TheChek News Flow

Lawsuit deals a further blow to investment company and its owner Digital Currency Group

FTX trading affiliate Alameda has sued crypto investment company Grayscale and its owner Digital Currency Group over the structure of their large bitcoin and Ethereum trusts, dealing a further blow to the SoftBank-backed crypto conglomerate.

Alameda, which is being run by restructuring expert John Ray alongside other FTX affiliates, accused Grayscale and DCG’s management of being “possessed by self-interest” and enriching themselves “at the expense of trust shareholders”, by refusing to allow redemptions and charging exorbitant fees.

Grayscale, DCG’s asset management business, operates several cryptocurrency trusts from which it earns lucrative fees for managing bitcoin, ether and other tokens for customers. Investors can buy shares in the trusts through their brokerage accounts, rather than holding direct exposure to the coins.

Alameda owns more than 22mn shares in Grayscale’s flagship bitcoin trust, the complaint said, and a further 6mn shares of the company’s Ethereum trust, which equate to more than 3 per cent and 2 per cent of the overall shares outstanding, respectively.

Those holdings were worth $290mn on the secondary markets as of the end of last week, the complaint added, and could be worth almost double that if Grayscale reduced its fees and allowed investors to redeem their shares for the equivalent value in the underlying crypto assets.

Since the collapse last year of FTX — which was founded by Sam Bankman-Fried, who was forced to step aside when the exchange and affiliates, including Alameda, filed for bankruptcy — shares in the trusts have fallen to substantial discounts compared to the underlying crypto they hold. Grayscale’s bitcoin trust is trading at a 45 per cent discount to the price of bitcoin.

Grayscale does not allow investors to redeem their shares for the coins held in the trusts, which would help close the significant net asset value gaps.

“Due to [Grayscale and DCG’s] malfeasance . . . the only way for shareholders to exit their investments is by selling their shares in the trusts in the secondary market, where shares are trading at a fraction of their proportionate interest in trust assets,” FTX alleged in its filing to a Delaware court on Monday.

In a statement, FTX’s John Ray said: “We will continue to use every tool we can to maximise recoveries for FTX customers and creditors.”

The lawsuit marks the latest problem for Connecticut-based DCG, which is one of the largest and oldest crypto investors. DCG’s chief executive, former Houlihan Lokey banker Barry Silbert, and Grayscale’s chief executive, Michael Sonnenshein, are also named in the complaint.

DCG has been battling the fallout from plunging crypto prices and the collapse of FTX since last year.

The lending unit of its crypto broker, Genesis, filed for bankruptcy earlier this year. The group is seeking to sell its news site CoinDesk in an attempt to raise money and repay creditors.

Grayscale’s flagship bitcoin trust holds about 3 per cent of all bitcoin, worth $14.7bn, from which the asset manager earns a 2 per cent fee. It earns a 2.5 per cent fee for the 3mn of ether in its ethereum trust.

The asset manager has long argued that the trusts should be converted into exchange traded funds. Grayscale is suing the US Securities and Exchange Commission over blocking the creation of a spot bitcoin ETF, arguing that this would benefit investors and allow redemptions. Oral arguments in that case are scheduled to be heard by a federal appeals court on Tuesday.

“The lawsuit filed by Sam Bankman-Fried’s hedge fund, Alameda Research, is misguided,” Grayscale said, adding that the company “has been transparent in our efforts to obtain regulatory approval to convert GBTC into an ETF — an outcome that is undoubtedly the best long-term product structure for Grayscale’s investors”.

Co-founder of Switzerland-based energy trading company said to be reluctant to yield control to Abu Dhabi group

Abu Dhabi National Oil Company’s potential acquisition of Gunvor, the energy trading house, has reached an impasse because of a disagreement between the two sides over the size of the deal, said people familiar with the negotiations.

While Adnoc had hoped to acquire all of Gunvor, or a majority stake, the trader’s chief executive Torbjörn Törnqvist is not willing to give up control of the group he co-founded in 2000, two people involved in the discussions said.

Instead Törnqvist, who controls almost 90 per cent of Gunvor, has told Adnoc he is only willing to sell a minority stake as a way to raise funds to drive growth.

Such a deal is of less interest to state-owned Adnoc, which was seeking control of the company as a way to significantly boost its trading ambitions, one of the people said.

Adnoc established its own trading arm two years ago and chief executive Sultan Ahmed Al Jaber has frequently stated a desire to improve profit margins through investments in refining and trading capacity.

The deal would have been the biggest move by a Middle Eastern company into commodity trading. Though several Gulf states, including Saudi Arabia, have large national oil companies, unlike European rivals Shell and BP they do not have large trading divisions.

Trading has been highly profitable in recent years because of the huge volatility created in energy markets first by the coronavirus pandemic then Russia’s full-scale invasion of Ukraine.

Adnoc and Gunvor have been in talks since last summer and extended an exclusivity clause until the end of March in an attempt to get a deal over the line.

Adnoc and Gunvor both declined to comment.

People close to the talks gave different accounts of whether further discussions were possible, with one suggesting a smaller deal could still be done. Others said Adnoc was effectively withdrawing from the discussions. But they agreed a larger deal for a controlling stake in the company was now highly unlikely.

Gunvor, which is headquartered in Geneva and domiciled in Cyprus, is among the world’s largest independent energy traders, moving about 240mn tonnes of commodities including oil, gas and coal in 2021.

Founded by Törnqvist alongside Russian businessman Gennady Timchenko in 2000, the company was initially known for its close ties to Russian energy producers.

In 2014, shortly before he came under US sanctions for his ties to Vladimir Putin, president of Russia, in the aftermath of the annexation of Crimea, Timchenko sold his shares in the company to Törnqvist. The company has reduced its volumes of Russian-originated commodities in recent years.

Törnqvist has previously come under pressure from his top staff to reduce his holding in the company, and move to a partnership model in which employees could increase their stakes.

However, the Swedish billionaire has been keen to maintain his majority stake, according to people close to the company. Previous talks with potential investors including Algeria’s Sonatrach and informal discussions with rival trading house Mercuria did not come to fruition.

The ability to apply massive computing power to DNA is causing concern over biological warfare

When the US last week added several units of BGI Group, a Chinese genetic sequencing firm, to its entity list restricting technology transfer, the primary justification was that the company had been “contributing to monitoring and surveillance”, including of ethnic minorities. Yet the human rights implications of China’s domestic surveillance state aren’t Washington’s only concern. The new regulations also state that BGI’s programmes of “collection and analysis of genetic data [present] a significant risk of diversion to China’s military”. 

Biotechnology has quietly become America’s newest national security concern. From Congress to the intelligence agencies, Washington’s leaders have concluded that control over biotechnologies will be critical not only to the country’s health, but to national security as well.

Biotech tools have made rapid advances of late, enabling new therapies, vaccines, manufacturing techniques — and biosecurity risks. It’s long been recognised that DNA is just a complex type of code, telling cells how to operate. Gene-editing technologies have become more precise and vastly cheaper, making it easier than ever to “reprogramme” organisms. In addition, more powerful computing capabilities have provided new clarity into the meaning of DNA’s “code”.

One use of these capabilities is for manufacturing. For centuries, humans have relied on micro-organisms to produce beer and yoghurt, but with the right reprogramming, bacteria can be made to produce many new types of chemicals. In 2010, Darpa, the Pentagon’s long-range R&D arm, launched a programme called Living Foundries, aiming to synthetically manufacture 1,000 molecules.

While there are many potential civilian uses of biomanufacturing, the US military has been a critical early investor. Living Foundries, for example, has already produced new fuels for missiles, which can be more perfectly tuned to the needs of missile engines than traditional fuel refining allows. The supply chain is simpler, too, with yeast (which manufactures the fuel) and sugar (which feeds the yeast) the two main ingredients. Darpa-backed researchers have also used microbes to produce antibiotics, pesticides, detergents, drug ingredients and liquid crystals.

A key driver of these advances is the application of massive volumes of computing power to DNA. Guess-and-check was a slow research method; deep-learning systems like Google’s Deep Mind are far faster, as the company’s AlphaFold protein-structure prediction tool demonstrates. Because of this, access to genetic data will be a critical resource. BGI, the Beijing-based firm, has gathered a vast trove of data, using products like prenatal tests and Covid-19 swabs, which are sold globally, to hoover up genetic data.

Aggregating genetic data is no bad thing. Progress depends on our ability to identify patterns in large data sets. The US is also trying to develop its own biodata infrastructure, though privacy concerns make this complicated.

The question of who first gleans and deploys lessons from genetic data matters, however. Technological advances are ethically and politically neutral; everything depends on how and by whom they are wielded. As one Darpa director warned a decade ago, these techniques will eventually be used not only to create life-saving therapies and new materials, but also to “engineer micro-organisms to do bad things”.

Countries have engaged in biological warfare research for many decades, though thankfully we have avoided large-scale use of biological weapons thus far. Synthetic biology techniques probably increase this risk by driving down costs and improving targeting capabilities. The same technologies that will enable increasingly personalised medicine raise the risk of personalised pathogens, too. Worryingly, a recent report from the US National Academies concluded that weapons targeted towards a specific group’s genome were not “technically feasible yet” but “will require continual monitoring”. 

That’s one reason why in last year’s defence budget legislation, the US Congress set up a National Security Commission on Emerging Biotechnology. Several influential, tech-savvy legislators have been appointed to the commission. Meanwhile, the Biden administration last year released its own plan for creating a “sustainable, safe, and secure” bioeconomy, while commissioning new studies of security risks and the biomanufacturing supply chain. From the state department to intelligence agencies, Washington’s bureaucracy is bulking up on biotech expertise to prepare for when the new national security worry becomes a reality.

Top Goldman trader Joe Montesano to exit bank

Resignation of rainmaker whose pay rivalled CEO’s is latest in string of high-profile departures

One of Goldman Sachs’ biggest rainmakers at its equity trading business is leaving the Wall Street bank after more than two decades.

Joe Montesano, 46, Goldman’s head of equity trading for the Americas, is retiring from the bank, the firm told employees on Monday in a memo, which was seen by the Financial Times. 

Montesano is leaving after three years of huge profits at the equity trading business, which benefited from enormous stock market volatility during the Covid-19 pandemic. Goldman’s revenues from equity trading totalled $11bn in 2022, up almost 50 per cent from 2019. 

Profits were such that Montesano was paid more than the $35mn handed to chief executive David Solomon in 2021, according to one person familiar with the matter. Montesano does not yet have another job lined up, the person added.

Goldman confirmed the contents of the memo, which was first reported by Bloomberg, but declined to comment further.

Montesano joined Goldman in 1999 when he was working for Hull Group, an equity derivatives market maker that the bank acquired. He was elevated to partner in 2014.

Goldman’s famed alumni network is a bedrock of its success because employees who leave the bank often become clients. But there have been a number of notable departures of senior bankers during Solomon’s tenure.

These include chief financial officer Stephen Scherr, co-head of investment banking Gregg Lemkau, and co-head of asset management Eric Lane. 

However, at Goldman’s investor day last week, Solomon said the bank’s internal numbers showed departures overall were in fact at the lowest levels in years. 

“I read over and over again about partners leaving the firm. In 2022, there were less partner transitions at Goldman Sachs than any year at Goldman Sachs going back to 2014,” Solomon said in response to a question from an analyst about partner turnover.

“At the moment, year-to-date, our turnover is at a five-year low, not just for partners, in the whole firm.” 

The three co-heads of Goldman’s global banking and markets division, Ashok Varadhan, Dan Dees and Jim Esposito, wrote in the memo that Montesano had “played an important role in strengthening our franchise”. 

“He provided leadership expertise across client interaction, internal co-ordination and trading strategy, and has been instrumental in helping our clients mitigate challenging environments and high market volatility,” the trio wrote. 

Proposed firm will manage assets for two state-backed funds and International Holding Company

Buyout firm General Atlantic is teaming up with an Abu Dhabi state fund and the emirate’s largest listed company to launch a new investment firm, underlining the continuing pull the oil-rich Gulf state holds for Wall Street.

The new investment group will manage a series of assets drawn from ADQ, Abu Dhabi Growth Fund and International Holding Company, a once small company that now dominates the emirate’s stock exchange after four years of explosive share price growth.

In a statement on Monday, ADQ and IHC said that the firm is expected to manage money that they, as well as another sovereign fund ADG, had earmarked for alternative assets, including private equity, venture capital and credit.

The plan “demonstrates our intention to create the largest independent alternative investment manager from the region,” said Mohamed Alsuwaidi, ADQ’s chief executive.

General Atlantic, which has previously invested in tech companies including Alibaba and Airbnb, will be a “strategic investor and partner” to the new firm, the statement said, without giving further details.

The name of the firm and the scale of the assets it will manage were not disclosed, but its structure reflects the blurred lines between state and private assets in Abu Dhabi.

ADQ and IHC, a listed business linked to Abu Dhabi’s ruling family, are chaired by Sheikh Tahnoon bin Zayed al-Nahyan, the UAE’s powerful national security adviser and a brother of the country’s president.

ADQ is an increasingly active state vehicle, aiming to invest primarily in the Middle East, Africa and South Asia. IHC, meanwhile, has enjoyed a stunning increase in market value that has puzzled bankers in the region. IHC has said much of the increase in value stems from the transfer of assets from Royal Group, another Abu Dhabi conglomerate.

Buoyed by high commodity prices and determined to diversify their oil-reliant economies, Gulf states have been a magnet for Wall Street firms.

Alongside ADQ, IHC and ADG, the new firm also aims to manage capital from third parties, such as institutional investors and family offices. Based in Abu Dhabi, the firm eventually intends to manage offices in North America, Europe and Asia.

William Ford, the chief executive and chair of General Atlantic, said that the new firm will “play an important role in strengthening Abu Dhabi’s position as an emerging global financial centre.”

New York-based General Atlantic, which manages $72bn in assets, tends to take minority stakes in privately held companies, in contrast to rivals such as Blackstone and KKR who are best known for taking publicly traded companies private.

General Atlantic has been quick to expand its overall investment platform in recent years. Last October, it acquired a credit investment manager and launched its own lending business, called General Atlantic Credit. It has also targeted fast growth in the Middle East, where it aims to draw in new assets and uncover investments.

Two men under investigation in Milan for allegedly helping Pier Antonio Panzeri hide illicit payments

Italian prosecutors have opened a money-laundering investigation related to the European parliament ‘Qatargate’ affair, as a new front opens up in the biggest scandal to hit EU institutions for decades.

Milan’s prosecutor’s office is probing two unnamed suspects connected to Pier Antonio Panzeri, the self styled kingpin at the heart of the corruption scandal surrounding the European parliament.

While Belgian authorities have charged Panzeri in a case involving payments from Qatar and Morocco, the new probe is the first time Italian authorities have opened a related investigation in what as widely seen as the EU’s biggest scandal since corruption allegations helped bring down European Commission president Jacques Santer in the 1990s.

The two suspects investigated in Italy had been shareholders in a consultancy set up by Panzeri’s accountant to allegedly hide the bribes he received from foreign governments.

Italian prosecutors believe the two men acted as fronts for Panzeri and his former assistant, Francesco Giorgi, as shareholders in the company between 2019 and 2021.

After being arrested in Brussels in December, both Giorgi and Panzeri have been charged with corruption, money laundering and participation in a criminal group. They are both co-operating with investigators. Panzeri is currently in detention while Giorgi has been set free with an electronic tag.

Belgian police seized more than €1.5mn in cash at the homes of the two men and in a suitcase that Giorgi’s partner, Eva Kaili, herself an EU lawmaker, had sought to get rid of with the help of her father.

Panzeri told Belgian prosecutors he received a total of €2.6mn from Qatar, Morocco and Mauritania in exchange for his lobbying efforts over the course of four years from 2018, according to one person close to the investigation.

Monica Rossana Bellini, Panzeri’s accountant, in 2018 set up the Milan-based Equality Consultancy Srl together with Giorgi’s father Luciano and brother Stefano in 2018. The two Giorgi family members left the company a year later and are currently not under investigation in Italy.

Equality Consultancy was registered at the same address as Bellini’s own tax consultancy in the town of Opera, south of Milan.

Bellini’s lawyer in Milan did not immediately reply to a request for comment. She has previously denied any wrongdoing.

When the company was set up in December 2018, Panzeri was still a member of the European parliament. The company was placed into liquidation at the end of 2020 and shut down in 2021.

Panzeri’s daughter Silvia and his wife Maria Dolores Colleoni were briefly arrested in Italy in December and Belgian authorities sought to have both transferred for prosecution. But once Panzeri struck a plea deal in January, those transfer requests were dropped.

Bellini, who was arrested the following day after Panzeri’s deal with prosecutors and released last month, is awaiting a decision this week on her transfer to Belgium.