

The best unknown activist investment of 2009 - jakarta
http://greenbackd.com/2009/10/09/the-best-unknown-activist-investment-of-2009/

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ericwaller
_What about the liability?...He contained the liability to his investment
vehicle, Australian Style Investments. The A$4.5M was paid to an another
entity of Bolton’s, Australian Style Holdings, to quarantine it from the $120M
liability in Australian Style Investments._

I thought it was a great story until here. This just seems totally unethical.
Am I missing something?

Certainly I can't just evade the liability of a risky short sale (for example)
by making the trade through a shell corporation?

~~~
netsp
You're right. Something is off here. That seems like moving all the cash from
one company to another and letting the first go bankrupt without the latter
assuming liability.

What stops this happening more often?

~~~
hristov
Corporate law.

~~~
netsp
Care to be more specific? What happens normally that failed to happen here &
why.

~~~
hristov
The law is different from country to country, and I am not sure about the law
or the facts of the case here. But the person that controls a corporation
usually has a fiduciary duty to the corporation and usually cannot merely give
away the assets of the corporation.

Here the corporation had an asset (voting rights) that got sold, but the
proceeds of the sale did not come back to the original corporation selling the
asset but went to a completely different corporation. Depending on how this
was done this may be improper.

What usually happens in this case is that someone that is a creditor of the
corporation sues to get the money back. However, here the creditor did not sue
because it seems like they were able to get their money from another source as
explained in the other posts in this discussion.

BTW none of this is legal advice :).

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gstar
Now -THAT- is a hack. Bravo.

As for this quote:

 _He’s just ruined his corporate life forever._

I'd say he's just cemented himself as an incredible strategist that will be
fairly in demand!

~~~
tspiteri
He made millions, but he didn't generate any wealth, he just worked the
system. _I_ won't say Bravo.

~~~
gstar
That's why I called it a hack. Fundamentally, it's not much different to
gambling with an advantage - there were certainly a lot of opportunities for
him to lose.

I don't think this called for a suspension of ethics, rather more of a
disregard for the establishment.

Look, legally exploiting a flawed system to produce a net benefit for oneself
isn't fundamentally evil. In fact, in this situation it seems (fortunately)
that his actions eventually bailed out a whole lot of small-time investors.

~~~
idiopathic
What about using the other investors to blackmail management and then selling
out these investors when management paid him off? When someone is this smart,
the responsibility to be good is even more pressing and the condemnation for
being bad should be more loud. And yes, I am judging.

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hernan7
When I was 27 I would have found offensive to be called "a 27-year-old". Which
age range do you need to belong to to be taken seriously?

Because if he had been 67, he would also be referred to with a dismissive "a
67-year-old".

~~~
lsb
He had, what, 10 man-years of experience at this sort of thing, at most? His
opposition had what sounds like a man-millenium of experience, and he made
A$5M off of them.

~~~
jey
The "skill is proportional to experience" idea always puzzles me, especially
in fields like finance and software where differences in productivity are
measured in orders of magnitude. The most effective investors and programmers
easily have 100x greater maximum productivity than the median.

~~~
ryanwaggoner
_The most effective investors and programmers easily have 100x greater
productivity than the median._

I have a hard time believing that for programmers. 10x maybe, not 100x. If
this were true, they should be making tremendously more than median
programmers. When was the last time you heard about a software engineer
employee making over $1m, let alone $10m?

~~~
jey
_> software engineer employee making over $1m_

Employers don't have any incentive to pay an especially effective programmer
at whatever his "market rate" actually is. They just need to pay enough to
fill their position with someone skilled, and there's plenty of programmers
who'll take the near-guarantee of $MaxSalary/yr and live happily. ("After
you've got enough to settle down and buy hardware whenever you need it, what
else do you need?") If you want to realize your full "fair market value"
(which is just a convenient theoretical fiction anyway), you need to take
matters into your own hands.

I also don't think there's a consistent 100x variation in overall
productivity/output, but maybe something more like _maximum_ productivity (and
edited the grandparent post). If you have a super-productive employee it's
going to be hard to "fully saturate the pipeline" since any one single project
isn't going to constantly require that level of work, and you can't just have
him hop project to project within the company since there's a learning curve
each time.

I originally picked up the "programmer productivity varies a lot" meme from
one of PG's essays, but have since seen it in industry:
<http://paulgraham.com/gh.html>

~~~
netsp
If the value a select few brought to a company was > $10m, and this was widely
known, they would bid up the price. Of course employers don't have an
incentive to pay above market rate, that's almost a tautology. That is what
market rate means. However, if there was so much value to be had, market rate
would rise.

~~~
jey
You seem to have misunderstood what I was talking about. I didn't contravene
you at all.

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tici_88
And the Australian securities authorities need to do some serious soul
searching as to why a guy with a mere $47,000 in his pocket was allowed to
purchase securities that leave him with a A$94mln liability - without even
having the money at hand.

>"The reasons for creating such a security are beyond the scope of this post,
but suffice it to say that stapled securities offer certain tax benefits."

And are those "stapled units" another byzantine financial product designed to
work around an even more byzantine tax system? I am curious if such financial
products would even make sense in a fair, flat tax system.

~~~
danprager
I put it down to a limitation of the Aussie (and other) stock exchanges. The
shares had dropped to $0.01, when their true value was negative, given the
stapled obligations that they carried. Bolton should have been paid to take on
the debt in the first place.

A whole lot of other people apparently made the same transaction unwittingly,
without reading the fine print, as it were. The sellers of the $0.01 shares
were paid a peppercorn and washed their hands of the debt.

I reckon this is a problem for the regulators. Once the shares dropped below
the value of the remaining obligations (give or take) a fairer price would be
negative. Alternatively, trading should be suspended because there's a fair
argument that the company is insolvent at that point.

Instead, this fact was hidden behind a little "complexity" and inadequate
rules.

Bolton just took advantage of a broken situation.

~~~
greendestiny
The stock exchange can take plenty of actions against a stock and from a lay
perspective it sounds like they should have.

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jakarta
A good background article on him:
<http://thebigchair.com.au/news/insight/nick-bolton>

"Bolton studied economics and mechanical engineering at Melbourne University.
"I don't think I completed one unit in engineering, but I did well at
economics," he says. At the same time, Bolton made money from an investment in
Melbourne IT, which had a monopoly on internet and website domain names in
Australia. With deregulation of that market looming, Bolton saw an
opportunity.

"I started Bottle Domains at the age of 19 and became a competitor to
Melbourne IT." He timed his investment well. By the following year, Bottle was
an established player, and Bolton dropped out of uni to run his new business
from his St Kilda flat.

He claims to have made his first million before his 21st birthday, but "it's
never been about the money," says Bolton. "I live reasonably conservatively;
even my clothes are not overtly expensive. I might be wearing a $1000 jacket,
but with a $20 pair of shoes. I'm not driven by price in terms of what I
acquire." "

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boredguy8
Can someone clarify? He bought 19.9% of the voting shares, called for a
meeting to dissolve the trust (what is the trust? Is the trust the same thing
as BrisConnections?), then sold his shares to someone who wanted to ensure
that BrisConnections continued to exist?

Tricky and smart, but what is the value that BrisConnections holds and to
which other people want access? Is it just the two upcoming installments that
investors owe?

~~~
jakarta
BrisConnections was developing a toll road, but the actual tollroad
development assets were held in the trust for tax reasons.

If the trust were to be dissolved as the development was in process, it would
have killed the project. That's why his particular stake had so much value
because it would help stave off the dissolution.

Investors would owe the 2 upcoming installments. So he was going to owe $48M
and another $48M for the next two installments. That's one of the incentives
they too would have had for dissolving the project since the ones who picked
up shares at $0.001 would also owe that money.

~~~
boredguy8
Much thanks, that really clarifies the situation, but it also inspires further
questions.

So people purchasing shares were theoretically providing the investment funds
to complete the toll road, and as a result of that risk, would have access to
the profits of the toll road in proportion to their investment, correct?

So BrisConnections doesn't want to see the fund dissolved because it loses all
the capital represented by the $.001 investors by virtue of still owing $2,
and Thiess John Holland wanted to maintain the entity that owed them a
contract for building part of the road?

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cromulent
He's not so good with keeping my credit card details though:

[http://www.theage.com.au/business/bolton-loses-his-bottle-
ov...](http://www.theage.com.au/business/bolton-loses-his-bottle-over-hacked-
client-details-20090415-a736.html)

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Ras_
Gordon Gekko approves.

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pyre
I don't get the 'ultimate posterboy for the much-maligned Generation Y'
comment... A financial sharks a new thing? Or are these people just sheltered
by rose-colored glasses that they use to read their history books?

If he was a Baby Boomer, would we see comments like "ultimate posterboy for
the much-maligned Baby Boomer generation?" I really wish people with their
'get off my lawn' comments would crawl back under their rocks.

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sireat
He doesn't sound like a likeable guy, but that is besides the point.

His actions did demonstrate the pitfalls of "stapled units" to Australia.
Shame should be on the people who created this instrument. Any time you have a
security created to manipulate tax code, it is ripe for abuse.

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mkramlich
He sounds to me like a predatory, sociopathic parasite. Perfect for Wall
Street! :)

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shimi
That bloke showed those toll thieves how to do business.

These guys are doing a lot of monkey business and some times it blows in your
face, get over it!!!!

