By Pam Martens and Russ Martens: March 9, 2021 ~
Front groups with long-term histories of funding from billionaire Charles Koch and his related entities have taken a keen interest in Congressional hearings into the manipulative trading action in the shares of GameStop, a struggling brick-and-mortar video game retailer. The Cato Institute maneuvered a seat for itself at a House Financial Services Committee hearing on the matter in February and the Mercatus Center will have a seat at today’s Senate Banking Committee hearing.
Shares of GameStop soared from $18.84 on December 31 of last year to an intraday high of $483 on January 28 – an unprecedented run of 2,465 percent in four weeks. The stock price then quickly plunged and is now making a second comeback rally, closing yesterday up 41.21 percent at $194.50. Behind the scenes of this wild trading action has been a decidedly perverse trading model. (See GameStop Hearing Exposes a Sick Business Model Destined to Exacerbate Wealth Inequality in America.)
The Koch groups’ laser-focused interest in the GameStop matter piqued our curiosity. Charles Koch is Chairman and CEO of the fossil fuels conglomerate Koch Industries, one of the largest private corporations in the world. He and the heirs of his late brother, David, own the bulk of the company. While it has been widely known that a subsidiary of his company, Koch Supply and Trading (KS&T), trades commodities on a global scale, ostensibly to hedge the company’s interests in oil, gas and numerous other commodities, there has been scant media coverage of Koch’s vast trading in the stock market, derivatives and investments in private equity.
Koch runs his stock trading operations much like he runs his nonprofit front groups – in the dark with lots of name changes. We’ve been able, thus far, to track down the following Koch-related trading operations or investment vehicles. (Some may no longer be operational.)
1888 Management LLC
Beaverhead Capital, LLC
Koch Capital Markets, LP
Koch Capital Markets Advisors Inc.
Koch Equity Development LLC
Koch Financial Corporation
Koch Genesis Company
Koch Quantitative Trading, LP
Koch Software Investments, LLC
Koch Supply & Trading (KS&T)
Spring Creek Capital LLC
SCC Holdings, LLC
One of the largest stock trading operations is Spring Creek Capital LLC. According to its 13F filing with the Securities and Exchange Commission for the period ending December 31, 2020, it held $1.36 billion of publicly traded stocks, including more than four dozen blank check companies, also known as SPACs. As Bloomberg reported yesterday, “The SPAC boom has become the Spacpocalypse,” with the IPOX SPAC index falling 20 percent since its February peak. (Maybe the Kochtopus missed the Spacpocalypse by selling early. We won’t know until the next 13F filing arrives.)
Stock trading is not how Spring Creek Capital described itself in an April 2018 help wanted ad. At that time, it told job applicants that it was “a global long/short credit team managing a $1 billion plus liquid credit portfolio to help Koch Treasury portfolio meet return and liquidity needs of the company.”
The now retired, former President of Spring Creek Capital, Brian Taylor, was previously an equity trader at Lehman Brothers according to his LinkedIn page. Lehman infamously went belly up in 2008. According to documents released by the Financial Crisis Inquiry Commission, at the time of Lehman Brothers’ bankruptcy on September 15, 2008, it had more than 900,000 derivative contracts outstanding and had used the largest banks on Wall Street as its counterparties to many of those trades, thus spreading contagion and panic throughout Wall Street.
According to a May 6, 2020 filing with the SEC, Spring Creek Capital, along with other Koch Industries-related investment vehicles, purchased 30,053,570 shares of On Semiconductor Corp. stock on or around that date, representing 7.33 percent of the company and an approximate $450 million investment. That size of an investment in one stock position in the middle of a pandemic is on a scale with the largest hedge funds on Wall Street.
The share price of On Semiconductor Corp. had dropped from $25 a share in February to a $15 dollar range in early May as the pandemic brought on a broad decline in the overall stock market. According to a 13G filing for the period ending December 31, 2020, Spring Creek Capital and the other related Koch entities had sold their full position on or around that date. At that point, the stock had more than doubled in price. We estimate that Spring Creek Capital and the other Koch-related entities made more than a $500 million profit on just that single trade. There was a clever use of public filings that publicized Koch’s interest in the company along the way to those outsized profits.
Another large trading operation is 1888 Management LLC. According to a LinkedIn profile, Trent May has been its President and Chief Investment Officer since September 2011, meaning it has been in existence for more than a decade. Attesting to just how dark the Koch folks like to keep their activities, Bloomberg News didn’t catch on to the operation until 2016. It wrote at the time:
“With little fanfare, the Kochs are building an operation called 1888 Management LLC to manage part of their personal wealth.”
Curiously, Trent May is simultaneously serving as President of a company called LAB Quantitative Strategies, LLC, according to his LinkedIn profile. In its SEC Form ADV filing, LAB Quantitative Strategies says it specializes “in quantitative investment research” which is “a method of evaluating assets by analyzing a large amount of traditional and non-traditional data and then developing algorithms, or models, to guide investment decisions…Most trading occurs in exchange traded global equity futures.”
It’s not completely clear, however, if 1888 Management LLC is an investment vehicle for Koch family members or Koch Industries. We emailed Trent May to clarify that point but have yet to receive a response.
Another LinkedIn profile shows Jeff Bush as the Director of Illiquid Investments at 1888 Management LLC. Bush describes the company as a “multi-billion dollar family office based in Denver, Colorado” and says he’s “an investment professional focusing on illiquid investments in private equity funds as well as in direct, co-investments, and general partnerships across various industries.”
Koch Supply and Trading is another dark hole. What we do know is that it is a sprawling trading operation with offices in New York, Houston, Mexico City, Wichita, London, Geneva, and Singapore. According to its website, it trades oil, gas, aluminum, copper, zinc, nickel, lead, currencies, interest rate swaps, and other derivatives. What we do not know are the dollar amounts involved and who the counterparties are on the other side of its derivative contracts.
As all Americans learned with the Wall Street collapse in 2008, it’s important to know the level of systemic risk that is being taken in U.S. markets and if the federally-insured mega banks on Wall Street are counterparties to that risk.
It’s time for U.S. Treasury Secretary Janet Yellen, who chairs the Financial Stability Oversight Council (F-SOC), to have F-SOC take an in-depth look at the sprawling trading footprint of Koch Industries to determine if it presents systemic risk to the U.S. financial system.
The footprint of Charles Koch and Koch Industries is already huge and dangerous. They have funded climate denial groups for decades. They’ve turned much of the Republican Party into parrots of Ayn Rand. They own a political campaign services company with a massive voter database called i360 that works on behalf of Koch-approved candidates for both state and federal office. (How is that legal, by the way?) They played a heavy role in staffing the Trump administration and in funding the groups involved in the March on the Capitol on January 6. It’s long past the time to pull back the curtain on the Kochtopus.