Topic: P - page 6. (Read 78397 times)

I tihnk we all pretty much agree on it. BUT, where does this 'receiving money from pirate' variable keep coming from?

If Pirate pays anyone we will all surely know as soon as anyone else will. And I agree if Pirate pays partial AND makes it clear that he is going to pay more then it would be unfair to do a buyback if more payments are coming. BUT again, that thus far has not been the stated method that Pirate was going to payback.

In the unlikely event that Pirate does pay back, we will keep our pet Goat on a leash and make sure it is stated and understood clearly whether any Pirate payment is a one time lump or if there are multiples planned.

Well I think we largely agree. If Goat has some additional money of his own, sure he can buy back some bonds (and pocket their future payments). However, if he is receiving money from Pirate, then that should go through as a dividend, not as a buyback, in order to preserve the pass-through function of the bonds throughout the default process. Anyway, thanks for the interesting discussion! I think even though these are likely moot points it is good practice to discuss things constructively.

I don't understand how. If you mean the bond is due presently and they're not paying it, then they're in default. I agree that buying your own debt when you are in default is a problem. You should be using those funds to make proportional payments. But PPT operators are not in default and there is no actual conflict of interest.

Sure it can be a win/win (especially in the case of greece), but it still counts as a default by the bond issuer, depending on the bond contract. If a bond is guaranteed at face value by the issuer, they are breaching their obligations by buying them back on the secondary market at a discount.

I think everyone is making good points, but it might be that the contract on GLBSE of TBP is just too vague to determine whether or not the bond should be bought back. My gut feeling tells me that as a post-default pass-through the bond's face value should be zero, and the market value should be the diluted amount of whatever people think will be coming through the Pirate pipeline as dividends.

Unregulated markets are awesome for insider trading.

There were a lot of things missing from the PPT contracts. It's not clear what we should assume to fill in the gaps in many places. Since this is win/win though, I can't see any sensible reason to prohibit it. (And that's not typical. Normally, you can buy your own debt. So far as I know, there's no prohibition on insider trading that would cover this absent actual inside information.)

Good find, but there is a difference between convertible bonds with a buyback clause (where the buyback conditions are explicitly described in the bond contract). Certain corporate bonds have conditions where the issuer can buy back on the secondary market, but I don't see TBP as one of these bonds as it is described in the contract.

Yes, that's right. This does a huge service to their borrowers, allowing them to have a certain payment rather than a payment at risk. And it helps the Greek government, because they pay out at a reduced rate. It also increases the value of their debt, which benefits their current debt holders (since their bonds are worth more) and the Greek government (because they can borrow more money at reduced interest because of the higher bond values). Everyone wins.

http://www.reuters.com/article/2011/10/13/uk-greece-debt-emerging-idUSTRE79C4BM20111013

I don't agree. The point of a bond is to raise money that you can do whatever the hell you want with. I don't agree that it's an "improper use of available funds". I don't agree that the concept of "available funds" is even coherent in that sense.

As I said, I'm only arguing the case where he has no inside information.

Right, and entities do indeed buy back their own debt at steep discounts when they see the opportunity. See http://www.investopedia.com/stock-analysis/2009/Four-Companies-Buying-Its-Own-Debt-XLNX-CIT-AMKR-AN0218.aspx#axzz25eLn0FJ4 .

Think about this: Imagine the Greek govt used their current funds to buy back their own bonds for pennies on the dollar. They would have much less debt outstanding, right?

This is a breach of their bond contract because as the issuer of a bond you (and only you!) are obligated to pay back bonds at face value, and using funds to buy back at a discount is an improper use of available funds.

Now, if you are saying that if Goat makes a distinction between his personal speculation on GLBSE and Tygrr operations, we run into the whole insider trading debate. Should the CEO of a company be allowed to short the company's shares in his own e-trade account? No. Shareholders should demand that their CEO does not create conflicts of interest via his personal trading/security positions.

I agree, that's why I limited my argument to only trades not done with inside information.

Not at all. He just pays through precisely the same way and winds up paying some of the money to himself. It is no different from anyone else buying the bonds -- it just happens to be him. (Again, assuming he doesn't leverage information he gained as the operator. By the way, if it were me, and I had any good reason to believe a payout was imminent, I would freeze bond transfers to protect bond holders from others who might get word early.)

I agree.

Just the fact that Goat receives a payment makes him privy to inside information! Don't get me wrong I think Goat is honest, it's just that the fair thing to do is not always obvious.

The problem is that if Goat buys back bonds, he still has the Pirate deposits that were backing them. If pirate pays out later, it will be impossible to pass-through those payouts to the bondholders. This would not be acting as a true pass-through. The pass-through operator should just be moving money from A to B, and buying back some bonds at a discount would be causing a distortion.

In order to act as an accurate pass-through Goat should simply funnel anything he gets from Pirate through as a dividend, and be open as he can about any communication with Pirate.

Sorry for talking about you in third-person all the time Goat! I think you are doing as well as you can under the circumstances.

I don't get it. He's breaching the contract because not everyone gets nothing?

Yes, if he makes a full refund.

I agree.

I don't get that. So long as he doesn't trade on inside information, I don't see why he can't buy bonds just like anyone else could buy bonds. Presumably, the people selling are happy to sell at the prices they chose to sell at. (Again, assuming he has no special inside information.) And these buys push up the prices of the bonds, which benefits all the bond holders.

I don't see why. Why can't he benefit his bondholders by allowing those who prefer to sell to do so and at the same time boosting the value of the bonds? If it's not done on inside information, it's win/win for everyone. How are his interests averse to the bondholders?

Again, if an issuer of a bond buys back bonds at a discount with "some other source of money" they are defaulting in breach of contract. This is because bondholders who don't happen to have asks up will get the shaft if the bond later becomes completely worthless.

If pirate refunds all deposits and closes accounts, Goat should buy back at face value (BTC1.00) using a bid wall.

If pirate provides a partial refund, Goat should pay that out as an equally diluted dividend, and let everyone know under what conditions the payout was made, and whether he expects further payouts.

The reason Goat can't buy back bonds is that the future payouts from Pirate are not certain and buying back would be deleting information. This is unfair if Pirate eventually pays sometime down the line.

Basically, Goat does not have the freedom to speculate as to what should be the fair price at which to buy back the bonds. He can only retire them at face value or pay out dividends of whatever Pirate sends him.

I'd have to look at the contract to see exactly what that means. The issue would be if you were the only person who knew that you were going to get a refund of, say, .33 BTC per bond and bought up a bunch of bonds for less than that prior to passing the payment from Pirate through to bond holders. That could be argued to be constructive fraud. I'm not sure that argument would work, but someone could make the argument. It's also a pretty scummy thing to do because it's an act based on inside information gained in the course of actions you take on behalf of your bond holders that's against the interests of those bond holders.

Say McDonald's hires me to scout out locations that are best for a new McDonald's. And say I find one that's absolutely perfect and selling for $100,000 and because of the inside information I gathered doing the scouting, I know it's worth $150,000 to McDonald's. Can I buy it and resell it to McDonald's for the $150,000? Or can McDonald's reasonably expect that I won't use information gained in the process of acting in their interest to perform a personal transaction for my personal benefit at their detriment? I would think McDonald's could sue you in that situation, and I think your case would be similar.

All he would have to do is use some other money to buy back bonds slightly before passing through the payments as dividends. It's a pretty scummy thing to do, but it's not an explicit breach of the contract. It might be considered implicit breach, similar to constructive fraud.

A breach of whose contract? If goat is paid out by Pirate the bonds would be bought back @ (paid out amount /40k)

Yes, sure. The bonds have some speculative value and that's fine. If pirate makes a payout, or Pirate is successfully sued (lol), TBP holders will get some BTC. All Goat needs to do is continue acting as a pass-through of whatever comes through the Pirate pipeline.

If pirate pays out and Goat uses the money to buy back bonds, that is a breach of contract. The pass-through as described passes through as dividends.

It depends who is suing who.

If a bondholder were suing you for failing to protect their interest, I think you could make an argument that nothing is a reasonable collection effort. You have no way to recoup your collection costs from bondholders. And there's no particular reason to think any collection effort would be effective. There's no precedent for successful recovery.

If a bondholder were suing Pirate as an intended third-party beneficiary, I think they could more plausibly argue that your collection efforts were insufficient.

It may seem odd that there's a difference, since it's fundamentally the same question. But the basis for comparison is different. In the case of someone suing you, they're basically arguing that you should undertake recovery efforts that are unlikely to recover much at your own expense and then give the bondholders all the proceeds. In the case of them suing Pirate, they'd presumably be attempting to recover at their own expense with only those actively suing Pirate benefiting.

Another possibility would be your bond holders suing you for running a Ponzi scheme. I don't think that's likely to work for a variety of reasons. Similarly, I don't see Pirate's other victims suing you either.

Essentially, from a legal perspective, you can probably do pretty much whatever you want and get away with it (just like Pirate, assuming someone doesn't track him down and give him some street justice). The one thing you probably can't get away with is trying to get your bondholders for pay for you to go after Pirate. Even if that's in their interest, it's not in the agreement. (That was a mistake, by the way. The agreement should have let you deduct reasonable collection and extraordinary operating expenses from recovered funds.)

IANAL. This is my speculation. Since there's pretty much no precedent for any of this, we're all just guessing.

The problem that our local, investments expert Piotr does not understand is that Goat has not 'issued' any new bonds. There were 40k bonds issued at the start. Any bonds that were held by Goat that had not previsouly been traded would have been non dividend bearing and also would not have showed on the total bond number that Piotr is looking at. Goat has every right to sell his bonds. If people are buying them, then they are doing so on purpose.

The benefiting scenarios for him or anyone else still trading them for potential profit has zero effect on the legality of it.