Softbank restructuring fraud is a destructive–but real–twist on business restructuring models. Most corporate restructuring occurs through new opportunities and effective marketplace execution–and sometimes through a Chapter 11 bankruptcy filing. But Softbank, the well-known “software company,” “venture capital fund,” hedge fund, keeps finding new ways to restructure its business through fraudulent market manipulation. These practices have had a profoundly adverse effect on the global economy in the past year.
Softbank restructuring fraud caused the first domino to tip over the so-called “unicorn” private equity market in 2019, through deceptive practices by its flagship portfolio company, WeWork. WeWork, the largest commercial tenant in the world, was the initial trigger for now-ubiquitous commercial real estate loan defaults.
Softbank’s restructuring fraud in the commercial real estate bond market, through WeWork, also provided the lead domino for the repo market crash that started in Sept. 16, 2019 and came to a head in March, 2020. In connection with WeWork’s threatened bankruptcy, Softbank reported a $25 billion Q1 loss, losing market credibility in the process.
It then became apparent for all to see exactly how Softbank had built WeWork and so many other “unicorns”: using borrowed money, it funded multiple investment rounds at increasingly-higher valuations that lent the appearance of expected profits; but were actually used to manipulate other investors into thinking WeWork was a good idea: If Softbank kept putting money in at higher valuations, WeWork must be a good investment, right? But WeWork was all smoke and mirrors designed to artificially boost the perceived share value of Softbank–to help close its elusive “Vision Fund 2” (which remains unfunded).
Options Fraud–THE “NASDAQ WHALE”
With its venture capital “unicorn” scheme exposed, Softbank then reinvented itself as a hedge fund (without announcing that fact) and took enormous option call positions in the NASDAQ-leading FAANG stocks: Facebook, Apple, Amazon, Netflicks and Google.
This scheme was to purchase such high volumes of option calls that market makers needed to purchase corresponding volumes of the underlying shares in the FAANG companies just to hedge against potential option calls that might occur in the future. This latest Softbank restructuring fraud had the effect of creating an enormous NASDAQ valuation explosion–led almost entirely by Apple.
And of course, in addition to its anonymous call options, Softbank also held massive positions in the underlying stocks of the companies corresponding to its call options. So as the call options drove the market value of the underlying stocks higher, Softbank’s holdings in the underlying stocks–particularly Apple–showed huge booked profits. Softbank showed investment profitis in Apple et al. of over $4 billion in just a few weeks.
But when reporters and Financial Times and Wall Street Journal discovered that Apple stock increases were driven by a single large options investor, dubbed the “NASDAQ Whale,” the reporters immediately set out to identify the anonymous “NASDAQ Whale.” Sure enough–it was Softbank. The company that started as a software vendor, then moved to venture capital–emerged a week ago restructured as a hedge fund.
But as with all fraudulent schemes, once the Softbank restructuring fraud was exposed, NASDAQ took a nosebleed dive by over 30%, which is the state of the market as of today’s writing on Sept. 9, 2020.
So in about one year, Softbank has been the lead domino to trigger the CRE crash, the repo market crash and now the NASDAQ market crash. That string of fraud is truly breathtaking.
We are in unprecedented times, where fraud has now become a restructuring strategy–at least for companies like Softbank. (It should not be forgotten that Japanese pension funds are the largest investors in Softbank–with millions of pension holdings hanging in the balance.)
How will Softbank next reinvent itself to create yet another restructuring scheme?
Bets are on the speculative derivatives market–the only market left that can be margined to excessively high levels in short periods of time–Softbank’s specialty. The speculative derivatives market has teetered on the edge of disaster since 2008–and increasingly so since Sept. 16, 2019. If it goes over the edge, it is only fitting that Softbank should be its catalyst.