#1. Kynikos Associates’ Jim Chanos did not respond to my e-mail at the time.

#2. Nobody from Deal Breaker tipped me about this follow-up story.

#3. The Deal Breaker’s follow-up story did not mention “Midas Oracle” or “Steve Roman”.

#4. The Deal Breaker’s follow-up story did not link to the offending Midas Oracle blog post (written by Steve Roman).

#5. The Deal Breaker’s follow-up story did not link to the previous Deal Breaker blog post (which reported and commented on Steve Roman’s take).

#6. The original Deal Breaker blog post did not link (in an update) to the following Deal Breaker story (which sides with Kynikos Associates’ Jim Chanos, and puts the Midas Oracle story in the consipracy theory camp).

CONCLUSION: Deal Breaker, before you teach journalistic lessons to bloggers like us, try to learn Internet conviviality.

Anyway.

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DealBreaker: Jim Chanos: The Oracle of the End Of Online Gambling

Jim Chanos of New York’s Kynikos Associates was bearish on internet gambling sights long before Senate majority leader Bill Frist “ambushed” the industry with a bill making most internet gambling illegal. Contrary to claims detailed on a website [= Midas Oracle] yesterday, it didn’t take an elaborate scheme of inside information about the Senate’s legislative schedule to tip Chanos off on the dangers to internet gambling. For Chanos, the writing was on the wall, in the online gaming companies’ prospectuses and already built into various state laws. [...] In an interview today, Chanos described to DealBreaker three reasons, in addition to possible legal risks, that underlay his view of online gambling companies. “First off, we all believed that it was a cut-throat industry with no barriers to entry. Second, there was the faddish nature of poker. Television ratings were already down. Third, there was the silliness of the whole concept of Americans sending their money to off-shore companies with very little assurance about the way these operations were run,” Chanos said. [...] (The story on the website [= Midas Oracle] also made a big deal out of Chanos’ connection to former Nevada Attorney General George Chanos, Jim’s cousin. “I have never discussed internet stocks with my cousin,” George Chanos told DealBreaker. “And I never discussed the legislation with Senator Ensign.”) This seems more than decisive to us. Chanos didn’t need a conspiracy to tell him that online gambling was in trouble. He just needed to keep his eyes and ears open. So there you have the answer we asked in yesterday’s headline, “James Chanos: Genius Shortseller or Politically Well-Connected?”

None of the three reasons to be short on internet gambling stocks, stated by Jim Chanos, was a determining factor in the 2006 internet gambling crisis. Indeed, the determining factor was the unexpected passing of the Internet Gambling Prohibition and Enforcement Act of 2006. So maybe Kynikos Associates’ Jim Chanos was just… incredibly lucky.

Next: The political intelligence research shops gather information from Capitol Hill and retail it to hedge funds and other money managers.

2. Establish an Online Presence – Of the majors, only LV Sands has had the gall to announce it was starting to establish an online presence. For now it will stick to Europe through a partnership with Cantor Gaming. Make no mistake, this is a trial run for the US market. Other casinos are sure to follow.

3. Repeal the Gaming Act – The majority of Americans support it. The senators have already been paid off. And Chanos is long (kidding!). The trial balloon was floated today by Barney Frank who called it: one of the “stupidest laws” ever passed and said he wanted to “repeal” the law.

The entire affair, the arrests and the tough talk were exactly what they seemed – protectionist measures by “useful idiot” politicians.

[Cross-posted from NastyBrutishAndTall]

His hedge fund, Kynikos Associates, had put a large slice of its $3bn in assets on a bold punt that shares in the internet gambling sector were about to go into free-fall.

And on October 2, shares in the companies did precisely that as about $5bn was wiped off their value in just a few hours of trading in response to a US Senate decision to introduce tough new laws cracking down on gambling on the web.

It took the industry and the markets, in fact almost everyone except Mr Chanos and his team of traders, by surprise. The consensus view had been that the sector was about to ride higher on a wave of consolidation.

No doubt he did his research – but so did every other bettor on the gaming bill contract which didn’t go above 20% until after the bill passed. How did he make such an astute bet? Mr. Chanos didn’t comment in the article but FT said, “most analysts think his acute political antenna had come into play. He is widely regarded to be more tuned in to the Washington political scene than most of his peers.”

They say “more tuned in” but I have another idea – it was pure connections. It’s likely he knew information no one else did about the bill before it passed. All the research in the world didn’t reveal it to other speculators – so who else knew about Bill Frist’s sneak attack?

One Senator that would have been involved is John Ensign of Nevada. As a Las Vegas based Senator, who has supported protectionism against gambling expansion outside Nevada, he would have a strong incentive to see this bill pass.

His campaign contribution list says it all.

Ensign and Frist had a common interest in seeing the gaming bill pass and a close relationship besides.

Since it was very likely Ensign knew bill would be pushed through, he would have discussed it with relevant constituents and close Las Vegas GOP colleagues – including George Chanos.

Who is George Chanos?

Not only a cousin to hedge fund manager James Chanos who, “considers him a brother,” he is the Las Vegas Attorney General and long time GOP insider – he worked for the Nevada Republican Party for nearly a decade.

George Chanos attended UNLV and worked in student government with Senator Ensign who later endorsed him for his Attorney General position. Chanos and his wife are also small campaign contributors to Senator Ensign.

While there is no direct proof that Georges Chanos passed information to James Chanos – the chain of information and connections are clear. Frist and Ensign knew that the bill would pass. George Chanos found out and passed the information to his cousin James Chanos. James used it to make a massive bet on the sector.

We are not believers in information socialism or “illegal insider trading” but of Occam’s Razor. This wasn’t a bold trade based on a research edge – it was a simple information advantage.

FT called the trade a “million-to-one-chance,” it would be – if your cousin wasn’t close with the Senator.

Cross posted from NastyBrutishAndTall.com