Kyle Bass's disastrous Hong Kong dollar short has fizzled out. Here's how

Asia's Tech News Daily

Securities and Exchange Commission (SEC), Guo Wengui, Hong Kong dollar, the Hong Kong dollar peg

A recent US Securities and Exchange Commission (SEC) case reveals how Kyle Bass’s bet against the Hong Kong dollar has fizzled – he has lost big, ensnaring some investors who funded his short through what the regulator said was an illicit stock offering.

The details were laid out in a September SEC enforcement action that describes illegal financing of an ambitious start-up that sought to expose corruption involving Chinese government officials. The start-up – GTV Media Group, with ties to self-professed billionaire Guo Wengui and ex-Donald Trump adviser Steve Bannon – raised US$339 million through an unregistered share sale last year, according to the SEC.

In June 2020, GTV’s parent company, Saraca Media Group, transferred US$100 million of the proceeds to an unnamed hedge fund that takes positions in the Hong Kong dollar and other Asian currencies, the regulator said. The fund went on to lose more than 95 per cent of the US$30 million it invested, according to the SEC. That hedge fund is managed by Bass’s Hayman Capital Management, said two people with direct knowledge of the matter.

Bass, 52, had been bearish on Hong Kong’s currency since at least 2019. At the time of the GTV share sale, Hayman was starting a new strategy to make all-or-nothing wagers that the currency’s peg to the US dollar would collapse, Bloomberg has previously reported. The SEC, which said its investigation is continuing, has not accused Bass or Hayman of wrongdoing.

Hayman does not comment on its investors or its funds, Jeff Tillotson, a lawyer representing Bass and the company, said in a statement. He added that GTV has never invested in Hayman and that neither Hayman nor Bass have ever received compensation from the media firm. Tillotson also said information that Bloomberg planned to report was inaccurate. The SEC declined to comment. 

Hayman’s investment shows the risks of making big wagers based on geopolitics. It also raises questions about potential conflicts between hedge funds and their clients, said Richard Painter, a former White House ethics official who teaches securities law at the University of Minnesota.

An April 2020 memo describing the GTV stock sale names Bass as a non-executive director of the company, along with Bannon and others, according to a copy of the offering document that was included as part of an ongoing lawsuit that investors filed against Guo. Bass also served as the chairman of a non-profit that Guo founded, according to a document filed with the Internal Revenue Service. In a tweet posted last year, Bass said he was “not a Director of GTV as of July 9th”.

Bass was not a GTV board member between April and June 2020, did not authorise the use of his name in any marketing materials and had no knowledge of GTV’s fundraising methods, Tillotson said.

“The issuer of the securities shouldn’t be taking the proceeds of the offering and turning them over to a hedge fund,” Painter said. “How was that approved? Who approved that? Did they tell the investors that that is what’s going to happen to their money?”

The SEC’s case involved a tangled web of companies, all with links to Guo, a vocal critic of China’s Communist Party who fled to the US in 2015. 

The agency accused GTV, Saraca and Voice of Guo Media of selling unregistered stock and digital tokens to thousands of investors to fund a venture that would be “the only uncensored and independent bridge between China and the Western world”.

GTV is owned by Saraca, while Voice of Guo Media provides support work to both companies, including translation services, the SEC said. Most of the money from the share sale was ultimately held by Saraca, according to the regulator.

In a settlement announced last month, the companies agreed to pay more than US$539 million, the bulk of which was money that has to be returned to investors. The companies did not admit or deny wrongdoing. Guo and Bannon were not named in the SEC’s order and the regulator did not accuse them of any misconduct.

Bass has long been a China sceptic, a view that he has frequently shared on Twitter and in media interviews. He made one of his most audacious bets on the region last year, lining up investors for the Hayman Hong Kong Opportunities Fund, LP-Prodigious Series. The fund planned to use options to leverage its assets by 200 times to speculate on declines in Hong Kong’s dollar, according to a marketing presentation seen by Bloomberg.

As the fund was being pitched to investors in May 2020, the coronavirus pandemic was triggering economic instability and protests were raging in the streets of Hong Kong over China’s crackdown on the territory. In July of last year, Bloomberg reported that some White House advisers were urging Trump to undermine the Hong Kong dollar peg in an effort to punish China. But Trump never took action on the decades’ old peg and it remains in place. Over the past 18 months, the Hong Kong dollar has slipped just 0.4 per cent, trading well within the band against the US currency.

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