Hedge Fund Mania

“You cannot serve both God and money.” – Luke 16:13

[Time sent]: 05/21/17, 10:34 P.M. [To]: [From]: Dpatrick@stanford.edu Subject: The Investment Opportunity of a Lifetime.

Dear friends,

I just filed paperwork with the SEC to establish a private investment trust investing in cryptocurrencies. Already have 500k in commitments (half of which is my own money), capping at $1m. $5,000 minimum, no annual fees with just 20 % carried interest and just 12-month lock up (I’m practically running a charity here).

Contact if interested and I will send you a 2-page prospectus and if you are still interested we can meet in person to discuss more in detail.

Yours truly, Dean “crypto is the next dot-com” Patrick

I was a junior at Stanford when I sent that email. In addition to violating the 1934 U.S. Securities Act by soliciting investment from nonaccredited investors, a Class C felony, it was filled with lies. There was no paperwork filed, no $500,000 in commitments, not even a two-page prospectus. All I had was a nose full of hubris and an appreciation for the power of artificial scarcity. In four months, the cryptocurrency market had hockey-sticked from $16 billion to $80 billion. A $1 million fund could net me nearly $3 million in fees if growth held steady for another year, making me wealthier than my parents and all but my most affluent peers.

From the moment I sent that email all notions of body and time dissolved into the narrowed universe of my computer screen glowing in my dark room. Hours melted away, a declining high the only metric of passing time–a dullness in the head and the first arrivals of hunger and fatigue–swiftly rectified with a deft toot from my hefty bag.

I refreshed as fast as my thumb could click, wrapped in a sweat-soaked blanket.

A flicker. A new email. My eyes bulged as I read the subject line: “Take my money!”

I slid down in bed—head bent high on a pillow with my laptop resting on arched thighs—a posture I had maintained more or less continuously for the past six weeks, breaking only at my body’s most urgent requests. My room had a sink where I peed and window blinds I cinched tight to block out sunlight and imaginary, invasive eyes.

Moments later, another email: “I’m in!” A giddiness simmered.

Then a third: “Where do I send the money??”

I panicked. There was nothing in my background to prepare me for this, no investment banker father or uncle with connections–my Dad spent his entire early career in the commercial fishing industry.

But the mind, I had come to believe, was nothing more than a machine; one that could be coaxed with drugs into astounding feats of creativity and even genius. For the past two months I had been consuming a buffet of pills and powders ordered off the deep web.

The deep web is the dank underbelly of the internet, protected by a fortress of encryption that disguises personal identities and enables websites that coordinate online drug markets and brothels. Accessible through a privacy-focused browser built by the US Navy to protect the identity of its intelligence officers, the dark web relies on the United States Postal Service to ship hundreds of millions of dollars worth of drugs annually to all fifty states and beyond. Beholden to the Fourth Amendment of the US Constitution, the USPS is not allowed to inspect packages without a warrant, making it the perfect drug mule for thousands of online dealers.

Crypto, among other things, is the dark web’s currency, with Bitcoin being the preferred option thanks to its broad adoption.

With access to the world’s greatest drug dealer, I used my body as a laboratory to concoct the optimal mix of uppers and downers to induce creative flow. I had landed on cocaine, with some Xanax or opiates to take the edge off whenever my heart complained too much.

I threw off the covers and grasped for the bag of powder at my bedside. Almost supine, I dumped a pea-sized rock onto my phone screen, crushing it with a credit card and organizing it into a shapely line before inserting a rolled twenty into my nostril and devouring it. After wiping a drop of sweat off my keyboard, I googled “How to start an investment fund.”

My girlfriend, Sarah, who I had only started dating a few months earlier, had grown agitated by my erratic behavior—unresponsive days followed by 2 a.m. texts. She was my year, a straight-A Biology major from Palo Alto. Strawberry blonde hair and green eyes and sundresses and from a rich family and therefore knew the other rich kids, their language, their interests. But she was kind and lacked pretentiousness. When she wasn’t studying her focus shifted to having “fun.”

“There’s a Theta mixer tonight. Are you coming??”

“I can’t; I’m working on something big.”

“You’re ALWAYS working, come out and have some FUN!!”

“I can’t. Sorry. I love you.”

I threw “love” around freely, not knowing what it meant. I doubted whether Sarah knew either.

“Okay, I’m rooting for you! Love you too,” she responded.

I was a little annoyed that she hadn’t written “I” before the word “love,” but I let it go.

In the month before the email my obsessive absence fed her suspicion of me.

“I never see you on campus anymore, are you even going to class??” She texted me.

I didn’t respond.

Later that day, she entered my room to find me sleeping at 3 pm.

“What are you doing? You should be in class!”

I groaned, my body ached all over and my torso felt soldered to the bed, unable to muster the energy to turn over and face her. The window was open and the sunburnt air fragranced with the smell of asphalt wafted into the room. Every so often the silence was interrupted by shouts or screeching bike tires.

“At least I’m not cheating on you,” I grumbled.

“I never thought you were cheating! But you can’t just lay there; you told me you were working!”

“I work at night and sleep during the day.”

“That’s no way to live.”

“It works for me.”

“But you’ll fail all your classes!”

“I don’t care about that.”

“You have some serious issues.”

I didn’t answer and after a few moments, she turned and left, shutting the door with force.

But now the fund was to absolve me of everything. After two hours of googling, I learned many ways to start a fund; some required tests and registration, some didn’t. The Financial Industry Regulatory Authority’s website described one test (the series-7) as “measuring the degree to which each candidate possesses the knowledge needed to perform the critical functions of a general securities representative.” I dismissed these as yawning credentials suitable for a retirement planner, but the formalities of traditional finance couldn’t hold back anyone who wanted to get rich in crypto. After all, both the crypto and traditional finance world march to the same beat: Buy low, sell high. However the old respected lawyers, while the new answered only to code.

Besides, there was a much better legal alternative: regulation D, which allowed me to circumvent the most onerous regulation as long as my investors made more than $200k a year. Stanford students wouldn’t count, but many of their parents would.

My inspiration for the fund had come a month earlier. I had invested my life savings, $5,000, into an initial coin offering (“ICO”), the IPO of the crypto world, in an Ethereum-based company called Pythia. Pythia had raised $12.5 million in less than fifteen minutes. A news report from Coindesk headlined the event: “ICO Insanity? $300 Million Pythia Valuation Sparks Market Reaction.” The header image showed three 20-pound notes going up in flames, with Queen Elizabeth’s face slashed through with fire. Crypto had already developed a reputation for attracting lofty valuations seemingly ungrounded in inconvenient and elusive “real-world value.” Even Coindesk, an industry rag not averse to publishing aggressive predictions, forecasted that Pythia was destined for a rapid descent back to earth.

Despite Coindesk’s pessimism, I learned from Reddit that over-the-counter deals valued Pythia tokens at over $1 billion. In just days, Pythia would be listed on a public exchange, and most online commentators speculated that it would go even higher. I knew I could sell my tokens for an enormous profit—allowing me to reinvest the earnings in the half-a-dozen Pythia-sized ICOs launching monthly, multiplying my profits until I could buy a place on St. Mark and retire by my twenty-second birthday. The fund would supercharge my personal returns and gain me friends for life.

I viewed sleep like a NASCAR driver views pit stops: as a nuisance to be minimized. The coke blew away the natural inclination of my reddened eyes to shut after three sleepless nights, and I immediately got to work on an investment prospectus.

After half an hour I got up and walked to the sink, pissed, and came back to bed. A rare silence had descended on the dorm, which I noted for only a second before picking up my laptop and getting to work. I began at two in the morning, and by three I had finished a draft of a two-pager filled with the financial language I had picked up in my economics classes. After sending it off to my prospective investors, I laid back to relax, settling my hands on my shrunken stomach. I had been an athlete—a wing and center on the Rugby team. Now I would probably snap in half after the first hit, but I didn’t care. I was going to be rich. And at Stanford I had learned that money beat muscle every time.

A rustle at my window disturbed me and I sat up. The street lights danced with my window curtains, flapping in the unusually gusty night air, the only sound in the otherwise still night.

I began to gasp but stifled it at the last moment to avoid making a sound. An ogreish shape had formed in the network of shadows playing on the floor. I kept my body still as I tuned every sense to the figure in the window, which was growing more menacing by the breath. The curtains made another violent flap and my crackling nervous system, coiled tightly in anxious anticipation, suddenly snapped at the sound. I sprang out of bed and lunged at the window, tearing back the curtain and swinging a desperate right hook where I had seen the ogre just a moment before. But I swung at air; the ogre had disappeared. I stuck my head out my window and looked down at the terrace a floor below, but before my eyes could adjust to the night, I leapt back. From the terrace, the ogre launched a midget through the window, over my shoulder and into my room. I swung around to grab him but he moved so fast I couldn’t get a clear view of him. For the next hour I tore my already disgusting room apart, trying to catch him. I emptied my closet and drawers, fearing he may have taken refuge in my furniture, sending underwear, T-shirts, books and pencils flying. Then the piles of clothes and books became potential hiding places and I dove on them, flinging them onto my bed, which in turn became another hiding place, and on it went in a desperate cycle of ever-increasing entropy. I moved my bed to the other side of the room and sent my dresser crashing down, kicking it furiously to try to drive the midget out.

There was banging on my door.

“Hey what’s going on there? Keep it down!”

“Shut the fuck up I’m looking for something!” I screamed back.

Finally I landed on a more level-headed approach. I used my phone and laptop as surveillance cameras, angling them on my dresser such that every part of the floor was being recorded. Any move the midget made would be caught on camera, and I would have the evidence I needed to call in the authorities. I stood on my bed to try to command the best possible view, dripping sweat, lost in time, waiting to leap. Suddenly there was a flash of movement and I threw myself from the bed. The bastard had escaped me again, but he was on camera. Righteous and terrified, I grabbed my phone and dialed 911 as I burst into the dorm hallway wearing only filthy blue gym shorts, an ounce of cocaine swinging in my pockets.