It’s a long post, but I think it’ll be worth your time & really need your advice.
ELI5: You and your friends gave someone money to run a lemonade stand. The lemonade didn’t sell, so instead of telling you, they changed how they measure success. Then they gave themselves a raise. Then they made sure you can’t vote them out. Then they opened a competing lemonade stand next door and stopped showing up to the original one.
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Consider any public company with heavy exposure to an underlying asset - oil & gas, gold, commercial real estate, FX currency, it doesn’t matter. At one point, the future of that underlying looked bright, and an imminent upside seemed near-certain, driven by favorable macro conditions and regulatory or policy tailwinds. Many market participants agreed.
To seize the opportunity, the company began aggressively building inventory through equity issuance and aggressive financing. For a time, markets celebrated: the company’s market cap reached new highs for weeks.
Then something unexpected happened. The entire asset class - say, all commercial real estate - began collapsing rapidly. GFC-style declines, but concentrated almost entirely within this one sector. The underlying asset lost 70% of its value from peak in just five months. The company’s stock, with its leveraged exposure, dropped more than 90% from its high. And then some interesting things started happening.
The warning signs began with the KPIs. Rental yields came in materially below initial targets, so rather than report the shortfall, management quietly removed annualized yield from the KPI framework altogether. Meanwhile, the market value of properties acquired through leverage and equity issuance fell well below acquisition cost. This caused the company’s skyscraper value per share (SPS) to deteriorate significantly, and net asset value - on a book basis - collapsed to near zero. The original KPIs were deeply underwater and would have made for an embarrassing scorecard, indicative of unfortunate timing and poor financing decisions.
So management rewrote the rules. The company restructured its KPI calculation to treat its fully convertible debt - then at roughly 80% below strike - as if it had already been fully converted into equity and redeployed into additional asset purchases. This sleight of hand inflated the headline metric while conveniently omitting other near-certain dilutive events, most notably outstanding stock warrants with strike prices below the convert, which would unquestionably come into play ahead of any conversion.
Even as the company’s stock declined roughly 90% from its peak, management promoted two officers to C-suite roles within the company’s first year, citing strong performance. Then, before its one-year anniversary - and having missed virtually every metric that matters to shareholders - the company issued a generous stock option package to all employees. The stated rationale: retention, and the need to remain competitive with peer crypto companies. The benchmark for those peers (in terms of size, performance, strategy) was not clearly defined, nor was it clear whether the company’s or each employee’s performance warranted such an award.
The stock option awards were unusual in construct. The only vesting requirement was service time; no performance hurdle, benchmark, or operating improvement was required. This meant that a macro tailwind leading to underlying asset recovery would richly reward executives even without any successful strategic execution or delivery of alpha.
How did this pass shareholder scrutiny? It didn’t need to. Common shareholders, who had backed an unproven strategy on a volatile asset class on the explicit promise of transparency and management expertise, held zero voting power. The executive team had structured governance such that their 20% ownership of common stock carried 100% voting control - with no meaningful checks or oversight. Approval was, in effect, self-granted.
The same executives had offered telling commentary on investor calls. The CMO suggested that rival company leaders were “just taking vacation and collecting paychecks” during the market downturn, while the CSO argued that “the more mental gymnastics you need to do to convince investors of your existence, the worse the project” - implying, presumably, that this company required none. The irony was apparently lost on them.
The most damning chapter came last. As the core portfolio struggled and markets stagnated, the company’s entire senior leadership team quietly incorporated a new entity in the British Virgin Islands - a jurisdiction chosen, one might note, for its opacity and governance flexibility. This new venture operated under a wholly separate governance structure with independent economic incentives. It was built around a competing asset infrastructure and made investments into financial instruments backed by yet another asset that competed directly with the original company’s core holdings.
As the new venture gained traction, it consumed the overwhelming majority of leadership’s time and attention. The original company - and the shareholders who had funded it - became an afterthought. The CEO had not mentioned it once in a public forum since the new venture launched.
Asking for a friend: if you find yourself holding shares in such a company, what exactly are your options? The friend doesn’t want the company to fail - for obvious reasons of financial self-interest - and has given the executive team considerable support for months, but is starting to lose faith.