Yet Another Value Podcast - Ian Bezek on RenRen $RENN

Episode Date: April 22, 2021

Ian Bezek from Ian's Insider Corner discusses the most interesting event thesis I've seen this year: buying RenRen (RENN) into their legal battle over the OPI assets.Ian's original RenRen write up: https://seekingalpha.com/article/4406707-renren-shareholders-claim-huge-sofi-stake-via-little-noticed-legal-fightIan's Twitter: https://twitter.com/irbezekChapters0:00 Intro1:05 RenRen Overview2:25 How Ian discovered RenRen3:50 OPI transaction background6:40 Discussing OPI's valuation8:15 Oasis (the lead plaintiff) and the attempt to reclaim value9:45 Laying out the event path11:45 Who would pay if Oasis / minority shareholders win?16:05 What is the legal precedent here?18:35 Quantifying the upside21:50 If we win, what happens to RENN minority shareholders?23:55 How SoFi getting adding as defendant changes the lawsuit29:05 Does Chamath's history at CLOV impact the timing here?32:00 Could RENN go into bankruptcy to void the lawsuits?34:10 Valuing RENN's other assets36:15 Closing thoughts

All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Ian Bezick. Ian is the founder of Insider's Corner. That's a subscription service on Seeking Alpha. Everyone can go check that out. Ian, how's it going? It's going well. I'm happy to be on your show. Great. Well, hey, let me, I'm happy to have you here. Let me start this podcast the way I do every podcast, and that's by pitching you, my guest. I wrote this on Twitter, but you and I crossed past for the first time a few weeks ago because I read an article you posted on the stock we're going to talk about. And I said this. I think it's the most interesting event-driven thesis I've read this year for sure. I was an instant subscriber to Insider's Corner when I read it. So, you know, I think that's the best pitch I can give. This is a crazy interesting idea, and I'm super excited to have you on. So that out the way, let's just dive right into the company. I'll give an upfront disclosure. This is a smaller cap stock. There's absolutely some hair on it, as we're going to discuss. Both of us, I believe, have positions in it. So every listener. This is not investment advice. Everyone should go do their own work. Let's just get that

disclosure out the way. That said, the stock we want to talk about is Ren-R-R-E-N-R-N. Ian, what's the story with Ren? Sure. So this is, you may remember the name from many years ago when it was supposed to be the Chinese social network to rival Facebook. It was originally a high-flying IPO maybe 10 years ago. But that business ran into trouble. And it increasingly floundered. The stock went down and then down and then down some more. But behind the scenes, while the social network wasn't doing anything, the founder, Mr. Chen, was assembling investments and a lot of other interesting businesses, most notably social finance, SOFA, which has now become a very hot property. And this was originally owned by Ren Ren, but he spun it out of Renren

in an unusual transaction that we believe grossly underpaid. shareholders of Ren Ren. And so nowadays, Ren Ren is a holding company that has various investments, but we argue it's been stripped of its most valuable asset. Perfect. That's a great overview. So I guess let me just back up a little bit. You know, when I, I've seen Ren Run in the past. And my first take every time I look at it, I'd be like, oh, floundering failed Chinese social media network, you know, probably, I believe it came public during the reverse merger, Chinese stock fraud and everything. I know you've got a lot of background with that. So, you know, my first thought would be, oh, pass it. It's a fraud. Who knows if the cash

there, who knows if the investment there? Obviously, you dug deeper. But I just want to, how did you think to dig in here? How did you get the idea? How did you start due diligence in all of this? Sure. Like you mentioned, it came out of that era, maybe 2011 to 2013. That was the height of the first big wave of Chinese listings in the U.S. out of college. I worked for Kirsdale Capital, which was an activist hedge fund in New York. And the fund manager there realized that a lot of these Chinese companies had one set of financials for U.S. investors and one set for foreign investors. He'd actually been looking at one company as a long. And then when they went to do diligence just to make sure everything made sense, he found out that they

didn't make sense. And so he shorted it that was highly profitable. He brought in analysts such as myself to work on these Chinese reverse merger situations full-time. And we looked at Run Run then, but it still seemed like a promising social media company at the time. So I never looked at it as a short then. But obviously it's turned into quite the situation since then. But I've continued to follow some of the original Chinese companies, because it's interesting, the ones that are still listed in 2021. Yep, it is certainly interesting. So I guess the thesis, rest on two things, right? There's run run has some assets that they still control and we can talk

about those in a second and I think there is value there. The value is probably questionable, but there is probably some value there. But let's dive into the part that I think is the most interesting thing here. And this is, in 2000, was it 2016 they did the OPI transaction? 2018. 2018. So in 2018, they do the OPI transaction. So can you walk through what the OPI transaction was, why they did it, and why. there is a lawsuit outstanding that we think could be very profitable for minority shareholders in the future. Sure. Let me back up for one second because it starts in 2015. Mr. Chen, he had realized that the other investments that he'd made with Ren Ren's capital had become quite valuable.

The Sofai stake, there were some other listed stakes, which give you a very clear sense of valuation with some companies in Japan. He wanted to take the company private. he offered $1.4 billion, if I recall correctly. And this was clearly to low shareholders complained. You had articles in Forbes saying that this offer was ludicrous and offensive. There were people were going to sue him. And so quietly he withdrew the offer. Fast forward to 2018, like you mentioned.

Now he comes up with this OPI investment vehicle that was a spin-off out of Ren-Ren. So you think, oh, it's a spin-off, not a problem. but he put the good assets in OPI and then pretty much you either you had to take a cash settlement from Ren Run because if you took you could you could choose to elect the OPI shares but you would be a minority shareholder with no liquidity and he would have control over it so he could essentially bleed you dry if you took the OPI shares and so essentially shareholders were cashed out at what we view was a very illegitimate price in 2018. In my head, the way, and tell me if I'm wrong here, but the way I've been thinking about is, you know, you can be a stock market genius. I think that's the best book on modern investing written. And the famous case study everyone remembers is John Malone doing the rights offering and buried on like page 200 of the docs. It says, hey, John Malone will be subscribing for as many shares as humanly possible. He's buying more of these rights on the open market. And if you were reading the docs, you'd say, oh, this is a screaming by because the insiders are loading up. And this is almost the reverse of that, right? They did this spin-off dividend rights office.

offering where they said, we'll be buying as much as humanly possible, but the controls on this thing will be so bad that it is so unattractive for minority shareholders. No one else should do this. So hugely profitable assets, but the way they structured it, discouraged anyone but the insiders from taking advantage of that. Would that be a good summary of the situation? That's exactly right. Okay, perfect. So I think 2018 OPI transaction happens. Most minority shareholders are going to have to elect the dividend. And how much did the dividend pay versus how much do you think it kind of would have been fair? Yeah, we believe the assets were undervalued by at least $500 million based on the prevailing marks, both for transactions that occurred

with SOFI that year and with some of the other stakes that were already listed publicly, and this could be value. Great. And so they value the OPI transaction, the dividend in at 500 million. You think it was worth a billion or more. And can you just dive in, you know, I think the majority, the majority of that value is coming from SO-Fi. So-Fi was a private company at the time. 2018, I think a lot of the things that SO-Fi has picked up from 2018 today has really increased the value of the business. So if we go back to 2018, how are you guys valuing SO-Fi versus how they valued SO-Fi? Yeah. Within a 12-month period of the OPI transaction, there was sales by affiliates of Mr. Chen in SoFi stock.

So you could use the same mark that was used there. And they also raised funding privately. So you could use either of those marks to have an evaluation. But you're correct. Obviously, the value has increased significantly since then. Perfect. But so at the time, OPI is valued at 500 million. You guys think OPI was actually worth at least the billion dollars,

probably more. The majority of the differences coming from SOFi. So how is, I've been on the other side of some bad transactions in the past, and normally you look at the bad transaction and you say, oh, there's nothing I can do here, right? You can try to sue, but it's kind of a tough thing to do. So how are, this is where I think the situation gets so interesting. How are we trying to reclaim value here? Sure. So it's important to say who the lead plaintiff is here. I think this makes a big part of the bull case. That would be Oasis, which is an activist, Asian hedge fund. They've been involved. in numerous high-profile events such as the Sino Forest short that obviously got a lot of Paulson and a lot of famous investors. But they were on the right side of that one. They were also involved in Nintendo stock, right, when the Pokemon Go took off. And so they've shown a strong

history of calling it, right, both long and short, on these sorts of stocks. Anyway, Oasis owned five percent, I believe, maybe five and a half percent of Ren-Rin stock, as this deal was going through. And they said that this deal is grossly unfair. And so they immediately filed this lawsuit, this lawsuit that we're dealing with now in 2018. This is important. They're not just jumping in now in 2021 and saying the value of so far has gone up. So we're going to file a lawsuit. They filed this lawsuit back in 2018 and said from the beginning, this deal is unfair and we were going to pursue litigation on it. Perfect. Okay. So I guess here we are in 2021. The lawsuit is still ongoing. SoFi is coming public through IPOE. Can you talk through what the kind of event

path for this lawsuit is? Does the IPOe SOFI SPAC merger? Does that make any difference? How are you thinking through what happens here? Yeah, I think I see it as an accelerate to the deal because up until we had the plans to merge it into the SPAC, it was hard to make a claim for this is the exact damages that we're entitled to because it's hard to value a private security. But now that IPOE is listed, will be listed, it gives it a, we can go to the judge and say this is how much it's worth. So it makes it much easier to pursue damages. Isn't the company going to come back and push and say, hey, you know, you guys are valuing

it on 2020 number, 2021 numbers and the business has grown a ton since then. We've done a lot of interesting stuff. I think SoFi's CEO has changed since then. So won't they push back and say, hey, when we did this evaluation in 2018, it was a fair evaluation at the time. You can't come and look at the hottest back market in the history and look at the valuation there. Yeah, that's a totally fair point.

I don't think it would be reasonable to expect anything close to SoFi's valuation today. But if you look at the article I wrote or if you look at the lawsuit itself, it lays out very clearly what it was worth in 2018 with comparable valuations. And the lawsuit highlights, I believe, at least five other holdings that were part of the OPI that were also undervalued. And in some cases, they were listed in Japan. So you could look and see this was the market closing price on that day. And then the OPI got like, they only paid like 25% of that to the Wren shareholders.

Yep, yep. It's not just, it's not just ambulance chaser saying, oh, look, so far has gone up. So we're going to sue retroactively. That's not what's happening here. And for listeners, I will absolutely include the link to Ian's article on Wren and the show notes. So just go ahead and check that out if you're looking for it. So I guess right now the thing is Oasis is suing in federal court. They're suing for OPI.

They're saying, hey, you value this at $500 million. It was worth a billion. That's a loss of $500 million to shareholders. We're suing for that, right? So how is this going to play out? Like, is a judge just going to rule, hey, this OPI transaction undervalued the Renren assets by 500 million. So if he does that, who's going to return the, who's going to pay the extra $500 million or how is that going to work out? Yeah. Let me just back up for one second.

I forgot an important point on the timeline. So last year, up until last year, Renron stock was trading for almost nothing, like a buck or two. And obviously, some of that was the pandemic. But also there was just nobody really thought this lawsuit probably was going to work. The odds of it would seem pretty low. But it went in front of a job. judge last year because so far, not so far, sorry, Chen had filed to dismiss the lawsuit and the judge said that it had standing in New York, that everyone could be sued in New York, not in China, and that the plaintiff had made a clear and compelling case that this should go to trial. And they tried again to get it dismissed this year and the judge again threw that out.

And so I believe it became much more, the probability of success became much higher and also oasis increased at stake from 5% to 15% after. the legal successes. So when you're plaintiff triples, their position, that's probably a sign that they're encouraged. And I don't want to put words in your mouth, but correct me of wrong. The reason it's so important that you get standing in New York versus China is in China, you have a bunch of U.S. focused hedge funds who are suing Chinese nationals over there, even if they win, which is unlikely, collecting over in China is going to be extremely difficult. Whereas if you have standing in New York, you know, I believe Joseph China is a U.S. citizen. So you can collect from

him. SoftBank obviously has billions and billions of dollars in U.S. assets. You can collect from them. It'd be tough to free SoFi shares, but there's, SoFi is going to be a U.S. company, so you can go after those assets. The importance there is there are assets that can be seized if you're doing a U.S. case versus a Chinese case. That's right. Yeah. And that's, from my experience, dealing with Chinese companies between 2011 and 13. We would often find situations where shareholders appeared to have a claim on a decent business, but then it would just be like, oh, we signed away the deed and now the founder owns the deed and the entity listed in the Cayman Islands doesn't own anything. And so I'm very used to that. And that was my initial

concern. I was looking at this like, how are we possibly going to collect on this? But the fact that it appears that everything can be collected on in New York makes it a much different situation than most of these Chinese. Yeah. And for people who think, for people who think that's a remote issue, like I remember Yahoo had the investment in Alibaba. And Alibaba just decided, hey, you know, Ant Financial used to be a part of us. We're just going to go ahead and send it over to Jack Ma. So it happens with big companies and what, Ant Financial is probably a $300 billion company that Yahoo got robbed out of.

So it happens. Anyway, let's go back to the lawsuit. So New York standing, Oasis is suing. You know, I guess, well, let's talk merits of the case. I think you've laid it up. But why do you think this is such a good case? Why do you think we're likely to win? And then we can talk what happens if we do win.

yeah i think the lawsuit lays out very clearly the unusual and unethical uh anyway that this deal was not proper there's almost no precedent of any sort of deal like this where you strip out the valuable assets and put it in a in a separate entity where the minority shareholders would have no rights So Chen put himself in a very, very favorite position that there's not much legal defense of, we would argue. And then it's become clear and subsequent actions with all the, you have to look at the lawsuit to see this, but all of the SOFi shares that have been passed back and forth between related parties. It's very clear that this is not, there's no way that you could argue that this is protecting shareholders rights. Yep, that makes sense. That makes sense. So let's see, well, before we get there, is there any precedent?

You know, I've seen bad deals in the past. And in my experience, bad deals like judges do tend to defer to business judgment. You know, if it's blessed by, if it's blessed by board members, if there's a financial expert who says the deal is fair, like even if you can go and poke holes in the deal, I remember one case where we went and we said, hey, judge, the plaintiff hard coded the wrong number into the, the sell. If you just put the right number in here, like, you know, the company's arguing that they're worth 10. And if you just put the right number in here, we're not talking anything else. We're just saying we're not going to hard code. We're going to use the right formula. Those stock is worth like 13. And the judge and the financial expert said, we stand by our evaluation. And we were like, are you kidding me? And the judge actually, I believe, ruled for them or

it was something, but I couldn't believe it. So is there precedent for judges looking at something similar to this and saying, hey, these assets were improperly taken and the, you know, OPI or whoever needs to reimburse the minority shareholders? Yeah, let me address the precedent question in just a second. First, though, let me read from the judge on this case himself in dealing with the dismissal, with the defendant's argument for dismissal, the judge, in denying that, he said, quote, the allegations of deliberate and dishonest breaches of duty by the director defendants leap off the pages of this complaint, which would seem like the judge is going

to at least have an open mind about ruling in favor of the plaintiffs. I don't think you'd see that language if the judge didn't think the allegations were serious. As for precedent, as far as I know, there's no precedent for this sort of deal either way, either in our favor or against us. And I spoke with the lawyer on the plaintiff's case, and this is pretty uncharted waters. If you read the last injunction that they filed, they cite more than a dozen, cases, but none are precisely like this. I think we're in New Ground, particularly with the SPAC element, I think that brings another element to it that we've never seen before. Yeah, I'm just

surprised there isn't like some, I know lots of people hate on private equity. I came from private equity background. Everyone I worked with there was the lightful sharp, but I am surprised there wasn't an unethical private equity firm who tried something similar and got sued and there's some type of legal precedent for this, but this one is particularly unique. So, So, all right, let's say we go through the court, right? Judge comes out. He already put out some pretty, some language that suggests he's really open to the plaintiff's case, right? We go through, judge agrees, hey, you are right.

OPI and the defendant, SoftBank and Chen stole this from Ren Ren, shareholders. We're going to have to make Renren shareholders whole. What does that look like? How much money are we talking here? Yeah, I think at minimum the plaintiffs would want at least the 500 million. It was fairly established as the 2018 shortfall. There's an argument for significantly more than that.

I would hope for more than that. But I think $500 million is the absolute minimum that they would aim for. And just to put this into listeners' mind, Wren right now is trading about $750 or $8 per share. That's per ADS if you're looking at the U.S. listing. $500 million, if I'm doing my math right, would be about $21 and $25 per share. That's right.

And then there's a couple of other assets. They're not very valuable, but there's some value. So it would be a little higher than that number. But just the lawsuit proceeds alone, if they win, if you're right, if it's a billion dollars, $500 million was lost in value here, just the lawsuit proceeds alone. We're talking a triple of the stock on that if they kind of have to dividend that straight out to shareholders. Okay, perfect. So I guess when you're talking about,

talking that $1 billion. That's the value they landed at what these assets were worth in 2018. I guess the two questions there are on the upside, would there be any penalties where the judge says this was such a egregious behavior that Chen and particularly soft bank, because soft bank was involved here, you guys have to pay not just the 500 million, but you know, disgorgement penalties and all that sort of stuff. On the upside, what would that look like? And then I'll go to the downside in a second. Yeah, I'm not a lawyer, not a legal expert. I don't want to I don't want to speculate too much and I certainly don't want to appear like I'm throwing out some crazy price target but I think I think the upside ambitiously you could aim for two billion

and I guess on the downside a 500 million a billion two billion these are not chump change numbers right like are we going to be able to collect is the first thing and then I've got one more downside yeah and I just wanted to say on the settlement or on how much would potentially be in play. The sides had met for a settlement in January, and they were talking, but apparently Chen was not willing to offer enough to get to a settlement. I saw that. Do we know what Chen was offering or what the plaintiffs were offering, or is that kind of closed door meditation mediation? As far as I know, we don't know any specifics, but I found that interesting because I mean, some people might think this is just a nuisance lawsuit, but if it were that, then probably

the plaintiffs would have settled, but they would rather go to a trial. I also do wonder, you know, again, I've got some history. I'm not a lawyer. You're not a lawyer. But I do wonder, like, a lot of time judges will come down with harsh language to let one side know, hey, you need to go to the table and negotiate and to let the other side know push the negotiation. But it doesn't necessarily mean that they're leaning one way or the other. They're just trying to get both parties to the table. But I do one of that. Okay. So we win our billion dollars. And here is probably my biggest concern, right? We win. Judge says, you guys owe. a billion dollars, 500 million dollars, these are worth a billion, you owe 500 million dollars to shareholders. You can go crazy. You owe a billion dollars once we throw the penalties and everything. My biggest concern here is, what does that look like for Ren, Ren minority shareholders? Because SoftBank and Joe Chen are still going to be the controlling shareholders of Ren. And, you know, at this point, I think we've established they don't particularly care about minority shareholders. So I do worry, hey, we get a billion dollars in cash onto the balance sheet.

Fantastic. But, you know, he's going to go off and he's going to invested into fintech products. He's going to find way to line his pockets. And over time, that billion dollars dwindles and dwindles and dwindles. And by the end of it, shareholders are kind of looking at what they're looking at now, which is nothing from this value. So what do you think happens if we did win that? Absolutely. That's a risk that they do control the majority of red rent and stocks. So I'm not sure if the judge would have any way of, I'm not true if there was a settlement if there'd be any way to make them dividends of it out. But I don't know.

There's certainly a risk that it would become a value trap where the funds would slowly disappear over time. And also you mentioned on collection risk, I think that's a very valid concern. I should note that subsequent to my first article, SoFi and SoftBank were added as defendants directly to the lawsuit. and so I think if you had a had a they need to pay a billion dollars or whatnot that it might be divided between the three Chen SoftBank and so five and so far yeah and so it would be easy to collect from the latter two and then Chen might try to skip judgment but two thirds of a

of that would still be good for shareholders yeah let's talk so far for a second so if I got added as a defendant. That's one of the things that started to get me, I mean, I was already interested in that got me more interested. People can go read, I'm doing this from the top of my head, but I think in their March 17th S4, which is the thing Spax File when they're looking to merge, there was no mention of this lawsuit. And then in their March 31st S4, there was a mention of this lawsuit with them as a defendant. That's because the judge added them as a defendant. But, you know, when it got put into the S4, I was like, oh, this is real. So why is so far a defendant? And why would the judge rule that, hey, these minority shareholders of yours, because at no point did Joe Chen

and SoftBank control control, SoFi, why would the judge rule, hey, they mismarked their assets, priced them too cheaply? SoFi, you need to shell out $100, $200, $300 million to make ren-ren shareholders hold. Sure. It's a great question. In getting ready to go public, SoFi has consolidated its shareholder base, which is involved buying back a little bit stock. in consolidating positions because SoftBank in particular, own some here, own some there. And so SOFI received shares from OPI to consolidate a shareholder base prior to this deal. And in receiving shares, the plaintiffs argued that that was fraudulent conveyance

because they received essentially stolen property. And so by SOFI accepting these shares and then not returning them when they were notified that they'd been obtained in a fraudulent way that Sofai has benefited from criminal activity. Would this be a hyper upside? Because again, we're talking the OPI assets in 2018 were valued at a billion. SoFi's valuation was much lower there. I mean, if the judge ruled that SoFi had to return those shares to Renren or OPI, wouldn't that be a hyper bull case? Because in that case, you're getting the shares and those shares, you know, they're not valued at the 2018 mark. They're valued at the 2021 mark. So all of a sudden, you know, what?

was a billion dollars, I think the mark to market on just the SOFi shares is $2.4 billion, if I'm remembering the math, right? I could be wrong, but I think it's declined with the recent specs I left. But yes, it's in that neighbor. Yeah, so would that be a hyper bowl case in your mind? Absolutely. That's one of the reasons why I'm still optimistic that this will be settled. Probably it would go to trial next year is what I understand if they don't want to settle. But particularly now that SOFI is a defendant, I think there's strong motivation to settle because this would be a worst case scenario for them if they had to give back shares. Yeah, so that's another thing that interests me about them. So let's dive in a little further

there. SoFi is going public through merger with IPOE. That's one of Chimoth SPACs. This is a hot merger. You know, SPACs generally $10 per share in trust. IPOE last I checked was around 15 before the big SPAC sell off. This was 22, 23. But either way, home run of a result for everyone. You know, they, in order for SPAC to finish their merger, the SEC needs to approve the SEC needs to approve the S4, and then once that's approved, a SPAT can go to their shareholders say, here's the vote, shareholders can vote through, the merger can go through. Right now, the SEC has not approved IPOE's S4. That's not uncommon. Right now, the SEC has a huge backlog of S4 so approved for a bunch of different reasons. But I guess my question here would be, is there any reason to think that this lawsuit would stop the IPE?

COE SOFI transaction, either because the judge rules that can't go through, because the SEC won't approve an S4 while the ownership structure is in question or anything else that you can think of. Yeah, absolutely. Just speculating, but I think it would certainly be a risk to the deal closing. I think the SEC could easily choose to say we don't want to approve this until we know who actually owns these shares, in particular, the plaintiff filed an injunction. just a couple of weeks ago, asking that OPI not be allowed to sell any more shares until the lawsuit is resolved.

And I think that would complicate the deal because it would be hard to know which shares are being sold to the public. I think it becomes a very messy situation legally if they allow that to go forward. I don't know what the SEC will do. I think we're in uncharted waters here in terms of trying to block a spec deal from happening, from a lawsuit, like the, from the ownership concerns. But, yeah, I think it's definitely a risk for Chabath and for so far. Yeah, you know, one case in this is future reading, future homework. Maybe we'll talk about this offline or something.

But did you look at the, I think it's the Dial A-T-A-C merger? I have not yet. So that's an interesting one. That's a spec. It's an asset manager. They're doing this big asset manager roll up. And I think Newberger-Burman sued. said, hey, we own a piece in one of these asset managers, you agreed not to work with a competitor,

the merger is a competitor. Eventually, a judge ruled that it could go through, but that delayed the merger for months and months and months. I do wonder if you could have something here where a judge does, you know, we've got precedent with ATAC. There was a dispute, and because of that, they delayed the merger. I think in that case, that was actually business operations reasons. So I think that might have been a little bit more of a firm case than this, where you probably could just ring fest into assets, but I am curious about that. Let me ask you another question. One of the things with Chimoth, I have endlessly focused on of Clover, which was IPO.

Was that IPOC? IPOC. Clover went public, and they had an undisclosed DOJ investigation. And eventually the short report came out. And the company came out and said, we knew about it. We didn't think it rose the standard of materiality to put this S4 out. And I think people like me were like, are you kidding me? A DOJ investigation, you didn't think that was material?

And normally I wouldn't care, like, people are going to pull shenanigans, whatever. But I do wonder in this case if the SEC looks at IPOC and says, hey, you guys didn't disclose a DOJ investigation. We aren't approving any S4 while there's this big lawsuit outstanding. Do you think there's any merit to that or do you think I'm kind of like, I'm reading too much into a story here? I think it's absolutely something that the SEC may take into consideration. Yeah, Chabas spaks were very hot a few months ago, but now pretty much they've all gone down, particularly like your open door and your Virgin Galactic that were already done. Those have dropped a ton, clover's well, well, I'm not sure with the short squeeze now, but up until a few days ago was well below $10. Yeah, and so I think there will be more looking into his dealings.

I think it's also worth asking why didn't SoFi IPO? They would have been able to IPO prior to the spec boom if they'd want to. but maybe their lawyer said, hey, this isn't going to pass muster on a roadshow to IPO, and we don't know who owns our stock. That is an interesting theory, though I think the counter, I like that theory, but I do think the counter is, hey, in January and February, the SPAC market was so hot. And, you know, I don't know, the deal they announced, I don't know if they would have dreamed of that valuation when they were looking at an IPO, and, you know, they managed to lock

in the valuation. So I do think there is something to that. Absolutely. Yeah, it's just from their perspective when you're watching Square and PayPal and all going up pretty much endlessly from over the past 18 months, you would probably be wondering how can I get to market. And so SPAC was obviously much less diligence than an IPO would have been. Let's, so I think there's a couple ways this could play out. You know, we could wake up to a press release tomorrow. Hey, we went through a mediation.

We're settling. We're distributing the dividend to RenRan shareholders. It's going to be worth more than the share. and you and I are just popping bottles of champagne. The alternative is we're looking at a, you know, multi-year-long lawsuit. Maybe OPI has to pay money back to Ren-Ren, but then Chen and SoftBanks still control it.

And we're just bleeding, bleeding, bleeding. What do you think the most likely way this plays out is? Most likely, I would say the, probably a settlement prior to trial would be the, I think that's the easier solution for those sides. Some people have mentioned, what about, you know, again, Joe Chen and SoftBank still control Ren-Ren. What about throwing Ren-Ren the holding company into bankruptcy in an effort to, you know, stave off or do something with this lawsuit? Is there, is that a concern in your mind or how would you think about that?

Yeah, that's a very valid concern when it was raised. So it's like, oh, I might have missed something. That was a very valid pushback on my initial thesis. However, I've looked into it further and spoken with the legal. team behind it. And they said that this would actually be a blessing for Run Run shareholders if they were to try to go into bankruptcy because they would lose control of the of the Ren Run asset. Instead, it would go to third party liquidators to deal with under Cayman law. And the plaintiff's legal team has done bankruptcy stuff in Cayman's for

20 years. Obviously, China doesn't know anyone there. And so it would be very favorable legal ground for a third party mediators that would be in favor of rent shareholders as opposed to in favor of Chen. It's just funny to me how that works, where if you've got a really bad management team or a really bad historical liability, if you file for bankruptcy, that's often a, not even a blessing disguise, it's just a flat out blessing for minority shareholders. Because once you're in bankruptcy, you know, everything has to be done, basically arms length, judges have to approve everything. And if you've got a management team that's just all they want to do is suck some asset dry, it becomes impossible for them because the judge has to look at it and say, no, you can't pay yourself a $50 million dividend and not pay it to minority shareholders. No, you can't not pay your creditors.

And it's just funny how that works. And I've seen it several times. Yeah. And one other, sorry, just one other quick point is that Renren doesn't really have much in the way of operating businesses now. And so I don't think their cash needs should be all that high. I mean, there's some overhead to keeping the business public. their main asset, the listed subsidiary, they don't have to pay for it directly. So I don't, yeah, I don't think, I don't think cashburn should be all that great.

What about, so again, I think listeners can get the feel. We're talking about a lawsuit where I think the base case damage is we talked without any interest, without any penalties, anything. We were saying, hey, this is $21 per share in value, which against the $7 stock, that's pretty interesting. But what about Ren Ren's other assets? Is there anything else floating in there that you ascribe some value to? Yeah, the biggest thing other than the lawsuit that would have value now is a holding in a company called Kiksen.

I'm not sure you pronounce it, ticker KX-I-N, which is an auto dealership thing in China. And it's backed by SoftBank as well, I believe. They're doing something with the EVs now. The stock popped pretty dramatically a few months ago. So it's kind of bled off with all the other speculative stocks. But I believe it's still worth, Ren-Ren stake is still worth $100 million at the current values, if I recall it correctly. Yeah. And I saw this, and I'm actually looking at the press release now, April 6th, Ren-Ren makes a $6 million.

I think it's a convert preff offering into Kiksen. And I kind of looked at that and was like, oh, that's probably pretty good because Ren-Ren isn't, they're not going to do an investment into Kiksen and then file for bankruptcy or something, though. as you mentioned, bankruptcy is probably a good thing. Do you read anything into that convertible preferred investment or, you know, it's pretty small. If you tell me I'm looking for something where there's nothing, I'm very open to that. It's probably incrementally a positive. It's not a big part of my. Kiksen isn't a big part of my thesis. It's just interesting because it validates that there's some value to the assets. And in theory, you could short Kiksen to

de-risks the situation to a significant degree. Yeah, I was more just thinking like, oh, it means Ren-Ren-Ren has some liquidity at the hold co. And, you know, if they're still making operating course investments, they don't think this whole thing's going to get frozen up. But I was probably reading too much into it. Let's see, I think we've covered a lot here. I feel like we've done a nice job of covering the lawsuit, the upside.

Anything else you feel like we should have chatted about that you want to make sure we hit on? I think it's important to note that the judge will have a hearing on the lawsuit in May. I think May 15th, but double-checked the date, I don't have it in front of me. And so that gives a potential catalyst if anyone wants to settle before then. Presumably, SoFi wants their spec to be approved fairly soon. I believe it was supposed to be approved in the first quarter, and it's already slipped on that timeline.

And so you might see, if they're going to settle at all, you might see a settlement ahead of that here. If tomorrow you and I wake up and IPOE has an approved S4 and they put a shareholder meeting date for May 1st, May 5th, wherever, and it looks like they're going to be able to get the SPAC transaction done, how much of a negative to the investment thesis do you think that is? Yeah, it would certainly be a negative from a time value of money perspective because then it would almost certainly have to go to trial to recover damages, whereas now there's a decent chance of getting a settlement. before then. So obviously you'd rather have cash today than in 2022 or 2023. Yep, perfect, perfect. Okay, anything else you want to talk about with the lawsuit, Ren, Ren, anything else you want to get off your mind? No, I think you've got all the main points. Well, look, this, again, I'm going to put the link to the article in the show notes. This has been super informative. I think this is the most interesting event-driven thesis I've seen this year. Because I've said that,

sure shares will go to zero tomorrow, but if not, you know, you and I will be here waiting for our $21.50 per share check and the settlement in hopefully the near future. Obviously, again, nothing investment advice, but we're going to keep our fingers crossed on that one. I think this was a great thesis. I appreciate you coming on and I'm looking forward to having you on again. Thank you. It's a fun discussion. Ian from Insider Corner. Thanks again for coming on and we'll chat soon. That's good.