How To Turn $100K into $4,000,000 with Distressed Investing

0:00 So after Scott came on the pod and was like I have my distressed guy in Europe. I'm like Ben. Find me the distressed guy in Europe. I feel like I can rule the world, I know I could be what I want to

0:11 I put my law in it like a day song on the road, less travel never too. Alright, so Scott Gallo is on our podcast. He's and we ask him, we say, you know, we heard the story that You were buying distressed FTX claims after FTX went into bankruptcy. And Everybody hated it. It was like Th it was the disgrace. It was the the symbol of a bad bad business, a bad investment.

0:35 I heard that you were buying up claims on the cheap and that those claims are now being paid out, you know, in full or even more than full because Sam Bakeman Freed, wh whatever he was doing his thing. He had owned enough assets that would would make all the creditors whole. And so he tells the story about how he's got this guy who's brought him into a couple of deals and he was talking about distressed investing. And when he told the story, he like he like kinda dismissed it. He was like I bought ten million dollars of FTX shares or something like that. Or two million. Two million, I think it was something. Sorry, whatever it was, it was like a seven figure bet. And he sort of said, Like, Yeah, I just did this one thing and Sean and I were like Rewind. What?

1:09 And that's when they told the story. Also, it was a moment where it's like, hold up, put some respect on the podcaster's name. But I mean a l I think a lot of people make fun of Scott. There's like the inverse Scott Galloway index and stuff like that, basically about his bad calls he's made in his life. And I think in general, people don't really realize and Sam, you do a good job of this. You're like actually you were an entrepreneur who sold a company for a hundred million dollars. He never really talks about it that much. And then he Done some interesting investing stuff. And I just feel like Because almost he's so good at the gift of dab, I think people sort of bucketed him as all talk, no walk. Yeah. So it was interesting to hear one of his interesting walk stories. So then

1:43 I got in touch with Tommy and we I say, tell me about this. I'm interested. What are you doing? What are you uh what's going on? And he had some interesting stories. So I wanted to invite him on the podcast. To do two things. Teach us about This category of distress with both both me and Sam Are pretty much novices in this. Like we are

2:00 We're missionary guys. We we are we're we like vanilla. Like we we do we do very basic stuff, you know, uh when it comes to business and investing. This is more exotic and it's got me interested. I want you to start With a little crispy Description of like

2:15 What's the big idea with distressed investing? What do you try to do? How what how do we wrap our minds around this? And then I wanna play a game called First. Best, worst, weirdest. Which is where we go through maybe the first Play you did.

2:28 The best play that ever worked out for you. the worst deal that went sideways and then just s something where shit got weird while you were doing it. But I want first just Can you just make us a little smarter? Teach us Distress Investing one on one. What are we talking about? Man Okay, so I am the bottom of the food chain of distressed investing. So there is a whole industrial complex of large distressed investing firms out there. You have Oak Tree and Silver Point and Fairlon and you can you guys Apollo, everyone's heard these names, or maybe if you're f if all business and investing, I guess.

3:03 So for myself I kinda came up a different way, which is my parents were bankruptcy lawyers and I sort of learned I knew a lot about bankruptcy and generally what you're trying to do is you're almost like value investing in the toolkit is You know a lot about the legal process. Um, the trick that I've From studying a lot of distressed investing is

3:23 You know, and there's this famous Michael Price thing, which you guys have probably heard, but if you haven't, it's sort of he says When you're investing you always want like the stake and the sizzle. I think what where the okay investors in distress, um, do right is they find stake. You know, you find something and maybe it's a double. But where the guys that really knock the cover off the ball and have outstanding returns um generally are looking for that sizzle as well.

3:49 The stake is the kind of the known The known value that's there. It's the substance. It's the thing that will make you give you a margin of safety when you buy. The sizzle is the upside of how good this could be if things go right, but you but you still have the stake even if the if things don't go great. Exactly. And that's even what the whole pitch on uh F D X with with Scott was, which is You're buying a stake, you're buying twenty cents, you know you're gonna get thirty cents in cash back, plus you have all this crypto sizzle.

4:16 And unless you're you know, I don't want to say a Luddite, but unless you're just really, really aggressively Against crypto, there was a lot of optionality built into that. And if you look at the history of distress, some of the best ones have been financial service bankruptcies, Ponzi scheme cases, as well as like the dot com cases were actually pretty good. You think of things like Comdisco, which was a famous large bankruptcy. And a lot of those actually they kinda petered out because it wasn't as much debt. It was just equity values went to zero. So so if you look at the history, they're they can be pretty good, and that was kinda the playbook was

4:49 As my friend would say, who's a pretty smart investor, he says you avail yourself to the optionality, you know? So'cause you sort of set yourself up To either buy that for For free. You can get it for free.

5:01 Or buy it extremely cheaply. So that's what we're doing at FTX, and that's we really try to replicate in almost everything we do, no matter if it's crypto or just general distress. Is your company just you? Are you just a guy or do you have a team? I'm just a guy. I mean, I have a small team. I think Scott calls me a lifestyle business guy, but I would describe it as What's nice about what I do is I get to choose when I work, how hard I'm working. If there's no deals, I don't have to work on stuff. And also because I'm at a low cost jurisdiction. You know, that passes through to my clients. So

5:29 You know, is Scott paying the usual fees that you would pay if you went to a big distress firm? Probably not. I mean, maybe'cause they want Scott as a client, but For the most part, the fee structure would have to be higher, your cost structure is higher. So can I dumb this down like in a way like I'm kind of a caveman and you can tell me if I'm right. Um, but basically uh you find distress deals, you convince rich people to buy them, and you take a small cut. Is that right? Yes. Or I invest my own capital.

5:56 Or you invest your own money and you're so good that people come back over and over again. Well, if you lose money for people, they generally don't return your phone calls. They they might call you, but uh they they they don't they don't pick up when you call. So let's walk through an example together. And I think we should use FTX because it's a pretty well known company. It's kinda what we were already talking about. So Walk me through the origin story of of the uh FTX deals so that we can kind of see like a we can get like a a blueprint of the type of thing that you're gonna try to do. What is the type of thing that you do? So Where does the story start with your FTX interest?

6:31 Yeah, so We were are I had already been involved in a number of crypto distressed situations. And I should back up to just say as a as a backdrop, like Hav having studied so many different investors throughout my life and kind of that's what I was really always interested in is principally just being an investor. One of the things you'll realize is the guys with really good returns also invented a category.

6:51 So I was very interested in crypto distress as a category and I thought, Hey, crypto's the future. no one's willing to touch crypto. So back in two thousand fourteen, fifteen, I was already looking at Mt. Ox, m you know, myself and at the time my partner We were the largest buyer of claims in Mt. Ox. But but before you tell the Malgox story, I just want to double click on you said Uh, some of the best investors, they ended up like actually now when you look back, they kind of had invented a category. Can you give a couple of examples of people of guys who did that?

7:20 So like uh Howard Marks is the is the prototypical example, right? Like he kind of invented the whole idea of like institutional not just him, there were other people, of course, but he was And in uh you know, a very early and basically him and a a group of people invented the idea of institutional asset class to distress investing. So what that does is it compresses It lowers, you know, uh cost capital and and and really brings a whole pool of capital that we've never invested in this. So the long term returns might go down, but it's because the the actual the actual cost of capital is coming down. And so your your your tailwind returns are just enormous. And what does that mean? Does that mean that like institutional investors uh they they were like normally afraid of this and Howard was like, No, this actually makes a ton of sense and it's actually kind of safe and here's why and so he convinced large institutions to buy into that. Is that what you're saying? To allocate

8:08 And the same thing with like early venture guys. I mean, I guess before you have like the seventies and eighties, I mean Alan Patricoff and people like that, these were guys that really invented the category. And of course They have huge firms. Now and you know the c valuations for startups. But it it's like the uh the it's this wall of liquidity that creates these kind of tailwind returns, which are fantastic. You want it.

8:29 I mean you kinda like That's the most amazing thing is catching more of those waves. Like w Y C is a good example of this, where YC basically created the category of The the you know, the accelerator, right? It created the category of this pre-seed, pre everything, pre pre-product, pre-revenue, pre-traction. Investing. And so that really wasn't a popular category. Now it's a whole little industry. There's angels and there's super angels and there's seed funds and pre-seed funds.

8:53 There's a whole industry now that that specializes in that category, but it really started, even Paul has said this as an experiment. He was curious, like How early on Could you fund somebody? Could you fund a student? Could you fund a grad student? And you know, he sort of thought it might be too early, but he wanted to go see what happens when you do that. Yeah, and even, you know, for me when I was start starting my hedge fund, my very first when I was really a kid, some of my early investors were uh Goldman partners that were partners when it went public and they were all sort of early LBO guys, like levered buyout guys before private equity became a real institutional asset class. And the returns were just

9:29 Insane. Like insane return. Hey, real quick, our sponsor for today, HubSpot, actually did something pretty cool. If you like money stuff like this, you like investing wisdom like Warren Buffett or Monash Pabry. Well, they actually put together a nine investment principles document. There's a free document you can have. of frameworks that they've shared when they came on the podcast.

9:51 Uh you can get it right now. It's actually just a mental model that separates, I guess, the elite investors from the average investors. So you can get it right now. Scan the QR code or click the link in the description. All right, let me get back to the episode. Okay, so let's go back to your story. So you're saying You got excited about potentially being the first in a category of

10:10 crypts. Distressed already was a thing, but nobody Most people were afraid of crypto in general, so especially the institutional guys weren't gonna go there. So you're like, Okay, maybe I can carve out a niche of distressed crypto. We're all looking for a thing. This could be my thing. And you're saying like F T X story actually started before that. Before FTX it was Mt. Gox. Sam, are you familiar with Mt Gox? Do you know the the rough story here? Yeah, it was sort of Coinbase before Coinbase, but it had some nefarious characters involved. Yeah, and so there was a huge kind of like sort of hack problem with uh with Mt. Gox.

10:40 So Tom, what what happened with uh with Mount Cock? What did you actually do there? Let's talk about it. So So Malcox was really the first it was almost eighty percent of the volume at the time in two thousand fourteen when it went under And it was the largest exchange. I mean, other than going peer you know, peer to peer and going to a Starbucks and buying Bitcoin, like that was where you traded Bitcoin. And uh they had a pretty aggressive hack. They tried to cover up the hack, which was the real

11:01 Cry was the cover up. Eventually they filed for insolvency in Japan and what's called a chapter fifteen in the States. Um that's kind of irrelevant. That just recognizes the foreign Proceeding as the main proceeding. And um you know you could buy claims.

11:15 For a while you could buy them for about a fifth of the the the market price of Bitcoin. This is when Bitcoin's like three hundred dollars. And then in two thousand eighteen, the estate actually sold some Bitcoin to have enough to pay people the cash value of their claim at the petition date. When I say cash, I mean fiat. I'll try to use fiat. Um, and so you could buy below the cash, you could get the bitcoin for free. Sorry, so so just just to just to slow this down for a second. When you say buy the claims, what you're saying is I was a customer, let's say, of Mtx.

11:44 And boom, I lost my money. It's insolvent. I don't know what's gonna happen with this. It's gonna go through a bankruptcy process. I'm hoping maybe in a few years I'll be able to get something out of this. And guys like you knock on the door and you say, I'm so sorry for your loss. You know what? I'll offer you something today. for the rights to that claim you have as a customer, as a creditor to in this bankruptcy thing. It's gonna take a long time. It's a little uncertain. You know, so I'll give you and in that case, like for every kind of dollar worth of claim, what were you buying the claims for at Mt. Cox? Yeah, so the original trade bitcoin was at about three hundred dollars and we were buying the claims for about eighty dollars.

12:21 Per Bitcoin. Were you a bitcoin person or were you just a um A distr a a distressed person. I would say uh yeah, I studied economics. I remember reading about Bitcoin when it was like ten dollars and I was like, Well, that's cool if it works. But other than that, I had no

12:36 I was like, This is pretty crazy. All right, so dumb question. They get hacked. So they don't have the Bitcoin. So w what is underneath I get in the in the FTX case'cause he had invested in all these uh underlying companies and they still had their some assets. What did Mt Gox have that Made you think that the claims would be worth anything.

12:55 So so just if you wanna if you wanna do it in in bitcoin terms, there's about eight hundred thousand bitcoin that was supposed to be there. When it within a first like month or two, they basically found two hundred bitcoin. Found two hundred or two hundred thousand? Two hundred thousand. Okay. So they found two hundred thousand of the eight hundred that's supposed to be there.

13:12 Yeah. Right. So now you know, you know, this is this is you know, uh distress actually the math, even though I studied math, the math and distress is always super simple. Like Two hundred over eight hundred. Okay. You got twenty five cents. So guys are gonna give back twenty five cents. We're basically offering them five cents. This is on the Bitcoin dollar.

13:31 You bought the assets after you learned that he magically discovered so you're like minimal downside, potentially high upside. That was so the stake there was They got two hundred thousand bitcoins sitting there today and it's three hundred dollars a bitcoin. I can buy it. uh at twenty five s you know for for for twenty five percent of that value. So that's your stake. And your sizzle was maybe they'll find more, maybe Bitcoin price will go up. Is that right? Is that the right way to think about that? Basically. Yep. Maybe they'll find more.

14:00 And uh And you get a five X return on Bitcoin. That was the original page. And I remember the first hedge fund I pitched it to. The guy literally laughed me out of his conference room.

14:11 And whenever I saw him around town, he would just be like Bitcoin. I mean it was like two thousand fifteen, to be fair. But look at the Bitcoin loser. I'm imagining like the big short here. Because I don't know anything about this world, so my only reference point is movies. So I'm imagining you're Michael Burry, you're sitting in your room by yourself, you're pouring through the papers, and you're like

14:32 You're like pen and you're like, you know, doing the math, you're like Two thousand thousand eight hundred thousand, twenty five cents, but get five cents. The equations are popping out of your head. And then you go to the hedge fund and then they sort of laugh you out of the room and they're like, listen Do you want to just get lunch?'Cause we're not doing this. Uh you wanna make something out of this hour? Were you just getting laughed out of the room in that way? Well, I remember the name of the fund. I won't mention them. They're out of business now, if that's any if there's any con name names. Yeah, they're Dance on the graves. The guy won't remember, but the the firm was Southpaw. I don't know what happened to the guys at Southpaw.

15:07 Uh it was like a two billion dollar hedge fund. Anyway. It doesn't really matter, it's forever ago. And to be fair fair to the guy, like he I said, Oh, the crypto exchange can buy claims for a fifth of the market value. He's like Crypto? You mean like Bitcoin? And I said I said, Yeah, yeah, Bitcoin. He's like

15:22 You want me to buy Bitcoin? And I was like, Well, you know, the claims get five times your money. And he just like he started slapping his knee. He was like Tom, that is the funniest shit I've heard all week. He was like He was like, What else are you working on? And I was like, Were you an employee somewhere? And were you on your own in high fund?

15:45 Okay, so I had a small hedge fund. So I bought about two hundred thousand dollars worth. Like literally nothing. But for my small hedge fund, that was like I was like well, this is like ten percent of my money. I gotta like you know, it was only I don't only had so much I mean it was a really small hedge fund I was running. I said, Okay, I can't. This is like You know, I could get in trouble. I can't like make this too big. So I'll like to call some of these guys I know and when you're

16:05 We have a small headphone, the nice thing you can do Is you kind of have a symbiotic relationship. Like you can do a million dollars like if you find a ten million dollar deal You can get I don't I'm just making up a name, Oak Tree. You call Oak Tree, I mean they won't do ten million dollar deals, but you say, Hey, you want nine of this, I want one million of it. You don't even have to pay me anything. I just need you because I need the money. So you make friends and you kinda figure out ways to get symbiotic relationships with some of these cats. I'd be similar to probably in the industry, like the co opetition.

16:30 You know, if you want to dress it up and make it sound fancy. But I mean that's how I spent my whole career is like co op co opetitioning with like all the big distress firms. So they call me with tiny stuff that they can't do and I call them with big stuff that I can't do and I ask for either allocation or a fee or something. But generally I'm asking for allocation'cause I'm not like a registered broker. What did you end up making on the Mt. Gock trade? How much did you end up getting in and what was the uh what was the in, what was the out? Yeah, there were across a number of different SPVs and we had a later

16:58 like head I'm I'm gonna get to the answer. We had a later hedge fund that like was buying all the way up. So they probably made like two, three times their money'cause they were literally buying all the way up. Um through the distribution. Like they'll still buy claims to this day. Um, but our original investor made about thirty eight times his money. Or actually it's more than that now. It's over forty times as money. Over what period of time?

17:17 Oh yeah, like seven years. Yeah. Bitcoin price appreciated basically. Yeah, so some of it is about five X of it is the discount, and then the rest is the appreciation. Right.

17:30 But he put it on in two thousand. The big the the guy I'm describing who was our real first outside LP outside of the fund, which which liquidated and we sold the claim. And I think that claim we bought The original claim we bought from a Googler actually That's pretty funny. And I always joke because I was a kid. And you know, I had my standard documents, but I didn't have documents for like in Japanese court.

17:51 And he was like, So how do we do this time? And I was like You know, I don't know. And he said, Well why don't I ask So I always joke that Google wrote my original purchase documents for uh for the purchase of um, you know, like I don't know the name of the firm, Step Shoe and something or some some firm that worked for Google. 'Cause this guy was like a big up at it at uh

18:09 At Google. Um, but yeah, about forty, forty plus times, but a lot of it is appreciation. But the really interesting thing about that guy that originally did the deal with us, this family office guy is We were buying the Bitcoin for free. 'Cause he we put he put that trade on in two thousand eighteen. That was the the big short moment.'Cause you were getting it for free. I explain that. Why did you get it for free?

18:29 Okay, because The the rough math at the time in two thousand eighteen Bitcoin's like ten grand, twelve grandish. And the trustee stole a fifth of the bitcoin. So about forty thousand bitcoin and brought in about six hundred million dollars of cash. And so there was six million million dollars of cash and there was about three billion dollars of crypto or two and a half billion dollars of crypto. We were buying the claims for below the cash value, the clash look through value on the claims.

18:52 So the so we're buying for about a four hundred million dollar valuation. There was six hundred million of cash and there was about two billion dollars of crypto. So that was the time when I was like really banging the table. Because before that there was all Bitcoin and it was It was cheap, but it was quite directional. Why do they sell it for below the cash value, uh, at that point? Is it because there's still a time delay? Is there an uncertainty? Yes.

19:13 And the there was uncertainty around whether who got the uplift and value. So in two thousand eighteen there was this big argument, who gets the uplift and value? Does it go back to Mark Capellas? Like the guy that kind of Didn't do us right. Uh or Does the upset and value go to the customer account claim? It's the same thing happened in FTX, the same thing happens in all the crypto bankruptcies. Who gets appreciation and value? Um post petition.

19:35 Petition meaning the date the company files for insolvency. As um you know, I'm I'm I'm an absolute outsider. Uh I'm learning about all about all about this right now, but like Mount Gox and particularly FTX, those were Pretty big news uh headlines. And as an outsider, when I see this, I just think, Oh, I'm sure like there is no opportunity because everything is being taken care of like uh They're gonna catch the bad guy, but then also all the big dogs are already after this. Like there's no way to make it money, there's no opportunity. Not me, someone else is probably like on top of this, but

20:06 The way that you're describing yourself. Um, maybe this is like you're underselling yourself, but you'll you're kinda describing yourself as like just a smart guy who just like kinda gets in the mix and figures it out. Take out the smart part. Well you're doing it again. Uh there you just you just did it again. Uh but you uh like how many like literally how many human beings Like I how how many human beings are actually getting after this? Like for the Mount Gox and and like who do you who do you phone?

20:32 Yeah. A lot of questions in there. Okay, so Uh You're right in some sense. All the big firms have a corner on the like the bond. If you want to try to play the bonds and stuff like that, you can't open up a Fidelity account and trade distress bonds. You call them and you say, Oh Can I get a quote on this bond? And they're like, Well that's in default. And you're like, I know it's in default. I'm asking what the quote is.

20:52 And they're like, Oh, we don't trade in defaulted bonds. They're way too risky for you to be looking at. So there you'd have to have like real prime brokers. And you know, you have to have serious money to play that game. Also, you have to worry about getting run over by big distress firms. Sort of actually just like it in the in the big short where the two guys who had the garage hedge fund, which it was big, I mean big for a regular guy. It was twenty million dollars of their own money they were playing with. They were like laughed out of chase or something like that. Yeah. Yeah, the same thing with the Ritos markets. I mean, you have to have serious setups and serious well, like call'em lines.

21:24 You have to have lines with your with your P Vs. uh to be able to do this stuff. And so Uh I knew.

21:33 Rung of the totem pole, which is the claims market. So there are probably like ten firms out there that really do trade claims. And you know, I say this lovingly'cause I'm one. Most people in space are not super smart. It's kinda like

21:46 The the the the I don't know, a nineteen maybe it's for like the Oh gosh, I'm gonna offend somebody, like the network administrator. I don't know, like the kinda like the lowest level of IT person. This is like the lowest level of distress person. Yeah, like the rejects a little bit. Yeah.

22:02 And so But I kinda like hanging out with the rejects, what can I say? Right. Anyway, so So you're you're kinda like a uh what's that sh you know, they're s have a shark and they have the thing that like lives on the shark. It's like kinda like a symbiotic Yeah. You're like that little thing that eats the stuff that falls off the shark. And the shark kind of likes you because you keep the barnacles off it or something. And that's you as a trade claim buyer if you befriend some of these larger trust firms.

22:26 The can't the the cases were largely talked about when you have cryptocurrency exchanges going under and things like that. You're talking about custom account claims. And customer account what's nice about that, like both in FTX and then if you go back to Melcox is The docket was largely customer account claims. And so it's all trade claims. There's not a lot of uh structured debt. And so

22:47 Certain setups are just not appropriate for a small person or home gamer to be trying. But you know, you can literally buy claims. There's no nothing that stops you. But do you go do you do you put out a press release and you say, Hey All one hundred thousand FTX or Mtcox claim holders or okay please email me and let's talk. Oh yeah. If you've been wronged by this curly haired man Call me. I'm here for So okay, so yeah, so so uh in okay, Mtx is a good example, Fortress was my competitor on that docket and they were buying up claims too. Pete Brigger's a big uh Bitcoiner.

23:23 And he's one of the founders of Fortress. And they were buying up claims and they were my competitor. on that case. They were the only two people really buying claims. Uh we almost work together, but but we're still friends and everything. And still friends. Uh and um they actually did do like press releases and tried to get people that way. For myself

23:42 Uh this is gonna sound ridiculous, but the entire Fourteen thousand cr you know fourteen thousand creditors or customers. was a leak list. So one of the things about distress.

23:54 Yeah, so you were able to use the leak list to actually find people. My favorite is when you find somebody and his name's like Some random name like Sven Ericsson. I don't know, make up some and he's in tech and he yeah, on LinkedIn, he's like You know, he's he's part of the Bitcoin group. And then you ping him and you're like, Hey, do you have a Mt. Ox claim? If you do, like we could buy it from you. And he's like, How did you find me? And you're like, Well, let me see, you're under thirty five, you're into tech, and you're part of the Bitcoin group.

24:20 I just and they're they're only three with people with the same name. So you're all hustling. Like this is work. Yeah. Yeah, you're hustling. Does a lot of work. The work here is you find the person You contact them, you get them interested, you verify their ownership and that they haven't already sold the claim to somebody else. There's like a whole bunch of work that you do so that guys like me Could just invest in in buy just buy the claim and we feel like all right, you've done the diligence on this, you've done the cleanup work on this. That that's what we would have to trust you and that's why you get paid a carry or a fee from investors.

24:52 Yeah. And you know what's interesting is so it is a lot of grunt work. That's why I think sometimes it gets like the more like You know, guys holding footballs who you know played played hockey or something in college, you know, there's not it's not like the the brainiest side of distress, but actually there's a lot of intricate like uh I'll call them corner cases, like claim corner cases where you really do need to know a lot about the legal side. I mean, with chat GBT it helps a lot. But still it helps have a bunch of experience and you know, prompting chat is just as important as anything. So the more you know, the more powerful it is. But it seems like a good life for you. You're

25:25 You're hanging out in Italy. It seems like you work project to project. And what's the upside here for you? Like can you make tens of millions of dollars in one year? Yes. Yeah. I mean, I don't know, not I mean seven fingers definitely. Eight figures is pretty hard.

25:40 Uh, what happens is you get people to push back on your fees. They say like oh you're not in New York, you're not a real firm, like it's just a few guys, like you're just a broker. And um But you know, you build a reputation over time and then people will pay you more and more. And um

25:55 But you can definitely make seven, eight figures, um, especially in a good year. Um especially if you have something work out and you have a promote on it. So let's uh let's walk through That game I talked about. First, last, best, worst, weirdest, whatever. So what was the first Life yeah, maybe you were a kid, maybe you were in middle school or something like You know,

26:14 Sally w didn't want her bike anymore and y you're like oh Your trash is my treasure. You know, so w what was your first Tay foray into buying distressed assets. Okay, so my parents really were bankruptcy lawyers or lawyers. My mom specifically was consumer bankruptcy lawyers. So I used to hang out like at the courthouse as a kid. And like hang out with the clerk's office and with like US trustees and stuff. So I kinda grew up like really

26:39 Did you like it or she just like didn't have daycare and you had to go? Yeah, basically. A single mom. Basically like no daycare. Tom's got the clip on tie and he's in court with me. So a lot of clip on ties. Yeah, my this is my associate. Yeah, so um and this is like paper files everywhere. So no. So I grew up kinda hanging around it, would always hear about stuff from I remember when I was a kid first hearing about like HUSE. I was like, What's a Hud House? What's that? It's like Oh, you can buy these houses.

27:09 And you know, they're really beaten up, but you can get really good deals. Remember my brother and I flipped a Hud House? My mom put up the capital. I have no idea what the numbers were. We probably bought it for twenty or thirty grand. that you know my mom put up and we probably sold it for sixty. We did the demo

27:24 Demolition ourselves. Which is a You know, I have to say I love my parents. I'm glad I wasn't injured severely. Um you know, doing demolition when you're fourteen is probably a bad idea.

27:37 Listen up the old playbook is slowing you down. AI. Broke the funnel. Loop marketing. Fixes it. It's a new era for marketers. AI is capturing traffic, channels are fragmented.

27:49 And generating leads feels less predictable than ever before. HubSpot's loop marketing playbook will guide you through this unprecedented disruption. It's the system your marketing teams should use to move faster, connect deeper, and grow smarter. The modern growth playbook for the AI era. Built by HubSpot.

28:05 Designed for today's marketer. Get the loop marketing playbook at hubspot.com slash loop dashmarketing. To find out more. and leave your competition behind. All right. Back to the pot.

28:16 What was the story of the baseball card shop? Ben told me there was a baseball courtshop story. So these are the kind of things I was talking about when I was a kid. These were these these deals would come up. Uh you know, there was a whole thing where they the baseball card industry went through this this they were they were printing cards they said they weren't printing. I don't know if you remember this, Sean.

28:33 Um and and there was a bit of fallout and like the collection market for baseball cards and I'm sure a few'em went under probably like the microbrewery thing where those people were over made. microbreweries and then I've seen a bunch of microbrewery bankruptcies. And I remember l seeing it was a th the entire shop was three thousand dollars, which is a lot of money when I was A kid and my mom was like, Do you want me to put up the money and you buy the whole thing? And I was like We can do that. I was like, wow. So I would hear about these things as a kid and I guess it probably colored my

28:59 My imagination for what was possible. And then I kind of like between that and you know, I was really obsessed. So I started I guess I bought my first stock when I was eleven or twelve. I can't remember. But I was sort of obsessed with Warren Buffett as a kid. Um But and then and then what happened, guys, is over time is I sort of melded the two things together.

29:18 It's like what would Buffett do if he had the specific knowledge. You know the Naval term like specific knowledge of bankruptcy. Plus. what he knows well, which is like, you know, valuation and sort of like devalue investing or value investing. So I kinda melded those two things together. Yeah, it's almost I actually think there's three. There's

29:36 You have Knowledge of the law and not a f not a uh not as fearful. It's like I speak the native tongue of bankruptcy court, right? So it's like okay, I feel I can Get more certainty. than the people who hold the claims, right? Like I have a better idea of where how this will play out and how long it'll play out take to play out and where the puck will land. So it's like knowledge of the legal code.

29:58 Deep knowledge about deep knowledge and interest in deep value investing, which I like admiring Buffett and and and and Howard Marks and a bunch of these guys and and really learning from their playbook. And then the third is just the entrepreneurial hustle To go cold call, knock on doors, raise the capital, get the claims, do the verifications, go travel to, you know, wherever and make it happen. Right. So you kinda needed that Venn diagram to be able to do what you do. That's what I'm hearing. And and I think for me, like I got kind of obsessed with the adventure of investing. Like for me You know, like my very first, like, real distressed investment was this thing c and X Energy, where People had all these restricted physical shares. And so like I literally drove around

30:39 like the North East and bought shares off of people. And like we'd go into the local bank and get things medallion signature guaranteed. And I was like Um just like Buffett in Snowball where he's like going around and buying shares of the hunting lines. He's like knocking on the door of Gico. Like Can you give me a tour of the office? And like like trying to like figure it out, yeah. If someone hasn't read Snowball, could you tell us a uh a sort of a buffet hustle story or a buffet devalue distress story? Gosh I mean I must have read it at least ten years ago. So yeah, I mean he was famous for there was some security. I can't think it was a a hunting club that he joined just so he could buy

31:13 Stock in this I mean, maybe you guys have heard the story. But there was like a hunting club that also had oil on its land. And so It's probably a hypocryphal story where he like, you know, gets all the hunting gear and like joins the hunting club. Buffett doesn't give a shit about hunting. Hello, fellow hunters. Hello there. And he's got his rifle on his yeah. Uh so I can't remember exactly what the story was, but it was something along those lines. And I think it was like

31:42 You know, you could You know Yeah, one of the things I took away from Buffett is you're always using your unique competitive advantages, just like in any business, right? And in in every all the lessons from business kind of apply to And just pure investing. And you know, using those in your competitive advantage at the time there's all this informational arbitrage.

31:58 That's probably less and less now. They're still scuttle butt, meaning like making phone calls and channel checking and like getting out of the field and hustling. And hustling goes a really long way. But you know, now you have other advantages like you can invest in Japanese insolvencies. Buffer couldn't invest in Japanese insolvencies because you didn't have Google Translate. So

32:16 You know, you just have to keep pushing the boat out. To me, that's the real lesson of uh Joel Greenblatt or Warren Buffett. Joel Greenblatt was like a famous specialist investor, which is Yeah, you play the field. And you use everything. We just talked to Howard Marks and both Sean and I have read a bunch of Buffett stuff. You're doing something I have I you know, I don't wanna

32:35 I don't know how great of an investor you are other than like this one topic is is really fascinating to us and you seem wonderful. But you're doing something that they do. Which is you use really great language. So you've used a few phrases You've used a few really good phrases that helped me understand things a little bit more effectively. So you're like, I just you just gotta keep pushing the boat out. Or you're talking about like scuttle butt like you you've used these words that have done a really good job of explaining what you do, which in my head means You have done a very good job of creating a framework on how to think about this type of stuff.

33:05 For me, I think it's all that valuation, just how you manufacture the valuation is like the sauce and like how you you know, you're making your sauce. Like you guys are doing venture deals, like so much of it is probably access and connections and reputation and being able to get allocation, but also being able to vet founders or vet VC firms and like You know, and also knowing what the docs look like, like all that kinda like W not a Venn Guy gram, but that that whole like

33:32 Soup that makes it work. That's that we have the same thing in and what we're doing. I mean Howard Marks is an absolute Legend. Um, and you know, he has a very famous I mean, I'm sure he talked about Bruce Carsh, who was Did um

33:46 You know, a lot of the investing and Howard Marks is like the great communicator. I mean the guy I mean that's one of the things I think people don't appreciate is You can still work on investments, make really good returns. But those guys are like monster communicators. Like

33:59 They are great at fundraising. Uh and and And they're great at what they do. So it's just it's a it's they have like multiple skill sets or you know, or they have partners to back them up. You you sent us a a list of your like core philosophies and you told us the first one, the steak and sizzle philosophy that you live by. Tell us about some of these other ones. So one is

34:21 Shop Madison, not canal. What does that mean? Okay, I stole that one. I like it because What what devalue and distress The mistakes they make is they sometimes buy Like value traps. They give I real crap.

34:33 The idea is you want to Bye. Real stuff that is cheap. The that could be good. So like the the the phrases you know you don't buy You know, handbags on Canal Street,'cause those are all fake. You buy'em you try to get a good price on them Madison Avenue when they're discounted. Not

34:48 You know. 'Cause you know, Fool's goal is a is a real problem in distress. Do you say, Oh, well, this guy put two hundred million dollars in it was only ten. It's like, Yeah, but it's worth zero. So you you gotta be careful of of this kind of bias that runs into like, Oh, it's such a good deal. You're like, Is it? So I mean

35:05 Assets become liabilities and liabilities can become assets. When you get in a restructuring situation. All right, let's do the next one. He said, Start young. The first decade is tuition. I love this. This could apply to any field, by the way. I think that's a great phrase just in general. Well you guys come on, y'all y'all know a lot of the stuff, but uh for me I w I started when I was twelve. I was terrible.

35:26 I think the first the first I could tell you the first stocks I bought. I bought depot because Bob Nardelli Who is passed over Uh Whoever I think maybe Jack Walsh or maybe Emmet or whoever became the CEO of GE came over to him Depot and he was gonna GE Home depot. Well that didn't work at all.

35:44 And you know, so I wasn't investing in all in valuation. I was based on a story in HBR. There was this huge article in in a Harvard Business Review, and I was like twelve years old, like reading this, being like oh yeah, ethos. I don't even know what this word means. He's gonna change the ethos like the first stuck. Yeah, I was like ethos, what's I never heard of this word. Sounds smart. So that was like the first talk. The other one I bought was Inco, which was um a large nickel producer in Canada. That actually did work out. It was based on like the rising price of nickel. I read about in Foreign Affairs and the third one was from a Forbes article.

36:19 It was EMC, which is a chip manufacturer. I can't remember what happened to that one. I think I Yeah, the thing is like Yeah, this is the thing about stocks, especially when you're young and you've never done anything. You buy'em and you're like, Okay, I bought them.

36:31 All right. Then day two you're like, Now what do we do? My kids are um I have a a one year old, a four year old, and a five year old. And for my four and five year old I just uh like they were trying to earn something. They wanted like ice cream or a treat or a toy or whatever. If we do this, can we have that?

36:47 And I was like, here's what I'm gonna give you. I'm gonna give you A hundred dollars. They're like a hundred dollars? I was like, I'm gonna give you a hundred dollars each. But 'Cause I was teaching about like

36:59 We were at the group we were like waiting in the parking lot and I was explaining what a grocery store is. I was like, Yeah, so somebody owns this business and then they buy the stuff and then they sell it to us. I was trying to explain what a business is and I was like failing miserably. And I was like, Oh my God, why is this so hard to explain what a business is? But I basically told them I gave them a hundred dollars each and I this weekend I'm going to present to them. five stocks of products that they use and buy. So like we bought a Nintendo Switch. It's like here's Nintendo stock. Here's and I'm gonna let them pick and let them invest it in an account where they're gonna start to see whether it's going up or down. And I'm gonna have them explain in their whatever their logic is of why they picked, you know, either Nintendo or whatever, you know, Yamaha or whatever whatever tw whatever pr uh stock that they pick, and then they're gonna get to like ride the ups and downs of this. So I'm I'm with you on start'em young, even younger than uh than than you you would guess. Well, you yeah, I just think that, you know, I don't know. I'm in on my own experience, like, you know, you'll meet guys. This is a common thing I'll meet guys.

37:54 I don't know where I'm here or on holiday or wherever and they'll have an exit. Like I met a guy who's like a very Um early. employee at at Airbnb and he had probably eighty million b dollars or a hundred million dollars. But he's never actually invested money. So now he's

38:08 Forty five, probably, fifty. And now he's like, you know, I'm so good at this, like I'm gonna buy some Duolingo and I'm gonna, you know, do this and do that. And I'm like Well you just need to respect the fact that you've actually never invested money. I mean you you were amazing operator and you got a rocket ship. That's awesome. Well, we say that all the time on here, which is there's a huge difference between investing and earning, like via a company. Not just a different. It's almost like the opposite. Yeah.

38:34 It's like a power lifter that then goes and tries to, you know, do ballet or something. It's like, Oh yeah. operator. It's all about action. You know, it's all about action, action, action. You gotta do stuff. Right. You're trying to do as many things as you can be super productive as an investor. It's like sit on your hands I'm in action is your friend. All the money's made in the holding, the waiting, the the observing And as an entrepreneur who was rewarded for taking action, you get punished as an investor for taking too much action. Yeah.

39:03 And I'm you know, it just it just it takes a ton of experience to be good. And well, even to be okay. A question that Sean uh has asked me before that I love, which is like basically how do you invest your own money? Uh and and I wanna ask you the same. Do you since you are a professional investor, do you have one hundred percent of your portfolio in a variety of deals like this, or are you doing any passive stuff or is it all um active?

39:29 It's all pretty active. Yeah, I don't I don't you know, like you w for me it's like tax advisors great. Uh, people that like, you know, a state planning advisor is great. Guys that wanna manage my money, no thank you. Um, partially because I enjoy it.

39:46 Um, but also uh I don't think that I've reached the capacity where I have more money than I know what to do with. You know, I think that I can still find a a lot of deals. I mean You know, your opportunity stuff when you're have, you know, a million or ten million or whatever. Is it just a lot better than if you're you know, if you're at a hundred or for You're the optimal the optim

40:07 The optimal strategy uh changes based upon your capital base. So when you say active, do you mean It's All distressed. It's like your specialty. That's where you're putting most of your your net worth, the majority of your network.

40:22 Right. When you uh you were saying like, you know, early on with your hedge phone, you were putting five percent into that deal. You you weren't allowed to because you have as investors to get like, you know, as crazy as maybe uh to match your own conviction in the deal. Uh now that that's not the case anymore, like How concentrated have you gotten? Like do you put have you gotten any have you ever been at a point where you're just like Insanely concentrated.

40:43 I kinda like it when it hurts a little bit'cause it's so co I'm so concentrated. But maybe that's me. I don't know. Yeah, that is I feel like it's a little bit like an entrepreneurial bent, like you kind of if you're not pushing yourself then then then I I wouldn't feel comfortable with it. I mean, I understand if you have a big exit Um Yeah, for me I'm constantly uh investing into other deals, friends deals.

41:06 have pretty I feel like I have pretty good deal flow in the distressed area. And then the claims work I wouldn't say it's free money, but You can almost reliably compound your money on a small base. You know, like a few million bucks or something, you can reliably compound that at pretty aggressive rates.

41:21 W what do you mean by pretty progressive rates? What is that? Was that fifteen percent? Is that twenty five percent? Is that thirty percent? What do you say talking about? Just I don't know, probably thirty to fifty, depending on the year. You can you can probably easily get higher than that. There's these guys, Sean, like in I used to live in Texas and There are guys who like I didn't know what their job was.

41:40 I'm like, I don't know what you do, but you're really wealthy. And I just started calling them capital men. They're just capital guys. Where it they just like Did they like it when you called them capital men?

41:51 It's a good phrase. You're you're a capital guy. Maybe, I don't know. I guess I'm for me I've uh I've I've I feel like I've spent my entire life studying like the history of sort of like modern investing, like guys that bought banks out of bankruptcy before you c you know, before you know, when you could do that. you know, guys that have meant it enormous fortunes with um you know, like there's there's a guy that bought a tobacco company around the time they were doing the um um settlements with the tobacco companies who made a fortune. So I've studied a lot of these things and I've always wanted to be

42:23 To do Just one deal like that. So I guess I've always aspired to do that. But I mean if you there's that phrase, you know What is it, a position well bought is already half sold. And I do think when you're doing sort of very special sit sort of deep value, distress stuff. If you're selective

42:40 The problem with the fund and the big institutional moneagement firms is they always have to constantly be finding deals. The nice thing about being a little bit of a home gamer is You can kinda select you can be very selective. You can literally do nothing in a six month period or a year. If you just can't find anything. And you know, they still do claim work and bring in income, but You don't necessarily have to swing.

42:58 I mean, we've seen deal over my lifetime I've seen deals where guys have You know, turn Yeah. Twenty. twenty million into three billion and

43:06 You know, six million into eighty million in one year. I mean, you see some incredible deals. in the space and you know, y you're getting high optionality, low risk because of the price you're paying. But it's a ton of work and a lot of brain damage for sure. And a lot of hustle. Well not necessarily the claims. All right, let's take a quick break because I gotta tell you a story. Let me tell you about the first time I tried to run payroll for my team. I was using a traditional bank and you know the type. It's got a janky interface. It's built like a 2002 tax form and it was open only during business hours. And I hit send.

43:36 And it froze. They flagged the transaction, they locked my account, they put me on hold for 45 minutes, and then they told me I gotta visit my local branch. And that was the day I started looking for a new banking solution. Uh after asking a few founders what they were using, I found out about Mercury. And so now my payroll is two clicks. I can wire money, I can pay invoices, I can reimburse the team. All from one clean dashboard. That's why I use it for

43:56 all of my companies. And so do two hundred thousand other startup founders. And so if you're looking to level up your banking, head to Mercury.com and apply in minutes. Mercury is a financial technology company, not a bank. Banking services are provided through Choice Financial Group, call them NA, and Evolve Bank and Trust members FDIC. We've kinda hyped up. You know, what you do for glamorize it a little bit in this episode. We've glamorized you and what you do. Give us a little bit of the ugly. So first on the asset class in general. So for example

44:22 Start up investing. I could tell you is amazing. You meet these entrepreneurs, they're telling you about the future. These are the smartest of the smart Young, ambitious, creative people, and when it works. Did you create the next Facebook, next Airbnb? You create you can create you can get 10,000 X. And then you go and start doing it and you're like, Oh, and also

44:40 You know, you're gonna be wrong most of the time. Um, you think you're gonna learn so much from these people. It's like you hand them the check and then you kind of don't hear from them that much after that. You're not actually gonna learn that much. uh nor do you have any control or say in it in at all what's going on in your investment. And by the way, even when it works, it's gonna take ten years for it to get liquid. You might be rich otherwise you know, this is not the way you're gonna get rich. It's the way it's a hobby for people who are already rich. And that's like If I was gonna say, what's the real talk of angel investing, that's how I would describe it. What would you say is like the ugly side or the bad side of what you do? What's the downsides of this asset class? Well, just stress just stress in general, uh as a small

45:18 player you can get totally hosed. So don't like Th the the every now and then I'll hear someone um even s Smart friends will say, Oh, well, you know, KKR is gonna make sure everyone's taken care of'cause they don't want the bad press. I'm like, What are you talking about? It's not like Wobagon. They are gonna walk all over you in bankruptcy court. So I never understand this logic and and it it's only from many years of being like, Oh, they're gonna play nice and no, they're not gonna play nice and don't ever assume that. And sometimes you do get a gift, they'll do

45:49 You know, things that'll that'll be a l a little more gift like to wherever you are, if you're in a preferred or if you're in equity. God forbid your inequity, but if you're even claimant and things like that. Um, so that's one of the ugly sides. I think also one of the ugly sides is Yeah, it's very transactional and financial. So

46:08 doesn't exactly you don't get people who are like giving you the starry eyes of the future. A lot of times you're you're sitting across people arguing over a pie that ain't growing. In fact maybe the p pie is bad apple pie that's already gone off. So it's like they're really arguing over Um uh s you know, something that could be either dying or shrinking. So Um, I think it has an emotional toll on you being in distressed investing. Also, you are actually hearing people's

46:34 life stories like you know, I I I I will not mention names, but you know, companies will go bankrupt and this'll be someone's entire life's work. And they're they're Picasso. And they're spending two hours telling you about their Picasso. And you just can't you just gotta let him You're almost like a guidance counselor. Walking them through

46:52 You know, maybe doing a deal or transaction and try and be as respectful as possible with the fact that this person might have just lost their life's work or their family's fourth generation business, et cetera, et cetera. So you um you have people in real they emotionally are in distress. So it is a tax on you, but also you need to be as respectful as possible. And um I don't think well think what else. I mean, I think as a small player it's very hard.

47:15 I think for me I I would say that investing isn't I would f I wouldn't say I'm good. I'd say I'm okay investor. I'd also say that it's a bit of a disease, so I kinda like feel compelled to do it, even though sometimes maybe it's not the best thing for me. So Um, I always joke that it it you know, it's kinda it's kind of a disease. Like I'm looking at this stuff on nights and weekends on Sunday morning. You know, um you know, just like you might be look you having another call with a startup that you think is interesting or trying to get in on an allocation for something like

47:46 I'm doing the same thing with my deals. Like I'm trying to Learn a little bit more and see if I can Find something, um So yeah, I don't know if I answered your question. No, you d you did. Uh the second part of the question is we've been glamorizing you a little bit, but you called me You know, before the pod and uh or you called Ben and you were like, Hey, like

48:05 You know, like If you Google me, you're gonna see some stuff. I wanna be able to you know I wanna do you guys wanna ask me questions? Do you want me to talk about that on air? Like do you want me to clear the air about this? So like Hey, here's an opportunity. Cause if somebody googles you, yeah, there's like a a settlement case. I don't know what's going on with this. Like, what do you want to say about this? Yeah, so and and I that's why I said I said Ben I got like You haven't said anything about this and I'm wondering why you haven't, and I just wanna put it out there.

48:28 Which is yeah, I was involved in this receivership in Delaware. I guess they're pretty nasty headlines and I have to say You know As I've gone through my life, I've had a lot of ups and downs, like any anybody or any entrepreneur for sure. And uh this was a down one and I'm I

48:43 I'm glad to have it behind me. But basically It was a receivership that I was in charge of. I you know, we hopeful we made a lot of money for those shareholders. So the the court didn't like some of the way I went about you know my activities And sort of aggressively slap me. On the wrist, or maybe in the face.

49:02 And uh I'm glad that everyone in the it's called fun dot com is getting a good recovery and I'm glad to have it behind me. But yeah, it's like one something I wanted to pull. Bring up'cause I didn't want to act like it was something didn't happen. Okay, but what'd you do? You're like ah isn't that not my best book what'd you do? So The biggest thing is so I was running this receivership

49:23 And of course, because of that I was in charge of doing everything, whether it's like administrative work or like running the bank accounts and doing the taxes. And Yeah, while I'm going to dumb question. W what does doing the receivership mean? You're taking it through bankruptcy? Is that what that is? So you're y it's kinda like a bankruptcy, but it's a state

49:41 Um in state court. So this was in Delaware Chancellor Court. 'Cause the company was a Delaware court. And so My job was to sort of marshal all the assets. There were no assets when I showed up. So This is a basically a pump and dump.

49:54 Penny stock. I bought up twenty percent of the company and then I went to Delaware because the guy who was running it Actually arrested for a different fraud that he was doing. This guy named Jason Galanas. And so because of that I was like, Oh,'cause I knew all along that this company

50:10 likely own the domain name fun dot com, plus they own this um ownership of a um an ETF company called Advisor Shares. So I went and got myself a pointed receiver. There was no assets in the company. And my my goal or my what I was my remit from the court was as a receiver, almost like a bankruptcy trustee, was to marshal all the assets and then try to pay out as much to to uh Sure it was possible. I think I did did that.

50:33 Um the court Yeah we and I did do it. But we had a sh I had a shareholder who was very unhappy with the way I was going about it. He complained to the court. The court looked into my activities. They didn't take kindly to some you know.

50:46 Some of the things I did, whether it's the tax position. Or where how uh when it how how I was moving money around and the fact that I was investing the money. in deals that I was doing. And so You know, they pretty aggressively slap me and that's where the headlines come from.

51:00 Um, I of course have the whole time feel like I did my best to cooperate with the whole thing. And I'm glad to see that we have a good settlement with the res with the new receiver. um of the receivership and um again the outcome for the all the shareholders who were involved is pretty darn good, which I'm glad about because at the end of the day I didn't want it all just go to lawyers fighting

51:21 over this and you know. That's That's kinda what happens. So Not my brightest moment, I would say, because I feel responsible as a person in charge to do everything and do it properly. And uh I don't think I'll be

51:36 The university wrote anything anytime soon. Don't think I'll be doing that again. Okay, well you know, sorry to make it awkward. I just had to ask, uh try to understand whether you know I'm glad to hear And I've you know, my thing is for me reputationally as someone who does what I do. It's important that that I try my best.

51:54 But I think in the end. Over time I'll be able to talk about it more and more. Sam, you look you look highly amused by this by this question and answer. What are you thinking? Uh the headlights aren't good. Yeah, I I saw the headlines. I understand why you'd want it addressed. Um It's not it's it's not a good headline. Yeah. I'm reading it as you you spoke. So did you admit

52:14 Guilt? Is that what a is that what's what's implied with the settlement. So the settlement is just uh Well, the full the the settlement in addition to the fine from the court does the court fine me two million dollars, so I paid two million of what they considered were constructive trust profits in. Plus I played for the special master. That was another seven fifty or eight hundred.

52:36 So it's basically three million. Then the settlement was three point six million plus eight hundred thousand that was in escrow plus about ten million dollars in claims. So I gave them claims that they say were commingled within My personal investments. Do you

52:52 Do you think it is a notion of liability? Yeah, so I don't know how to even ask this question. I can't ask this question. There's no admission of liability. You can ask as you should. My only thing is I don't I've never I'm glad that is a good outcome for shareholders. And I wouldn't want anyone to be inflamed by the stuff I say, like any sharewater will be like, oh, he's not like admitting You know. In my estimation, it's a lot more grey than the court tries to make it out to be, but at the same time like

53:16 I respect the court. You know, like I was grazed by lawyers. If a court says that you know, I don't care what you're arguing, I disagree with you. We've we've had a bunch of people who've come on this podcast before that I think have had Stuff.

53:27 It's fairly common in the world of business. You do business for thirty, forty years that At some point something can, you know, it's it's extremely common for something to to go down or you get sued or you sue somebody or whatever happens. Um that part's not uncommon. What isn't interesting, like Sam, I don't know if you remember when um We had Martin Shkreli on. And he's sort of got this character, which is like he's the bad guy and he like

53:49 leaned into it and like inflamed it and like did a bunch of stuff, which was like really crazy. And he got my trouble. And then he had the issue where you got in trouble and he was like, hey, everybody made money. And then they're like, Yeah, but like you went to jail. So like you know something happened and you paid the price. And I remember you were telling them you were like And this was this is now like years later, he had like literally like done his time. And again, he's quite a character. Like Scroll's like an actual He's an actual character. He I think he plays a bit I think he plays up that character and I think he likes it. He likes mixing it up in that way. But I remember just thinking like

54:25 It's so interesting how to handle something like this. It's such a such a tricky spot to be in. Um,'cause there's many versions of things like this. Like there's I did something wrong not knowingly or in unintentionally. I did something wrong intentionally. Then there's like the Shkrelli case, which is kinda like I did something wrong intentionally, but everybody Like made money. And so who's w you know, so so it all worked out, right? And even for example, like Elon right now, I think is getting sued in like you know, you know, fifteen different courts by fifteen different people and like publicly feuding with the president and Sam Alman and others, right? Like it's like There's a lot of people just like constantly mixing it up. And I I don't know, it's just it's very interesting to see how uh That side of

55:04 That side of entrepreneurship, that side of business, that side of investing. I definitely think it ha it has to happen. and maybe not as aggressive as mine was, but I definitely people think over time you're gonna have scrapes with with certain stuff. The whole bad guy thing, and I know Oscarelli did kinda lean into that, I guess. Um, even now, I feel like it well, I don't know if it does now, but Um, kinda. I don't know.

55:25 It's a it's a different way to do it. I for me I I kind of like Don't view it as a good thing for me. I kinda view it as like Something that if someone's gonna be a business partner, me, I need to be able to explain and and you know, frankly probably more candid than on air. But at the same time, like try to respect the the outcome of of the whole thing. How long did this last? Gosh, twenty twenty two.

55:46 Oh wow, three years. That has to feel horrible. I've gotten in trouble before when I was in college and just like waiting to hear the verdict. I remember like that feeling and mine was not I think your your your consequences are w significantly worse than my consequences, and I can't imagine Uh

56:06 Three years of What's gonna happen? You know, for me, I try to resign my fact resign myself to whatever happened. Like I have to accept responsibility for that. That was a big one for me. So I like really was, you know, bracing for the worst, but trying to do the best. Also like Even even with the settlement, but like way before the settlement with different things that went on in the case.

56:27 I was really trying my best to be constructive and cooperative with what the court wanted me to do. But at the same time, like You know, not everybody's gonna love your decision making. I guess it's like you know, it in a weird way it's like You know, it's it's you know, I grew up in the south where people are way too like I don't know, maybe maybe sometimes you know, maybe my upbringing was a bit too like people pleasy, but this was more like you have to do the right thing whether someone likes it or not.

56:53 You have to do with the r what you think is the right thing. So that's what I really a lot of it what I got out of this And I try my best. And people might not like what you've done, but Or you know, what you made a decision like, Oh, you're doing this, you're trying to hide this, or you're trying to do this, and you're not cooperating here. But you're still trying to you're still trying to to to find some mill ground.

57:11 So but it was a big one. Big one over me. I wanted to ask you, uh we can end with this. I wanna ask you Uh for a bit of a reading list. Uh if I was gonna try to get

57:23 you know, smarter about the stuff. Are what are like I don't know, the the most influential books or blogs or people that are are worth checking out. Like give me your kind of top three Uh in no particular order. But what's your short list on stuff I would go read just if I wanted to get smarter at the stuff? So um I think on the list, um,'cause I shared like a r a book list, of course you have people like Seth Clarman and Margin of Safety. It's a hard book to find, but if you google around you might be able to find a copy that you can Isn't it like a two thousand dollar book now? Yeah, it's like a thousand plus. It it's it's good. He talks about different stuff. I just think that he's kind of a goat in the in the kind of deep value.

58:01 Um yeah, Bowpost and Seth Clarman are pretty influential, but You know, a easy guy to find, you know, um anything by Marty um I'm already letting button. I'm trying to think of his name. Um, from Third Avenue Value. Um, he's written a few books on distressed investing and He was the one that kinda stole the idea from him where it's like an asset is a liability and a liability can become an asset in a bankruptcy and it's so true.

58:25 And you think about it with a lease. If you have fifty leases and they're all below market. Well the debtor a debtor can assign assumer or reject leases. So if you're all below market rents, you can just ass you can ass you can assign them. And they can become an asset, even though leading up to the bankruptcy. You know, they can be a huge liability to make those payments.

58:44 You like Kirk Akorian. Sean, have you ever read about Kirk Ikorian? You've told me about'em, but I haven't read anything about him. Oh my gosh. That's one of the best biographies of all time. Kirkakoring. Oh my God. Yes, the gambler. That's one of the best by basically he's a Arminian, I think I think Armenian uh immigrant. Yes. R raised in Central Valley, California. Uh went to the army. When he got back his first little business was a small airline, which basically just means he somehow convinced someone to lease him a small Sna and would fly people back and forth from like

59:17 I don't even know, all around California. Like it it sounds more glamorous than it was, but he grew that over something like fifteen years and a sold the business to TWA, which was the large airline company at the time. And he made a little bit of money, but he parlayed that into buying the uh what would now become the Las Vegas strip. And then he parlayed that into buying this other thing, this other thing, this other thing, and he worked his way all the way up from being a nobody Poor

59:42 No running water immigrant to owning uh what was the car? Chrysler. And I think he also owned uh like Warner. Did he own Warner? But he for sure owned Chrysler. Uh MGM, I believe. Sorry MGM. And uh the biography is basically his thinking. He's very calm, he's very methodic, he's very like kinda traditional immigrant, like where he was like straightforward, it is what it is, I don't stress about it. But he was a total kind of degenerate gambler and he died with a net worth of something like fifteen or ten billion dollars. Sound about right.

1:00:16 Well, you know what I actually love'cause you were asking about books, Sean. It's like I actually think the entrepreneur Uh like biographies either Autobiographies or biographies can be amazing. There's one Um called Zeckendorf, which is by a guy who's like a big real estate guy in New York who like made a billion, lost a billion.

1:00:33 Uh there's like one, it's like How to lose a hundred million dollars, another valuable advice by Arthur Little. Like there's all these kind of like entrepreneur books that are like Some are out of print, some are still out there. And of course there's like sp you know, special sit investing, Joel Greenblad, You Can Be a Star Market Genius. These are these are great books for when talking about securities. But I actually think the best investors are people you've like never heard of.

1:00:55 Um because you know, they make a hundred million bucks and then They're like I'm out. Peace. Like you know, you kn you might And and it there their stories aren't recorded. I I think I put E P Taylor in there. So you wanna hear the UP Taylor story real quick? That was a really great one.

1:01:09 So Eve Taylor During prohibition He would go up and buy up breweries. And his whole thesis was like One day

1:01:17 This is gonna be done. Like we're not gonna we're all gonna start drinking again. So you would go around and buy up like Uh you know, w manufacturing, distribution, bottling. That was a play on that. And he would roll'em up'cause the capacity was so low he could buy them for peanuts. And that was it. That was his one trade. Like, you know, of course it took him twenty years to work the trade out.

1:01:39 But um You know, he may he minted himself a you know, some serious dough. And and then he wrote a book about it. So I think these these guys, you know, you can do books. The biography of Edward Plunkett Taylor? Is that him?

1:01:52 Yeah, that's him. Ever plunkett. And he founded the Lifer Key Club. I don't know if you guys ever been down there, but it's like a famous club in the Bahamas. Like Primlots and Well, Sam Bankman Fried was across the thing at a place called Albany. Uh down in down in the Bahamas. But um Did you ever did you ever bump into San Banquet Freed? Any any good SPS stories?

1:02:12 You know what's funny is like so I was in crypto And then Sam became like this like Rockefeller of crypto, like John D. Rock Crypto. I was like, who the hell is this guy? Like I never even really I never really ran across him in passing and a lot of people that worked for him were like You know, whatever EA or E. I Effective altruism, yeah, EA people.

1:02:30 So you had a lot of EA people around. I just didn't know any of those folks. They weren't like hardcore crypto people. Yeah. So it's kind of a weird thing. When I saw him coming up, I was like, Man, how did I miss this? Where'd this guy come from? We had Robert Green from Forty Eight Laws of Power on the pod like two weeks ago or something like that.

1:02:46 And um He kinda we we we uh have you read Four Eight Laws of Power? It's like It i the book is what it sounds like forty. I own the book. I think I breeze through it, but I haven't all of it. Forty on acquiring power, whatever. It's very sociopathic, but that's like kind of the point, which is like it's the sociopathic, but it's real. And one of the laws is like to reinvent yourself and and also um we so and we had talked to him like w we were like when you have social media, you can like talk to your people, talk to your audience like

1:03:12 While you're on the toilet. Like any any hour you can tweet anything. How do you deal with that? And he was like basically like you want to have um You wanna have planned silence. So you like you know, the best way to be loud and in everyone's face sometimes is to just shut up and c and and and not say a word. Disappear for a while. In disappear for a while. And he was talking all about like powerful people who kind of come out of nowhere. John Rockefeller is one of these guys who Uh, he was one of the richest men in the world before everyone like no one had seen a photo of him. And it was all part of a plan, I think.

1:03:42 And it sounds like uh Sam Bakeman Freed, we didn't give him enough credit because when at least when I saw him coming up, I was like Oh, he's just an autist and he's just this typical Silicon Valley type of like He just doesn't know. He doesn't have any manners. This is all but it turns out it was probably all planned where he was like, I want to appear as though I slept on this beanbag. I want to appear as though I'm playing video games while I'm talking to Sequoia over a two hundred million dollar deal. And it it was straight out of Robert Green's four eight laws of power, uh, which is pretty funny. I mean I met a ton of people that work there, of course, and a ton of people that were like in the orbit. And it's kinda crazy to see the different

1:04:21 Um I guess like Munger does it best, right? The Lollapalooza effect of like the whole thing, like everybody's getting drunk off the money. Were they straight, like. Yeah, like almost e all the people all these employees, they didn't know anything what goes on. They weren't just normal nerds. They're just normal workers, just normal they weren't part you don't think they No, I mean like I met the lady, she was ahead of payments.

1:04:45 And she was like an expert to getting Like Um payment licenses. So basically like banking licenses around the world. Um

1:04:53 And uh she had worked for Somewhere and then she got then C Z pulled her over to to um The Binance and then He she got poached by Sam. She was just the best. Of course he had to pay her like she was the best. She was making millions of dollars a year.

1:05:09 Um But like some of their contracts were insane. I mean, Sam was giving out ten year contracts to people. Guaranteed ten year pay contracts, you know, like million dollar contracts to like salary employees. A little bit like the you know, uh like AI know. Meta thing. I mean it's a little bit like that,'cause he had so much money coming in from VCs.

1:05:29 And of course he had an unlimited You know, well not unlimited, but he had a big customer base, the to uh to dip into. So between that, I mean he was making unbelievable Um Like whatever you want to call it, unc unconscionable contracts too.

1:05:45 Dude, uh just to put this in perspective, I think Zuck, I think the news about this stuff Kinda came out. Yeah, let's just call it even Three, four months ago. Okay. So let's just say this been going on for three, four months, the the eight researcher stuff.

1:05:58 If you go look, so four months ago The stock was at About five hundred let's even let's go April first, so five hundred and eighty six. Today the stock's at seven eighty four. So it He's spending this money or he's making these offers.

1:06:14 Which has a yeah, a mul multiple effects, right? First, it raises the price for all of his competitors. So he's like cool, even if they don't take my offer, now they have to pay one hundred X what they were paying for talent before, like way to screw up their business. In his own business. The s the stock since then it's now at seven eighty four, so it's up thirty three percent. So what's thirty three percent of it's oh it's almost a two trillion dollar stock. Six hundred billion dollars or six hundred billion dollars. He's basically offered the equivalent of twenty billion dollars for these for the for this talent, right? Maybe maybe forty billion max. And so he's basically said, Cool, I'll put out offers and try to spend

1:06:52 twenty, thirty, forty billion dollars. already made back six hundred billion In the market. Just in that time. With j but by strengthening my story of us being all in on AI.

1:07:03 Right, like it it's not like the Facebook business changed that much in four months. Where it's up six hundred billion dollars because of the actual You know, like user base growing or or even even revenue or earnings. Yeah, they beat they beat by like, you know, a small maybe eight percent beat or something like that. Uh, but the reason it's up is because everybody believes AI is the future. And who do you think is gonna win in AI? And you get punished if people think you're not gonna win. Apple stock is like going down right now because people are like, Apple has no AI strategy. They're gonna lose. And then somebody like

1:07:35 Yeah, Meta. It at least the story is Zuck is all in. Gonna win. Poaching great talent. We'll see, you know, and so there's a believability to it. So that it's crazy that you can spend so much and somehow net out way ahead, like he did. That's crazy.

1:07:50 That's crazy. That is magic of the market. Um Hey. Tommy, we appreciate you doing this, brother. Oh guys, thanks for thanks for having me on. It's just good to meet you guys in chat. Um all right, that's it. And uh we appreciate you. That's the pod.

1:08:04 I feel like I can root Well I know be what I want to Uh All right, let's take a quick break because as you know, we are on the HubSpot Podcast Network, but we're not the only ones. There's other podcasts on this network too, and maybe you like and maybe you should check them out.

1:08:21 One of them that I want to draw your attention to is called Nudge by Phil Agnew. And whether you're a marketer or a salesperson and you're looking for the small changes you can make, the new habits you could do, the the small decisions you could make that will make a big difference, that's what that podcast is all about. Check it out. It's called Nudge. And you can get it wherever you get your podcasts.

What you see above is a preview of the first minutes. One unlock costs 10 credits and covers this episode forever: full segment and word-level timestamps on this page, plus .txt, .srt, .vtt and word-level JSON downloads, as many times as you like.