Champagne and Caviar

The Jeffrey bar, two blocks from Bloomberg's offices, ran a promotion tied to the Knicks' Wednesday playoff game in which a Knicks win would make customer tabs free up to $100 per guest, excluding tax and gratuity. The bar hedged this liability on Kalshi, the prediction market platform, buying a $5,000 position on the Knicks to win at a pregame price of roughly 36 cents on the dollar, costing approximately $1,800. Kalshi issued a press release framing this as a business hedging an operational risk through a liquid, transparent market. Matt Levine identified the conceptual flaw: the Jeffrey was not hedging a pre-existing business risk but hedging a sports bet it had voluntarily created through its own promotion. The bar had run a similar promotion for game four against the Cavaliers, where each point of the Knicks' margin of victory reduced bills by one percent; the Knicks won by 37 points, producing a 37 percent discount and total customer savings of $2,750.

Alphabet announced an equity offering totaling approximately $85 billion after upsizing due to high demand. Roughly $35 billion was sold immediately through common stock and mandatory convertibles, $10 billion was privately placed to Berkshire Hathaway, and $40 billion is structured as an at-the-market program to be sold opportunistically over coming months. Proceeds are intended to fund data centers, chips, and AI infrastructure. Part of the ATM program is designed to facilitate a sell-to-cover mechanism for employee RSU tax obligations, under which Alphabet pays employee equity grant taxes using corporate cash and then replenishes that cash by issuing stock through the ATM. This structure reflects the broader economic equivalence between paying employees in stock and selling stock publicly to fund cash salaries. The offering represents a reversal of a long-running trend in which large US companies, which did nearly $60 billion in buybacks last year, were net equity retirers rather than issuers. The shift toward capital-intensive AI infrastructure is pushing companies back toward equity issuance, and a higher stock price now matters more operationally because it lowers the cost of that financing.

Jane Street is planning to build a new data center as compute becomes scarce, illustrating that large quantitative trading firms have functioned as AI firms for years by running machine learning models to predict prices. DeepSeek was cited as an example of a firm that is simultaneously a frontier AI lab and an electronic quantitative trading operation, with the underlying modeling approach being the same in both cases.

Andrew Left, founder of Citron Research, was convicted by a Los Angeles federal jury of market manipulation this week. Prosecutors alleged he used media appearances to move share prices and then quickly closed his short positions to capture profits from immediate retail reaction rather than from a stock ultimately declining due to fraud. A central element of the conviction was internal messages in which Left told associates he had a hot voice in cannabis and wanted to take advantage of it, which prosecutors used to establish that he published reports to profit from short-term price moves rather than from genuine fundamental research. Left was also convicted of pumping and dumping Nvidia around 2017. He testified in his own defense, which is unusual and generally advised against by criminal defense lawyers, and sentencing is set for August 31 with an appeal expected.

Levine observed there is no bright-line rule on how long a short seller must hold a position after publishing a report, that Left had written to the SEC requesting such a rule and was ignored, and that the SEC's non-response reflects the fact that the issue is one of intent rather than mechanics. Levine also noted that the cannabis stocks Left shorted stayed down, suggesting his fraud thesis was correct and that retail investors who lost money were harmed by the underlying fraud rather than by Left's conduct. Levine's stated view is that Left should be convicted but receive zero days in prison.

The number of activist short selling funds publishing research has fallen from 55 in 2020 to 31 so far this year according to research firm Breakout Point. Levine attributed this partly to the chilling effect of the Left case and related legal risk, and partly to the meme stock phenomenon, while acknowledging that a rising stock market may also explain some of the decline. Another activist short seller, Keras, published a report with a sarcastic disclaimer stating readers should assume the firm covered its short immediately after publishing, a direct response to the legal environment Left's case has created. Levine noted that covering a short immediately after publishing is symmetric to a pump and dump scheme but represents rational risk management for lightly capitalized short sellers.