Part II: The Birth of a Brand New Ponzi Scheme
In part one, we learned about Clinkle: a mysterious start-up out of Stanford that brought in record funding before it all went up in smoke. While most of the investors were major players in the tech and venture capital worlds, the lead investor was the mysterious “Summer@Highland”.
If you pop over to EDGAR, the SEC’s filing search tool, and type in Summer@Highland, the only hit you’ll get is for Summer Highlands Ltd. Let’s have a look at their Registration Form, submitted by President Jeremy Mork, in August 2010 to see if there’s any connection.
They’re a new public shell corporation in the British Virgin Islands, looking to seek a merger or acquisition. This type of company wouldn’t have to file much with the SEC, but they would need to register and explain the purposes of the corporation, which is what this document is.
We’ll dig in shortly, but first we need to talk about the school that keeps showing up like a bad penny.
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You’ve likely heard of two of the biggest frauds in recent history: Elizabeth Holmes’ Theranos and Sam Bankman-Fried’s FTX. Though the companies sound different (high tech medicine and cryptocurrency), they were variations on the same con: investors are lured in with promises of complex technology with big returns, but the scammers just pocket the money instead. These were both, in effect, Ponzi schemes.
And wouldn’t you know it, they both have roots at Stanford University, just like Clinkle. Holmes founded Theranos when she was a 19-year-old Stanford student, before dropping out and leasing her headquarters at Stanford Research Park. Bankman-Fried was literally born on Stanford’s campus; his parents Joseph Bankman and Linda Fried both decades-long tenured faculty at Stanford Law School.
Remember Clinkle investor Peter Thiel? He speaks quite highly of Professor Bankman from his Stanford days. It was Bankman, after all, who told him about the tax loophole that allowed him to stash his multi-billion-dollar Facebook and PayPal stakes in Roth IRAs.
Meanwhile, among the names that backed Clinkle with big investments were multiple Stanford faculty and even StartX, a Stanford startup fund that has done WAY more investing since then. One of those professors was CEO of one of Australia’s largest banks and Stanford Business School Dean Emeritus, Bob Joss, who has no known investments besides Clinkle.
If you check his faculty page, you will see several degrees, several powerful positions, several prestigious awards, several blog posts, and one case study written months after the Summer Highlands registration with the SEC: “Westpac, Offshore Bank Accounts in the Cook Islands.”
You can read the summary, but you’d need to fork over 9 bucks if you want to read the whole thing, as I won’t be sharing my copy (I will call truth to power, but I will not run afoul of Stanford’s terms of service), but I will summarize its contents.
It’s a fictional scenario offered to students, presumably: You’re a bank manager in the Cook Islands who’s been overseeing a whole bunch of offshore banks that have been highly profitable. The banks operate in multiple currencies with limited regulation and visibility: The dealings of the bank are hidden behind anonymous trust companies and the customers’ identities are unknown.
But people are clamoring about “know your customer” and the bank wants more transparency. But you know what the bank is doing is legal and profitable. You also know the bank could risk more liability if it peeled back the onion on who its investors were; even the act of inquiring about the customers could raise alarm bells.
The case study offers discussion questions as follows, quoted in full:
1. Is there any ethical issue here?
2. If you vote “yes,” what is it and what should you do about it?
3. If you vote “no,” why not, and what are the possible consequences going forward?
Now some questions for you, dear reader: Is this case study secretly trying to recruit co-conspirators who will have no ethical qualms with an international offshore banking scheme? If you vote “no”, then why does it read exactly like that?
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Now that we’ve learned a bit about multicurrency offshore banking schemes from one of Clinkle’s investors, let’s dig into that Summer Highlands SEC Filing.
It’s a real slog, but the gist is this: They are a shell corporation (which means they exist to acquire or merge with other corporations) and will be offering a penny stock. They repeatedly stress that they will not be acquiring a specific company, though it will probably be a Chinese company. They will raise money from investors in a “blind pool”, where they (Management) will have virtually unlimited discretion in their business opportunity.
They will likely only endeavor in one business venture, they note. Okay, what venture is that?
“In some instances, a business opportunity may involve the acquisition or merger with a corporation which does not need substantial additional cash but which desires to establish a public trading market for its common stock” (emphasis mine).
That’s unusual, to say the least. It doesn’t say “get listed on a public trading market”, or “establish a public trading market presence.” It was just run of the mill shell corporation stuff until now, but this says they may create a stock market for whatever this stock of theirs (and their acquisition companies) is, and they’ll do it inside this Caribbean shell company. Huh.
They explain that it will be critical to not trigger taxable events, which they would have to tell the SEC about, and so the acquisition company will hold a bunch of the shell company’s stock as a tax loophole (yes, they really explain all of this). Because of this, their investors will lose a whole bunch of their stakes when the shares get diluted, which might make you wonder why those investors would participate.
They do note potential risks of investing in a Chinese company, such as the fact that China could restrict funds at their discretion.
What is all this? I’ll explain further why, but this appears to be the seeds of both Binance and FTX, a dual international cryptocurrency exchange designed to be hidden from regulators, and it happened all the way back in 2010.
If you don’t know much about crypto, know that this would be quite a revelation. Binance is the largest active cryptocurrency exchange in the world, founded in China, and FTX was the second largest until they were revealed to be a Ponzi scheme last November. Moreover, this would upend the entire established timeline and narrative of cryptocurrency and some of its biggest players.
It was recently reported that FTX president Sam Bankman-Fried paid a $40 million bribe to Chinese officials because they had frozen his assets at their discretion, just as the Summer Highlands filing warned.
As noted in a recent episode of TrueAnon (starting at minute 35), the two exchanges have strong, somewhat inexplicable ties to each other, like each exchange holding a substantial amount of the other’s assets. If we reframe that in the context of this sketchy SEC filing, well now it makes sense: Holding each other’s assets was part of a tax loophole that allowed them to keep their operation unregulated.
To be clear, I’m don’t think Summer Highlands literally became FTX or Binance; it’s just one of many short lived BVI shell companies filed around the same time by this Jeremy Mork fellow. But we’ve seen a lot of weird stuff so far and it’s suggested some pretty wild things, so let’s take this as a working theory and see if we find facts down the road that contest it:
The strange unregulated multi-currency offshore banking operation of Summer Highlands Ltd. appears to be related to Summer@Highland, the unknown lead investor of Clinkle, shown not just through their names but through their connections to Stanford University and the work of Robert Joss. Summer Highlands was built to create an unregulated and multinational trading market, which likely developed into the dual exchanges Binance and FTX. Clinkle, with its famous billionaire investors, appears to be a front to funnel money into this operation.
Up Next in Part III: How doomed is our economy? Let’s ask the crypto shills.