#Securities and Exchange Commission (SEC)

[mostlysignssomeportents]

Amazon’s financial shell game let it create an “impossible” monopoly

I'm on tour with my new, nationally bestselling novel The Bezzle! Catch me in TUCSON (Mar 9-10), then San Francisco (Mar 13), Anaheim, and more!

For the pro-monopoly crowd that absolutely dominated antitrust law from the Carter administration until 2020, Amazon presents a genuinely puzzling paradox: the company's monopoly power was never supposed to emerge, and if it did, it should have crumbled immediately.

Pro-monopoly economists embody Ely Devons's famous aphorism that "If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘What would I do if I were a horse?’":

https://pluralistic.net/2022/10/27/economism/#what-would-i-do-if-i-were-a-horse

Rather than using the way the world actually works as their starting point for how to think about it, they build elaborate models out of abstract principles like "rational actors." The resulting mathematical models are so abstractly elegant that it's easy to forget that they're just imaginative exercises, disconnected from reality:

https://pluralistic.net/2023/04/03/all-models-are-wrong/#some-are-useful

These models predicted that it would be impossible for Amazon to attain monopoly power. Even if they became a monopoly – in the sense of dominating sales of various kinds of goods – the company still wouldn't get monopoly power.

For example, if Amazon tried to take over a category by selling goods below cost ("predatory pricing"), then rivals could just wait until the company got tired of losing money and put prices back up, and then those rivals could go back to competing. And if Amazon tried to keep the loss-leader going indefinitely by "cross-subsidizing" the losses with high-margin profits from some other part of its business, rivals could sell those high margin goods at a lower margin, which would lure away Amazon customers and cut the supply lines for the price war it was fighting with its discounted products.

That's what the model predicted, but it's not what happened in the real world. In the real world, Amazon was able use its access to the capital markets to embark on scorched-earth predatory pricing campaigns. When diapers.com refused to sell out to Amazon, the company casually committed $100m to selling diapers below cost. Diapers.com went bust, Amazon bought it for pennies on the dollar and shut it down:

https://www.theverge.com/2019/5/13/18563379/amazon-predatory-pricing-antitrust-law

Investors got the message: don't compete with Amazon. They can remain predatory longer than you can remain solvent.

Now, not everyone shared the antitrust establishment's confidence that Amazon couldn't create a durable monopoly with market power. In 2017, Lina Khan – then a third year law student – published "Amazon's Antitrust Paradox," a landmark paper arguing that Amazon had all the tools it needed to amass monopoly power:

https://www.yalelawjournal.org/note/amazons-antitrust-paradox

Today, Khan is chair of the FTC, and has brought a case against Amazon that builds on some of the theories from that paper. One outcome of that suit is an unprecedented look at Amazon's internal operations. But, as the Institute for Local Self-Reliance's Stacy Mitchell describes in a piece for The Atlantic, key pieces of information have been totally redacted in the court exhibits:

https://www.theatlantic.com/ideas/archive/2024/02/amazon-profits-antitrust-ftc/677580/

The most important missing datum: how much money Amazon makes from each of its lines of business. Amazon's own story is that it basically breaks even on its retail operation, and keeps the whole business afloat with profits from its AWS cloud computing division. This is an important narrative, because if it's true, then Amazon can't be forcing up retail prices, which is the crux of the FTC's case against the company.

Here's what we know for sure about Amazon's retail business. First: merchants can't live without Amazon. The majority of US households have Prime, and 90% of Prime households start their ecommerce searches on Amazon; if they find what they're looking for, they buy it and stop. Thus, merchants who don't sell on Amazon just don't sell. This is called "monopsony power" and it's a lot easier to maintain than monopoly power. For most manufacturers, a 10% overnight drop in sales is a catastrophe, so a retailer that commands even a 10% market-share can extract huge concessions from its suppliers. Amazon's share of most categories of goods is a lot higher than 10%!

What kind of monopsony power does Amazon wield? Well, for one thing, it is able to levy a huge tax on its sellers. Add up all the junk-fees Amazon charges its platform sellers and it comes out to 45-51%:

https://pluralistic.net/2023/04/25/greedflation/#commissar-bezos

Competitive businesses just don't have 45% margins! No one can afford to kick that much back to Amazon. What is a merchant to do? Sell on Amazon and you lose money on every sale. Don't sell on Amazon and you don't get any business.

The only answer: raise prices on Amazon. After all, Prime customers – the majority of Amazon's retail business – don't shop for competitive prices. If Amazon wants a 45% vig, you can raise your Amazon prices by a third and just about break even.

But Amazon is wise to that: they have a "most favored nation" rule that punishes suppliers who sell goods more cheaply in rival stores, or even on their own site. The punishments vary, from banishing your products to page ten million of search-results to simply kicking you off the platform. With publishers, Amazon reserves the right to lower the prices they set when listing their books, to match the lowest price on the web, and paying publishers less for each sale.

That means that suppliers who sell on Amazon (which is anyone who wants to stay in business) have to dramatically hike their prices on Amazon, and when they do, they also have to hike their prices everywhere else (no wonder Prime customers don't bother to search elsewhere for a better deal!).

Now, Amazon says this is all wrong. That 45-51% vig they claim from business customers is barely enough to break even. The company's profits – they insist – come from selling AWS cloud service. The retail operation is just a public service they provide to us with cross-subsidy from those fat AWS margins.

This is a hell of a claim. Last year, Amazon raked in $130 billion in seller fees. In other words: they booked more revenue from junk fees than Bank of America made through its whole operation. Amazon's junk fees add up to more than all of Meta's revenues:

https://s2.q4cdn.com/299287126/files/doc_financials/2023/q4/AMZN-Q4-2023-Earnings-Release.pdf

Amazon claims that none of this is profit – it's just covering their operating expenses. According to Amazon, its non-AWS units combined have a one percent profit margin.

Now, this is an eye-popping claim indeed. Amazon is a public company, which means that it has to make thorough quarterly and annual financial disclosures breaking down its profit and loss. You'd think that somewhere in those disclosures, we'd find some details.

You'd think so, but you'd be wrong. Amazon's disclosures do not break out profits and losses by segment. SEC rules actually require the company to make these per-segment disclosures:

https://scholarship.law.stjohns.edu/cgi/viewcontent.cgi?article=3524&context=lawreview#:~:text=If%20a%20company%20has%20more,income%20taxes%20and%20extraordinary%20items.

That rule was enacted in 1966, out of concern that companies could use cross-subsidies to fund predatory pricing and other anticompetitive practices. But over the years, the SEC just…stopped enforcing the rule. Companies have "near total managerial discretion" to lump business units together and group their profits and losses in bloated, undifferentiated balance-sheet items:

https://www.ucl.ac.uk/bartlett/public-purpose/publications/2021/dec/crouching-tiger-hidden-dragons

As Mitchell points you, it's not just Amazon that flouts this rule. We don't know how much money Google makes on Youtube, or how much Apple makes from the App Store (Apple told a federal judge that this number doesn't exist). Warren Buffett – with significant interest in hundreds of companies across dozens of markets – only breaks out seven segments of profit-and-loss for Berkshire Hathaway.

Recall that there is one category of data from the FTC's antitrust case against Amazon that has been completely redacted. One guess which category that is! Yup, the profit-and-loss for its retail operation and other lines of business.

These redactions are the judge's fault, but the real fault lies with the SEC. Amazon is a public company. In exchange for access to the capital markets, it owes the public certain disclosures, which are set out in the SEC's rulebook. The SEC lets Amazon – and other gigantic companies – get away with a degree of secrecy that should disqualify it from offering stock to the public. As Mitchell says, SEC chairman Gary Gensler should adopt "new rules that more concretely define what qualifies as a segment and remove the discretion given to executives."

Amazon is the poster-child for monopoly run amok. As Yanis Varoufakis writes in Technofeudalism, Amazon has actually become a post-capitalist enterprise. Amazon doesn't make profits (money derived from selling goods); it makes rents (money charged to people who are seeking to make a profit):

https://pluralistic.net/2023/09/28/cloudalists/#cloud-capital

Profits are the defining characteristic of a capitalist economy; rents are the defining characteristic of feudalism. Amazon looks like a bazaar where thousands of merchants offer goods for sale to the public, but look harder and you discover that all those stallholders are totally controlled by Amazon. Amazon decides what goods they can sell, how much they cost, and whether a customer ever sees them. And then Amazon takes $0.45-51 out of every dollar. Amazon's "marketplace" isn't like a flea market, it's more like the interconnected shops on Disneyland's Main Street, USA: the sign over the door might say "20th Century Music Company" or "Emporium," but they're all just one store, run by one company.

And because Amazon has so much control over its sellers, it is able to exercise power over its buyers. Amazon's search results push down the best deals on the platform and promote results from more expensive, lower-quality items whose sellers have paid a fortune for an "ad" (not really an ad, but rather the top spot in search listings):

https://pluralistic.net/2023/11/29/aethelred-the-unready/#not-one-penny-for-tribute

This is "Amazon's pricing paradox." Amazon can claim that it offers low-priced, high-quality goods on the platform, but it makes $38b/year pushing those good deals way, way down in its search results. The top result for your Amazon search averages 29% more expensive than the best deal Amazon offers. Buy something from those first four spots and you'll pay a 25% premium. On average, you need to pick the seventeenth item on the search results page to get the best deal:

https://scholarship.law.bu.edu/faculty_scholarship/3645/

For 40 years, pro-monopoly economists claimed that it would be impossible for Amazon to attain monopoly power over buyers and sellers. Today, Amazon exercises that power so thoroughly that its junk-fee revenues alone exceed the total revenues of Bank of America. Amazon's story – that these fees barely stretch to covering its costs – assumes a nearly inconceivable level of credulity in its audience. Regrettably – for the human race – there is a cohort of senior, highly respected economists who possess this degree of credulity and more.

Of course, there's an easy way to settle the argument: Amazon could just comply with SEC regs and break out its P&L for its e-commerce operation. I assure you, they're not hiding this data because they think you'll be pleasantly surprised when they do and they don't want to spoil the moment.

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/03/01/managerial-discretion/#junk-fees

Image: Doc Searls (modified) https://www.flickr.com/photos/docsearls/4863121221/

CC BY 2.0 https://creativecommons.org/licenses/by/2.0/

[justinspoliticalcorner]

Paul Blumenthal and Dave Jamieson at HuffPost:

In a Thursday ruling, the Supreme Court placed new restrictions on the ability of the Securities and Exchange Commission to charge a person or company with a violation and adjudicate it outside of federal court. The decision in SEC v. Jarkesy is the latest in a string of cases where the court has pared back the power of federal agencies. Limiting the ability of agencies to issue regulations ― and, now, to prosecute certain legal offenses ― is a hallmark of the court’s nearly four-year-old conservative supermajority.

[...] This case came about after the SEC charged conservative radio host George Jarkesy Jr. with securities fraud for alleged improper reporting regarding two investment funds that he ran. An internal SEC adjudication process found him guilty and imposed a fine of $300,000 in 2013. [...]

In a 6-3 decision written by Chief Justice John Roberts, the court ruled that when the agency sought civil penalties for alleged fraud, the defendant was entitled to a jury trial ― though it set aside other constitutional questions raised by Jarkesy’s case. “The SEC’s antifraud provisions replicate common law fraud, and it is well established that common law claims must be heard by a jury,” Roberts wrote.

The radical and out-of-touch majority on SCOTUS ruled 6-3 to limit the ability to punish corporate wrongdoing in the SEC v. Jarkesy case.

[nationallawreview]

Regulatory Update and Recent SEC Actions

REGULATORY UPDATES Recent SEC Leadership Changes On January 10, 2023, the Securities and Exchange Commission (the “SEC”) announced the appointment of Cristina Martin Firvida as director of the Office of the Investor Advocate, effective January 17, 2023. Ms. Martin Firvida was most recently the vice president of financial security and livable communities for government affairs at the American…

[bitcoinversus]

XRP Price Drops Amid SEC Appeal in Ripple Lawsuit

XRP experienced a sharp drop, losing over 10% of its value following the U.S. Securities and Exchange Commission’s (SEC) latest move to appeal a pivotal court ruling in its lawsuit against Ripple Labs. The legal battle between Ripple and the SEC has been ongoing since 2020, with the regulatory body asserting that XRP should be classified as a security. Despite a favorable ruling for Ripple in…

[siliconpalms]

SEC Appeals $125 Million Penalty Imposed on Ripple Labs, XRP's Market Takes a Hit

In a significant legal development, the U.S. Securities and Exchange Commission (SEC) has officially appealed the $125 million penalty imposed on Ripple Labs. The financial regulatory body argues that the ruling handed down by the lower court contradicts well-established Supreme Court precedents regarding securities laws and investor protection. This move comes as the SEC continues its battle…

[touchaheartnews]

Fidelity Bank started recapitalisation before CBN made it compulsory –Amuchie

Recently, the Central Bank of Nigeria (CBN) raised the capital base of commercial banks and set the tone for recapitalisation. But one bank that was already working on recapitalisation prior to that is Fidelity Bank Plc. Revealing this in an interview, Fidelity Bank’s Executive Director, Chief Operations and Information Officer, Mr. Stanley Amuchie, said the bank had in August last year got its…

[dencyemily]

Landmark Decision: Court Gives Green Light to Genesis for $1.3 Billion GBTC Liquidation to Resolve Investor Debts

In a crucial development, Genesis Global Holdco has received court approval to initiate the phased liquidation of its $1.3 billion Grayscale Bitcoin Trust (GBTC) shares. The approval, granted during a February 14 hearing at the United States District Court for the Southern District of New York, underscores Genesis's commitment to its repayment plan for investors.

The sanctioned liquidation encompasses approximately 35 million GBTC shares, alongside 11 million shares from Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Classic Trust (ETCG). This move follows the SEC's approval on January 10 for the conversion of GBTC into a spot Bitcoin exchange-traded fund (ETF), a significant development in Genesis's strategy for cash redemption.

Genesis's legal and financial maneuvers, including a $21 million settlement with the SEC over allegations related to the Gemini Earn program, have set the stage for this court-approved liquidation. The decision allows Genesis to collaborate with a brokerage for a phased liquidation approach, ensuring a controlled divestment of assets.

Despite a legal battle with Gemini over the GBTC shares, the court's approval provides Genesis with the green light to proceed with its asset liquidation plan. This development has sparked interest within the cryptocurrency community, with stakeholders closely watching for potential market implications amid ongoing changes in the GBTC landscape.

[cryptonewsupdate]

Defiance Against SEC: Terraform CEO Contests Regulatory Authority in Charging Do Kwon and Company

In a strategic maneuver to weather ongoing legal storms, Terraform Labs, the masterminds behind TerraUSD (UST) and Luna, have opted for a Chapter 11 bankruptcy filing in Delaware. The move is positioned as a calculated response to legal challenges, prominently the SEC lawsuit and other legal complexities in Singapore. CEO Chris Amani underscores the pivotal role of this bankruptcy filing in steering the company through its objectives in the face of intricate legal landscapes.

The bankruptcy documents lay bare Terraform Labs' financial landscape, indicating assets and liabilities within the $100 million to $500 million range, with 100 to 199 creditors in the mix. Beyond financial restructuring, the Chapter 11 filing strategically positions Terraform Labs in its legal strategy. Typically, an appeal against the SEC would necessitate a "supersedeas bond," an amount equivalent to 110% of the total judgment, yet Chapter 11 protection might exempt the company from this requirement.

The upcoming appeal centers on Terraform Labs' argument that the SEC lacks jurisdiction to charge the company or co-founder Do Kwon, contending that their crypto assets are beyond the realm of securities. A favorable outcome could significantly alleviate the company's primary claim, bringing relief to Terraform Labs, its creditors, and the broader community.

Despite the challenges posed by bankruptcy, Terraform Labs remains resolute in its pursuit of growth within the Web3 sector. Recent strategic moves, such as the acquisition of Pulsar Finance and the launch of Station v3, a new cryptocurrency wallet, demonstrate the company's commitment to navigating complexities and forging ahead.

The postponement of the SEC's civil trial to March 25 has offered some respite. However, the custody situation of Do Kwon in Montenegro, with potential extradition looming, adds a layer of complexity. Kwon's arrest, stemming from the collapse of TerraUSD and Luna, contributed to significant disruptions in the cryptocurrency market.

Established in 2018, Terraform Labs faced a severe downturn in May 2022, witnessing a substantial loss of over $40 billion in market value. This downturn triggered the collapse of TerraUSD and Luna, escalating the company's legal battles. A recent U.S. court ruling further complicates matters by classifying LUNA and MIR as securities, intensifying Terraform Labs' legal challenges.

[brokernv]

Is A Professional License Enough To Be An Accredited Investor

A real estate broker licensee recently asked if they could participate in an offering requiring accredited investor status despite not meeting the SEC’s income or net worth requirements, “like stockbrokers”. Accreditation Status No, neither a real estate or stockbroker license alone will automatically qualify one as an accredited investor. Here are some key points about accredited investor…

[eightopals]

Hi, the SEC is the U.S. Securities and Exchange Commission, a federal regulatory agency. The SEC’s mission is to regulate the U.S. stock markets and the companies that make money by selling stock on those markets. As a regulator, the SEC investigates companies that may have violated U.S. securities regulations. The SEC employees mentioned are therefore federal employees, and the phones in question may well be the phones the agency issues to employees for official agency business.

I’m not sure exactly what ax Levine is trying to grind here, but he used to work for Goldman Sachs:

The SEC v. Goldman Sachs: Reputation, Trust, and Fiduciary Duties in Investment Banking

https://lawcat.berkeley.edu/record/1125250

Always consider the source.

The researchers “use de-identified smartphone geolocation data for a sample of US phones from January 2019 to February 2020,” obtained “from an online data vendor that provides data commercially to businesses, governments, and researchers” and “works with numerous mobile application providers that track ‘pings’ of the location of a phone while the application is either currently in use or is running in the background.” Then they use the addresses of SEC offices and corporate headquarters, and then match the smartphone pings to the buildings. A smartphone is assumed to belong to an SEC employee if it “pinged for at least 20 unique workday hours within one SEC location during the month” and “the accumulated time in that SEC building [is] greater than in any other buildings in the respective month.” And then they go measure which companies those SEC employees visited.

Matt Levine casually mentioning this in an aside like it's normal

[faultfalha]

In a dissent that Labyrinthine in its construction, SEC Commissioner Peirce argued against the proposed rules on Cybersecurity Disclosure. Claiming that the measures would only serve to confuse and mislead investors, Peirce's dissent was a maze of Borgesian proportions. While the majority of the Commission felt that the rules were a necessary step in ensuring that investors were kept aware of the cyber risks faced by public companies, Peirce felt that they would do more harm than good.

[onenettvchannel]

SEC-Philippines halts to register the Online Lending Platforms

MAKATI, MANILA -- The Securities and Exchange Commission in the Philippines (SEC-PH) has put a halt to online lending platforms that have newly registered due to a series of massive complaints regarding loan harassments and debt shaming from a lending institution. This halt was put into effect indefinitely by last Tuesday morning (June 20th, 2023 -- Makati local time).

In a report from 24 Oras of GMA News, the newly registered lenders have all stopped due to delinquent borrowers failing to repay or reimburse themselves to the lending company online instead of through traditional banking institutions in this generation. Loan sharks and debts are prevalent throughout the Philippines, as many loans are unsecured and lack proper regulation from the SEC-PH.

There are also data breaches that can occur when guarantors or co-makers put themselves at risk. As ASec. Mico Clavano said in a press briefing: "Contacting the debtor's list, including those who were guarantors or co-makers, is already a violation. If they are no longer on the guarantor's list, it will also constitute a violation of FCPE."

Online lenders in the Philippines may be facing multiple charges with a fine of PHP2M each (roughly U$D36k) and can be sentenced to up to 5 years in prison. Due to the persistent issues and a lack of regulation with loan sharks complaints, as well as debt shaming, SEC-PH will no longer accepting new lending registrants. This serves as a reminder that the financial industry must consider proper regulation and ethical practices for the safety of all monetary parties involved.

PHOTO COURTESY: Lourdes Escaros of DZXL-AM 558khz's Radyo Trabaho: RMN Manila via FB Photo BACKGROUND PROVIDED BY: Tegna

*https://www.gmanetwork.com/news/topstories/nation/872849/story/ [Referenced News Article via GMA News] *https://www.facebook.com/100045347622025/posts/789288365926077 [Referenced FB News Article via DZXL-AM 558khz's Radyo Trabaho: RMN Manila] *https://www.youtube.com/watch?v=LgOJaocDw3Y [Referenced News Item via GMA Integrated News] and *https://news.abs-cbn.com/news/06/20/23/6-companies-32-individuals-face-abusive-collection-raps [Referenced News Article via ABS-CBN News]

-- OneNETnews Team

[nationallawreview]

The Murky Waters of Wash Trading Digital Assets – DOJ Charges 18 Individuals and Entities

The United States Attorney’s Office for the District of Massachusetts recently unsealed what it described as the “first-ever criminal charges against financial services firms for market manipulation and ‘wash trading’ in the cryptocurrency industry.” The SEC also filed parallel civil charges alleging violations of Securities for the same alleged schemes. The government has charged eighteen…

[tomorrowusa]

We already have digital currency. It’s called the U.S. dollar. It’s called the euro or it’s called the yen; they’re all digital right now. We already have digital investments.

–Securities and Exchange Commission Chair Gary Gensler during an appearance at CNBC.

Just a sporadic reminder that crypto is crap. 💩 It doesn't matter that it trends on social media, or gets endorsed by clueless celebs who know zero about currency, or has a plethora of dodgy pseudo-news sites which promote it and make excuses for it.

Crypto is essentially a lot of code that gets cooked up on computers or (even worse) on server farms where its electricity consumption contributes to climate change.

It's not based on anything other than some dodgy wishful thinking. It is definitely not backed up financially nor insured by anybody.

Some people viewed crypto as a get rich quick scheme. The thing is, by the time such schemes become widely publicized, the opportunity to make money off of them has long passed.

One irony about crypto is that you almost always have to pay REAL currency to obtain it.

Crypto: New. Fraud: Old.