You Will Be Fooled Again: Private Equity’s Exit Scam and Wall Street’s Same Old Lies

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You will be fooled again. Yeah. The old who song won’t be fooled again. 1971. Yeah, you will. Yeah, you will. And we’ve called it. Interesting. Jason’s why Wall Street Journal just put this out. Net asset value. No, not asset value, not actual value. And I’m talking about private equity now going public. Yes. We told you this was going to happen.

For a while, these private equity companies been cruising along, cruise on, they limit the amount of money that you can withdraw. But now a lot of their investors are getting rambunctious. We want out, we want out, we were told we could get our money out. So what they’re doing is they’re going public. They’re going public. But guess what? Guess what? When they go public, gee whiz, they tank. Couple hard lessons have been learned over the past couple of weeks.

one in particular, Blue Rock Total Income and Real Estate Fund, began trading on the New York Stock Exchange as the Blue Rock Private Real Estate Fund. Uh-huh. The private equity company said it was worth $24.36 a share. Yeah, opening day, the thing closed at like 1470. I don’t know what it’s around 15 at this point in time. There was another one as well, FS Specialty Lending.

fund, net asset value, they told everybody $18.67. Yeah, I think it’s at around 13 at this point in time, and you’re going to see more and more of this happen. Basically, what a lot of these fund managers are going to do is like, okay, fine. Fine. You don’t want to sit and hold on? Well, fine, we’ll go public. And actually, one of them, one of the funds actually said, okay, we’ll go public. But all of you investors in this thing can’t sell.

for 270 days and after that happened, the vote was canceled. This is a major issue that’s facing, you wanna call the financial markets, not so much, it’s the private markets at this point in time. What I’ve been trying to do for a while is to warn individual investors that you don’t want to become the next greater fool. Wall Street and many of the things that they sell,

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It’s garbage. They sell a lot of crap. I call it demonic game of musical chairs. You basically can ladder something up for a period of time and then eventually you pass it off to the last person now as a rule as a rule this works. Okay, this is Benjamin Graham. It’s worth something has an intrinsic value. It’s worth something. It’s worth something. What is that intrinsic value? Well, you know what?

various different things, multiples you put into it, cash flow, management, what type of industry in has various different multiples. However, okay, sometimes, sometimes things trade well above what they’re actually worth, then it might be a good time to get out and then other times they trade below all of these private equity company, not all, sorry, 95 % plus.

out there have put absolutely ridiculous valuations on the companies in their portfolio. Why wouldn’t they? They tell everybody, okay, you’re into this, you’re special, you got to hold it for an extended period of time. They charge 2 % and then they charge 20 % if it goes up. Sure, sure, they will let you sell a little portion every quarter here and there. They can manage that. They can have massive outflows. However, when it goes public, everybody can sell.

And everybody that’s been holding on for an extended period of time, they want their money back. And that’s what they’re doing. So you have to be aware of these things. These things are going to be coming down the pike and there’s going to be many, many more of them. Another interesting story is actually the Arthur Levitt wrote a piece in the Wall Street Journal. And this was basically taking me back in time. This is you know, this was a DeLorean moment for us here at the Watchdog on Wall Street show.

He writes, investors rely on Wall Street’s analysts for objective independent research.

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Sure. But two decades ago, investigators revealed that some analysts had deep conflicts of interest and were misleading investors. They were collaborating with the investment banking counterparts to generate businesses, business for their banks. Again, okay.

We told everybody this. Arthur Levitt, yes, you worked at the SEC, buddy, great job. How is it that I got it before everybody else? I’m jumping up and down telling everybody what exactly what was going on. Exactly how all these stock analysts were buddy buddies with the investment bankers. The investment bankers drive revenue. You’re an analyst. nothing, were based, analysts became nothing more than a marketing department.

for the investment banking arm. And they let it slide. Arthur Levitt writes, yeah, an analyst at Solomon Smith Barney famously labeled a company a buy but called it a pig and an email to colleagues. A Merrill Lynch analyst publicly recommended buying certain shares while privately discouraging bank clients from doing the same. He also championed another company he privately called a

POS a piece of book in an email. At one point, he received a note from a colleague. We are losing people money and I don’t like it. John and Mary Smith are losing their retirement because we don’t want an investment banking client to be mad at us. Well, dude, you’ve decided to do it.

You didn’t have to. You could have walked away. You didn’t have to lie for. mean, I’m sorry. Lying to people for living that, you know, because you put on a, you know, a $5,000 suit and got a fancy timepiece and you’ve got yourself a Merrill Lynch or a Morgan Stanley business card makes that OK. It’s gross, man. Anyway, we cover this extensively into the fact that not only that. You had.

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you had executives, the higher ups at city group. There’s like a pecking order in New York City, like certain private schools that the hoity-toity want to make sure that their kids get into. And yeah, you would have the exact, yeah, you want to get your kid into this, well, know, be easy on AT &T, be easy on that analyst report, whatever you were writing at this point in time. And guess what? You too.

You too can have your kids go to the same school where Sting sends his kids. That’s how it works!

Anyway, Levitt goes on. Research analysts didn’t act as truth tellers, but as IPO co-marketers with their investment banking colleagues. Bankers could influence analysts’ guidance and the timing of their reports to boost investment banking fees. It was an outrage. Yeah, it was, And nobody did a damn thing. And then when it all came out, guess what? Nobody.

did a damn thing. This this part here is funny. right. I’m sorry. I’ll do a spec dude. Okay. Either you’re losing your memory or you’re not being honest. New York’s Attorney General Elliot Spitzer discovered the worst of these abuses and failures in the wake of investors losing billions in the dot com bubble. Prided by the investigation the SEC and 2003 required banks

to separate the research and banking operations under a far reaching settlement known as the global research analyst settlement. Bill Donaldson was the SEC chairman at the time. Remember William Donaldson? was, you he used to be in charge of DLJ. DLJ, remember all that? Anyway, he said that research analysts had become cheerleaders for banks investments. He was right.

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Dude, you guys knew the whole time for crying out loud. Elliot Spitzer sat down at there’s an Italian restaurant. I don’t even know if it’s still there anymore. It was on Sullivan Street, downtown New York, Manetta Tavern. I don’t even know if still there anymore. Okay, I really don’t. But yeah, he had a meeting there with it was kind of like a, know, the heads of the five families, all the big firms were there and Elliot Spitzer cut a deal with them. Yeah, they pointed up some cash. They’d agreed on this and they also agreed to give Elliot Spitzer

a ton of money so he could run for governor. And he did and then he got himself in trouble because he liked hookers and we like, know, going to visit hookers and he also liked prosecuting them at the same time, which kind of mean, know, kind of a dick move quite honestly, you’re putting them behind bars and you’re also doing business. Again, that’s why he fit in really well on Wall Street for crying out loud. He fit right in there. Yeah, Elliot Spitzer.

I remember the PR pieces that he used to do himself. I’m like, this guy’s such a dirtbag. used to take, he’d be down on Wall Street. He’s like, oh, I’m a sheriff on Wall Street. He’d have a baseball bat that looked like it was on fire. And he’s like, he’s taking it to the big Wall Street firms. Nobody, nobody did any jail time except one guy. One guy did. Guy by the name of Ted, Ted Seipel was a back.

office guy. I forget I think it was a Bank of America. I can’t remember exactly. And what Ted did wrong was he got bullied Ted got bullied by mutual fund companies who were calling him up after hours and they’re like placing trades after out messing around with the NAV. He got in trouble. I didn’t go to jail for a long time. But you think any of these other crooks did?

You think any of these other crooks did. And this was their solution. we are going to pinky promise. We promise that our stock analysts are not going to talk to the investment bankers anymore. Right. Sure. No, that never happens. Anyway, they wanted to make it official, I guess. I didn’t even know about this. Earlier this year, a group of banks filed motions to terminate the global

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settlement. They claim that other regulations made the 2003 rule redundant. Wall Street’s got a know Wall Street’s got a lot of redundance. It’s kind of like with you know the mafia it’s like a lot of buffers. There’s a lot of redundancies in the rules you know these redundancies do they can weaves around and it creates all sorts of gray areas and

loopholes. Now, um, when you have gray areas, and you’re dealing with the children at the SEC, the kids that work there because their kids right out of college, you’re dealing with them and you’re dealing with those attorneys compared to the high powered attorneys that really know what they’re doing at the big firms. They make mincemeat. They they love gray areas, they find the loopholes. And hey, you know what?

know what we’ll make this go you know we’ll do we’ll cut you a check that will make it go away and rinse and repeat rinse and repeat rinse and repeat anyway the SEC agreed to scrap the global settlement now need for a lower compliance friction

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Anyway, one of the settlements requirements and the investment firms, big investment firms don’t like this. Again, they call it the firewall that separates investment banking from research analysts. That’s supposed to be this Chinese wall. That’s what she’s called a Chinese wall between the two. Yes, no un-chaperone. No, gotta have a chaperone. No un-chaperone.

Business related conversations, emails, meetings, texts, or other coordination could go on between bankers and researchers at the same bank.

Do you believe that? Do you? Anyway, Arthur says it protected both sides. Outsiders wanted to keep investment bankers from compromising research analysts. Again, Arthur said many research analysts were looking to be compromised. When a bank did well, so did they. Chaperoning calls between bankers and analysts was purposely intrusive. The two parties needed a babysitter for their conversations because left to their own devices,

they would happily collude to boost their bank’s revenue. Again, what does this teach you right here? What does this teach you? He’s basically saying that again, all of these people working at the firm, all they care about is their firm and their bonuses. Basically, they have all had ethical bypasses at birth. These are the big firms. So with that being said, why in God’s creation would you ever have an account at one of these firms? Why?

my guy’s really nice. He takes me out to dinner and we get to go golfing. And they send me these little things to put on top of my golf clubs and they’re really nice. Are you a schmuck? You’re a number. Period. The end. always had been for crying out loud. Anyway, neither here nor there. Levitt goes on. The global settlement wasn’t perfect, but it restored the possibility of objectivity and independence to Wall Street research. It forced investment banks to

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Rebuild a culture where research analysts told the truth about the companies they cover. Right. Sure they do. Sure. Let me put it this way. Okay. Get rid of the global sentiment. Keep it doesn’t make any difference. They’re gonna do whatever the hell they want. Okay. They’re omnipotent. Do understand? Omnipotent.

They don’t even, Superman has got big power, strength, Kryptonite bothers him. They don’t even have Kryptonite. Nothing. Nothing. Hey, hey, you know, they get off the beat track a little bit. you know, we’re Wells Fargo. We’re making up fake accounts and open up accounts and charging people fees. Okay, we’ll write a check and make it go away. It’s nothing that’s gonna change. Nothing is going to change. The only way.

The only way that this, you know, it’d be the greatest thing for this economy right now, okay? You wanna break something up, and I’ve been calling for this since they decided to get rid of Glass-Steagall, okay? Break up the big banks. You wanna be a commercial bank? God bless you, you’d be a commercial bank. You want to be, hey, an investment bank? You can be an investment bank. You wanna manage individuals’ money? That’s fantastic. That’s a business in of itself.

The buy side shouldn’t be hanging out with the sell side. They need to be separated. Period. The end. It’s supposed to be a profession. Profession. You put your client’s interests above your own. They don’t do that. They haven’t done. The only big, big firm out there, the last big firm out there that used to do it. This was Goldman Sachs. And they only dealt with the super wealthy. And then they went from a private partnership

to going public and straight downhill from there. That’s the reality kids, okay? That’s what you’re dealing with. You you wanna be fooled again? Be fooled again. What they’re gonna be doing right now, one of the reasons why they wanna get rid of this global settlement quite frankly, is they need their research analysts writing happy, happy, joy, fluffy, fluffy, fluff pieces on what? Private equity and alternative investments.

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They have to package it to sell it to you so they can get their big clients out. So it works, guys. You understand? It’s how it works. Again, do your homework. Do your homework. Go back and read. I covered all this stuff back there in the dot com run up post dot com, Elliott Spitzer, all of these things. Nothing really changes. They changed the game a little bit, but guess what?

You’re just a number and they don’t give a damn about you. Watchdog on wallstreet.com.