Thomas Motors (2)
“There’s a problem with the Nasdaq listing process, too.”
To get onto an exchange, a company had to go through an initial public offering, or IPO.
The conditions for an IPO were fairly strict.
The exchange would scrutinize the company’s sales, profits, financial health, and technology in detail, and it would also judge whether the offering price was reasonable.
A great many companies failed at that stage and gave up on listing altogether.
“Instead of going through an IPO, Thomas merged with a SPAC and listed by taking the back door.”
A SPAC, a Special Purpose Acquisition Company, was a company created solely for acquisitions.
In effect, it was a paper company floated from the start with the purpose of acquiring and merging with private firms. When the SPAC acquired an unlisted company and merged with it, the SPAC itself disappeared and was replaced by the acquired business.
That kind of backdoor listing had several advantages.
It got you onto the exchange quickly, and the review process was far less exacting than an IPO’s.
“That does seem strange. If they’d gone through an IPO, I think it would have been a huge hit.”
“There wasn’t just one strange thing about them, but the strangest thing of all was the CEO.”
Thomas Motors’ CEO, Brad Button.
He had originally come from sales, selling auto parts. Then, when he saw online shopping explode, he quickly opened an e-commerce business of his own.
The shop did not perform well.
But Brad Button’s talent did not lie in selling products. It lay in selling companies.
Using macro programs to inflate visitor numbers, he boosted his user count tenfold and sold the shop for one million dollars.
The business he had built shut down three months after the acquisition, but Brad Button walked away with a million dollars.
From that moment on, he realized that building companies just to sell them was where the money was, and he set out in earnest.
This time, he founded a company that modified diesel engines. All you had to do was connect a special machine, supposedly built with proprietary core technology, to the engine, and it would reduce harmful emissions by 30 percent and improve fuel efficiency by 20 percent.
I marveled and said, “Wow! Automakers spend tens of millions of dollars every year on R&D just to squeeze out a little more fuel economy and cut emissions, and there was such a simple solution?”
At that point, shouldn’t every engineer at every car company have been fired?
“Of course, it wasn’t real.”
Anyone should have been able to see through something like that, but astonishingly, someone did fall for it.
A car parts company listed on Nasdaq acquired the business for $15 million. Naturally, no such technology existed.
They had merely manipulated the engine’s output temporarily so that the test equipment would show those numbers.
At any rate, after making a few successful deals, Brad Button finally founded Thomas Motors.
An interesting fact was that, at first, it had nothing to do with hydrogen vehicles at all.
He simply announced partnerships with various auto parts companies and said he would begin developing eco-friendly vehicles.
He had not even settled on a specific car yet, but Brad Button realized that people were crazy for hydrogen vehicles.
And it made sense. Hydrogen cars, along with electric vehicles, were being hailed as the cars of the future, but no company had yet seized the market.
If he could build such a company, drawing investors would be easy.
He moved quickly to announce that he would develop hydrogen trucks, and then went even further, declaring that he would build out hydrogen infrastructure across the entire United States.
We were in an era when every industry was changing so fast that people were already calling it the Fourth Industrial Revolution.
If investors thought something had potential, they poured money into it first. As a result, there was no shortage of companies surviving on investment capital alone, with no real revenue model.
Of course, among them there were a few that did survive and actually came to dominate the market...
“They’ve announced all sorts of things—hydrogen production, transport, natural gas wells, charging stations, hydrogen trucks, and more. But not a single one of them has actually materialized.”
Even so, the board of directors was dazzling.
He paid a fortune to recruit experts from Enple and Guble who had been working on electric vehicles, and he even installed Roger Kate, a Nobel laureate, as an outside director.
“Oh! A Nobel Prize!”
“In truth, the field he won it in had nothing to do with this.”
Still, the Nobel Prize label was enough to work on the public.
The stock jumped more than 10 percent just on the news that a Nobel Prize-winning professor had joined the board as an outside director.
“So everyone’s being fooled?”
In common sense, it is easier to deceive a minority than a majority. But sometimes the opposite happens.
If someone tells you there’s a chance to make big money and asks you to invest, suspicion comes naturally.
What kind of company is it? Is it really a good idea? Why are they offering this opportunity to me, of all people?
But what if a bunch of familiar public figures, professors, doctors, and lawyers had already invested?
Just the fact that people far smarter and more accomplished than you had put money in made the whole thing seem credible.
In actual pyramid schemes, it is easy to think, “How stupid do you have to be to fall for that?” Yet when you look at the victims, there are plenty of highly educated professionals among them.
“People are inclined to believe whatever others believe. Didn’t the Madoff scandal catch all sorts of famous people, too?”
Bernard Madoff was a former chairman of the Nasdaq stock exchange and a fund manager.
He raised money by promising annual returns of 10 percent. He really did pay investors 10 percent a year, and as word spread, more and more money poured in.
So how did he invest and make money?
Astonishingly, he did nothing at all.
He simply used the money that came in later to pay the people in front. Then, the moment no more money came in, the fraud was exposed.
The loss amounted to a staggering $65 billion.
It was the largest Ponzi scheme in history, enough to make Charles Ponzi and Cho Hee-pal cry.
Among the victims were plenty of names everyone would recognize at a glance—film directors, Hollywood stars, sports team owners, and more. In many cases, they had even introduced one another to the scheme.
When everyone is being fooled, uncovering the truth is no easy thing.
“So Hwaan Group and GM got caught up in this too.”
“Dreams are the easiest words with which to seduce people. If they’re thinking about the brilliant future that lies ahead, then today’s losses hardly seem to matter.”
“Maybe it’ll become the next Therafis.”
“It’ll be worse than that.”
When the Therafis incident broke, Therafis was a private company valued at $10 billion. But Thomas Motors was a public company, and its market cap was more than four times larger.
As a leader in hydrogen energy, it would affect the entire related industry.
It was a gigantic scandal that could shake Wall Street to its core.
* * *
We moved into a full-scale analysis of the company.
Morris opened a video on his laptop and showed it to us. It was a scene from a year earlier, when Brad Button personally introduced the T1 FCV at an event.
Even then, investors had looked at Thomas Motors with suspicion, wondering whether it really had the capability to develop a hydrogen vehicle, and the stock had languished.
Then, as negative articles flooded out, they unveiled the new vehicle to the public in dramatic fashion.
The massive hydrogen truck emerged from behind the stage and slowly rolled forward.
“After I heard about it from a friend, I analyzed every video that had been released so far. That’s when I found something strange in this one.”
“What was it?”
Morris paused the video and zoomed in.
“Do you see this?”
Looking closely, I saw a thick cable between the wheelbase.
“There’s a wire attached to the truck.”
“It seems to have been connected under the stage to supply power.”
“So it was moved with a cable, then?”
“Yes.”
Moving slowly for a short distance with a motor wasn’t that hard. An RC car would roll just fine with batteries in it.
But if they had needed to connect a cable just to move less than ten meters, that meant there was no battery either, let alone a hydrogen fuel cell.
“Isn’t that fraud?”
David said it with a sneer.
“Given everything they’ve done so far, it wouldn’t be strange if they’d been sued dozens of times. In fact, several companies they dealt with considered suing them, but it never went anywhere. They spun all kinds of exaggerations and lies, yet whenever it came to the key points, they carefully talked around them. It was less about lying outright and more about making the other side believe whatever they wanted.”
I clicked my tongue.
“Seems like being a con artist isn’t something just anyone can do.”
Come to think of it, how easy could it be to fool someone smarter than yourself?
I looked at Morris and asked, “But after that event, didn’t they release a video showing the truck actually driving?”
“Yes. This one.”
Under a blue sky, the T1 FCV sped smoothly along a two-lane road between open fields.
“There’s no cable here.”
“No. Outside, that would of course be impossible.”
Thomas Motors released this video two months after the vehicle launch.
Even then, some media outlets and research firms were still raising doubts, saying it had never been confirmed whether the truck shown at the event was actually capable of driving.
In response, Brad Button proudly put this video out there.
The effect was decisive.
After the video was released, the stock jumped 30 percent, and people no longer doubted Thomas Motors’ technological capability.
Edward said, “There’s no way they could have taken a vehicle that needed a cable to move and made it drive on its own in just two months.”
“So it was manipulated after all.”
“At first, we suspected CGI. But according to the experts’ analysis, there was no sign the video had been tampered with. After that, we suspected they may have used a diesel engine, but the vehicle’s structure made that difficult.”
Because the T1 FCV had been designed as a hydrogen truck, its body structure was completely different from that of a normal truck.
Besides, simply putting in an engine wasn’t enough to make a vehicle run. The transmission, fuel tank, cooling system, powertrain, and everything else had to be installed one by one.
“So what’s the theory now?”
“We’re considering the possibility that it was an electric truck. If they connected a large enough battery, it would at least be possible to make it drive temporarily.”
“Even as an electric truck, getting a vehicle that size to run at around sixty miles an hour would take serious technical skill.”
“It would.”
This video was the most important clue to exposing Thomas Motors’ fraud.
Of course, I knew how they had filmed it. Once you knew, it was an absurdly simple trick.
“Maybe they just rolled it downhill?”
For a moment, silence fell.
Everyone stared at me with wide eyes.
“What do you mean?”
“If you put the gear in neutral and take your foot off the brake, a car rolls. Especially if there’s a slope and the thing is that heavy, it would keep picking up speed as it came down.”
At my words, everyone burst out laughing.
“Ha ha!”
“Come on, no way.”
“How would that even make sense?”
Well, that reaction was only natural.
They might as well have not released the video at all if they had been going to film a truck rolling downhill and present it as a driving scene.
...And yet, that was exactly what had happened.