Fahmi Quadir: A Short Seller named Assassin

You have to be big in finance to get a cool nickname. Warren Buffet is called the Oracle of Omaha for his uncanny ability to spot trends. George Soros is known as The Man Who Broke the Bank of England after he bet against the pound (and won). It's probably a good sign for short seller Fahmi Quadir that, at 30 years-old, she already has one: The Assassin.

The name might cause a chill or two beneath the white collars of the executive fraudsters and corporate criminals that she pursues, but Quadir isn't so preoccupied by this. Instead, she quietly researches companies that are engaged in the sort of shady activities that might one day lead to their undoing. Poring over reports, interviewing insiders and conducting undercover operations, Quadir gathers evidence and bides her time. Sometimes she reports her findings to regulators, the media or the police. Eventually, she makes short investments on her quarry and, when the value of these companies plummets, her profits soar.

Quadir shot to fame after appearing in 2018 Netflix documentary Dirty Money. In it she talks about her campaign to short Valeant, a Canadian drug company that caused a scandal when it was found to be hiking the price of its drugs while creatively managing its accounts. Quadir also shorted now-defunct German payments processing company Wirecard before it went bust last year due to a string of fraud revelations. The founder and chief investment officer of Safkhet Capital joined MAG/NET to talk about market mania, fraud and why her method is good for society.

What's it like to be a short seller right now?
Fahmi Quadir: It's a really incredible time, and I don't mean that in a positive way necessarily. The market is moving at break-neck pace, so the stuff that you'd usually learn in multi-year cycles now needs to be picked up in days. I've only been running Safkhet over three years now - it feels like I've been running it for thirty.

What's caused it to be like this?
The market is in a mania of sorts. The post-pandemic stimulus package in the US and a return to normality following lockdown measures have created these conditions where there is a lot of volatility.

What does this mean for you specifically?
It means that companies engaged in fraud or crime are going to be acting more aggressively than before. They are better capitalised, there is a lot more liquidity in the market and then they also have an ecosystem where it isn't in many peoples' interest to regulate their bad behaviour.

Sounds like a challenging scenario. What's the right response?
It has been more critical than ever for us at Safkhet Capital to focus on our research, the things that we can get a real handle on. We just focus on what we know, what questions we can answer. We keep it simple. We have become more committed to our process of researching and investigating these bad businesses.

Is everyone doing that?
Not really. A lot of very sophisticated market participants are saying that things like proper analysis and critical thinking is detrimental to performing right now.

That's a bit fatalistic, isnt it?
It's like a race to the bottom. Market participants are rejecting process as a consequence of this mania. Meanwhile, regulators are becoming more lax when it comes to fraud. I'm seeing record lows in prosecutions in corporate fraud. All these things are related - and likely to come to a head.

Has the Covid pandemic created better conditions for fraudulent activities?
Jim Chanos, one of the longest-running short sellers out there, says we're in a golden age of fraud. I agree with him. Lots of bad businesses were in a downward spiral before covid. Then the pandemic arrived and a tremendous amount of liquidity was pumped into the system to keep companies going. It saved a lot of good companies, but it also gave bad ones a bit more runway. They'll run out eventually.

How do you get to the real story behind the corporate messaging and communications?
It's about intelligence gathering work. People think that investors spend all their time looking at charts and data. But companies are more than that - the core of a business is human. Executives are driven by a certain set of emotional factors. And stressors. You can't pick out these things just from wading through financial statements.

Short selling is a long, drawn-out process, with a lot of dead ends and late nights. What attracts you to it?
I will only ever be a short seller or a short fund manager. It's a way to use capitalism and capital markets in a subversive way. I use capital as a way to enact change. At the end of the day, predatory, fraudulent, criminal behaviour is bad for business. Sure it can be really lucrative, but only for as long as you can keep it going. As long as we stay very focused on this very specific way of shorting businesses I think it's a sustainable way to do things. And a sustainable way to be an investor.

Can we invest our way to a better future, then?
Our research makes interesting reading for a lot of people. Going to journalists and regulators with revelations about unethical businesses can damage them. This makes investors lose confidence, but businesses don't usually topple overnight. Helping with this incremental change keeps me going.

You often take an active role in the failure of these bad companies, don't you?
Our research makes interesting reading for a lot of people. Going to journalists and regulators with revelations about unethical businesses can damage them. This makes investors lose confidence, but businesses don't usually topple overnight. Helping with this incremental change keeps me going.

Does it ever get tough, when you see all the wrongs these companies do?
The disheartening thing is that I can't force change. I don't have the power to issue subpoenas or indict anyone or prosecute a case. I can only get my research up to a certain point and hope that others who do have that power will do something about it. The wheels of justice turn very slowly and there are so many victims, people who have been directly impacted by fraud or crime. Watching them also wait for justice - when the stock price goes down it doesn't do anything for them but not being able to see things through fully is perhaps the most disheartening thing. I don't mull on how negative that is, it just keeps me going and it means we have to work harder.