Jay-Z, crypto fraud & banks

Good Monday afternoon. Straight into it today:

Square, the financial services company run by Twitter CEO Jack Dorsey, is buying Jay-Z’s music streaming service Tidal for $300m.

“Huh?” - is what I said when I first read this headline. Without a mainstream subscriber base or a catalogue of exclusive content, Tidal isn’t exactly the best streaming service out there.

@jack pre-empted this confusion and justified the acquisition on Twitter, listing reasons like “new listening experiences” and “complementary revenue streams.”

Vague PR-speak aside, there are two hidden synergies that make Square & Tidal the perfect match.

First, Jack Dorsey loves All Things Blockchain. Given the current NFT craze, it wouldn’t be surprising to see Square & Tidal draw up their own NFT scheme for Tidal artists.

Second (and more importantly), Square launched a bank 24 hours before the acquisition, and Jay-Z invested in an app last week that helps minorities boost their credit score.

To understand where this fits in, we need a quick primer on the music industry:

Tidal and Square are positioning themselves as alternative record labels: Square can give loans to artists who will then, presumably, release their music on Tidal.

This is genius because a) the credit app Jay-Z invested in can help emerging artists qualify for Square’s loans b) Tidal can promote artists’ music to make sure the loan is repaid c) it breaks the cycle of contractual exploitation in the music biz.

Jack and Jay are revamping the traditional music biz with an artists-first approach.

Whether they’ll actually dethrone record labels is anyone’s guess, but Square has nothing to lose in the process: $300m is a tiny sliver of the company’s $100 billion valuation.

Banks across New York are scared they’ll accidentally give their money away.

The backstory. Last August, Citigroup accidentally wired $900m to a handful of hedge funds to pay off a loan for Revlon Inc. The loan wasn’t due, and neither Revlon not Citi intended to pay it off. A few people in Citi’s back-office, presumably after a long day, tapped the wrong keys on a computer and, oops, the money was sent out.

They noticed the problem the next day and asked the hedge funds for the money back. Alas, many of the hedge funds were in a bitter, unrelated spat with Revlon and decided they’d rather pocket it. Around $500m wasn’t returned, so Citi sued.

And Citi lost. In a shocking (and really weird) judgement, a federal judge ruled the hedge funds were allowed to keep the money under an old New York doctrine called the ‘discharge-for-value-defence.’

Now, Citibank and other lenders are adding boilerplate “Revlon Clawback language to credit agreements”, Xtract Research revealed last week.

A “Revlon Clawback” basically means no finders keepers.

“If I accidentally send you money, you can keep it” is not a rule anyone wants in their loan agreements - but it is a rule that apparently exists.

And now that everyone’s extremely aware of it, big banks want to opt-out before any more money is misplaced. Luckily, avoiding rules is what lawyers do best; most laws can be dodged with boilerplate clauses that say “we respect that weird court decision, buuut it doesn’t apply to this deal or any other possible deal we will ever do in the future.”

Looking ahead… although Citi is currently appealing the Revlon decision, it’s unlikely banks will erase Revlon clawback language from their contracts. Once a clause is promoted to boilerplate status, it never goes back, per Matt Levine.

John McAfee, the antivirus software pioneer, has been charged with securities fraud over a ‘pump and dump’ cryptocurrency scheme.

Prosecutors say McAfee made $2m by urging his Twitter followers to invest in cryptocurrencies he secretly bought in bulk beforehand, like Reddcoin and Dogecoin, before selling off his own holdings as the price artificially rose.

Key quote: “McAfee exploited a widely used social media platform and enthusiasm in the emerging cryptocurrency market to make millions through lies and deception.“ - Manhattan US Attorney.

This is just the latest in a string of bizarre legal problems for McAfee, who’s currently awaiting extradition in Spain:

Zoom out. Retail investors who use Twitter threads as the basis of their investment strategy are increasingly vulnerable to pump-and-dump schemes, which are surprisingly common in the crypto ecosystem.

Further reading: a great paper on the proliferation of fraud as interest in cryptocurrencies surge.

Indigenous activists from Brazil and Colombia sued French supermarket chain Casino on Wednesday for selling beef linked to deforestation and land grabbing in the Amazon.

The details. Casino buys beef from slaughterhouses owned by JBS, the world’s largest meat processing company. If this very detailed 40-page media exposé is anything to go by, environmental considerations are pretty low down on JBS’ priority list.

The lawsuit, which seeks 3 million euros, claims Casino broke a 2017 law that requires it to monitor companies like JBS for human rights and environmental violations.

The other side. Casino claims it ensures its suppliers are not engaged in land grabs, child labor and deforestation.

Companies are under increasing pressure from national legislation and activists to protect the Amazon:

Zoom out. As environmental impact makes its way into more boardrooms across the globe, the alt-protein revolution is gaining momentum.

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