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The Giant, Under Attack (nytimes.com)
148 points by QAPereo 11 months ago | hide | past | web | favorite | 34 comments



> Following Mr. Hill’s advice, Mr. Drose flew to California in the spring of 2015. He may have been working for a major hedge fund, but he was so young — still only 20 — that he had to pay extra to rent a car....Mr. Hill thought the college kid was an investigative reporter. So he was thrilled to have someone to listen to his concerns about the treatment business.

Until I moved to New York, I had no idea what hedge fund people generally did, or how much of their work and skillset was similar to what investigative journalists did, especially when it came to looking at public records and lawsuits. Indeed, the litany of alleged mishaps and deaths that short-sellers found while investigating American Addiction Centers -- including the man in the lead anecdote -- could easily be the core of an investigative project. e.g. what's described under the subhed, "Open Beds and 'Closing a Sale'"

> Mr. Drose returned to Kingsford’s offices in Atlanta, took over a glass-enclosed conference room, and made piles of documents related to each death. None of the deaths had been disclosed to investors when the stock of American Addiction Centers began trading publicly.

> The dead included Shaun Reyna, an alcoholic, who killed himself with a shaving razor in one of the company’s treatment houses. Mr. Reyna’s widow said in a 2014 lawsuit that the staff had ignored signs that her husband was suffering withdrawal symptoms that required urgent medical care. The case is expected to go to trial early in 2018.

> There was also Gregory Thomas, who hanged himself from a bridge one block from the company’s main office in Temecula in November 2010. He had been brought to the office by a company employee, but never went through with the treatment...*

> But the circumstances of Mr. Benefield’s death, as detailed in a lawsuit his wife brought in 2011, stood out.


Also worth noting that this was somewhat of a plot point in The Big Short:

* A GS employee scoffs at Christian Bale's character (Burry) for saying that he actually investigated the mortgages that comprised a few CDOs

* Steve Carrell's team goes down to Miami to meet realtors and mortgage buyers


That was one of the best scenes in the movie IMHO. Personally, I also had no idea that level of investigation took place. This strikes me as similar to how energy trading firms will pay for thermal imaging data of power lines and such to gain an edge, or how other companies look at satellite imagery of parking lots to predict retail performance.


Which makes sense - when you're dealing with that much money, (and working in an environment where lying and sweeping things under the rug are viewed as valuable skills) it's irresponsible NOT to go and see what's going on with your own eyes, or to employ some third party to do so for you.


That was one of the best scenes in the movie IMHO. Personally, I also had no idea that level of investigation took place. This strikes me as similar to how energy trading firms will pay for thermal imaging data of power lines and such to gain an edge.


> [Chris Drose] wrote an article about his findings on a website called Seeking Alpha, which short sellers frequent for investment tips. The company’s stock promptly dropped 10 percent.

Drose is a professional short-seller. Assuming he was already shorting AAC, it looks like he turned a substantial profit not on the company's weakness but on his ability to publicize it among traders.

"Short and distort" is securities fraud, the mirror practice of "pump and dump". There's no particular sign that Drose distorted the situation, but I'm curious where the lines are.

Does anyone know whether misinformation is required for this practice to rise to fraud? I assume totally-factual statements about a company would be safe, but I can imagine a lot of grey areas around opinion or hypothetical statements. If a political writer shorts a company, then starts loudly calling for it to be regulated or investigated, is that fraud? How about if a politician does so, without introducing a law?


The 'pump' side of 'pump and dump' doesn't have to be misinformation, does it? Can't it just be a barrage of PR puff pieces?

I'd expect the same here. The information doesn't have to be false for it to be a hit piece designed to profit the stock-shorting author.


> The 'pump' side of 'pump and dump' doesn't have to be misinformation, does it?

Usually, it's disinformation, not misinformation, but it is possible or it to be lies of misdirection and omission rather than direct falsehoods, which may or may not literally constitute disinformation.

> The information doesn't have to be false for it to be a hit piece designed to profit the stock-shorting author.

Certainly, if you short based on not-yet-widely known true information, you want to ensure that the market discovers that information between the time that you get into the short position and the time you have to cover the short.

OTOH, trying to get the market to recognize and react to true information isn't really a “hit piece”.


The common law definition of fraud is an act of deliberate deception for the purposes of personal gain. Both elements must be true for an act to constitute fraud. If you say "I'm shorting x stock because of y" and you reasonably believe y to be true, then you're almost certainly acting lawfully. If you don't hold a position, you can say what you like about a company without the risk of committing fraud, because you don't stand to gain from your actions (although you may be guilty of libel). If you make public statements about a company and fail to disclose a financial interest, there's an inherent element of deception, regardless of the truthfulness of your statements.


Probably not fraud, if the accusations are true. This sounds similar to what Bill Ackman did when his fund shorted Herbalife - he started a campaign suggesting Herbalife was illegal and demanding an investigation on the company supposedly illegal practices. [1]

1 https://www.institutionalinvestor.com/article/b1505px65dmmnr...


How is this not illegal?


It's not illegal if it's information that isn't libelous, because revealing true illegal conduct and taking legal action to stop it is considered desirable, and regulation that discourages that by removing a strong incentive is considered actively harmful.

If the information is libelous, well, then it is illegal.


It's not libel if it's true, but securities fraud laws go far beyond "don't lie".

At least in the presence of a fiduciary relationship, offering true information can still be legally risky if it's done for the benefit of the broker instead of their client. Drose and Ackman are considerably safer because they're just making public statements, but there are quite a lot of ways to break the law around trading outside of actual libel.


Shorting stocks is already dangerous enough. You’re potential losses are infinite, your profits are fixed. Obviously you can use options to mitigate risk and juice returns, but then you have to be correct on timing as well as the companies valuation.

The only time I ever shorted, was because I correctly determined Krispy Kreme’s financials didn’t add up. I lost a ton of money because most of my options expired before how misleading their financials were became clear to the market, and the stock collapsed.

The bias in the public stock market is to pump stocks. Everyone (from investment bankers to brokers to media) is incented to give out rosy forecasts and valuations for companies. CNBC has always been a pumpers paradise.

Proportionately their is very few people who short stocks and with comparatively tiny amounts of money. They have a very tough job, but it’s an important one. They literally save people from being defrauded.

It’s really important that their free speech rights not be limited or stifled. Many times they have to fight bogus libel suits from the companies, like critics did in this story. It’s to easy for companies to sue to stifle legit criticisms already.


In case the comment below is unclear-because you make sure everything you say is TRUE


That's a pretty murky grey area, though. I remember the articles about aspects of loot boxes making them like gambling, and how that could make them illegal.

It's really difficult to say that's not true, and by throwing the weasel-word "could" into the sentence you do a lot to protect yourself from consequences.


welcome to America. This is why newspapers have legal departments. Personally, I'd rather have to worry about #fakenews and PR and spin rather than have to live in a where journalists fear prosecution from the rich and powerful for errors in their stories...like in the UK. The grey area is an intentional part of american jurisprudence, designed to protect the press and hopefully safeguard democracy. By making a wide grey area we put the burden of proof on the plaintiff.

Also...I am looking very askance at your characterization of 'could' as a weasel word. There are a lot of shades of grey in the world and we need degrees of certainty like could to help communicate that doubt. I think there is a large gap between troubling uses of the word 'could' and the example you gave me...which seems honestly quite innocuous.

What is your point with this comment? To suggest that people can use words to communicate doubt without having a factual basis for those claims and protect themselves from legal retaliation party by an injured party?

To support this conjecture you give me an example which is CLEARLY true. Loot boxes are 100% like gambling. You give money to receive a probabilistic reward with addictive properties. Designers intentionally seek out whales who will drop money on buying many boxes chasing the irregular high.

It seems eminently reasonably that this could make them illegal in places where gambling is closely regulated...using could here seems 100% necessary to communicate that legal experts probably disagree about whether or not loot boxes and their ilk fall under these older statutes.


The argument for not making that kind of stuff illegal is it exposes the scammers pushing overpriced stocks to the public and so protects the investing public.


This is usually the kind of story that gets me all riled up, top-down corporate pressure puts bottom-rung workers between a rock and a hard place where they make the wrong decision. That decision cost a life and then everyone blames the workers at the bottom and never changes the companies practice. Then you add in it's taking advantage of our screwed up health system to overcharge insurance and it's preying on the weak, this is my stuff.

However most of those deaths were suicides and there's only one that wasn't. It's tragic but if in the total life of this company they've only had one accident like this and it's not re-occurred and they cleared up any discrepancy with their workers about what sort of existing medical conditions they can handle then I have a harder time engaging my righteousness.


Suicides, yes, but Reyna's at least seems like a special case - even compared to other inpatient systems. Acute alcohol withdrawal is horrible, and can even be directly fatal.

If an addiction treatment facility overlooked that or declined to provide urgent care, I'd impute a significant role to them even in a patient suicide. It's like hearing that someone committed suicide after a hospital ignored their need for pain relief - they may not be responsible for the death, but they're responsible for neglecting a serious need of someone in their care.


The analyses about drug testing reimbursement alluded to earlier in the article is interesting; here's a source that alludes to the original Drose Seeking Alpha analysis, but purports to improve it:

https://www.valueinvestorsclub.com/idea/American_Addiction_C...

The nut of it is: treatment centers make more top-line dollars from treatment than testing, but the margins on testing (which takes just minutes to do and scales much better than delivering treatment) are so much better that the bottom line is dominated by testing revenue.

This creates an incentive to test more than is necessary; it's essentially a vector for insurance fraud.

The original argument against AAC was that insurers would crack down on fraudulent testing and put AAC out of business.


AAC owns its testing facilities, so their margins are much better.

I have quite a bit of knowledge, having worked in this industry for a few years for one of the largest providers. The industry is a weird mix of small do-gooders and people at the top who purport to do good, but their actions belie that.

Addiction treatment is insanely expensive and incredibly unsuccessful. (Part of that is insurers will generally pay for a much shorter length of stay than is shown to be successful).

It's a dirty industry, run by people who tell themselves they're good people but in reality are incredibly exploitative of a very vulnerable population. At the same time, most of my colleagues are/were decent people.

It's amazing how something bad can grow from good intentions.


Every angle of this story is unpleasant - deaths in/related to rehab, hedge fund managers trying to promote murder charges against employees, attacking a business in order to drive profit.


> On Facebook, years after he died, Ms. Benefield wrote, “I miss him so much.”

At least it ends on a honest and very human touch. Sad that health should be treated as a business.


America is convulsed by an addiction crisis — painkillers, heroin, alcoholism, meth — and its victims die with tragic regularity. But Mr. Benefield’s case is extraordinary.

This made me think of all the jokes people made about USSR Russians drinking themselves silly because of bad times.

Is the USA like that too these days for many people?


From wikipedia:

>"Alcohol consumption and alcoholism are major problems in Russia. It is estimated that Russians drink 15 litres (26 pints) of pure alcohol each year. This number is nearly 3 times as much as it was in 1990.[13] In Moscow on September 24 of 2009, Russia's interior minister Rashid Nurgaliyev cited the average intake at an estimated 18 liters a year; "In Russia, each person, including babies, accounts for about 18 liters of spirits per year. In the opinion of WHO experts, consumption of more than 8 liters per year poses a real threat to the health of the nation. Russia has long exceeded this level".[14] It has even been reported that excessive alcohol consumption is to blame for nearly half of all premature deaths in Russia.[15]

A recent study blamed alcohol for more than half the deaths (52%) among Russians aged 15 to 54 from 1990 to 2001.[16] For the same demographic, this compares to 4% of deaths for the rest of the world.[17]"

For the US in 2016, it looks like alcohol and drug related deaths were close to the 4% cited above, 3.56%.[2]

[1]https://en.wikipedia.org/wiki/Health_in_Russia#Common_causes... [2]http://www.drugwarfacts.org/chapter/causes_of_death


Near as I can tell, every country is like that for some people. I have friends that are alcoholics, they will drink themselves to death no matter what their circumstances are like. One nearly died from not having a drink for a couple days (lucky him, his mother and sister-in-law were both nurses).

I also have friends that are depressives, they feel everything is horrible not matter what. As soon as Trump was elected one was having trouble leaving his house because he was afraid one of his neighbors might be a Trump supporter -- ergo a closet "I HATE ALL THE THINGS" person.


There are substance abuse problems in all countries, yes. it does not follow from this that the country doesn't matter. Social norms, access to treatment, poverty/inequality, perceived hope about the future, etc are all functions of particular policies as well.

See Portugal's response to a major opioid crisis versus the US response and which one had better healthcare outcomes, etc. See the links between chronic joblessness and substance abuse, etc.


You can find the rest of the articles by Chris Drose on Seeking Alpha here[0]

[0] https://seekingalpha.com/author/bleecker-street-research/art...


No one likes a story where the protagonist dies at the beginning and plot resolution centers on which of the antagonists profit more over his death.


I'm bookmarking this article, for the next time I see someone say that financial speculation has no social value. When smart people have the opportunity to make big bets against a company, we all stand to benefit.


This is a good article, but i always feel like i’m being taken for a ride by a potentially biased author when they open with the main crime that they don’t resolve till the end. This is written like muckraking, not journalism.


Why don't you say Attack On The Titan?


There might be a trademark issue with using that phrase.




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