in opinion more liberally than a news reporter like Dan can. So we combine the actual factual reporting with commentary. So look pros and cons, but, you know, I mean, if you compare the models accepts the end of the day, you know, nobody makes money outside of trading. Nobody really makes money on this type of work. If you enjoy this podcast, you're bound to enjoy our free newsletter on Substack. It's a weekly email on interesting investing topics. Visit behind the balance sheet.com and hit the sign up button. While you're there, you might want to check out our brilliant online investor training school. Hundreds of students have taken our flagship analyst academy course, which teaches you everything you need to become a serious equity investor. And if you're a professional investor, we run a forensic accounting course for institutional clients. And soon a cohort based course for serious amateurs, email us at info@behinderbalance sheet.com. It's interesting you say this because I was asked to write a piece for a major newspaper over here a little while ago. And I wrote the piece and the editor came back to me and said, "Have you checked this with a company?" And I said, "No, I mean, it's completely my opinion." So the company was completely, you know, misrepresenting its earnings. And the lawyers at this, I mean, big newspaper insisted that they gave the company an opportunity to respond. So I said, "Well, you know, you go ahead. "I'm not going to, if you want to do that, that's fine." Go ahead. And the company came back. The company's lawyers came back with such an aggressive response that they decided not to publish. And I'm like, "What, what are you? "Are you a newspaper or are you a bunch of whims?" I mean, You know, you're a major newspaper. The company naturally disagrees with my opinion because I've said its earnings are made up. I've given an argument, why can't you publish that? It's my opinion. You know, there's no, you can not, I'm allowed to have an opinion. It can't sue me because my opinion's wrong. They might argue that it's wrong, but they can't, you know, I'm not making any day. It's not defamatory. It's at my opinion that their earnings are misstated. And I was amazed. I was amazed that the, do you think there's more of this that the, I mean, obviously in the United States has always been a very litigious society and business, obviously, will seek to protect itself? But I mean, my perception is that there's more of this today than there would have been 10 or more years ago. What's your feeling? I think that's definitely correct. And it's interesting that you're, you bring up the US versus other jurisdictions. In the US, of course, we have the First Amendment. So it's very difficult for somebody to actually, you know, public figure, which public company is, to win a lawsuit for defamation. They have to show what's called actual malice, which is that the publisher knowingly stated a material falsehood or was reckless with respect to whether it was true or false. Now that said, it is very litigious here. And companies are suing a lot more. And for guys who've been in this game longer than I, I mean, I didn't get into this publicly criticizing companies until 2010. But I've heard, I think, her Greenberg and Roddy Boyd say that they think a lot of this goes back to Patrick Bern and Overstock.com. And he went over, when he overstock ended up suing Mark Cajotis's fund. They were short and sued a firm called Gradian Analytics that had written research that was not published openly, but it was sent to their distribution list. And it never went to a verdict. The defendants ended up settling. But the feeling that I remember correctly, it's her and Roddy have is that this really opens the floodgates to going after the critics. And it really picked up steam in the last several years, because in this dovetails with my feelings about the information environment, it used to be, and a lot of times, I think institutional investors used to say, look, it's a distraction to sue the short sellers. I'm along the company. I think they're wrong. I think they're a bunch of horrible people, but it's a distraction. Don't do it. And the reality is companies that really do have issues that where the critics were correct, they don't want to get into discovery. But I think that the, I think that shareholders expect far less restraint now. And maybe that's also similar phenomenon to what I'm telling you that I'm less restrained in responding to my critics publicly. But I think that, one of the things when I look at the long side, and I think it really started around 2013, where I'd say that long side investors who cared about risk and tried to avoid companies that they saw as unduly risky were not remunerated for that. And it's been until 2021. It's been the investors who basically are willing to dive head first off the high dive effectively, who've made the money. And you say, I don't give a shit. It's a great story. Bye. And I think that for those people too, that's if they don't care about risks, then yeah, go ahead, sue these guys. They're pricks. They're costing me money. So yes, sue them. So I think that there's been a, I feel like there has been a mentality change among the institutional shareholder base for a lot of these companies as well. But the thing is, it's also, as far as getting comments from companies beforehand, when I started this, and or soon after I started this in 2010, and that's when I met Andrew left of Citron research. And I sat down with him and just hearing his perspective. And one of the things he said is, he's like, look, I don't go and ask the companies, hey, what do you think about this? Because you know what? The companies speak all the time. It's called quarterly reports, annual reports, press releases, et cetera. They talk all the time. I don't have to ask them. And I fully subscribe to that view. Now, going back to the US and the First Amendment, and it seems like it's very protective. One of the problems that we face, I mean, I'm always in litigation these days. And it's that judges don't really understand the First Amendment. It's quite hard. And so we saw there was another activist short seller, or investor journalist, journalist investor. I don't know the guy well. But he'd written under the pseudonym, Rhoda Fortuna. And he published on a microcap company several years ago called Farmland Partners. So Farmland sued him. I don't know Farmland. I've never looked at-- you know, even looked at the cover of its 10K. And I only glanced at the cover of this guy's report, of the summary of Rhoda Fortuna's report. Probably directionally correct. I mean, just it's a microcap company. There did seem to be some issues. But he did fuck his work up. It seems like. So what ended up happening was Farmland Partners sued him. They sued him in Colorado, federal port in Colorado, probably not a judiciary that sees or abenched that sees a lot of First Amendment cases. And the defendant Matthews moved to dismiss. And the judge ruled against motion to dismiss. And the judge in his dictum stated that there are factual assertions here that do give rise to an inference of actual malice. And specifically what he was referring to, what the judge was referring to, that could give rise to actual malice, is that when Matthews emailed over a bunch of questions to the company, he stated that he would only accept responses in writing and he gave them maybe 24 hours. In any event, the company offered to respond in a phone call. And I can't remember what they offered in terms of the timing. But the judge found this dispositive in terms of saying that Matthews conduct might have constituted actual malice because he insisted on the responses being and writing and within 24 hours. And by that same logic, then all of us are better off never asking the company questions. OK, that's how you look at the First Amendment, bro. That's fine with me. We won't ask any questions. So it's a difficult-- and so on you with it-- net net, Matthews ended up settling with the company and issuing a statement in which he noted a number of inaccuracies in his analysis and factual inaccuracies. And yeah, those are what they are. As I said, I suspect he could in some way be directionally correct on this company. But it was sloppy work. But yeah, you got this adverse ruling, I think, because-- or he got this adverse ruling, I think, because he asked the questions. And the judge just doesn't get First Amendment. It's funny, isn't it? Because 95% of cell-side research is positive. And I don't know what percentage of it is sloppy. But I think probably a high percentage of it. But you do negative research. And you make a mistake. You're much more vulnerable, which makes it a much more difficult business, doesn't it? I mean, it sounds to me like this is a really difficult environment, because you've got this very litigious environment. You reminded me of the Tom Burgess book about the Kazakhstan company ENRC, where the lawyers prevented them from publishing. And he was fortunately, Wiley, his publisher, defended themselves very vigorously. And obviously, a huge expense. And if you've got some oligarch, just tells his lawyers, just try and stop this and throw money at it. And if you're on the other side, it's really difficult. So this must make your business a really difficult business. I mean, aside from the difficulty of finding the targets and then executing properly, just the costs of running the business must be huge. Yeah. Do you gain insurance? Nobody would assure you. Money waters, right? You know, we do have insurance. But every year-- So cheap, I guess. Every year the deductible gets higher. The premium gets higher. And the coverage amount gets lower. And it's, yeah, and I do suspect that we're going to, at some point, the not too distant future, find ourselves in a situation in which we're not insurable. But the reality is the deductible is high enough that the insurance companies haven't really had to kick in and identify us. I don't think they've had to kick in to identify us in any litigations. Maybe I'm wrong, but one thing that is nice about the insurance company is they will contract with certain law firms. So you get lower billing rates from those law firms than if you didn't have the insure. But yeah, it's definitely an issue in our business. And I've taken this view, well, in terms of the defense, nobody knows this story. So this is the first time I'm telling it. And actually, it just happened very, very recently. I had a book deal. So we had, there was a publisher wanting me to write a book, not covering from childhood on, but a consular romance. Or a romance, yeah, consular romance. I didn't know what that means. And I can't even spell it for you. But in any event, so I had this book deal. I've written actually a good portion of the manuscript, but I had the agreement in front of me. You know, like some things got negotiated, but there's this portion and I'm sure it's standard in any author agreement. I mean, I co-authored it for dummies book years ago in 2007. So this was similar, but basically this indemnification provision would have provided that I'm responsible for paying the legal fees. Like, yeah, I get it. But that the publisher would take the lead. Paying their counsel would take the lead in defense. And for me, that's a no go. Right? Like, I get sued all the time for defamation. I'm good at it. And nobody lawyers me like me, by the way. So I said, look, I'm happy to pay the money here, but I want to retain counsel. I want them to be lead. And I'll pay for your counsel to be like, you know, quiet co-council basically. And that apparently is blown up this book deal. They are at this point and no go on that. But to me, that's a key provision because I do understand what it's like to get sued here and how to deal with it. And it is such a litigious environment. So yeah, I probably, you know, I probably fucked up my book deal because of my insistence that I handle litigation defense. I wouldn't worry about that. I mean, I think you publish a book. You'll fly off a bookshelf, wouldn't it? I think I would love to read a book by you. I mean, I would. I would introduce you to my lovely publisher, Haram and House, who are British. So they'll probably be less worried about it. I've forgotten what the litigation clauses in the contract where I was just, I was just so relieved that somebody offered me a contract that I just, oh, I've published or not, done. You know, I didn't even worry about that. But I want to tell some stories, right? Like, I want to go because there's a lot of my business that's been public facing. And so I'm not just trying to retell what's in these reports. You know, I want to go pretty deep and get into stuff, I think, is interesting. So, you know, like, you know, new potential plaintiffs perhaps. But yeah. You're good. You'll be inundated with calls once the podcast goes out because all these, all these publisher will be listening to the American ones, maybe not so much. But Haram and Haram and who've done really, really well, I mean, they've got Morgan House Those book, I mean, they must be making a fortune. But they will be able to get higher royalties than I did. I mean, quite funny. But maybe just change tack a little bit because I think, you know, a lot of people listening to this are practitioners. So we've got very, I don't know what the percentage is, but very high percentage of professional investors listening to this and serious amateurs listening to this. And one of the things that they want to know is, how do you spot these things? I don't want you to give away any of your secrets. And I don't mean to be honest. I don't anybody could copy what you do because I know how detailed your work is. But have you got some tips for people with what they should be wary of? I mean, or I know you've got some tips. What can you share? Well, after that build up about how this is, must be some proprietary secret sauce, I just feel like it's going to be massively disappointing, what I say. But a lot of it is what's too good to be true. So you can look at that from a top-down perspective. So what is an industry or part of the market like SPACs or EV SPACs that everybody's excited about and where the money is flowing? Because when you have a lot of money flowing into a particular area, yeah, you're going to have, I mean, if it were IPO, so pre-2020, oftentimes. So this is the UK edition of the FT's, got, "Chema, can get SPACs away." Yeah. Right, yeah, exactly. So a lot of times, if we're talking IPOs, maybe the third or fourth company to go public is those are the ones that are going to be the real problems because they're following on and trying to, you know, they've seen the success of the IPOs before them and so they're not businesses that are really at that level, but they're just going to try to grab the money. Kind of have a rule of thumb that anything with a market cap of 1 billion US on up that's listed on aim is a fraud. So that's a great place to look. But also if we're talking about, if we're talking about in more micro level, companies that are highly, where the, where the management are highly promotional and are promising the moon and where the stocks have been on a tear. So in a way, it sounds really amateurs, but it's the two good to be true angle and we're not, I'm like a lot of other short sellers, we're not running quantitative screens and, you know, because the, my view, and I. I'm open to there being another side to this, but my feeling on screening is that you get a lot of false positives and false negatives because you don't have the context. And one thing that I think is really important to understand when I, when I talk to people about this is you have to understand what, you know, kind of what management would be trying to accomplish, like why they would be aggressive and where they would be aggressive. So a lot of things start out as basically an equity pump type of situation, right? So we're going to, you know, we're going to do what we can to print growing, you know, rapidly growing earnings and revenue. So you know, what metrics, you first look at what management wants to show everybody. So what do they talk about in the conference calls? What are their press releases and their presentations focus on? And when they start getting into non-GAP, non-IFRS land, well, that's what you look at and you really look to, you know, dig at it, especially when they talk about organic growth. I mean, my favorite is companies that talk about organic growth and they make a lot of acquisitions. I mean, they're almost always screwing around with how they calculate that, often changing the methodology from period to period. And you know, they bury that in a tiny little disclosure. But when it's an equity pump story, expect them to exaggerate on, well, if it's going to be a problem at a company, look at the areas that they're showing the market, what they're trying to get investors excited about. Now what often then happens if it goes on long enough is the company takes on debt, then it becomes potentially a different problem. I mean, maybe it was a great business when it started taking on debt. But now when you have a company where, especially if they get, if they're around that bottom rung of investment grade, triple B minus, you always have to pay attention to these guys. Then you start looking at, then you start thinking about them being really sensitive to credit metrics and messing with their leverage ratios. So, you know, what they, I mean, when you think about the leverage ratio of net debt over EBITDA, well, what are they doing? Are they doing things where they're understating the debt such as reverse factoring? Are they entering into a bunch of transactions? You know, that might effectively be reposed near the end of the quarter to get some cash on the balance sheet, to knock down the net debt number. Are they screwing with EBITDA? You know, we're operating income. So there's context there. And that's why I feel like screening doesn't help that much because you really have to understand what's, you know, what's going on with the company and what they would be incentivized to do at a given point in time in terms of aggression. So yeah, a lot of times what we do, I say, it's very qualitative. A lot of it's pattern recognition, you know, it's just this, when the CEO is saying this on the call, does this make sense? And one of our favorite things. do early on is to read call transcripts for several years. And there are things that I look for when doing this. So first of all, is management answering questions? Well, let's actually back up a second. Do they use a lot of jargon and buzzwords that you don't know what they mean? That's always a sign. Then are there questions that they don't answer? And this is one of the reasons going also back to that story I told about that short seller who got rung up in federal court in Colorado. One of the reasons why you don't do this by phone is because it's so hard in real time to understand whether they answered your question or just dodged it. And you see this when you read call transcripts all the time. And you'll see the confusion by the questioner and they don't want to sound stupid or they don't want to maybe be confrontational on this call so they'll just move on and thank them for the non-answer. But looking at what companies refuse to answer, management's refuse to answer is very instructive because that very well could be where one of the soft spots is. And then are they, you look at how promotional they are. And when they're promoting, if you go back several years and you read oldest to newest, are there these initiatives, have they panned out or do they keep making promises or projections that just don't pan out? And if that's the case, then yeah, I mean it's, you know, it's a good chance it's a problematic company. See, a lot of what we do is really qualitative and it's, yeah, we're looking at the statements and just asking ourselves, like, does this just this make sense? Could this really be true? It's interesting. I mean, the, the, the not answering the question is a very big tell, I think. I put this in, you know, I do this forensic accounting course for institutional clients and we put in a section at the end where we talk about, you know, what are the signals without even looking at their accounts? Companies give a lot of signals. And exactly what you say is one of those signals is not answering the question. But I've noticed that very few companies do answer the question. And I mean, I was reading the Netflix transcript the other, the other week. And I hadn't realized, I mean, they get one analyst to ask all the questions. And I'm like, what, what is that about? I mean, that's, that's a tell also when there, when there are favorite pet analysts. Yes. Who are always called upon. And when the language is obsequious. Well, language is always there are, the language is always that though. I mean, great question, guys. I mean, right. But you, but you have to ask, are there a bunch of other people who were in the queue who don't get called upon? And if that's the case, you know, why isn't, why is the company only calling upon the trusted pet analysts, the truly obsequious ones? You know, and that's, I mean, that doesn't tell you what they're hiding, but that tells you that they're nervous. Okay. Maybe I'm being naive. Maybe my view is too old. I mean, I listened to far fewer calls than I used to because we're much more focused as a business because we're only doing a few names a year, really. But, you know, back when I was on the long side and, you know, we cared about, I cared about a larger number of names. Yeah, I'm sure the norms have changed on the, I've changed on the calls, but I think that a company that's not afraid of being, of people seeing through it will call on analysts from the more, you know, some of the by, by side guys definitely. I mean, if they only call on cell side, that's, you know, that, that's a sign. Actually, one of my, one of the, one of the most fun things I ever did was years ago we were short this complete fraud from China called NQ mobile. And so they had this conference call. The, the chairman had disappeared. It turned out that one of the other co-founders had kidnapped the guy and would, had held him for months. But so the rumor though was that the Chinese government had arrested him at this time. And so I had two phones. I had one phone right, dialed into the conference call as Carson Block, Muddy Waters. And the other phone, I took their, their, their largest shareholder to Oberwice capital management or asset management. I said, I'm Jim Oberwice Jr. And so when they opened up the queue, you know, I hit the star of whatever on both of them. And the Jim Oberwice phone got called on immediately. And yeah, Jim Oberwice Jr. the next day pinged me and, you know, I think he, I don't think he was serious when he said, aha, you're pretty funny in an email. Little did he know that we had sent a pretty lured Christmas gift to him that would be arriving later that day. And we did that because this guy had written publicly that we were stock manipulators in his newsletter. So anyway, it was just really a prey lured to, you know, what I, what I think was probably a frustrating day for him when he received the package. So part of the toolkit is to have two phones. Well, I mean, it's not hard to borrow somebody's phone, but yeah, we, as a matter of practice, since almost day one, I've required everybody to keep their personal devices separate from their work devices, myself included. And that's just for IT security reasons. But yeah. No, Dan was telling me about his trips on the tube. So he would, you know, get off the tube at the last possible moment because WarCard had investigators following him. I mean, do you, have you encountered that you come across this sort of thing where, you know, companies reacted to you by appointing investigators and going through the trash and that sort of thing? Yeah. So the most, the most brazen example was Casino Guisard. And it was obvious that they hired this guy named John Charles Bressard to, to pretext as a Wall Street Journal reporter. And it was so stupid and arrogant, which to me, it's like, you know, couple of the big stereotypes of the French, or at least the arrogance part. But yeah, what this guy started doing was, just some years ago, he started emailing my US PR agent, or PR rep, I said, I'm William Horabin of the Wall Street Journal Paris Bureau. And there is a real William Horabin, is that the Wall Street Journal's Paris Bureau. But he sent, he sent this email from a Gmail account. Now the first time we didn't catch it, or my PR rep didn't catch it. But you know, over time he kept sending follow up emails, you know, his car's in coming out with a new Casino report. And what's the status of the AMF investigation into muddy waters in Casino? And so with this Gmail address, it was always from Gmail. So we quickly had somebody reach out to the real Bill Horabin. And that Bill Horabin confirmed, I mean, he said, I don't even cover Casino, you know, that person asked whether he'd want to interview me about Casino and Bill Horabin said, I don't cover Casino, not my beat. So we knew that we had an imposter. And by the way, I was also pretty, I can be highly confident that one of these phone, one phone call I had with people in France around this time was electronically intercepted. So, you know, yeah, because I mean, basically I was talking to a PR, a potential PR hire in Paris. So I'd been introduced to a PR firm there in Paris. And I had my first ever conversation with the guy, hung up. And he said about 10 minutes later, his phone rang. It was a block number. He picked it up. And the person said, oh, this is so-and-so from the AMF, you know, the French market regulator. And we want to confirm that you represent muddy waters. No other way, you know, of no. And so this guy was, you know, this guy, the PR guy had the presence of mind to say, why don't you give me your name and number and I'll call you back. And you never got the name and number. Dude, just hung up. So clearly there was something going on there. So anyway, you know, a few years later, you're two later, this guy, Jean-Shant Brissard, well, you know, Bill Horabin, email my PR guy and said, hey, I'm going to be in New York. I would love to sit down with you. My PR guy told me about this. Now his firm, there was no way they would let him take that meeting. But I said to him, all right, why don't you ask him, ah, would you like to meet with Carson? Carson is going to be in New York at the same time. So he asked him and the guy said, yeah, that'd be great. And this was just maybe three days away. So I booked my flight from San Fran to New York and I'm skeptical that the guy's actually going to show. I just, to me, this would be so stupid. [BLANK_AUDIO] I wouldn't behold, he showed up. And the best part is, now so I got this guy in video and I confronted him, I said, I know you're not the real Bill Horobin and he starts, well, he starts stammering. I guess up to that point, maybe the funniest moment before that was right after he sat down. Now William Horobin is British, went to University of Leeds. So this guy is English is like really, it's really good, but he's got the French accent. So yeah, when he sits down, kind of makes the small talk, where he says, I have been living in France so long, this I have lost my British accent. (laughs) You know, like, no kidding, man, really. So I mean, this guy thinks he's fooling me, right? And anyway, a moment later, I confront him, I know you're not the real Bill Horobin. I've got guy on the balcony above me, I've got a bodyguard behind me, I've got an FT reporter at the table next to me who didn't come over at all disappointingly. The whole fear of lawsuit, I guess, or whatever that we were talking about earlier. But yeah, the guy just got up and left with haste at that moment. So I thought, all right, this guy is probably just some low level schmuck, right? Like he's some guy who works for a bigger firm or maybe he's an independent guy, but he's probably just a schmuck. Anyway, I sent his image off to some people in France. And when I landed, I received this cryptic email about needing the call as soon as I land. And I did, and I was told, hey, this guy's a really serious guy. Like, people don't wanna talk about him on the phone. His name is Jean-Charles Prasard, and he used to be with French intel. Very serious dude, he's won the leading counterterrorism experts in France. And the guy had a Twitter profile, and at the time, which this was a reasonable bit at the time, he had 14,000 Twitter followers. And really, you know, it's like he thought that he could get away with this, with a face to face with me, with that stupid French accent? I mean, anyway. So, that's the most egregious situation I've faced, but I've been informed at other times that, you know, I've had some global investigation firms hired to look at me. I assume they've gone through trash. Yeah, and I've had, and the stuff that's happened to me from people who've been trying to figure out what we were going to be writing on and trade ahead of that. I mean, that's been just levels and levels crazier than the presard situation or anything I've dealt with from. Oh, really? Yeah. Yeah. So, I went on Twitter yesterday with my modest following, and I said, you know, I'm interviewing Carson. I'm very excited. I thought, you know, I would reach out to Finn-Twitt and have you got any questions? And I got quite a few, but there were a couple very good questions. There were all good questions, but there's a couple that really interested me. One past last, what's the actual sweet spot market cap range for shorts? Perception is many suitable candidates are too small or too large for an act of a short seller, and does it differ by geography or by listing? Well, where's the best opportunity? I mean, obviously, there's the odd thing like wirecard, but then presumably, they've got more ways of fighting you, and therefore it can be a more extended thing. So, without giving away too many secrets, but what-- There are no secrets. I mean, I don't think anybody's going to set up in competition to your Carson, but-- There are no secrets to give away here. OK, so one thing that's been the case in the 12 going on 13 years that I've been doing this is that market caps have massively inflated. So it used to be back when in 2010 to 2013, if a guy had a stock promotion or fraud and he could make $50 million off of it, I mean, that put him at the big boys table. Nowadays, that's like, chump change, right? These numbers are so big. And one of the results of that is that behavior that previously was confined just to microcaps space has migrated upward. And you can find a number of companies that have market caps of a billion or somewhat more that are engaged in this truly egregious behavior. Now, I'd say for the vast majority of short activists, their sweet spots are sub-a billion, definitely sub-two billion. So we are muddy waters. We're among one of the few journalist investors that can swing a bat in the mid cap space in the 2 to 5 billion range. So I would say for us, our sweet spots 2 to 5 billion, give or take-- I mean, market caps are coming down, but maybe adjusted downward somewhat. But by and large, most of the people in this industry are small operators, one or two people. And so they'll focus on the truly egregious companies that are usually a billion or somewhere a few hundred million to a billion in market cap. Now, that's in the US. Europe, necessarily-- and this does include the UK still, unfortunately-- Europe necessarily is different, because you have this 50 basis point disclosure requirement, meaning once you as a short seller are short 50 or more basis points of the outstanding shares, then you must report that, and it becomes into the regulator and the regulator then makes it public. So you can't really-- I mean, at least depending on what you have for capital-- I mean, for us, we couldn't do something meaningful or capital at a billion dollar market cap, because we get to what, $5 million short before it's public. And we would prefer, generally speaking, to explain that we're short and why we're short, rather than just having a regulator disclose the fact that money waters is short. So Europe definitely is a different picture, but that's due to regulation. I think for traditional short sellers, I mean, it's all over the board. I think a lot of times it's driven by what they have in AUM. And if you're managing a multi-billion dollar pool of capital, you're going to need all other things being equal to have larger short positions. And you don't want to do the melvin capital thing, where you're short, a number of days of average volume. Yeah, no, it does. It's interesting what you say, because it's kind of like there's a perverse outcome from the regulation. So this rule was put in to try and make things more open, transparent, and it's actually preventing the truth-- you know, somebody like you and Lesting in the time to bring the China spotlight on the cheat. Let's call a speed a speed, OK? When they promulgated this regulate, well, it's really part of the law that's mislabeled the regulation, market abuse regulation. But when they enacted this, when they say they want these short sale disclosures to be public, they weren't actually trying to increase or improve transparency around short selling. They were just trying to make it more difficult to sell short. And they were giving companies an ability to discriminate against those who are short the stock by shutting them out of information flow once they're publicly disclosed. So I don't believe that for a second. And I think European market legislation and rulemaking, I think, is when you read more, there are just various provisions that conflict with one another, others that are just highly subjective. Research must be precise. What does that mean? Just a little bit of a digression. But we once got an ASTI letter from the investigation, which is a department of the AMF. And they accused us in casino of violating more, in every which way until tomorrow. And one of my favorites that I remember was as a purported violation was that we were insufficiently precise. Because at one part in the report, we were talking on the swap liability casino had. We said approximately 500 million euro, elsewhere we said approximately 495 million euro, and somewhere else we said at 458 million euro. And-- sorry, 400-- sorry, the 500 million euro, 490 million, approximately 490, then it was like $498 million euro. And so this is insufficiently personal. size, you know, could possibly be a violation of more. So, yeah, so there are a lot of, I think, unintended. I do think that the, as I said, the short sale disclosure, I do think the true intention was to decrease short selling and make it less attractive and, you know, congratulations guys. But I guess the unintended consequence of that, you know, when you're dealing with somebody who wants to amass a larger short position is that, I mean, really, like I think the way that everybody has to trade it is, you get up, you know, you trade in at whatever your normal pace, you end a given trading day at 49 spot, whatever, five basis points short. And then the next day, you throttle it because you want to get as big as possible, because you don't have to report that until 3 p.m. the day after you hit the 50 basis points, you just get as far over the line as you can the next two trading days. So, it creates this, since the, what I think the real ethos that's guiding this regulation is that companies are delicate little flowers that must be protected against the scourge of short selling, you actually subject companies, I think, to at least a couple of days of heavy short selling per short seller because of that 50 basis point disclosure threshold. Yeah, I mean, you know, any regulation is going to have some consequences around it. Another question on Twitter was, how much work goes into each swing? So, I don't know how many positions you would have, presumably, you don't have very many positions, but you're doing this sort of intensive work. I mean, typically, how long would it take you to come up with a short idea and implement it? And how much time would it take? Yeah, I mean, for us, I think the cycle time is, I mean, for us, the cycle time is all over the board and we probably are longer than most, most in our business. But if you had to pick an average, call it three months, I mean, we're out there maybe five times a year. Sometimes it's four, sometimes it's six. But we can get, we can get to a point within two or three weeks, whether we think something is a valid thesis and it's actionable. Okay, so the way I put it is, if we were running a long short fund and, you know, we're reasonably skeptical on the short side, it takes us two to three weeks to get to that level of conviction where the people in that room would agree, like, yeah, this is a short. But what we need to do is we need to communicate with, to the longs. And we need to convince the longs that the stock has to re-rate. And so, if the average cycle time is three months, basically all of that time from two to three weeks onward when we've got internally conviction to three months is us preparing what we hope is an overwhelming case that we can bring public. So it's basically, you know, so it's much harder business from that perspective than just, you know, the traditional short selling model where it's just, it's so much more time and resource intensive. Now, we do have a longer cycle time, probably than anybody in this industry. But I like to think that's because we're doing the most complex names and we're so thorough. And going back to what I said earlier about always arguing, me, you know, I always want to argue internally, I will hate every short idea that's presented. And I will hate it throughout the process. And I will go at the analysts at times pretty hard poking holes in their research. And I find it easy to do that because like I said, I enjoy, I enjoy showing other people they're wrong. But at the end of this process, if I can't do that anymore, if I'm convinced like everything I thought of, you know, where that we're going to put in this paper, it's locked down. I have no issue. Then we're good. But that's our process internally. And, you know, I, comparing us to other journalists and investors, I've often said, you know, we're not a fast boat, right? Some of them are pretty, some of them are pretty fast-nimble boats. But, you know, we're this big, slow battleship that takes forever to turn. But when we turn, we have enormous guns and we'll fire those. So that's basically my mentality/excuse for my managerial incompetence as to why we can't turn things faster. But it's obvious from the quality of your work is obvious from reading any of your stuff. But it's really amazing. When you publish something, people really are set to hear it. Where I think for, you know, a number of short sellers, there's a lot of noise and not so much action or follow-through. And sometimes I suppose, I suppose a problem is that once you've invested a lot of time and maybe the share price hasn't quite gone up as much as you'd hoped and it's borderline, but you've got that much time invested. I think a lot of people just feel that they've got to push the button. And especially if you're doing it actively, then you've got that time invested, push the button, get hit the stalk and then just cover your position. At least you've got to return on that that time. It's actually a difficult business. I mean, have you ever thought about just doing a long, only fund? I mean, you obviously could do that, right? Yeah, look, I guess this is one of, of course, our critics will assert that we're greedy and we destroy companies just to make money. And the funny thing is, my perspective is that I could have made a lot more money with a lot less drama if years ago said that we're going to do long-oriented fund or long short. I mean, God, I could have gotten into China equities easily. I mean, launched with, you know, $100 million years ago and just basically said, all right, like, you know, we're going to go long the harder to prove frauds and the guys who bullshit better and have fewer problems with their numbers and we'll short the really bad frauds. And I mean, fuck, man, we would have been over a billion in AUM, would have been well over a billion in AUM. You know, probably the guys who were, you know, in the China VC world, you know, who hate us probably would have been open to relationships, you know, because oh, it's muddy waters. They're not going to be our adversary. It could have made so much easy money. I swear. And so that's the thing that always gets under my skin when people are, you know, are critical of, you know, like, accuses of being greedy. It's like, no, we do this because we enjoy it. We believe in it. We think it does perform some sort of social good. I mean, it's not curing cancer granted. But, you know, market cancers, it's kind of trying to address those. Absolutely. I mean, there's a need for somebody to try and shine a spotlight. I mean, you know, the interesting, the auditors, I mean, there are always people that, you know, investors, innocent investors, look to to protect themselves. And it's extraordinary to me how limited their knowledge is. I mean, I've been in conversations with, you know, all the big firms over here. In fact, one of the big, one of the firms is one of my clients, you know, helping them, because they're trying to, you know, they're trying, my clients, trying to improve the quality of their process so that they don't get caught in these frauds. I mean, have you got anything to say about the auditors? Anything that we can't, we want to edit out. I mean, I have lots to say, but, you know, I think that, I mean, this is a profession that has its, has its cake and eats it too, because they invest a lot of money in these global brands. Well, the funny thing is, I guess, just from a marketing perspective, it's an interesting case study, right? Because the brand is actually big four. The brand is not deloid or capi- nobody gives a shit, right? Like, which, you know, oh, deloid so much better now. They're all, they're all the same, but it's big four. So collectively, they invest in their individual brands to create this big four brand. And they want that to have a lot of value. And so they will charge companies a premium to use their audit services versus, you know, like non-big four brands, because of the implied greater trustworthiness and assurance that that audit provides. However, what they have done is they have structured their businesses so that they have, quote, these independent member firms throughout the globe that, you know, ring fence liability. So up until the moment there's a problem, people move throughout these structures without a problem. You know, will the partner from, you know, the London is secondent here to, do buy, but whatever, people move throughout these structures, money move throughout these structures. The big four brand licenseors make lots of money on this. The global partners make lots of money from all of these individuals. members but the moment there's an audit failure they they say no no no no no no no you can't go after EY no no this is the member firm you want EY Huajun in China that talked to them and it's just it's incredible that that they get away with this and but I guess there's also look investors investors themselves I mean just have amnesia all the time and how many God how many debates have I had whether on social media or you know with journalists about a company where I'm calling it a fraud like well you know they're audited by big four and big four firm wouldn't risk its reputation what are you talking about they settle all the time they have all had major accounting scandals most of them have at least one a year and nobody cares nobody remembers you know they all I mean same thing with investment banks you know like people oh no no no you know Goldman Sachs would never have done a deal if this come why wouldn't they have because you you don't remember you all you can remember Goldman Sachs right like you you don't remember what they've messed up so yeah at the end of the day a lot of the culpability is on the investing public for our just entirely predictable to predictable amnesia collected amnesia about the the various audit failures but yeah it is to me repulsive how the industry the audit industry has been able to create this structure where the big four brand has all this value that they they ring extra dollars or pounds or what have you from yet they're able to slough off liability on these small member firms at the end of the day and not really get punished materially so listen it's been really fun talking to you I'm looking forward for us having a drink at some point I mean I don't know when I'm going to get to Austin Texas but hopefully you'll be coming to London before too long I usually ask people and I profusely apologize but I forgot to ask you in advance I usually ask people if they've got a book they would recommend to a young person thinking of entering the industry now I I'm sure you're not going to recommend any young person becomes a short seller because that would be I'm telling you I'm telling you I mean do you have any sort of favorite books that you would recommend to people yeah I actually some of my favorite books are financial crisis books or when genius fails about the failure of long-term capital management and the reason why among the financial financial crisis books my favorites are fatal risk by Roddy Boyd and Crash of the Titans which is about Merrill Lynch but all all of them are are great and the reason why I think that these are fantastic books is even though these are enormous companies you see how the the personality defects of CEO are can can just be absolutely fatal to the business and how people view their incentives and disincentives and what actions or inactions those lead to and so yeah when you when you get down to it I mean Merrill you know Crash of the Titans it was great so they brought in Stan O'Neill and he surrounded himself with loyalists because probably you know the portrait that painted of him was that he was generally insecure and he didn't want anybody challenging him or maybe making him look bad so he surround himself with loyalists they this one guy who was and I haven't read this book for years I'm not super fresh on this but this one guy who was in the you know was in the CLO business who had been promoted to it had been promoted to lead it and he'd previously just been a salesman and his responsibility also included some risk management and he was and so you know but he was able to just keep stuffing Merrill's balance sheet with these shitty loans because they were getting paid the origination or they were getting paid on these CLOs and figured like yeah you know we'll sell them out the back eventually we'll securitize them even when the market stopped just continued piling you know all this stuff into the warehouse and there was a risk manager who had been kind of senior under the under the prior CEO his name is eluding me but but O'Neill didn't want to listen to this guy and you know this guy is the one who stumbled across all of this risk in the book and it's trying to get O'Neill to care and O'Neill's like hey shut up right like these were all very personal foibles that up to a point if these foibles had not existed within these people or you know if they certain things have been addressed Merrill might not have cratered so and AIG is a whole you know separate series of pathologies there with with Hank Greenberg and brilliant guy but he ran the whole company out of his head essentially so I think these are great for people to learn so they can understand because when you see these companies with large buildings and they're global and they advertise on TV and they've signed you think of these things as indestructible fortresses and the reality is no like they they can be very very very fragile if the people running them are fucked up and so you know like once you really understand that and you see some of the ways that that various personalities in their in their pathologies and neuroses can impact companies I think you have a much better understanding of the risk that you take as an investor is interesting because it ties in very close to what we teach on the forensic accounting course of one of the things is you know who's running this and what sort of personality are they and exactly that point I'm not read that book crash of a time I'm going I'm going to go and order it as soon as we're we're finished because that that is a very typical characteristic of people that surround themselves by yes men the problem is it's quite difficult to spot from the outside which is why you do need to be on the inside but listen Carson it's been really wonderful I've really so enjoyed talking to you thank you so much for taking the time I really really appreciate it great thank you Steve I've enjoyed it as well well now you know why Carson Block is one of the world's top short sellers and why he is one of the few managers of a specialist short selling fund still standing muddy waters does a huge amount of work in identifying and exposing frauds and it's one of the more difficult analytical skill sets I thought this was a fascinating explanation of a business which is essential to the honest operational markets and if you enjoyed this you'll be pleased to hear that we have more episodes planned on the area of short selling subscribe to the podcast to make sure you don't miss them thank you for listening this podcast is aimed at serious and aspiring equity investors I hope you enjoyed it and if so please leave us a review on Apple podcasts and please check out our other great content on the website behind the balance sheet.com Did I mention the free sub stack thanks for listening and the podcast is now also available on Amazon Music