Is Anthony Davian a.k.a. @hedgieguy Twitter’s 1st Ponzi Schemer? A Follow-up to Roddy Boyd’s Expose

On Monday, July 15,2013, Roddy Boyd of the Southern Investigative Reporting Foundation published an excellent piece (worthy of a prize, if you ask me; PLEASE READ IT if  you have not already) about a certain Anthony Davian (a.k.a.  @hedgieguy), and what looks like the first twitter-originated  ponzi scheme.  I’ve been tracking @hedgieguy, on and off, for the last 2-3 years, and would like to provide the public with my take. I privately expressed my concerns about @hedgieguy with several people, over the last 1.0-1.5 years (even as others shared their concerns about Davian with me as well). Sometime in Q2 of last year, I told my friend:

me: I actually don’t understand why that guy sells newsletters, if he’s managing $100-200 million. something doesn’t make sense. It doesn’t add up.
XXX: Who are you referring to you. Mr Ching (our nickname for Davian who often tweeted “CHING CHING” sound of cash register) ?
me: Yes, Mr Ching.
XXX: That can’t be right and I will tell you why…

I only wish we looked into his operations more closely…  who knows, maybe we would have been able to save some people their money. Maybe not. Rather than tell you “I saw this coming” or “I knew it” after the fact, the below shows you exactly what I and few others said before Roddy Boyd’s exposé. This post is intended to complement Mr. Boyd’s exceptional work.

WHY @HEDGIEGUY SEEMED TOO GOOD TO BE TRUE, BEFORE THE FACT (PRESENTED CHRONOLOGICALLY)

To start off, a few disclosures: I’ve never met with Mr. Davian, nor have we spoken over telephone. We exchanged a few e-mails, twitter direct messages, and public tweets. That is the extent of my correspondences with Davian. I’ve never had any business ties with Davian (or his affiliates). I never purchased nor tried any of his (or affiliates’) goods or services.  Finally, I never recommended any of his (or his affiliates’) goods or services to anyone.

I started following @hedgieguy on twitter sometime in 2011 (I believe in Q2 or Q3). I was largely focused on shorting Chinese reverse merger stocks at the time, and followed  @hedgieguy because he seemed interested in them as well. I eventually unfollowed him sometime in 2012. The below summarizes my experience with @hedgieguy , and shows how I came to believe his claims of managing $100-200 million were simply too good to be true:

(XXX refers to several different individuals)

Q3 - Q4 2011: @hedgieguy and I start corresponding publicly via twitter in Q3 2011. Friendly dialogue about stocks. We were probably both in good spirits, as the Chinese reverse merger shorts were working exceedingly well. In Q4, my well timed short GMCR call (pure luck, as the call was made pre-David Einhorn’s now famous October presentation, “GAAP-uccino”) got many people’s attention; @hedgieguy seemed to benefit from that trade as well. He started promoting me via Re-Tweets, etc. Our correspondences remained largely cordial through Q4 2011.  That said, I started getting concerned by the fact  he seemed perfectly fine going long (and even promoting) complete fraud stocks, just for possible short squeezes, even as he had vocally spoken out against the fraudulent Chinese reverse merger stocks. It seemed completely hypocritical to me.

11/14/2011: XXX: Very competitive bloke (hedgieguy), funny though. He always gets it right every week. He must be making a fortune for his partners.

Q1 2012: The red flags concerning @hedgieguy start growing noticeably, even as his flattery towards me increases (starts getting uncomfortable).

1/9/2012: XXX: Wow this guy hedgieguy unfollows me for RT’ing something from XXXX. Don’t want to talk to someone who ignores b/c u r friends with someone.

1/9/2012: “He is what is wrong with the business”:

me: you are now the 2nd person to now express (legitimate) ill feelings lol. it’s not even a single thing.

XXX: nope. he is a ___ and a stock pumper

me: it’s hard for me to disagree

XXX: he is what is wrong with the business

Q2 2012:  Davian gets nasty towards me and others; certain behavioral red flags become increasingly apparent. By the end of Q2, I suspect that @hedgieguy is too good to be true.

5/4/2012: Hedgieguy has the gall to ask XXX to connect on LNKD, after publicly insulting one of XXX’s friends

XXX: so that HedgieGuy asked to connect on LNKD after getting mad about my friendship with XXXX

me: he acts like the very pump n dumpers he shorts, etc.

5/28/2012: Hedgieguy makes fun of people who tweet on a Friday night (and then tweets 10 times later that Friday night)

me: It’s even worse. For example, yesterday he tweets, ”Judging from what I see. Only no life geeks post a lot of tweets on the weekend. Get out of mom’s house guys!”

XXX: oh geeze. so you responded to that?

me: No I did not. He made fun of of other people tweeting on a Friday night, and then he proceeds to tweet ten times on a Friday night.

me: He also tweeted: “‘To wall st/financial types: no one gives a fuck about your CFA studying. As hard as you try to high jack this holiday, it’s not about you!’

XXX: oh boy, you can appreciate memorial day and still study for the CFA. They’re not mutually exclusive.

6/17/2012: I explain why Hedgieguy is too good to be true

me: I actually dont understand why that guy sells a newsletters, if he’s managing $100-200mm. something doesn’t make sense. doesn’t add up

XXX: who are you referring to you. Mr Ching?

me: yes, Mr Ching

XXX: That’s can’t be right and I will tell you why

me: that tells me he doesn’t.  right, we’re in agreement, I want to hear your reasoning.

XXX: In October 2011, he said he made 20% for the month. Do the math, Its bullshit

me: I’m with you. I think if there’s any truth to what he’s claimed, it’s that the 100 million is not hedge fund/LP money. stuff I don’t understand, but is NOT under the 2/20 structure.

XXX: Did he say on the stream he manages 100mm. Or through your sources

me: I don’t remember, sorry

XXX: Let me tell you something. Its a “no no” to disclose your AUM on twitter to begin with.

me: I would think so, unless it’s already out there. if you are Bill Gross or John Paulson, your information is so public lol

XXX: Maybe so, however, that’s promoting your fund. Its illegal.

me: good point, no marketing of your fund, right

XXX: Yes. I have not done any research on this guy, because one look at his website, and I said, yeah whatever. Unprofessional website. 

Q3-Q4 2012: Davian insults David Einhorn’s friends/fans … and then proceeds to cheer on and compliment Einhorn.

me: he was quite something. I couldn’t believe my eyes. You know what he said? So few days ago, he was making fun of people cheering david einhorn (he’s at the Vegas poker tournament).  Then the next day.. the next day!!! he talks about how nice a person einhorn is, and that he hopes einhorn wins the tournament! Is hedgieguy on drugs?? The guy makes fun of other people for doing x, and then does x the next day! 

XXX: What a fuckwit

Q1 2013:  “another one to be careful of is @hedgieguy”

me: so it angered me seeing this guy behaving just like the very ppl he writes so passionately against.

xxx: yep. happens to some shortsellers…they flip. b/c easier to promote.

me: right. i’m lucky i’ve been “yolked” with straight shooters

xxx: indeed. ok thx

me: Another one to be careful of is @hedgieguy 

 

HOW THE FRAUD WORKED AND HOW IT WAS MADE POSSIBLE - MY TAKE

Based on Roddy Boyd’s piece, it would seem criminal charges are likely forthcoming for Anthony Davian. The question then is, how exactly did Davian end up committing fraud/theft in the first place? Mr. Boyd’s work focused on how the malfeasance was uncovered, not how we got there in the first place.  I will discuss how I believe Davian ended up committing fraud and stealing money.

I do not think Davian was breaking the law (or intending to break the law) from the beginning. He may have exaggerated performance, assets under management, and/or credentials early on (the legal implications of these actions are not entirely clearly, even though the moral implications are crystal clear), but I don’t think he was in ponzi scheme / theft mode until sometime in 2012/2013.

THE SUCCESS OF THE CHINESE REVERSE MERGER TRADE ENHANCED HIS (APPARENT) CREDIBILITY

In 2010/2011, shorting microcap stocks - particularly of the Chinese reverse merger variety - worked out very, very well. For those who are unfamiliar with the Chinese reverse merger trading opportunity of 2010/2011: a very smart hedge fund manager presciently summarized the opportunity to me, before the fact (sometime in 2010): “shorting the Chinese reverse mergers is like shooting fish in a barrel.” He proved to be quite right, as they were collectively down 50-80% in that period of time.

My guess is that Davian wasn’t the intellectual horsepower behind those trades (to his defense, he often credited @Dasan on the trade). I mean, a guy who publicly insulted Carson Block and Muddy Waters Research (these guys were at the forefront of uncovering these frauds) in Q4 2010 was probably not exactly the most informed participant. I wonder if Davian even realizes today that he should be grateful to Muddy Waters, given MW benefited everyone who was involved with the Chinese RTOs. The other thing is, I don’t think Davian was a true short seller; he did not subscribe to the mission that most short sellers adhere to, namely “speaking truth to power”. Nor am I aware of him/them ever producing any original, investigative research. I don’t think they had the knowledge or financial means to do the kind of work real short sellers do. In fact, he more resembled the very pump and dump stock promoters short sellers revile, the kind who spend 100% of their time on promoting and manipulating stocks.

The @Dasan character and possibly a few others, were likely the actual brains behind Davian’s investment research/idea generation, while Davian was the street smart promoter. This arrangement worked out well for them, so long as the short chinese reverse merger trade remained profitable (which it did through 2011).

HOW AND WHEN THINGS WENT WRONG

2012 is where I think things started to go wrong for Davian. Shorting (anything) got much more difficult in 2012. In fact, if you take a look at the performance of the short books of funds that short the kinds of names that Davian’s Gravity fund purported to, there was no way they would’ve been up 28% in 2012, with the kinds of  assets under management, sharpe ratios, and diversification they claimed. The only way they could’ve delivered 28% is if (1) AUM was much, much lower (2) sharpe ratios were much lower (3) greater portfolio concentration .

Take for example the performance of the short book of a well respected short seller I know. They were DOWN -x% in 2012 (while up x% in 2011); I believe that Davian might’ve performed positively in 2011, but +28% in 2012 ? He started to fabricate returns, is my best guess (if he wasn’t doing so earlier on).

Just as actual performance was souring, his operating expenses started rising (he hired a few analysts), and investors started pulling out money. So he did what many other desperate people in his situation have done in the past: He started stealing client money, to cover personal and operating expenses. Why else would a guy claiming to manage $100-$200 million a.u.m. start a $29.99/month subscription service? Why else would he approach strangers who he had never met or spoken to over the phone, to post research on his websites? He was desperate for cash.