Actually this is a greenwashing case:

US prosecutors charged Gautam Adani with helping drive a $250 million bribery scheme, in a stunning blow to India’s most powerful businessman and close ally of Prime Minister Narendra Modi.

Federal prosecutors alleged on Wednesday that Adani, one of the world’s richest people, and other defendants promised to pay more than $250 million in bribes to Indian government officials to win solar energy contracts, and concealed the plan as they sought to raise money from US investors. US law allows federal prosecutors to pursue foreign corruption allegations if they involve certain links to American investors or markets.

Here are the press releases from the US Department of Justice and the Securities and Exchange Commission, charging Adani and several alleged co-conspirators with violating the Foreign Corrupt Practices Act (the anti-bribery law) and also committing securities fraud.

It’s a little weird, no? Indian executives of an Indian company listed in India who allegedly paid bribes to Indian government officials to win Indian government contracts were charged with crimes in the US. Paying bribes to government officials seems like it must be a crime, but why is it a crime in the US to pay those bribes in India?

The gist of the allegations (from the SEC complaint) is that Adani Green Energy Ltd., an Indian public company that is part of the Adani Group, [1]  was in the business of developing solar and wind power projects in India. It won — apparently legitimately — a big contract from the Indian federal government to build solar plants and sell power, a contract worth “billions of dollars of revenue and more than a billion dollars in profit.” But actually the award didn’t commit the government to buying power from Adani Green. First, the government would need to enter into power purchasing contracts with Indian state government power companies, and the state governments refused to pay the prices that the federal government had agreed to. (“The price for energy capacity that [the federal government agency] had tentatively agreed to pay under the Letters of Award turned out to be too high,” in part “because aspects of the Indian renewable energy market had shifted and caused downward pressure on solar energy prices.”) So, says the SEC:

Executives of both Adani Green and Azure [Global Power Ltd., its partner on the deal, formerly listed in the US], including [Gautam Adani’s nephew] Sagar Adani, began to pressure and to propose to pay “incentives” (i.e., bribes) directly to Indian state government officials to persuade them to cause the Indian state governments or the state-owned DISCOMs [energy distribution companies] to agree to Power Supply Agreements with SECI [the federal agency] at prices favorable to Adani and Azure. 

I have to say, we talk from time to time around here about good and bad ways to describe bribery, and this is the good way. (I mean, to describe alleged bribery.) If you told me “we won a contract with an intermediary to supply power at a fixed rate, but the ultimate buyers balked because that rate is above-market, so we gave those buyers cash incentives to get them to agree to the contract,” I’d be like “that’s a little weird but I’m sure there’s some reason you want to sell at the contract rate, so paying incentives to make the ultimate buyers economically indifferent is probably fine.” And then if you said “well, technically the state governments are paying the contract rate, while the cash incentives are being paid to the state government officials in their personal accounts,” I’d be like “ah you got me you rascal, those are bribes!”

But having a line item in the budget for “incentives” strikes me as much better than having one for “bribes,” or for “nudge nudge,” or maybe even for “consulting fees.” The SEC complaints and the criminal indictment do not present an overwhelming case that the “incentives” were paid to the government officials personally, but:

Gautam Adani, with Sagar Adani’s assistance, ultimately paid or promised bribes to government officials in numerous Indian states worth hundreds of millions of dollars to cause those state governments and their officials to enter into Power Supply Agreements with SECI. Adani Green’s internal records documented these payments or promises.

Again, having your internal records document the incentives is good! Makes them look like incentives, not bags of cash delivered under the table. Or the criminal indictment lists some allegedly incriminating communications, all of which could plausibly be legitimate:

On or about November 24, 2020, [Azure CEO Ranjit] GUPTA exchanged electronic messages with the defendant SAGAR R. ADANI regarding efforts to convince states to purchase power under the Manufacturing Linked Project, as part of which GUPTA wrote, “the advantage we have is that the discoms are being motivated.”

“The state power companies are being motivated” is good! What you don’t want is “the state power company executives are being motivated,” but he didn’t say that! This is obviously not legal advice and didn’t work, but still.

Also from the criminal indictment:

When communicating about the bribery scheme, [various alleged conspirators] often referred to the defendants GAUTAM S. ADANI and [Adani Green Chief Executive Officer] VNEET S. JAAIN by code names. Specifically, among other things, [they] referred to GAUTAM S. ADANI as “SAG,” “Mr[.] A,” “Numero uno” and “the big man,” and referred to JAAIN as “V,” “snake” and “Numero uno minus one.”

Okay those are not code names, those are at most nicknames. (“Mr. A,” “SAG” and “V” aren’t even nicknames, they’re just initials, come on.) I promise that, in the last hour, hundreds of employees of dozens of companies have sent entirely legitimate and routine business emails referring to their bosses not by name but as “the big man,” and there have probably been a few perfectly legitimate “snakes” too. [2] “Numero uno minus one” is very funny however.

Anyway! Why is this a US crime? Part of the answer is that Azure was listed in the US until 2023. But another important part of the answer is that Adani Green sold $750 million of dollar-denominated bonds in 2021, about $175 million of which went to US investors. And those investors, says the SEC, were misled:

In connection with its offer and sale of the Notes and before it sold any Notes, Adani Green provided the Offering Circulars to potential investors. …

The Offering Circulars also repeatedly disclosed to investors that an “integral” part of Adani Green’s “philosophy” is its “environmental, social, governance (‘ESG’) policy” and that Adani Green operates pursuant to an “ESG Framework.” …

The Offering Circulars highlighted to potential investors that, as part of Adani Green’s commitment to ESG principles, it is a “participant of the United Nations Global Compact, committing [Adani Green] to supporting the ten principles of the United Nations Global Compact in human rights, labor, environment and anti-corruption.” Principle 10 of the United Nations Global Compact, signed by Adani Green and highlighted in connection with the Offering and the Notes, says that “Businesses should work against corruption in all its forms, including extortion and bribery.”

The Offering Circulars then disclosed to potential investors that a “core” part of the success of Adani Group — of which Adani Green is a part — is its philosophy of “Growth with Goodness” and its commitment to ESG principles. …

The Offering Circulars then conveyed that Adani Green’s efforts related to environmental, social responsibility, and good corporate governance principles — which included Adani Green’s purported efforts with respect to anti-bribery and anti-corruption — should be meaningful to investors’ investment decisions. …

The Offering Circulars’ many statements representing to potential investors that a core tenet of Adani Green and its Board was preventing bribery and corruption gave any reasonable investor comfort that none of Adani Green’s executives or directors were then involved in a corrupt bribery scheme. This was misleading. In fact, months and weeks earlier, Adani Green’s leadership, Gautam Adani and Sagar Adani, had been personally involved in such a corrupt bribery scheme, a fact that was not disclosed in the Offering Circulars.

Those bonds were repaid in full earlier this year, so the US investors who bought them didn’t lose any money. Arguably they were still defrauded, because they bought bonds that were financially riskier than they expected: The standard argument is “the bribes make Adani’s business riskier, and if the market knew about them, the bonds would have priced at a higher yield.” (And in fact Adani Group bonds sold off when the charges were announced. [3] ) But that is a little unsatisfying: Adani Green sold the bonds to investors and then paid them back as promised, so while they were arguably defrauded in expectation, they did not actually lose any money.

But that’s not the SEC’s argument. Rather, the argument is that the investors were defrauded because they thought the bonds were ESG, but the bonds were not in fact ESG. Or, rather, the bonds were issued to fund solar projects, yes, but their social and governance credentials were suspect, what with the bribes:

In its annual reports, news releases, and other self-published documents, Adani Green has positioned itself as a leader in environmentally conscious, socially responsible, and good corporate governance principles, often referred to as environmental, social, and governance or “ESG” principles. In this way, Adani Green has sought to differentiate itself from its peers and other potential investments or issuers in developing countries that might be susceptible to corruption and bribery issues and to specifically appeal to investors who prioritize ESG principles or ESG-related investments.

Back in 2021, this was a real thing. Investors wanted to be ESG: They wanted to put their money into companies that had good environmental, social and governance performance. A large, stable, revenue-generating company that raised a lot of money in international capital markets and built solar power plants in developing countries was extremely attractive to a certain class of international ESG-focused investors, but it would be significantly less attractive if it disclosed “also we pay tons of bribes.” Pretending to be very ESG, while in fact (allegedly) being a solar power company that paid bribes, really was a way to defraud investors. But the fraud was less “you took their money and didn’t give it back” and more “you took their money and didn’t give them what they really wanted, which was good ESG performance.” That is the crime here.

Not for long, though, maybe. I wrote last week that “Gary Gensler’s SEC has a few months to bring its last greenwashing cases,” but that the Trump administration will presumably be anti-ESG and will sue companies for doing ESG stuff, not for falsely pretending to do ESG stuff. Also … I mean … bribes … you know … never mind. “Prosecuting the case would take months, if not years, meaning that it will fall to the incoming Trump administration’s Justice Department to determine how to proceed,” notes Bloomberg News. But for now, it’s illegal in the US for Indian companies to pay bribes in India.

Banks and insurance companies have risk-based capital requirements. You need to have more capital against risky assets than against safe assets. Schematically, it might go something like:

1. You need 2% capital against AAA-rated bonds.
2. You need 6% capital against BB-rated bonds.
3. You need 8% capital against unrated bonds.
4. You need 30% capital against equity exposures.

Something like that, though these are not real numbers. So if you buy $100 of unrated bonds, you need $8 of capital, because those bonds are risky.

Are they? An essential insight of finance is that they are partially risky. One hundred dollars of unrated bonds might not pay back the full $100, but they’ll probably pay back at least, you know, $60, even if things go really wrong. So what you do is you put the bonds in a box and slice the cash flows into new bonds:

1. The first $60 of payments go to the Tranche A bonds, which get an AAA rating.
2. The next $30 of payments go to the Tranche B bonds, which get a BB rating.
3. The last $10 of payments to got the equity tranche, which doesn’t get a rating.

And then you buy all of the tranches. Now you need $1.20 of capital (2% of $60) against the Tranche A bonds, $1.80 of capital (6% of $30) against the Tranche B bonds, and $3 of capital (30% of $10) against the equity tranche. That’s a total of $6 of capital, which is less than the $8 you’d need against the unsliced bonds. Again, these numbers are not real, they’re just to give you a sense of the possibilities.

The point is that there are two things going on here. One is a real thing: If you slice a pot of cash flows into junior and senior claims, the senior claims really are safer than the unsliced pot, so they should get a better rating, lower capital requirements, etc.

But the other is a pure regulatory arbitrage: If you slice a pot of cash flows into junior and senior claims, and then buy all of them, the total of all of the claims can’t be safer than the unsliced pot. But the capital requirements are always going to be a bit arbitrary, and maybe you can find a slicing that gets you a better result than leaving the pot alone.

We have talked about this before, but here’s a good Bloomberg News story on rated feeders:

The vehicles, known as rated feeders, package stakes in private debt funds into bonds, making it cheaper for insurers to buy them by effectively cutting the amount of capital that they need to hold against those investments. …

Rated feeders are part of a broader push by private credit firms to convince the US insurance industry, which controls trillions in long-term capital, to pour money into the asset class. In fact, for many of private lending’s biggest players, insurers have become so critical to their growth efforts that they’ve built out or bought large insurance units of their own.

Rated feeders allow those units and other insurers to funnel cash into private credit — which typically finances highly leveraged companies and offers juicier yields relative to conventional bonds and loans — in a capital efficient way, backers argue. ...

A private credit firm looking to raise capital will create a standalone investment vehicle to house a stake in its fund. Insurance investors will often buy a vertical slice of the securitization in the form of high-grade and junk-rated bonds as well as a subordinated equity tranche, in exchange receiving a share of the interest and principal payments from the assets in the fund.

Buying the vehicles lets insurers sharply reduce the money they must set aside to back their exposure to the private credit fund, since US insurance industry rules apply capital charges of 30% or more to holdings of fund shares, compared to low-to-mid single digits for most debt.

“Fund shares” are, categorically, risky, so they get a 30% capital charge. “Investment-grade bonds” are, categorically, safe, so they get a 2% capital charge. Most of the fund shares can be repackaged into investment-grade bonds. So they are.

If you run a private artificial intelligence startup, how much are you allowed to lie to investors? The answer is not “none,” surely. This is not legal advice. Legally, the rules for private startups are roughly the same as the rules for public stock offerings: You’re not allowed to lie to investors about material facts to get money out of them. But practically, venture capital investors are looking for visionary founders and are willing to accept a certain amount of fraud. If you call some of your one-off revenue “annual recurring revenue” to make your numbers look better, your VCs might not catch you, and if they do they might not complain, and if they do complain, they might complain privately to you and not embarrass themselves by going to the police.

I tend to think — and this is very much not legal advice — that to get arrested for startup fraud, you often have to (1) do a certain amount of fudging of the numbers plus (2) do some egregious embarrassing additional stunt. We have talked a few times about Carlos Watson, the founder of Ozy Media, who was criminally charged and convicted for defrauding his startup’s investors. Watson’s defense was, sure, he made exaggerated claims about the company’s business, but every startup founder does that, that’s not a crime. That defense is not legally viable, and didn’t work with a jury, but you can sort of see why it would be a little sympathetic. The problem is that “Watson coached his co-founder to impersonate a YouTube executive [on a due diligence call] to get Goldman Sachs bankers to back the media startup,” and that is crazy. If you do that, your investors will call the police.

Anyway this isn’t quite that but it’s close:

The founder of an artificial intelligence start-up focused on education was arrested and charged with defrauding her investors, lying about the company’s profits and falsely claiming that some of the largest school districts in the country, including New York City’s, were her customers.

The founder, Joanna Smith-Griffin, started the company, AllHere Education, in 2016, with the goal of using artificial intelligence to increase student and parent engagement and curb absenteeism.

In the years that followed, Ms. Smith-Griffin, 33, misrepresented AllHere’s revenue and customer base to fraudulently raise almost $10 million in funds, according to the indictment. Once the company’s valuation had climbed, she sold some of her stake in it and spent hundreds of thousands of dollars on a down payment for a new home and on her wedding.

Here are the Justice Department announcement and indictment, and some of it is garden-variety stuff. (Prosecutors complain that, in her Series A Investor Deck, there was a page about customers that includes the logos of several school districts that were not actually AllHere customers, though with no explicit claim that they were.)

But the collapse of the fraud is a bit much: In May 2024, Smith-Griffin was late sending out financial statements to her investors, so a VC investor contacted AllHere’s outside accounting firm directly, and the accounting firm “sent Investor-1 AllHere’s true Q1 2024 financials,” which were a lot worse than the fake ones Smith-Griffin had allegedly been sending. The investor got suspicious, the board of directors started asking questions, and “as part of that reconciliation, on or about June 10, 2024, Consultant-1, an outside financial consultant to AllHere, participated in a video teleconference call with Director-1 and Director-2,” two outside directors representing AllHere’s VC investors.

During that call, Smith-Griffin allegedly emailed the directors from a fake email account under the consultant’s name. During the call! What do you think happened?

Director-1 told Consultant-1 during their video call that she had received Consultant-1’s email. Consultant-1 responded that Consultant-1 did not have an AllHere email account, did not send that email, and had not been in contact with JOANNA SMITH GRIFFIN, the defendant, since approximately in or about April 2024, over a month prior.

The board more or less immediately fired her and, one assumes, went to the police. You can’t impersonate people on calls with investors! Why does this keep coming up?

Bitcoin is nearing but this is probably the most bullish crypto news I’ve seen in two years:

“Comedian,” by Italian artist Maurizio Cattelan, sold for $6.2 million at auction Wednesday night. 

The piece consists of an ordinary, yellow banana affixed to a white wall with a diagonal piece of silver duct tape. Since Cattelan debuted the work at Art Basel Miami Beach five years ago, what’s become known as the Banana has turned into a viral sensation. It’s attracted crowds, copycats, and even its own cryptocurrency. …

Ultimately it sold to Chinese collector Justin Sun, founder of cryptocurrency platform Tron. He intends to pay for the piece in crypto. After the sale, Sun said he considered the piece to be historic, but he also said he has plans of his own for the Banana: “In the coming days, I will personally eat the banana as part of this unique artistic experience, honoring its place in both art history and popular culture.”

A year ago, the guy who bought and ate the banana would have been Ken Griffin. Now it’s extremely crypto guy Justin Sun. There is an obvious affinity between a crypto boom and contemporary art collecting, in that:

• a crypto boom makes a lot of people fantastically wealthy quickly and without much effort, so they have money to spend; and
• it feels like a joke, so they might be inclined to spend their money on jokes, and the contemporary art market produces a lot of expensive jokes.

And so in the last crypto boom lots of art, particularly this sort of art, was bought by crypto entrepreneurs. And now we are back. For the record:

1.  “Comedian” is obviously good and funny.
2. I hate to hand it to Sun, but “I will personally eat the banana” is also obviously good and funny.
3. There has been some