By Alex S. Gabor
The full, accurate, and timely disclosure of information is one definition of transparency within the legal and securities professions. Transparency permits shareholders and analysts a greater understanding of a firm's operations, including which parts of the firm are most and least profitable.
This, in turn, places greater pressure on the firm's management to produce acceptable results in all facets of a company's operations. In the case of Soros Fund Management and George Soros himself, many people are not aware that George Soros may not actually be behind many of the investment decisions at the firm.
A quick study of filings with the SEC under George Soros and Soros Fund Management sheds some light on the fact that Robert Soros, Armando T. Belly, Jodye Anzalotta, Maryanne Canfield, Jay Schoenfarber all have a power of attorney signed by Soros to execute in his name, in his personal capacity and in his capacity as Chairman of, member of or in other capacities with Soros Fund Management and each of its affiliates or entities advised by Soros or Soros Fund Management, all documents, certificates, instruments, statements, filings and agreements to be filed with or delivered to any foreign or domestic governmental or regulatory body or required or requested by any other person or entity pursuant to any legal or regulatory requirement relating to the acquisition, ownership, management or disposition of securities, futures contracts or other investments. But does it constitute power over any investment decisions?
From such filings with the SEC it is not clear for example if Soros in fact made the decision to buy, hold or sell $128 million worth of stocks reported under his personal name in such companies as Jet Blue, Integra Life Sciences, Apex Silver Mines, Blue Fly, or Source Interlink.
Most recently less than 60 days before announcing its profitability, according to the most recent data available is another investment of $128 million into 15% of Adams Respiratory Therapeutics last reported in December not held directly by Soros but through another Limited Partnership. Soros is due to file additional personal holdings disclosures before the next 60 days for the year ending 2005 but it is not certain when his attorney's will make the actual filings.
Soros Fund Management LLC, as a Delaware Limited Liability Company may be deemed to be affiliated with George Soros who serves as its' Chairman, but that doesn't mean Soros actually makes all the investment decisions. Soros Fund Management has many affiliated enterprises which may or may not be required to report to the SEC depending upon the size and scope of their holdings. Such affiliates include QIH, Quantum Industrial Holdings and Quantum Industrial Partners Fund.
When financial news headlines say Soros invested in this or that company or sector, the perception created is that a Hungarian Billionaire has invested in various companies, which sometimes creates a massive buzz and buying spree. Yet this perception is not always accurate and further skewed by a lack of real data which is left off the tabloid style reporting of most news organizations. Soros wrote about this in his book, "The Alchemy of Finance".
The major problem with this perception promulgated by the media and financial talking heads is that by the time the general feeding frenzy of public investors and general analysts get the accurate information, the idea of transparency is nothing short of a fallacy because they fail to give the full particulars of when and how the investment may have occurred, thus creating an illusion of demand for a particular issue as in when many members of the media announced and promoted world wide that Soros was shorting the U.S. Dollar, which he may have in fact done, but the repetition of the news actually caused the dollar to fall, not George Soros.
To illustrate one simple case in point the author is using Adams Respiratory Therapeutics. To those less inclined to do their own due diligence, to dig up information on the various investments of the gurus of the investing world takes a tremendous amount of time, research and fact checking, and even with as much of the investment universe one can cover in any given time period, one may yet not be able to tackle fairly the subject of transparency because more often than not, the average investor does not have time to read the avalanches of information which come out of Wall Street.
On November 22nd 2005, Adams Respiratory Therapeutics announced in a filing with the SEC that Perseus-Soros BioPharmaceutical Fund, LP, among several other private stockholders, registered to sell 5,088,376 shares in a registration statement wherein it was disclosed that Soros, indirectly controlled those shares. The following layers of non transparent information was included in the prospectus but not reported in press releases in as great detail or by those reporting the news.
Perseus-Soros Partners, LLC is the general partner of the Perseus-Soros BioPharmaceutical Fund, LP. Perseus BioTech Fund Partners, LLC and SFM Participation, L.P. are the managing members of Perseus-Soros Partners, LLC. Perseuspur, LLC is the managing member of Perseus BioTech Fund Partners, LLC. Frank Pearl is the sole member of Perseuspur, LLC and in such capacity may be deemed a beneficial owner of securities held for the account of the Perseus-Soros BioPharmaceutical Fund, LP.
SFM AH, LLC is the general partner of SFM Participation, L.P. The sole managing member of SFM AH, LLC is Soros Fund Management LLC. George Soros is the Chairman of Soros Fund Management LLC and in such capacity may be deemed a beneficial owner of securities held for the account of the Perseus-Soros BioPharmaceutical Fund, LP.
The address of Perseus-Soros BioPharmaceutical Fund, LP is 888 Seventh Avenue, 30th Floor, New York, New York 10106, the same address as that of Soros Fund Management. One could almost safely say that many of these entities are alter ego's of Soros himself but his attorney's would be lax to not differ with you.
Their transparency does not become so apparent unless one is given direct access to where they are domiciled, who if any of the other stockholders and investors are, and where they in turn got their capital.
The number of shares offered at that time did not include up to 283,265 shares that Perseus-Soros BioPharmaceutical Fund, LP had agreed to sell to cover over-allotments.
Steven A. Elms at the time was a managing director of Perseus-Soros Management, LLC, and an affiliate of Perseus-Soros BioPharmaceutical Fund, LP, or PSBF. Mr. Elms didn't have voting or dispositive power with respect to any of the shares owned by PSBF.
Between November 2002 and August 2003, Adams Respiratory Therapeutics issued an aggregate of $21,134,998 in 8% Convertible Notes and Bridge Notes together with warrants to purchase an aggregate of 4,967,751 shares of common stock at an exercise price of $0.03 per share.
These notes converted into shares of Series C Preferred Stock. All shares of their Series C Preferred Stock automatically converted into an aggregate of 4,849,047 shares of common stock upon the completion of their initial public offering around July 26th, 2005.
Soros bought a large percentage of these convertible notes that came with warrants. The stock went public at $17 and now trades around $38, twice its original offering price.
Soros got his original investment back when he sold 1.6 million shares at $15.81 per share, the same day he acquired 5,139,462 shares as a result of his prior investment in the convertible notes and Series C stock. It is not clear to an ordinary investor how he wound up with that many shares. One has to look very closely at the mathematics involved.
Soros, through his organizations, and with others, loaned the company about $21 million for which his organizations later received $218 million in stock at today's prices as an equity kicker. An 808% return on investment over a three and a half year period, averaging 20% compounded monthly.
The most recent quarterly report filed on February 10th, 2006 by the company does not disclose how many shares Soros still has in the company, but Yahoo Finance will tell you that as of December 15th, 2005 Soros Fund Management still controlled 15% of the total outstanding shares, but it also misleads by stating that there have been no insider buys or sells, when later on the same page it shows many.
Should Yahoo be held accountable for the accuracy of its data reporting and is Google subject to investigation for click fraud much like an auctioneer would place shills in its own audience?
These questions may be off the topic but they do illustrate what Soros, who went into enormous detail on the subject of reflexive psychology and the wrongful perceptions many in financial circles can have when it comes to learning about the alchemy involved in turning nothing into something, or in this case, failure to notice when it comes time to sell a particular stock such as GOOG, SOLD, or YHOO based on the all too obvious.
The secondary offering was priced at $43.75 on December 9th, 2005. On December 14th, 2005, five days later, Soros and his attorney's sold 1,715,458 shares at $43.75, in effect more than tripling his cash profits out of the original investment begun in November 2002, but leaving 3,372,918 shares on the table today worth around $128 million. This sale less than 60 days ago was pure profit, but the general public will not know how much of this profit is taxed because Soros Fund Management is a privately held company.
There are many unusual but interesting things one can learn by digging deeper than this author has time to report. One is the fact that Soros in effect bought some of his shares effectively for .03 per share and sold some of them for a 145,000% return on investment. That is why Soros is a billionaire and I am not.
The question left in the minds of those now holding the shares of Adams Respiratory Therapeutics as insiders continue to sell it off is, if the stock goes to .03, will they be as fortunate as the "transparent transactions" conducted by Soros and his attorney's, who now have nothing further to lose. In the past sixty days there have been no insider buys on this stock and well over $80 million in private profit sales, the majority of them by Soros organizations.
So who is George Soros and what does he do with all that money?
The 75-year-old billionaire is not best known for contributing millions of dollars to democratic forces that gained notoriety for posting a Web ad comparing President Bush to Adolph Hitler. Most people do not know how he made his money and who backed him in making it because his investors are not disclosed to the general public, the SEC or the United States Government, and the public is not privy to his or his company's tax returns.
This is very interesting for a man whose main thrust for the past fifteen years has been the promotion of open society, and assisting in bringing about the demise of the former Soviet Union. The United States itself is perhaps more closed than any other nation in the world when it comes to financial privacy.
That is one reason capital flows into the country from China and the Middle East. And the flows have long ago surpassed the billions, but today, the trades in currencies and stocks in New York City alone are mounting in the trillions, daily.
For many years, Soros had been sinking millions upon millions of his personal profits into campaigns for homosexual rights, abortion rights and medical marijuana. But again, the perception of those millions compared to the billions which have passed through his organizations wallet, are relative and in reflexive terms, one could compare his giving those millions to a middle class man tossing a penny at a homeless man with a sign at the end of the off ramp of any freeway in any major city in America. It is relative wealth.
The criticism he received from various counter groups for dispensing such minute amounts to such causes has more or less made funds for such activities dry up, particularly from the Soros Open Society Institute. Politics aside, when push came to shove and Soros was asked to gamble his entire fortune on whether Bush would win in 2004, he declined to put all his eggs in that basket, and this is another reason why Soros is perceived to be one of the wealthiest men in the world. Yet the media do not publish, nor does Soros advertise his losses if he can help it. Word of his multi billion dollar losses in Russia after the collapse of the Soviet Union got out, but it did not tarnish his reputation as a global investment guru, probably not the best, but up there with the very best of them.
In his lifetime Soros' foundations have provided over $5 billion to various causes deemed necessary to an Open Society around the world. Joseph Califano, former secretary of health, education and welfare in the Carter administration, once called Soros the "Daddy Warbucks of drug legalization."
A Hungarian immigrant, yet a legal United States citizen and a self-proclaimed atheist, Soros once described himself as a kind of trinity - financier, philanthropist and philosopher, and in one of his books he refers to himself as a god, yet not the only God. All these distractions about his politics, his religion and his charitable contributions are mere deflections away from the truth when it comes to the subject of George Soros and who he really is in this world.
As a financier, Soros - one of the world's wealthiest men, whose fortune has been estimated at $7.2 billion by Forbes who listed him as the 55th richest man in the world in 2005, has given away over $5 billion to various non government organizations, many of which have been attacked, particularly in countries where there are high degrees of political and economic corruption. This includes the United States.
This would mean that in the past 25 years, there are estimates that $12 billion have passed through his personal hands, or on average $500 million a year in after tax profits. That still only represents about a 5% management fee on a $10 billion cash fund, yet if you had invested $100,000 with the Quantum Fund in 1974, your investment would be worth $500 million today.
We as investors watching the famous gurus never get to know who put up that initial money which by 1992 had grown beyond the $10 billion, and at its zenith, Soros Funds had over $14 billion under management by 2000.
He made his first billion in 1992 betting against the British pound and thereby hastening its disastrous devaluation when Britain opted out of the European Monetary Union, which didn't last because Britain is still here with a multi trillion dollar economy and still growing at an annualized inflation rate of between 3-5% like the rest of the worlds economies which are dominated by centralized bankers.
What is often not highlighted in articles is that Soros didn't do it alone, and his partner Stan Druckenmiller at the time and Soros agreed that Soros could take the fame, while Druckenmiller didn't opt for any publicity in the matter. What also is not generally well known to the public is who were the investors who put up the $10 billion in cash to short the pound in 1992 in Soros' now defunct Quantum Funds?
Since 1992 he has greatly leveraged his fortune as a shrewd investor, a prescient trend spotter and savvy manager of the Quantum Fund, and later Soros Fund Management, yet he has not always been right, and has lost billions as well, meaning that those initial estimates do not count how much Soros has lost in bad investments. He has been accused of destabilizing world currencies and wrecking the economies of nations, notably in Malaysia and Thailand. A French court convicted him of insider trading and fined him $2.3 million in 2002 which is still under appeal.
That is akin to forcing a middle class American to cough up a couple extra pennies on income tax, written off by Soros and his organizations as a cost of doing business, nothing really if you can afford it. But if you are slapped with that kind of a fine and don't have the money to pay up, you are liable to be broke for the rest of your life and bankruptcy isn't an option in those types of cases. So you have to keep paying to keep on playing.
As a philanthropist, Soros is virtually in a new league, and a frontrunner of giving by other wealthy billionaires like Bill Gates, and Paul Allen who only recently caught up and surpassed his former high level of charity. A spokesman said the Soros network of foundations - the Open Society Institute (OSI), operating in some 50 countries - routinely gives away $450 million a year, totaling some $5 billion in the past two decades. Among the beneficiaries have been the American Civil Liberties Union and the Planned Parenthood Federation of America.
These are not looked upon by the public as investments, particularly not the Wall Street watchers, but to the general long term planners of the world, such investments may in fact have higher returns than all the investments Soros has made in the past combined.
One recent scientific sad fact is that abortion reduces the crime rate over a trend by as much as 50% when poor people who cannot survive as well are allowed to choose to terminate pregnancies for economic reasons.
The cost of raising a child in the United States has risen above $110,000 in 2005. That is an average of $6,000 per year, while the poverty level for a family of four in the United States has risen to a threshold of $20,000 a year according to the US Department of Labor.
Poor people generally do not invest in the stock market, let alone attempt to understand it. Most single mothers do not have time to study the markets and learn how to invest their money like a London School of Economics graduate like Soros.
As a philosopher, Soros has been positioned as one of the world's great thinkers, writing books with catchy marketing titles such as The Bubble of American Supremacy, Soros on Soros, the Alchemy of Finance, The Crisis of Global Capitalism, Soros on Globalization and he is attributed with creating and naming new schools of thought such as "reflexivity," "Soros doctrine".
His central premise is tolerance and recognizing human fallibility, but with a relativist style. He insists that no nation or any person possesses the "ultimate truth." Not much different from L. Ron Hubbard's philosophy that "no man has a monopoly on the wisdom of this universe", so his critics cannot really claim it as new.
Therefore, a true "open society" and its leaders should not act unilaterally, as the United States did in Iraq, but should subordinate national interests to multinational concerns and entities, like the United Nations and the court of world opinion. Other's would say that acting unilaterally was profit motivated and the conflict in Iraq and the pending one in Iran are more economically motivated.
Iraq was more akin to the Sheriff evicting a former homeowner who has failed to pay his mortgage. Hussein was in default on over $100 billion in debt going on ten years and sitting on $2 trillion in assets. Any banker would be a fool not to foreclose and hire the US Army to act as the Sheriff. The Sheriff and his posse cannot be open when it comes to seizure of assets. Everything else was just political rhetoric according to the obviousness of the amounts of money being invested in Iraq compared to the amounts being invested at home.
Soros lately has been promoting the formation of new global organizations to help protect the environment and perhaps create a new global central bank that would superimpose itself on the global economy, creating trillions in new monetary mediums of exchange, with the other 200+ central banks in the world subordinating their interests to the greater good of the planet. This would be no different than promoting the concept of a new world order, and Soros does happen to be a card carrying member of the Council on Foreign Relations.
Soros and his family - who are Jewish - escaped the Holocaust during World War II by posing as Christians with falsified identity papers. After the war they escaped their new Communist masters in Hungary by fleeing to England in 1947, where George attended the London School of Economics. He and his father, a lawyer, shared an intense interest in Esperanto, a contrived "universal" language. No doubt Soros and his father, repulsed by the virulent belief systems of Nazism and Communism, were attracted by the vision of a world free of nationalities that Esperanto represented.
Later, Soros became a devout student of the Austrian philosopher Karl Popper, a contrarian who specialized in debunking other philosophers and who first coined the term "open society." In one of his works, Popper wrote these words:
The moral decisions of others should be treated with respect, as long as such decisions do not conflict with the principle of tolerance. We have the right not to tolerate the intolerant. We should tolerate even them whenever we can do so without running a great risk; but the risk may become so great that we cannot allow ourselves the luxury. (The Open Society and its Enemies, 1945)
Soros eventually moved to the United States, where he became a naturalized citizen. He also became a lifelong friend of the late hippie poet Allen Ginsberg, who - according to Soros' authorized biography (Soros, Michael T. Kaufman, 2002) - persuaded him that America's war on drugs was a misguided revival of Prohibition.
Senior aide Michael Vachon has asked me what I want from Soros, and I have told him absolutely nothing. And he found it quite bizarre to find someone like me wanting to write a column about Soros, let alone doing a documentary about him. The Soros Documentary Fund, according to one film maker in Los Angeles, has no interest in doing a documentary about Iraq, or Soros himself.
Soros' ventures into philanthropy have included scholarships for black students at Capetown University during the apartheid era in South Africa. After the fall of Communism, Soros provided funding to help ease the transition to democracy in Eastern Europe and the former Soviet republics. Soros also provided scholarships for students to the Central European University - which he founded in Budapest to introduce Western teaching - and funding in Russia to translate books once banned by Communist dictators. Soros is also involved in the Baltic regions through various programs which involve micro lending, a tool used by the World Bank in developing countries to encourage the poor to form their own businesses.
Soros indeed is one of the most generous men in the world, but again, it may not be him alone that makes the decisions on where to put the money. His various non profit organizations generally tend to be run autonomously without much interference from Soros who is more often than not traveling to his next lecture or busy researching his next book.
He has used his vast wealth to benefit humanity. Soros' $125 million grant, the largest of its kind awarded in the United State, to fund after school activities for poor kids in the five boroughs of New York City and elsewhere is a prime example.
These are public school kids whose parents are at work and who would otherwise be out on the streets or watching TV alone at home. Instead of being in harm's way and getting into trouble, they are in programs that help them with academics and introduce music, art and sports into their lives.
One thing that Soros has not done that might be interesting, and that is teaching others his secrets of investing. He may point to his books for that lesson, but generally, the actual secrets are not very much out in the open, and certainly, to be able to generate on average $500 million a year in profit, there is certainly some sort of proprietary knowledge involved in such an adventure. After all, it isn't every day that a single man and his partner can bet $10 billion, make $1 billion on a 15% downside swing in one nations currency and thereafter keep piling up profits, giving away half, and stay on the list of the worlds richest men.
Soros has invested quite a bit in medical companies and there's already a drug in pill form, called Marinol, that's been synthesized from cannabis (the marijuana plant), tested on animals and humans and approved by the Food and Drug Administration for medical purposes such as nausea reduction. It doesn't produce the marijuana high, but could become a useful medicine for cancer patients. Soros has not invested in Marinol but he has supported repealing laws against medical use of marijuana, but not the legal use of marijuana in general.
Soros was quoted in Rolling Stone magazine in 1994, "Come up with an approach that emphasizes 'treatment and humanitarian endeavors' ... hire someone with the political savvy to sit down and negotiate with the government officials, and target a few winnable issues, like medical marijuana and the repeal of mandatory sentencing minimums. Soros does not invest in private prison management companies or is yet to invest in any firm engaged in medical marijuana research.
So, who is George Soros? The year 2004 brought Soros a whole new set of priorities. The "central focus" of his life, he insisted, was the defeat of George W. Bush and everything he stood for. The loathing ran deep, or so it appeared to the general populace.
As he wrote in his epilogue to The Bubble of American Supremacy: Correcting the Misuse of American Power: "It is not enough to defeat President Bush at the polls; we must repudiate the Bush doctrine and adopt a more enlightened vision of America's role in the world. If the presidency of George W. Bush was an aberration, we must learn something from it. An open society makes progress by trial and error."
And as he put his money where his mouth was, giving what had been called the largest single political contribution in American history - $10 million to an anti-Bush political-action group, America Coming Together, the publicity surrounding his opposition may well have been an economic investment with far greater returns than the final political result.
Surely the publicity was worth billions world wide, especially when many foreign nations didn't like Soros for what he purportedly had done to fuel the Asian financial crisis a decade earlier.
And yet, after Bush won the election, nary another word was heard from Soros. He went on to work on the issues of global capitalism. But the dollar soon lost ground after that election and surely the worlds central bankers were somewhat influenced by all the fundamentals of currency trading, and Soros and his organizations were short a few billion US dollars against the Euro as it swung 30% in his favor in a matter of six months not long after November of 2004. The media didn't catch on to this, nor did the pundits who attacked Soros who was simply following his trading philosophy under his own business as usual policies.
Some astute economic observers worry that Soros, who has repeatedly made major ripples on the international financial scene, could be up to more than just conventional trading and hardball and might cause America an unpleasant "surprise" by pulling strings and causing "marketplace disruptions" on the economic front. There has been speculation on this for the past two years!
Still others in the upper echelons of the legal professions have suggested that Soros now has the power to sway Asian investors, particularly China, to reinvest the profits from the burgeoning US trade deficit into Central Europe and Eastern Europe, instead of having it flow back into US government backed securities, which is slowly forcing the fed to keep raising interest rates. His recent forays into Singapore are indicative of his efforts to shift opinions of Asian investors and central bankers according to some sources.
Some have compared George Soros to a Rockefeller or Carnegie, but by manipulating currencies and speculating with other people's money, has he really produced anything of lasting value? Is Russia today any more open than it was ten years ago? Does money still flow to the highest potential yield on investment and has anyone beat the world record of $1 billion profit in a single week of trading? Is Soros looking to pull off another coup and break the Federal Reserve Bank of the United States with such recent pronouncements that the real estate market will bust in 2007 as the Fed continues to raise rates too high over too long a period?
Many experts are saying the real estate market bubble has already popped in the United States and the current administration is frantically working behind the scenes to attempt to prop it up with rhetorical speeches about a soft landing.
While some see Soros as a postmodern, New Age figure, others have called him a throwback to the age of Enlightenment. Others have said that his belief in the role of the state is incompatible with the very means of wealth-making that led to his own fortune.
Whatever people think of Soros, regardless of their politics, religion or philosophy, one thing is certain. Soros has created a self perpetuating legend of mythological proportions and those who are deluded by wealth are sure to be caught off guard when he makes his next big investment move, or should it be more accurately said, that his cadre of lawyers act on his advice?
The flaws in the full, accurate, and timely disclosure of information in the currency and securities markets may never be fully corrected, it may not even be humanly possible, for as long as perceptions remain skewed, investors like Soros might just back someone into making a trillion dollars in one month and shatter all of Soros' old world records. All it takes is one foreign central bank to get behind it and it could be history in the making. The savvy may well read between he lines and avoid the fines on the way to the right central bank.