#442 Edwin Dorsey on Short Selling

Edwin Dorsey is the creator and writer behind the Bear Cave newsletter, where he covers the weekly developments in the short selling community. His work has previously been featured in various publications, including the Wall Street Journal and Institutional Investor. In this conversation, we discuss short selling, activist investing, FOIA requests, the Bear Cave newsletter, Robert Smith, and red flags of a fraud. ======================= Want to sell your wonderful internet business? Tiny partners with founders to give them quick, straightforward exits that protect their team and culture. We’ll make an offer within a week, close the deal within a month, and keep your business operating for the long term. Get in touch at tinycapital.com, and we’ll let you know within a couple of days. ======================= Harvested Financial makes options incredibly simple. They’re the first options robo advisor, where you can build and customize a personalized trading plan that gets automatically executed. Options help you speculate in capital efficient ways, diversify your holdings with market neutral strategies, and generate passive income by selling premium. https://www.harvestedfinancial.com/pomp ======================= Pomp writes a daily letter to over 90,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone. This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Edwin Dorsey is the creator and writer behind the Bear Cave Newsletter, where he covers the weekly developments in the short selling community. His work has previously been featured in various publications, including The Wall Street Journal and Institutional Investor. In this conversation, we discuss short selling, activist investing, FOIA requests, the Bear Cave Newsletter, Robert F. Smith, and the red flags of a fraud. I really enjoyed this conversation with Edwin, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is Tiny.

• 0:47Anthony Pompliano?

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• 1:31Anthony Pompliano?

  them at tinycapital.com. Again, tinycapital.com. And they'll let you know within a couple of days what their level of interest is. So go ahead, call up tinycapital.com. They'll make an offer within a week, they'll close the deal within a month, and they'll keep your business operating for the long term. tinycapital.com. Next up is Harvested Financial. They make options incredibly simple. If you're like me, I knew nothing about options. I didn't understand them at all. But with Harvested Financial, they make it dead simple. Not only do they teach you about how to use options, but it's a options robo-advisor. You basically put some parameters in,

• 2:10Anthony Pompliano?

  They take care of the rest. Their robo advisor does all the options trading for you along your desired goals. So they're the first options robo advisor and you can build and customize a personalized trading plan that gets automatically executed. Options can help you speculate in capital efficient ways, diversify your holdings with market neutral strategies, or generate passive income by selling premium. I think options are part of everyone's strategy. So you should go use harvested financial where they make it incredibly simple. Go to harvestedfinancial.com/pomp. Again, harvestedfinancial.com/pomp. Go check them out. Let me know what you think. harvestedfinancial.com/pomp.

• 2:52Anthony Pompliano?

  Lastly, don't forget that I write a daily letter to over 90,000 investors about business technology and finance. I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry. You can subscribe at pompletter.com. Again, pompletter.com.

• 3:10Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 3:41Anthony Pompliano?

  All right, guys. Bang, bang. I've got Edwin here. Thank you so much for doing this, sir.

• 3:46Speaker 02

  Pomp, thanks so much for having me.

• 3:48Anthony Pompliano?

  Absolutely. Let's just jump right into it. Your background. How the hell did you get started with all of this kind of work in the short selling world?

• 3:57Speaker 02

  Um, so I've always been passionate about stocks from a really young age. Like in second grade, I was consumed with the stock market. Then freshman year of college, just by chance, I was introduced to two of the best short sellers out there. Mark Cahuades, who's an individual investor and short seller, and Jim Carruthers, who runs a short only fund called Sofos. And they became my mentor throughout my college years. Um, so I interned for them for a while. I interned in the SEC Enforcement Division where I kind of got to see the other side of corporate malfeasance and how bad companies operate. And now I write a newsletter called The Bear Cave where I talk about corporate wrongdoing.

• 4:38Anthony Pompliano?

  Yeah. So I gotta ask, how did you meet those two guys? And it seems like you've got a really good network. And I've heard stories that you are one of the best networkers in the world. So tell me about how the hell do you get in touch with those guys and so many other people?

• 4:51Speaker 02

  So Tom, I found there's kind of two secrets to being good at meeting people, especially when you're young. One is writing online. So you've put out a lot of content online. I've found if you're just active on Twitter, if you write articles, if you write blog posts on seeking out on that type of thing, some people will reach out to you. So Jim Caruthers, who was one of my mentors, read something I wrote. He reached out to me. And then the other way is just by being very persistent and emailing people and DMing people. So I've cold emailed people five times in a row, not like day after day, but like every week to try to meet, you know? When I was really young, sometimes I'd just show up in people's offices and ask to talk to them. Oh, that gets weirder as you get older.

• 5:35Speaker 02

  But I just being persistent, sometimes cold calling, definitely cold emailing a lot, DMing people on Twitter. And the thing is, when you're young, you have this aura of innocence. So people don't mind and are much more likely to talk to you. So that's what I found works pretty well.

• 5:51Anthony Pompliano?

  I love that. What's the craziest story you have as to how you met somebody?

• 5:55Speaker 02

  I'll, I'll, I'll give you two. One is I went to, there was a hedge fund in San Francisco. Everyone said it was really smart and you should talk to them. So I email them and they never respond, never respond. I'm in freshman year, so I just, I just take the Caltrain up there. I go to their offices and I'm like, I wanna, I go to the, it's a big building. So I got, go to the guy guarding the elevators. I'm like, I want to speak to someone at this hedge fund. And they're like, do you have an appointment? And I said, no. And he's like, well, you can't get in. And I'm like, please, just 10 minutes. I have this report I want to show them. And he's like, no way you're getting in. So then I'm in the lobby and I pull out LinkedIn and I just start look up people at the hedge fund. And I just start DMing them, being like, hey, I'm in your lobby right now. I'm a freshman in college.

• 6:39Speaker 02

  I really like stocks. Can I pitch you something? And I DM maybe everyone at that hedge fund. And one person was like, yeah. And they Called the person in the lobby. They took me up and I gotta go meet at this hedge fund. And you know, the meeting went really well. I stayed in touch and they, and they told me after they thought it was either a scam or some really quirky kid. And so that was one crazy story. And the other crazy one was I cold emailed Bill Ackman on a whim and he met with me for about an hour and he was wicked smart. And, and that one was just normal email response and we met. So that was another big highlight.

• 7:15Anthony Pompliano?

  I loved that. So let's talk about short selling because that's pretty much what you focus on. Many people who are listening to this have never heard anyone kind of on the bare case. So what exactly is short selling? And why do you think it's so important in the market?

• 7:30Speaker 02

  So short selling is just betting against companies. There's a few methods you could do that actually short selling mechanically is when you borrow a share of a stock that somebody owns, you sell it and you promise to return it at a future date. So if you own shares of Apple, I might borrow a share from you, sell it for $300, buy it back a month from now. Hopefully it's fallen to $200 and return it to you. So I sold it for 300, bought it back for 200. I profit the difference. If the stock falls, I pay you a small fee for the inconvenience and you make the difference. On the other hand, if you short a stock and it goes up, your losses can be infinite because you need to buy it back at a higher price. So that's mechanically how it works.

• 8:15Speaker 02

  And the reason it's important in the markets is short sellers are often the ones most incentivized to, to expose corporate wrongdoing. So if you look at a lot of the big frauds over the last 20, 30 years, oftentimes it's short sellers that were the ones to dig into the financial statements, talk to ex-employees, blow the whistle to auditors to help get the ball rolling to expose the fraud. So short selling, short sellers are like an important check to the system, which is usually designed to prop stocks, stocks up and only highlight good news. Short sellers are the ones trying to expose wrongdoing and the bad news and corporate wrongdoing. So that's why they're

• 8:56Speaker 02

  important. And there's a subset of short sellers called activist short sellers, which are really aggressive in putting out detailed 10, 20, 30 page reports on public companies where they're betting against them. And they'll put out these detailed reports to hopefully expose wrongdoing, drive the stock down and profit off their position against companies.

• 9:16Anthony Pompliano?

  Got it. And so how did you think about short selling differently when you were working with the SEC as an intern versus beforehand? Like, what were some of the things that you learned there or things that maybe other people wouldn't understand about how the SEC views short selling?

• 9:30Speaker 02

  So that's a great question. So the SEC, you know, it's a government institution. So everything runs slower. One thing that I didn't fully appreciate about the SEC is that a lot of what the SEC does and focuses on comes from external referrals. So I'd estimate about 90% of what the SEC looks at is either referrals from stock exchanges through the public comment and tip like box on their website, the whistleblower complaints, which are taken really seriously, or from, you know, calls with sources that they talk to a lot. Very less of the SEC is about like, you know, there's some of this actively patrolling the market and seeing if somebody's doing something wrong, but a lot more is

• 10:13Speaker 02

  reactive to external complaints. And one of the sources of external complaints can be short sellers. You know, the SEC does have a common like submission box where anybody can submit complaints on a company and short sellers often, I've used that box to submit wrongdoing. And then the SEC will have an archive of all complaints against a company. So when they decide to look into a company, they'll see here's 20 complaints members of the public have submitted. Often the highest quality content is from short sellers. Also, there's been a trend more with Chinese companies at least where a short seller will write a detailed report on a Chinese company that might be faking financials or inflating financials.

• 10:55Speaker 02

  And the SEC will often launch an investigation solely off that or send the report to the company and ask for a response. I think one example, the Wall Street Journal talked about was a Chinese company called IQE, which is like the Netflix of China.

• 11:10Anthony Pompliano?

  Got it. And so let's start with maybe kind of one of the reports that you wrote early on in care.com. It's extensive. It's super thorough. And not only one, I think, was it well received by a number of people other than the company, but two, it kind of really launched you into this world of short selling and people started paying attention. But what exactly caught your attention about care.com? And kind of what did you allege in your piece?

• 11:33Speaker 02

  So Care.com was the largest babysitting platform in the US. At the time, I started looking into them four years ago. They were publicly traded. And I had a friend who was a babysitter on the platform. And she had a really bad experience on the site and was like, hey, you should look into them. And when I start looking at a company, the first thing I do is check a government website called Pacer, where you can see lawsuits against a company. And I saw Care.com had been sued four or five times by parents who had a really bad experience with babysitters from the website. Like, they hired a babysitter who wasn't vetted, or like, multiple kids have even died to Care.com babysitters. And that was in litigation against the company. So that's kind of what sparked my interest.

• 12:16Speaker 02

  And then, you know, I started to test out the site's website on my own. And they claimed to be vetting their babysitters they had on their website. So I tried to sign up as Harvey Weinstein on Care.com. I used a photo of Harvey Weinstein, the email [email protected]. I made up all this info. And they like, said, you can send to a background check. I'm like, yeah. And then at the end of the process, they're like, we'll like, get back to you in two to three days on whether or not you're accepted. I said, there's no way I'm going to be accepted to Care.com to be a babysitter as Harvey Weinstein. Two or three days later, they're like, hello Harvey, you're accepted. And that's when I knew something was wrong. And I made fake accounts as Daffy Duck and Donald Trump too.

• 12:58Speaker 02

  And they kept accepting them, even though they said they were vetting people. So that really sparked my interest. I put out a little report on them, exposing these safety issues. The stock fell. The company called Stanford, my college, to complain about it. And Stanford met with me and is like, you should take this down. And I said, no. And I researched them more. I filed public record requests with all 50 state attorney generals. So it's like filing a FOIA request with the state attorney general for consumer complaints against Care.com. And that gave me about 5,000 pages of consumer complaints against the company. And I read through them and more people were talking about these safety issues and other issues like them billing people's credit cards without their consent.

• 13:43Speaker 02

  And then, you know, my very last day on Stanford campus, my sophomore year, I published this big report criticizing the company's safety practices. And that got some attention and I sent it to a bunch of journalists, one of whom worked at the Wall Street Journal. And then the Wall Street Journal started looking into it. And nine months later, they published a front page story on Care.com's safety issues. And then after that, the CEO, CFO, and general counsel of the company resigned. The stock ended up falling and was acquired by IAC. And this wasn't mentioned in the institutional investor piece, but the company even sent a private investigator to my house. Like, I wasn't home, I was in college, but my parents were home when a private investigator

• 14:26Speaker 02

  showed up by this company. But the end point is that the cool thing about this act of short selling or trying to expose wrongdoing is unlike long investing where you're kind of buying and selling pieces of paper, you can actually have an impact. Like, this company is now in better hands with a company that's taking safety more seriously. A lot of the executives have resigned. And I'm not sure if that would have been the case or would have happened as quickly if, like, I and other people didn't write about it and try to kind of bring this conduct to the limelight.

• 14:56Anthony Pompliano?

  Yeah, it's an incredible story from the sense that, one, you're a young kid who did the work, right, which I think a lot of people just aren't willing to do. Two, you have kind of this skeptic-type perspective, right? Like, hey, prove it to me, now I just don't believe what you say on your website. And then, three, is you kind of have this almost tenacious nature to get it in the hands of short sellers, to get it in the hands of media and kind of do the work to distribute it. Why not also then profit from all of that work, right? So you don't have a fund, you don't have any sort of positions, you're simply writing about it. Why only write and not do any investing?

• 15:36Speaker 02

  So usually I don't take positions. Care.com, at one point in time, I did have a position against the company. I disclosed that and I ended up even losing money because the stock didn't fall in the timeframe I thought it would fall. The thing is, markets tend to rise over time. On average, if you look over the last 100 years, the stock markets increased about eight or nine percent a year. So betting against companies is a really hard thing where even if you're good, you might just break even over the long run because, you know, the markets rise over time. Like, the best short sellers, you know, short only tend to make one or two percent a year. The real benefit of short selling is that if you're in a fund, you can go more long other things and being long is how you make the

• 16:21Speaker 02

  real money. So, you know, another thing I worry about is if you take positions, you might be seen as less credible or, you know, you're just trying to move the market to increase your position. You know, you also need a large base of capital. So maybe in five years, once I'm better networked and know more people, I could see myself launching a fund that focused on this. But when you're young, you want to learn, you want to meet people, you want to network. And I think a newsletter is a great way to show what you can do and kind of build a public track record that can then lead to a more lucrative thing like a hedge fund.

• 16:59Anthony Pompliano?

  Yeah. And so one of the other things that you talked about with care.com is you filed these 50, basically Freedom of Information Act requests. How did you know to do that? Is that a common practice? Like, talk to me a little bit about how you get a lot of the information that maybe isn't just available via a simple Google search or in the public filings that the company files?

• 17:17Speaker 02

  That's a great question. And I think this is the best kept secret in the investment community. The Freedom of Information Act means that anybody, individuals, can request public government records.

• 17:32Speaker 02

  From the government. The typical way people do it is they'll go to a federal agency like the FTC. And a hedge fund analyst might say, give me all your complaints against Shopify or Apple or Palantir. Because they want to see what are consumers saying that's bad about the company? And could this be an investment risk that's unknown? What I do that's a little different, and almost no one does this for whatever reason, I find it really odd, is I'll go to like the state level, the state attorney generals. And usually they'll have like a dedicated email address or web form where you can file public record requests. Not all states will fulfill them, but most states will say like, hey, send us a request.

• 18:14Speaker 02

  I say all consumer complaints against XYZ company within the last three years. And some states will turn around two weeks later and just like send you an email PDF with all these consumer complaints against companies. And the reason these complaints are so nice is you can literally see handwritten complaints by people who go to the attorney general's office to like complain about a company. You can see letters that people have mailed in. You can oftentimes see the attorney general writing letters to companies and the companies' responses. And if you see a company that's like repeatedly like paying fines and restitution to consumers, you know, this is probably part of a broader trend of them misleading consumers.

• 18:56Speaker 02

  So that's kind of what a public record request is and how I use them. So one of the basic things, if anybody wanted to diligence a company, is I'd say file public record requests or FOIA requests for consumer complaints, ideally at the state level. And you're going to get dozens of complaints against a company. And you can read them and decide whether a company's acting ethically or not. So I looked into SeaWorld at one time, which is a company in Florida. I wrote an email to the Florida Attorney General's Public Record Officer. And I said, can I please have consumer complaints against this company within the last three years? Sometimes they'll charge you a nominal fee like five dollars. Oftentimes it's nothing. And you'll get these complaints back. And then in the case of SeaWorld, most of the complaints seem

• 19:41Speaker 02

  frivolous and the company had good responses and it didn't seem like there was a big issue. Other times you might see like you might go to a used car dealership and you'll see that they're just constantly ripping off customers. They're constantly promising to reduce customers debt or like do a return. Once the attorney general gets involved, the state attorney general gets involved and that's a sign that the business might not be acting as ethically as it should and consequently deserves a lower multiple in the public markets. Because a company that delights its customers and has happy customers is worth a lot more than a company that's misleading its customers or hurting its customers and isn't going to have that brand loyalty over time.

• 20:22Anthony Pompliano?

  Absolutely. And one of the things that is interesting to me is so again, you go and you do all this work. You're looking at filings, you're doing information request acts, all this stuff. And then you're putting it into a newsletter, The Bear Cave. Tell me about this. What was the idea around actually starting a newsletter? Who's reading it? How are you growing it? What's going on there?

• 20:42Speaker 02

  So The Bear Cave Newsletter, I started senior year in college just to keep track of other people's research. So there's maybe 30 or 40 of these activist short sellers out there, sometimes just individuals doing deep research on companies, putting a report out on their website or Twitter page and showing the world like, hey, you should bet against this company. You should sell stock in this company. They're bad. I always had a tough time keeping track of it and I knew other hedge fund analysts did too, just because there's so many people doing it and there's like no uniform distribution. So I started this newsletter just as a way to say every week, every Monday, here's the new activist short reports people put up last week. And here's a quick recap of

• 21:24Speaker 02

  what's going on. It started to catch on with hedge fund analysts. So then I started doing more work where I would recap the activist short reports of the week, but I might highlight companies that had recently switched auditors or are using a subpar auditor for their market cap or had been receiving extra scrutiny from the SEC through public SEC comic letters, which you can find in the public SEC database. And then I, you know, I put in more work to hide. Show what other people were writing about and highlight potential companies that are shady. And then that just started to grow. It was growing by about 100 people a week. And then on October 1st, I decided to launch a paid tier where for $34 a month, twice a month,

• 22:09Speaker 02

  I'll do deep dives on companies. You know, where I'll look at issues like executive turnover, changes in revenue recognition policy, SEC comment letters, public litigation against the company, and complaints obtained through FOIA requests, stuff in that sphere. And twice a month, I'll find a company with a lot of red flags and do a write-up on it. And you know, the target audience is probably hedge fund analysts that just want to be more informed about companies in the universe or find potential companies to bet against and start researching. So that's the target audience, but I, I think it's grown to be just people who are interested in finance and fraud and corporate wrongdoing, and just want to learn more about how these bad companies operate and how you can research them.

• 22:54Anthony Pompliano?

  Yeah, I love this. How do you come up with the ideas as to who to research, right? There's thousands of companies that you could look at. How do you know to go look at a SeaWorld or somebody else? Is it you're reading something online, you see something fishy? Are you looking in databases? Is it just you sitting there saying like, hey, who do I think is screwing around? Like, how do you come up with the ideas as to where to start your research?

• 23:16Speaker 02

  So Pom, there, there's a lot of ways. I know you're really active on Twitter. I use Twitter a lot, too. There's a lot of smart, you know, finance analysts on Twitter if you can find the right people. And sometimes it's literally just a tweet somebody sends about a company, you know? Then what I'll do, once I see just, it could be a news article, it could be a tweet, it could be somebody saying something in my ear. It's, then, then the key thing is what do you do in the first 30 minutes to decide if you want to spend more time on it? I'll quickly look to see if there's a lot of executive turnover. You know, it's not too hard to see executive turnover. I use a service called Insider Score, but there's a lot of ways to do it. And if a company has had like three different CEOs in the last two years, or multiple different CFOs.

• 24:01Speaker 02

  That's a red flag and it'll lock me and make me want to look into them more. I'll oftentimes look at who their auditor is. And if they're a big company, but they're using an auditor that's typically only used by small companies, that could be a red flag that makes me want to look at it more. Um, other ways I, I come up with ideas is I read other people's research just on Seeking Alpha or valueinvestorsclub.com or just put out on Twitter and we'll decide, okay, this is interesting. It's worth looking into. And the final way, um, there's two more ways. I sometimes use screens. So one thing I did is I looked at, uh, I got a list of every publicly traded company and their auditor.

• 24:42Speaker 02

  And I looked for big companies that were using auditors not used by any other company. And there was this company called Celsius Holdings. It's a billion and a half dollar company and it was using an auditor called Assurance Dimensions, which no other public, NYC or NASDAQ listed company use. And the average market cap of this auditor's clients was like five million, but this one and a half billion dollar company was using it. That's a red flag and the company ended up having a lot of other red flags. And then the final thing I do is I go to the SEC's database. It's called Edgar and I search for public comment letters, which are letters the SEC sends to companies, usually to scrutinize their financials or disclosures more. There's about 5,000 of these or so released every year.

• 25:27Speaker 02

  So there's a lot that are released with the 30 day delay. And I read all of them. Um, most of them are frivolous or like highlight small issues. But once in a while it'll get a like 10 point comment letter and the company won't be giving good responses. Like the SEC will say, why did you change this disclosure? Explain this policy, explain this inconsistency. And sometimes the companies will be like, we're just wrong. The number, there was a misprint, you know, there was a, there was a typographical error by a secretary. And if you see a lot of those, then it's a sign, oh, maybe this company's got more typographical error somewhere. Um, so, so it's a lot of different sources. Twitter is a great way, value investors club, Seeking Alpha, you know, the SEC's database. It, it comes from a lot of places, my.

• 26:12Anthony Pompliano?

  I love the misprint and the typographical error. I make those all the time. No problem.

• 26:19Anthony Pompliano?

  The last thing I want to talk to you about is probably the biggest kind of fraud case or tax evasion case. Robert Smith, obviously, and Vista Equity Partners. It's pretty well documented, I think, what Robert himself has faced. But it sounds like maybe you think there may be other problems at Vista Equity. Talk to me kind of just about how you think about that situation and any other things you're thinking about there.

• 26:42Speaker 02

  So this is a great example where I think the media is kind of focusing the spotlight on the wrong thing. So Robert Smith is a very wealthy private equity co-founder of Vista Equity Partners. He got, he paid about a $200 million fine to settle charges of tax evasion. And it looked like he was potentially going to go to jail before he signed this non-prosecution agreement. So big red flag. The media's covered that a lot. But there's like a lot of other issues that the media is just like not looking at, but it's not that hard to find. So he's really close with this other businessman from the Austin, Texas area named Nate Paul, who is this real estate developer.

• 27:23Speaker 02

  And if you look back in old articles, you'll see that they were friends, that Robert Smith invested in this guy's fund and was praising him. There's photos of them together. They were close. And then this guy Nate Paul has also been raided by the FBI last year. He's part of an ongoing scandal at the Texas Attorney General's office. You know, he's in bankruptcy or has declared bankruptcy for some of his companies. And like, he's going to be the reason that the Texas Attorney General resigned and like he paid bribes and allegedly did illicit donations. Hired the Texas AG's girlfriend to cover up an affair. So this guy Nate Paul did all this wrongdoing. Robert Smith did all this wrongdoing.

• 28:07Speaker 02

  But they're friends. And that's like another big data point that Robert Smith was like involved in bad stuff. They both got money from the government when Robert, some of Robert Smith's companies got, got money from a Texas. Enterprise fund for taking jobs in state. There's just like a lot of this wrongdoing. And it's like, you know, if you only highlight one incident, some people might say, oh, this is an isolated incident. Robert Smith was misled. But if you show there's like a pattern of this wrongdoing, people are a lot more skeptical. On Vista too, like portfolio companies have sued Vista saying that they're mismarking the assets and presented what I think is compelling evidence, but the Wall Street Journal and New York Times doesn't talk about that.

• 28:51Speaker 02

  There's like a lot of evidence of like huge, like, you know, issues at Vista, like mismarking assets, lawsuits from portfolio companies, associations with other people being raided by the FBI, the co-founders leaving, like, but no one's putting it together. Everybody's, the media is just so focused on this tax fraud thing. It's like I'd bet dollars to donuts that this thing becomes a bigger issue, maybe in three or six months. But people just aren't thinking about it in the right way, in my opinion. And that's something I've been talking about in the barricade newsletter too.

• 29:24Anthony Pompliano?

  Are you gonna do like a deep dive report on that one?

• 29:27Speaker 02

  So I I've done like three mini deep dives. I I I'm working on it. The thing that makes this a little tougher is I'm really document based. I like reading documents. Sometimes there's a limit to how far you can get by just reading lawsuits and filing public record requests. You know, sometimes like, you know, you, the only way you can really progress the story is by like going out and, you know, cold emailing ex-employees and uh, sometimes I feel bad if you're just getting too aggressive. So I might, I I might do more on that, but part of me thinks that I'm like kind of at the limit of what I can get document based. And like, when you take it to the next level of like, you know, cold calling, cold emailing,

• 30:09Speaker 02

  current and former employees, you can risk a compliance concern of getting material info on a company. You can also risk getting sued or you're just, you're just being a little too aggressive for somebody who's writing a newsletter. So I'm not sure how far I'll go on it, but I definitely think there's a lot more issues to come out at Vista Equity Partners.

• 30:28Anthony Pompliano?

  Interesting. Anything else that you're looking at right now that you think is uh, is worth noting? Or um, kind of other red flags with other companies that you're saying, hey, you know, here's kind of a thought process that I think could become a much bigger issue in the next three to six months?

• 30:41Speaker 02

  One person who I think is just outstanding at highlighting these issues when they're small before they get big is a guy named Mark Cajotes. He's active on Twitter at All their Lane Eggs. There was a company called MyMedics that made healthcare products. He called the CEO a fraud and two years later, it turns out the company was inflating sales by bribing doctors and like, you know, asking the government to over purchase product that wasn't going to be used. So he had one really successful campaign two years ago. Now he's being critical of a company called Penumbra, which makes catheters for old people. And the thing is like this company, $10 billion company that makes this healthcare equipment and catheters, their products have

• 31:26Speaker 02

  been linked to these 17 deaths. And my under basic understanding is that their products have been pulled from Europe and Japan, or at least parts of there. But they're still available in the US and the company's near all time highs. There was another person named Gabrielle Grego, who wrote a detailed 40-page report on the company's concerns, on the company's issues. But the stock hasn't really moved that much. So Penumbra is one that I'm watching. And it seems like with a lot of these active short reports is you can put out really good content, the stock won't move and people will ignore it and move on. Or you can put out mediocre content, the stock will move and everybody will think it's great. This is one where I think

• 32:08Speaker 02

  the content's been really good. The problems highlighted have been really serious at Penumbra. But the market isn't paying enough attention yet. So that's one I've got on my watch list.

• 32:18Anthony Pompliano?

  Yeah, that's awesome. What's your plans for the Bear Cave? Let's finish up there with kind of what are you thinking in terms of how you're going to grow this or what you want it to grow into?

• 32:27Speaker 02

  You know, so right now it's a paid newsletter. It's doing well financially. I'm probably going to just keep growing the free list and keep going, growing the paid list. Newsletter economics are really nice. It's kind of what I've been learning. You know, you get paid cash upfront when people buy an annual subscription. The retention rates tend to be really high. You know, if it grows to be 10 times the size, the amount of work I need to put- Put in is still about the same. So you can earn a lot doing the same amount of work. My best guess is that I do this for two or three more years and maybe launch other financial newsletters. I think there's a big market for paid newsletters. I know your wife runs a really successful one.

• 33:09Speaker 02

  I think particularly in the finance space, these people in finance have a lot of money and are happy to pay for research. There can be a lot more paid newsletters. So my plan is just to grow it organically, keep trying to put out good insightful research on companies. And maybe down the road, start two or three different ones. The goal, the goal will never be to be like the morning brew, which is like not as much depth, but is more for a mass audience. I think I'll always focus on like more of the hedge fund analyst crowd. But I could see myself branching out to not just highlighting problems at companies, but maybe highlighting interesting companies that could potentially be worth investing in or like looking at insider buys at a company or like when new

• 33:54Speaker 02

  interesting board members are added, highlighting that. I, I, I, I think there's a big market for these paid newsletters and I'm really bullish on that space.

• 34:03Anthony Pompliano?

  I love it. I asked the same two questions to everyone before I wrap up and then you'll get to ask me one. The first is what's the most important book you've ever read?

• 34:12Speaker 02

  Oh gosh. Um, it's hard to live, to, to, to take it to one.

• 34:20Speaker 02

  One of my favorites is Bad Blood by John Kerry Rue. So he was a Wall Street Journal reporter that kind of broke the Theranos story and did all the reporting to take it down. And then because of that, he could, he wrote a really detailed, great book on Theranos. So even though the company was never publicly traded, you got a really good sense of how these, you know, exaggerated unethical companies can behave and get away with so much. So in Theranos's case, they had like really high profile board members who gave them credibility. So, so, so that, that, that's a book I really like. Bad Blood by John Kerry Rue.

• 34:58Anthony Pompliano?

  I've read that one. It is fantastic. Second question is aliens. Are you a believer or a non believer?

• 35:05Speaker 02

  It depends how you define aliens. Life outside like our solar system, yes. Are they going to look like us or like maybe be in a way we can even comprehend like maybe not?

• 35:18Anthony Pompliano?

  I like that answer. I feel like intelligent life somewhere else is very likely what shape or form. I'll leave that to the scientist, right?

• 35:27Speaker 02

  I like that. Um, so now I get to ask one to you.

• 35:32Anthony Pompliano?

  You get to ask me one question. What you got for me?

• 35:34Speaker 02

  Okay. So you're a big Bitcoin bull. I know there's a lot of people in the finance community who are a little more skeptical, you know, what makes you so confident and what do you think are the biggest risks that five years from now Bitcoin could be at zero or like potentially worthless? Like what, what, what, what could, what could happen that could destroy the bull thesis here?

• 35:55Anthony Pompliano?

  Yeah. So it's a great question. Um, I think my confidence is just I've done the work, right? I've, I've really kind of spent the time, energy and effort to go through what are all the things that are happening? What's not happening? Uh, kind of what are all the different theses? Which ones do I think check out? Which ones don't? Which ones are strong? Which ones are weak? Uh, and so for that, I also think that, um, in order to have a high degree of confidence in a bull case, you better have a good articulation of what the bear case would be, right? Which is basically your question. Um, and so for me, it's, you know, if you look at it from a pure, what does Bitcoin ultimately hope to be, but yet has not yet achieved? You can talk about the actual like electronic

• 36:38Anthony Pompliano?

  cash. So Bitcoin has served as a great store of value over long periods of time. In short periods of time, because of the volatility, it makes it really, really hard to consider it a store of value. You know, if I buy it today, uh, for $20,000 and then it drops tomorrow to $18,000, that doesn't really fit the, the store of value narrative. Over long periods of time though, it's been fantastic, right? It's actually protected your wealth better than any other asset in the world. So I think that's one piece is kind of the short term, uh, viewpoint of store of value and medium of exchange, uh, has not happened yet. I think the bull case for that is like in the, um, evolution of technology. And money that happens later on in the life cycle of a new money, but definitely has not happened yet. So if you don't believe it's going to happen, like that's a pretty strong

• 37:23Anthony Pompliano?

  thing to hang your hat on. The second thing I think is there's always the risk of a self inflicted wound. And what I mean by that is there's a bug that's introduced into the code. There's some sort of issue in terms of this is a piece of technology. It does have software code and it is reliant on kind of the continued upkeep and operations of that code. And so there's not been issues yet in terms of anything that's been fatal. But again, part of the I think bear thesis would be like, how in the world is it that you'll go forever without introducing a fatal bug? Right? Again, I personally don't buy into that, but I think that's a strong

• 38:00Anthony Pompliano?

  argument for a bear to make. The third thing is about like geopolitical cooperation, right? Is a lot of people would kind of the intellectually lazy argument is, oh, the United States is going to ban it, or oh, China is going to ban it. But only one country trying to ban a decentralized asset doesn't really have any impact because all the value just flows to the other people in the world who are going to adopt or use that asset. What you need is you need actual geopolitical cooperation of, let's say, the major kind of superpowers all working together to try to ban it. Right? Then you can have a much more kind of generous and material impact on the asset than if just one country has it. And so if I was kind of arguing the bear thesis, I would say, oh, of course, all the, you know, leaders of these countries are going to call each other up and

• 38:44Anthony Pompliano?

  they're all going to work together and ban it. Now, the reason why I'm a bull is because I don't think that that's going to happen. Right? I think that's very unlikely, actually. But I think that's another piece. And then another part of this kind of bear thesis is all of the kind of regulatory kind of edges, I'll call them, right? So things like there's no de minimis exemption for when you use Bitcoin in a transaction, you have to pay tax on that. And so that provides a bunch of friction. Now, the bulls will argue that that eventually de minimis exemption will get applied. The bears will argue, no, it won't. Therefore, that'll be a huge kind of detraction for it ever being used as an actual currency. And so I think that like, you can go on and on and on. And as you can hear, like, that's just a couple off the top of my head. There's probably 20 or 30 other issues. Issues that I think, you know, I've got a decent understanding of the bear case,

• 39:28Anthony Pompliano?

  but I kind of fall into the bull camp on. And I think that's actually really, really important. When you have high conviction is if you can't argue the other side, if you can't articulate the other side of it, then I think that you've got to really question like, did I do the work? Right? And if you can do that, then it almost gives you more confidence and conviction in whichever side of the argument that you ended up on, right? If you know you did the work, sure, you can be wrong, but at least you're not going to be wrong because you didn't do the work. You're just wrong because your conclusion on the work was inaccurate. Right?

• 39:59Speaker 02

  Yeah. No, that's, that's great.

• 40:02Anthony Pompliano?

  Are you a Bitcoin believer or not?

• 40:05Speaker 02

  Sorry?

• 40:06Anthony Pompliano?

  Are you a Bitcoin bull or no?

• 40:09Speaker 02

  Uh, I, I, I probably, I don't own any, but it's interesting and I'm, I'm a bull, but not with the same enthusiasm you are.

• 40:18Anthony Pompliano?

  That's fine. Being a bull is being a bull.

• 40:23Anthony Pompliano?

  I love it. All right, Edwin, where, where can we send people to sign up for Bear Cave? And where can they find you on the internet?

• 40:30Speaker 02

  Just Google the Bear Cave Newsletter. It'll come up. It's thebearcave.substack.com. But just get Google the Bear Cave Newsletter and I'm on Twitter, Edwin Dorsey. That my handle's at Stock Jabber. But if you just Google Edwin Dorsey and the Bear Cave, my Twitter and the Bear Cave Newsletter will pop up.

• 40:47Anthony Pompliano?

  Awesome, man. Well, listen, thank you so much for taking the time to do this. I, I read the Institutional Investor article and I said, I gotta talk to that guy. That guy sounds interesting. So I hope, I hope people enjoy this as well.

• 40:58Speaker 02

  Tom, thanks so much for doing this. You really enjoyed it.