Kyle Bass: The frantic investments of a desperate gambler

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Kyle Bass

Another month, another new low for Kyle Bass, the favorite hedge-funder of Argentine autocrats.

First, a quick recap. Bass, who founded his Dallas-based fund, Hayman Capital Management, in 2006, made his fortune – and international headlines – by correctly predicting the 2008 subprime mortgage crisis. For a while there, he was a superstar. He was M. Night Shayamalan in 2001, coming out of nowhere to get nominated for both his script and direction of The Sixth Sense. Observers jumped to the conclusion that Bass was some kind of genius who could do no wrong.

But time went on.

And time has not been kind to Kyle Bass.

The magic touch – if he ever had it – is long gone. Just as Shayamalan has made bad movie after bad movie, Bass has made bad call after bad call.

And he’s done it in full view of the market-following public. The guy seems never to turn down an invitation to go on TV and pontificate – proffering so-called “analysis” that invariably serves his own bottom line.

bassstrategyIn addition to making bad calls, he’s made unsavory alliances. While pretty much everyone else in the business thinks that the economically illiterate Argentinian despot Cristina Fernández de Kirchner is the worst thing that ever happened to her country’s economy, Bass can’t stop singing the woman’s praises. Last year, her country defaulted on its sovereign debt for the second time in thirteen years an action at once indefensible and irrational. But, as we’ve seen, Bass defended it and rationalized it anyway, sounding so outrageously out of touch with reality that, as the New York Post put it, he sounded more like Argentina’s leftist economy minister Axel Kicillof than a U.S. hedge-fund manager.

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Cristina Fernández de Kirchner

If Bass came off like one of the hyper-socialist Kirchner’s lackeys and minions, that should be no surprise – because he is one of her lackeys and minions. The BBC has said he has a good relationship with her. That’s putting it mildly: Bass has consistently championed her preposterously irresponsible economic policies and has delicately ignored the cartoonish degree to which she and her breathtakingly amoral cronies have ripped off their own people.

And he’s gone even further than that: when New York Judge Thomas Griesa ruled that Argentina couldn’t just shell out to creditors who’d agreed to settle for reduced amounts, but also had to pay creditors – including Paul Singer of Elliott Management – who insisted on full payment, Bass took Kirchner’s side, calling Singer & co. immoralfor, as he put it, holding poor countries as hostagesand holding up 42 million people from progress.As we’ve said before, whats really holding up progress in Argentina are Kirchner and her staggeringly incompetent and corrupt flunkies, whose economic illiteracy and limitless avarice have sent poverty levels sky high in a once affluent nation.

The question is: why? Why is Bass such a Buenos Aires bootlicker? Why is his nose a bright salmon pink from rubbing it up against the walls of the Casa Rosada? What kinds of secret, unscrupulous deals does he have – or want to have – with the you-scratch-my-back-I’ll-scratch-yours Kirchner dynasty?

kyle_gmBass’s shady ties with Kirchner and her crew aren’t his only ethical lapse since his fifteen minutes of glory. This is, for example, the guy who, in order to make good on his investment in General Motors, went on TV to try to shift the blame for fatalities caused by non-deploying airbags and faulty power steering in GM cars – problems that the auto giant knew about and failed to act on – onto the dead victims themselves, charging (disgustingly) that they’d either been drunk or failed to wear seatbelts.

Then there’s his business ties to the late Chris (American Sniper) Kyle, whose widow, Taya, is now embroiled in a messy lawsuit with one of Bass’s subordinates at Hayman, whom she’s accused of all kinds of unethical behavior. (Imagine!)

And this is also, note well, the guy who, as we’ve reported, came up a year or so ago with a ploy so vile that both houses of Congress are now working overtime – on a bipartisan basis – to close up the loophole that makes it possible.

bassprofitThe scheme is as simple as it is loathsome: Bass – in collusion with one Erich Spangenberg, known as “the world’s most notorious patent troll” – picks out certain pharmaceutical firms, short-sells their stocks, then challenges one or more of their patents via a front organization, the Coalition for Affordable Drugs, that he set up precisely for this purpose. The inevitable result: the stocks go down, Bass rakes in a few million quick simoleons, and the pharma companies’ prices go up while their motive to fund medical research goes down – thus causing palpable harm to the millions of people who depend on those firms’ products to ameliorate their suffering, relieve their symptoms, or prolong (or even save) their lives.

But why care about the sick and infirm when you’re in a position to turn a buck?

spangenberg2When Bass first got called on this sleazy dodge, he insisted he was doing it for a noble reason: bust patents and competition will drive drug prices down. On close examination, his explanation didn’t really make sense – and it didn’t fool anybody. “There’s nothing in this man’s history,” pointed out James C. Greenwood, a pharma industry leader, “to suggest he has any interest in lowering health-care costs.” Scott McKeown, an intellectual-property expert, dismissed Bass’s claim that he’s actually trying to help patients. Bass, he said, was “simply hoping to spook financial markets to his benefit.” Nobody disagrees.

So transparent was his pretense of altruism, in fact, that Bass has dropped it and switched to another defense. In a response to a filing against him by Celgene, the pharma firm that’s been his biggest target, Bass acknowledged he was motivated by a lust for profit – but quickly added that pharmaceutical companies, too, are driven by financial self-interest. So what, he asked, is the difference?

kyle2010Well, some people do see a difference, and they’re out to stop him. As we’ve noted, a government agency, the Patent Trial and Appeals Board (PTAB), is considering sanctioning Bass for abusing the system with his patent challenges. Also – get this – Celgene has charged Bass and Spangenberg with extortion. Spangenberg, apparently, sent Celgene drafts of patent-challenging petitions, saying, according to Bloomberg News, that “he’d file them unless given cash.” 

kyle2011Some observers might wonder why Bass, who for fifteen minutes there was the Wunderkind of the hedge-fund industry, would be engaged in such grubby hijinks. Why would a guy who’s flown so high and cashed in so handsomely sink so low in order to further line his already well-stuffed pockets? An August 13 article in Barron’s helps clear up that question. We already knew that Bass had lost his fabled magic touch. But it turns out things are even worse than we imagined.

kyle2012Lots worse.

Jim McTague tells the story: “Bass has had a dismal time of it recently….Suddenly, the former luminary can’t seem to get anything right.” While it’s hard “to know exactly how Bass’ funds are doing because he keeps his fund’s actual performance metrics close to the vest,” news reports say he “lost somewhere around 30% in 2014, the mirror opposite of the industry’s best-performing hedge fund managers.”

kyle2013 Thirty percent! No further questions, Your Honor.

McTague quotes a recent article in which Bass himself admitted to having had a tough year.” “It’s nice to win all of the time,Bass said. When you are not winning and everyone else is, it makes life difficult.

No wonder he’s pulling this chintzy pharma con and sucking up to Cristina Fernández de Kirchner, that despotic queen of the pampas!

kyle2014According to McTague, Bass’s two current preoccupations are oil (everyone else to the contrary, he’s counting on prices to rise within a year) and Argentina (where, in McTague’s words, Bass continues to be “bullish where others are heading for the exits”).

Bass, reports McTague, refuses to talk about his and Spangenberg’s tacky patent ruse. Meanwhile, the latest news from Capitol Hill is that bills triggered by Bass’s activities have easily cleared both the House and Senate Judiciary Committees, with legislators hoping that by the end of this month a law will be on the books that “cut[s] the legs from under this particular Bass strategy.”

bass2aOnce that happens, what’s on deck for Bass? What squalid swamp will he wade into next? What sordid small-time con will he cook up? We don’t hold his stock-picking powers in particularly high regard – not anymore, at least – but we’re bubbling over with confidence that this shameless bottom-feeder has a cornucopia of uniquely unethical make-a-buck stratagems left in him.

And, of course, if all else fails, he’ll always have Buenos Aires.

UPDATE, August 27: Only hours after this post went up, the Patent Trial and Appeal Board denied Bass’s first two patent challenges. The PTAB’s decision “sets a worrying precedent for Bass,” wrote Business Insider, which also noted this very illuminating response by Bass: “It should be axiomatic that people do not undertake socially valuable activity for free.” In Bass’s world, it’s all about the money. 

Taking on Kyle Bass’s illicit pharma scheme

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Kyle Bass

Since inaugurating this website, we’ve tried to keep up with the always interesting activities of Cristina Kirchner’s favorite hedge-fund manager, Dallas’s own Kyle Bass – who’s routinely praised her corrupt, incompetent Marxist regime and slammed his fellow hedgies for expecting her to pay the money she owes them. We’ve seen him defend General Motors’s cover-up of a faulty-airbag case by blaming the passengers who lost their lives as a result of the defect.

bassprofitMost recently, we looked at his newest money-making scheme. Taking advantage of a new process called “inter partes review” (IPR), he challenges drug companies’ patents via a newly formed front group called the Coalition for Affordable Drugs – and, at the same time, short-sells those companies’ stocks. It’s a sure-fire gimmick: the minute a patent challenge becomes public, the firm’s stock price plummets and Bass pockets a few million dollars. Meanwhile, of course, every new patent challenge further weakens the motivation of pharmaceutical firms to invest in product development – and thus places at risk the welfare (and perhaps even the lives) of heaven knows how many sick people who are in desperate need of miracle drugs.

Bass, who’s constantly trumpeting his own moral superiority to (for example) the “vulture” hedge funds that actually expect Argentina to pay its debts, claims that this slimy pharma hustle of his was prompted by the most ethical of motives: he wants to break up monopolies on certain medicines and thus bring down prices. But the pharmaceutical industry isn’t buying it: as James C. Greenwood, head of the BIO trade association put it, “There’s nothing in this man’s history to suggest he has any interest in lowering health-care costs.” Another observer, intellectual-property expert Scott McKeown, calls Bass a “patent troll.” 

Bass, McKeown recently wrote, “is certainly not embarking on this multi-million dollar venture to help Medicare patients. Instead, he is simply hoping to spook financial markets to his benefit.”

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Cristina Kirchner

At least some folks on Capitol Hill agree, and are doing their best to stop Bass in his tracks. On June 10 came the news that the House Judiciary Committee, in response to Bass’s activities, was “considering revisions to a pending bill” that would “require any party seeking an inter partes review…of an existing patent to certify that it does not have any financial interest in a drop in the patent owner’s securities.” On June 22, it was reported that the Patent Trial and Appeals Board (PTAB) had agreed to consider a motion by Celgene, one of the pharma firms targeted by Bass, to sanction the Coalition for Affordable Drugs for abusing the IPR process. And on June 26, the Wall Street Journal added a scintillating new detail: 

…according to Celgene, Bass had committed extortion, threatening to challenge Celgene’s patents unless the firm paid him off.

Oh, well. We already knew how chummy Bass is with Cristina Kirchner and her crooked crew. Why should we expect his behavior to be any less morally reprehensible than theirs?

The moral philosophy of Kyle Bass

CNBC EVENTS -- CNBC Institutional Investor Delivering Alpha Conference -- Pictured: Kyle Bass at the CNBC Institutional Investor Delivering Alpha conference on September 14, 2011 in New York City -- Photo by: Heidi Gutman/CNBC
Kyle Bass

A few weeks ago, we brought you the story of Kyle Bass, the best friend an Argentine autocrat could have.

Ever since he struck it rich on the subprime mortgage crisis, the mainstream media have paid plenty of attention to the moves and prognostications of the Dallas-based hedge-funder. In fact, you might even say that Bass has encouraged this attention, seemingly never saying no to an opportunity to appear on TV and share “analysis” that somehow always lines up with his own financial self-interest.

Take, for instance, the time he went on CNBC and called Argentina’s holdout creditors “immoral” for “holding up 42 million people from progress.” Never mind that what’s really holding up progress for the citizens of Argentina are the corrupt Kirchner caudillos, who’ve imposed disastrous economic policies on the country while simultaneously attempting to rob it blind.

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Argentine President Cristina Fernández de Kirchner

No, Bass decided to ignore President Cristina Fernández de Kirchner’s wholesale corruption and ideological insanity. Instead, he chose to kiss up to the Kirchner regime by slandering her preferred bogeymen, the holdout hedge funds. Could it be that Bass, who has extensive investments in Argentina, was trying to curry favor with the Kirchners, who are notorious about giving sweetheart deals to hedge funds that help them do their dirty work? Could it be, indeed, that Bass already benefitted from such deals? Stay tuned.

In the meantime, let’s return to that word “immoral.” It’s an interesting word choice for Bass, given his own preferred investments. In another of his more infamous TV appearances, Bass was asked a question about General Motors. Once again, Bass, a major GM stockholder, provided “analysis” that lined up perfectly with his own financial self-interest. GM had been charged with creating a “culture of cover-up” by masking a defect that disabled airbags in certain models, causing passenger deaths. How did Bass defend GM? Easy – by blaming the victims:

BASS: Of those 13 deaths that happened, 12 of them either weren’t wearing their seatbelt or were under the influence of alcohol. And so, again, we don’t know what caused each of these deaths, and each of them I think has a multi-variable equation that goes into what happened. But I think that it’s really important to understand the narrative being told in the press versus, kind of, the factual narrative that yes, all deaths are tragedies, and human beings seem to think that tragedies could be prevented, or even greater tragedies. But in this case, I don’t think that the narrative is being told, because there is no upside for the press to tell the narrative to drive with your seat belt on and be sober.

How very moral of Bass, all this concern about the “narratives” surrounding these deaths. In any event, interviewer David Faber’s response left Bass stammering and quickly trying to change the subject:

FABER: That’s absolutely true, but others would say, you know, just because people may have been driving under the influence or not wearing their seat belt doesn’t mean they should be getting in a car where the airbags don’t work and the power steering doesn’t work.

BASS: Exactly…exactly. So the public policy issue is a much larger one.

Nice try, Kyle. Actually, the issue was not “much larger” but very simple and straightforward: GM was aware of safety concerns but failed to act on them. And Bass’s effort to obfuscate and trivialize that issue for financial gain raises serious moral questions.

bass6Bass’s latest investment strategy is of equally dubious morality: exploiting a new process called “inter partes review” to challenge pharmaceutical companies’ patents. As a pharma-industry newsletter noted recently, Bass spins his new stratagem as “noble” – he wants to take on pharma monopolies, spur competition, and thus lower drug prices. “A small minority of drug companies,” maintained Bass’s fund, Hayman Capital Management, in a recent statement, “are abusing the patent system to sustain invalid patents that contain no meaningful innovations but serve to maintain their anti-competitive, high-price monopoly to the detriment of Americans suffering from illness.”

In short, Bass, who created something called the Coalition for Affordable Drugs for the express purpose of carrying out his patent challenges, would have you believe that he’s acting in the interest of those Americans. But the truth is a little more complicated – and quite a bit darker – than that.

The first product Bass tried to wrench away from its manufacturer was Ampyra, which helps multiple sclerosis patients walk. The active ingredient in the drug, wrote Tracy Staton at Fierce Pharma, is an “old molecule” that was originally used as a bird poison; Acorda Therapeutics “did the work to make it useful in humans.” Unsurprisingly, after Bass filed papers officially challenging the patent, Acorda’s stock price dropped – and guess who made a tidy profit? Bass, who’d sold Acorda short in expectation of this highly predictable result.

bassprofitBass’s cynical new money-making scheme, of course, raises the question: with somebody like him hammering away at other people’s patents in an attempt to rake in a few quick, easy millions – and thus driving down the profits of pharma shareholders – what will happen to the motivation of drug companies to develop medicines that transform the lives of people suffering from grave illnesses?

Bass’s next move after Ampyra made this question even more urgent. His target this time was Imbruvica, one of the latest generation of cancer-fighting drugs, produced by Johnson & Johnson and Pharmacyclics. Unlike Ampyra, Imbruvica was a brand-new drug, having received FDA approval as recently as 2013. It’s considered a “breakthrough” therapy and has been called “[t]he drug that may make chemo a thing of the past.” Bass challenged a patent for Imbruvica that was granted just last year – for treating mantle-cell lymphoma – and that expires in 2031. After he filed his petition taking on the patent, the price of Pharmacyclics stock went down – and Bass, once again, enjoyed a nice payday.

On April 1, he struck again. He filed challenges against patents for not one but two drugs – Lialda, a treatment for ulcerative colitis, and Gattex, a medication for short bowel syndrome, both produced by Shire. Before the month was over, Bass had taken shots at several additional patents: for Thalomid, a leprosy drug; for Revlimid, an anemia medication; for Tecfidera, which has been called a “blockbuster multiple-sclerosis drug”; for Fumaderm, used to treat psoriasis; and for Xyrem, a narcolepsy treatment.

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James C. Greenwood

James C. Greenwood, the chief executive of BIO, a trade association representing “biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States,” has denounced all these moves by Bass. When Congress instituted the inter partes review system in 2012, charges Greenwood, it didn’t mean for it “to be utilized by those attempting to profit from the confusion the current system creates. Such efforts not only damage the value of companies working on cures – but hurts those sick and suffering patients and their families who are eager for cures.” Apropos of Bass’s claim that he’s doing all this to help patients, moreover, Greenwood has pointed out that “[t]here’s nothing in this man’s history to suggest he has any interest in lowering health-care costs.”

Indeed, there’s nothing in Bass’s history – his grandstanding about morality notwithstanding – to suggest that this friend of corrupt autocrats is about anything more than turning a profit.