Thread by @KeyserSozeBro1

So I looked this up b/c I’m a glutton for all things offshore dodgy…sometimes I can learn something from it. Not this time.

This ⬇️ is technically incorrect. VR used a shell corp structure popularized in the early 1990s by the first Reg D investors in Ireland via offshore HFs.

https://twitter.com/mattgertz/status/1694735109327401362

VR wasn’t an entrepreneur, he’s not a founder of a single entity outside of the shell corp.

He *rolled down* distressed companies into the shell corp via reverse merger structures, then funded same via preferred equity or convertible bond private placements under Regulation D.

These colloquially became known as *death spiral converts* b/c structures precluded cash make whole provisos & had *lookback options* which allowed the investors to cherry pick hyper-dilutive exits on any tiny bounce in stocks of desperately weak companies.

Really sleazy shit.

But this isn’t what VR did via his venture capital funds, which weren’t VC funds at all.

Here’s how it worked: he set up & headquartered an entity in Bermuda to house *rolled down* companies; a shell corp. This expressed as an Ltd. offshore fund of a master feeder HF.

VR was GP

Acronym key:

Master feeder = a hedge fund w/ an onshore fund (usually an LP) + an offshore fund (an Ltd. registered offshore).

Pro tip for due dili rookies: if you see a Bermuda Ltd. inside the structure, do more work than you’d normally do to confirm a CIMA (Cayman) fund…

This does not impute that Bermuda funds are sketchy (they’re not), but do appreciate that terra firma is very different.

Inside of a Bermuda fund are always some combo of incredibly complex tax, leverage (via reinsurance swaps, forwards or other derivatives) & legal thorns.

What VR did was very simple:

Roll down distressed life sciences company that is, as one life sciences due dili pro once told me, is a molecule in search of a disease to cure.

There’s lots & lots of biotech cos that failed a Phase IV trial as a new drug.

Enter the 🐍 oil guys…

Suppose XYZ Inc. drained it’s last venture capital dollar to go through clinical trials to cure Alzheimer’s & failed. All it has left is a patent for a molecular structure, the IP.

The 🐍 oil 2 step that happens next is easy in this row of steps:

1. Inside of Shell Corp is another mostly insolvent biotech firm, but one that is a publicly traded co w/ a stock ticker. Let’s call it ZZZ

2. ZZZ issues shares via a Reg D private placement to “acquire” XYZ. This is one mechanic of a reverse merger, which isn’t really a merger.

In summary: at this phase an offshore HF, of which the GP (General Partner) owns/controls, has a Shell Corp which owns/controls ZZZ which bought the equity interests of XYZ via a Reg D private placement.

Here’s the juice: the Reg D investor is the same hedge fund.

So, in essence, w/ the $ from the Ltd. investors into a HF, the GP (Ramaswamy) now has 20% of *the ups* or future profits in the new ZZZ, which acquired XYZ.

This ends Phase 1.

Up next is the manufacturing of a liquidity event, an exit: the vaunted pump & dump.

Now comes the tricky part: b/f the pump & dump the securities issued by ZZZ to acquire XYZ need to pass through an SEC registration statement process for those shares to be fungible so they can be sold into the market by the Reg D investors who hold the ZZZ shares/warrants.

The 1 risk:

SEC registry of 144a shares usually takes 3-4 mos. So ZZZ needs to remain EDGAR eligible & remain a publicly traded co.

Assuming that happens, the hype campaign begins.

[Cough] People are saying the earlier failed XYZ molecule might cure erectile dysfunction.

ZZZ pumps, Ramaswamy’s fund dumps & he as general partner gets 20% of the ups.

Rinse. Repeat.

This’s shockingly easy to do. Many did it in the 1990s-2000s…still happens now.

Why biotech cos? BECAUSE MOST PROFESSIONAL INVESTORS DON’T UNDERSTAND THEM.

It’s all PT Barnum stuff.