Whitney Tilson’s email to investors discussing Lumber Liquidators fraud; Sackler family and the opioid epidemic; reader feedback; the 12 questions to ask before you marry someone.
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ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
1) In one of my emails last month, I highlighted the Department of Justice (DOJ) and the SEC’s settlement with Lumber Liquidators (LL), writing:
This is the final chapter – and total vindication – of the story that I uncovered and first pitched at the Robin Hood Investors Conference on November 22, 2013, the day the stock peaked at $115 (see my slides here; I also showed two minutes of clips from this video: Liquidating the Forests).
I later brought the story to 60 Minutes, which aired a segment in which I was featured on March 1, 2015. It was an incredible piece of investigative journalism that exposed what the company was doing (click here to watch it).
The stock eventually fell to ~$11 where, after a lot of bouncing around, it still sits today.
When I wrote this, I had only read the DOJ’s press release, but last week I finally had the chance to read the full Deferred Prosecution Agreement (DPA). Generally these legal filings are real snoozers, but this one read like a crime novel (see pages 24-40). It’s unbelievable what the scumbags running Lumber Liquidators at the time did!
I knew that the company had sold formaldehyde-drenched Chinese-made laminate flooring (and wrote 20 articles about it after the 60 Minutes story aired), but after I later talked to two of the senior executives at the center of the scandal (long after they’d been fired), who swore up and down that they’d been duped by their nefarious Chinese suppliers, I was inclined to believe that they were naïve rather than evil.
How wrong I was!
The DPA reveals in great detail that, long before the 60 Minutes story aired, five senior executives at Lumber Liquidators knew full well that at least one major supplier was selling the company toxic product. In response, instead of cutting ties, they concocted a scheme to conceal what was going on, lying to the public, analysts and investors as well as their own board of directors and law firms.
Nor did they stop buying the products that were poisoning their customers. In fact, they placed a new order from one of the suppliers who confessed to supplying toxic laminate (in hidden camera footage aired by 60 Minutes) a day after the story aired!
Why the individuals who did this aren’t being charged with crimes is beyond me…
2) As bad as the behavior of the Lumber Liquidators executives was, at least they didn’t kill anyone, so their crimes pale in comparison to the Sackler family, with their billions in blood money from fueling the opioid epidemic via their company, Purdue Pharma. As I wrote in an email last month:
I know one of the Sacklers, part of the family that controls Purdue. He’s a great guy and he and his family are incredibly philanthropic. But their money is blood money and both they and their company should be bankrupted for what they’ve done.
I’ve studied the opioid epidemic extensively over many years and it’s clear to me that Purdue Phama knew about the extreme dangers of addiction to Oxycontin, yet told doctors the exact opposite, thereby largely creating and fueling this terrible calamity.
For more on this, I highly recommend this article, The Family That Built an Empire of Pain, and these two books: Dreamland: The True Tale of America's Opiate Epidemic and Dopesick: Dealers, Doctors, and the Drug Company that Addicted America.
Following up on this, I’m delighted to read that regulators are FINALLY really going after not only Purdue Pharma but the Sackler family members personally. It’s more than a decade too late – but better late than never…
Here’s an outstanding recent 60 Minutes segment, Did the FDA ignite the opioid epidemic?, about how Purdue influenced the FDA to approve Oxycontin for long-term usage, despite no science (then or now) to back it up. Excerpt:
Ed Thompson: The root cause of this epidemic is the FDA's illegal approval of opioids for the treatment of chronic pain.
Bill Whitaker: The FDA ignited this opioid crisis?
Ed Thompson: Without question, they start the fire.
Ed Thompson told us when the top selling opioid, Oxycontin, was first approved in 1995, it was based on science that only showed it safe and effective when used "short-term." But in 2001, pressured by Big Pharma and pain sufferers, the FDA made a fateful decision and, with no new science to back it up, expanded the use of Oxycontin to just about anyone with chronic ailments like arthritis and back pain.
60 Minutes has done numerous excellent reports on this crisis for years – click here to see its other stories.
Finally, here are a number of excellent recent articles:
- Lawsuits Lay Bare Sackler Family’s Role in Opioid Crisis, NYT
- Purdue’s Sackler Family Accused of Fraud in Transfers of Opioid Profits, WSJ
- Museums Cut Ties With Sacklers as Outrage Over Opioid Crisis Grows, NYT
- Richard Sackler Handsome Big P*nis Not a Murderer, Full Frontal With Samantha Bee
3) I got a lot of nice feedback from my bonus email yesterday:
- “I'm still laughing from the Musk selfie. Really get a kick out of your notes, its clear you're ‘tap dancing to work.’ Seriously you’ve found your calling, there is positive energy in your writings which I value.” – A reader
- “These emails have become a great/fun must read for me. You curate a lot of ideas and carved out a smart niche in the value investing community. Thanks for putting them together.” – James Pan
I am indeed tap dancing to work!
4) Regarding my 12 questions to ask when considering whether to marry someone, I’ve been leaking them out one by one over the past three weeks. Here’s the full list (note that the questions are identical irrespective of gender, so I alternate pronouns):
- Is she a kind and good-hearted person, both toward you and others? Does she have a mean bone in her body? How does she treat people beneath her (e.g., employees, waiters)? Do children and dogs like her?
- If you weren't romantically interested in each other, would you be close friends? Do you make each other better?
- Does he have high integrity? Is he a stable, solid, predictable person who you can count on 100%? Do you trust him completely? Any issues with alcohol or drugs?
- Do you share core values (philanthropy/making the world a better place, meritocracy, humility, life balance, spirituality, thinks before acting, looks for win-win solutions)?
- Is she intelligent and intellectually curious? Do you find her interesting?
- Does he like to do fun things and have a zest for life? Is he a happy and optimistic person?
- Does she have a strong work ethic and a good job/career?
- Does he come from a stable family? Do you want to spend time with them (because you will!)?
- Do your friends and family like her?
- Does he have similar views on big issues such as where to live, children (how many, what religion), and finances (spending habits, lifestyle, debt)? Will he be a good parent?
- Has she had long-term relationships in the past? How have they ended? What would previous boyfriends say about her?
- Do you think he’s hot and do you have a wild, passionate sex life? (I have deliberately listed this as the least important question – but, sadly and foolishly, many young people seem to put it first!)
Believe it or not, this only scratches the surface of my thoughts on marriage, so keep an eye on future emails!