Putin's Trader: Are Hedge Funds In Bed With Foreign Spies?

How Do Spies And Intelligence Agencies Really Fund Themselves? 

Izabella Kaminska, the former Financial Times and current Politico Europe editor, raised that question on X yesterday, in light of the prisoner exchange with Russia. She suggested the answer may be, in part, via secret arrangements with hedge funds, where they provide tradable data in return for a cut of the hedge funds' profits. 

Which famous hedge fund billionaires might be implicated in this sort of arrangement? 

Putin's Trader

Aside from the headline news, today’s Russian prisoner swap seems to me to include a potentially involuntary limited hangout by the US. It pertains to the release of Vladislav Klyushin and what that suggests about how spies and spy agencies really fund themselves.

The official line is that Klyushin was involved in “hack-to-trade” insider schemes. But why would that be of interest to the Kremlin?

To understand, first watch this suspiciously well produced (given the turnaround time) CNBC mini doc about “Putin’s trader.”

Not only is the doc extremely well produced for something that in theory only became public knowledge today - hinting of tactical embargo terms or pre-positioning of information by the Feds themselves - the access they were given to prosecutors suggests it serves a broader agenda.

There are other tactical if you know you know leaks throughout. For example, the last minute tip off from an anonymous source linking the reporter to a former Russian spy living under an assumed identity after defecting from Russia with US help. That isn’t the sort of source that you just uncover via investigative work.

So we have a former Russian spy telling us very clearly that Russia uses its spying power (both human and cyber) to gain access to insider information to make shed loads of money for spies. Why would Putin allow these individuals to get super rich? Likely because it’s the perfect off the books funding source which allows spies to self finance their work without the annoyance of sanctions.

But it’s not just about sanctions

If information means power in markets, then it stands to reason that spy agencies - with all their backdoor access points, hacking specialists and general accumulation of privileged info - have possibly one of the biggest advantages in markets of all.

Would they use that privileged information tactically to front run markets to raise money for all sorts of black ops? If they’re already operating illegally in jurisdictions - it would be foolish to think they weren’t.

So the next question you have to consider is: when is an outsized hedge fund return really a genuine outsized return, and when is it the product of traders being fed privileged information from spy agencies - in a sort of hedge fund front collaboration deal - where proceeds are split between the spies and the front companies? Or even where the managers are the spies?

Note also the quip about how Klyushin is supposedly only the tip of the iceberg. There are (according to the former Russian spy) allegedly many more like him embedded across the US financial system. And unlike Klyushin these guys are pros and this discreet. They don’t raise suspicions by buying Lamborghinis or fur coats for their wives. They keep a low profile. [Perhaps even give some of their fortunes away anonymously to civil society organizations?]

What else do we learn from the doc? Well there’s also the fact that the Feds managed to get access to all their encrypted comms. Including on apps previously thought to be unhackable like Threema. Is this a boast by the US or a warning?

If you consider Klyushin’s little op generated about $90m - imagine how much more is being extracted from the financial system as a whole by all the hostile sovereign states that use similar tactics? Now consider that it’s not just hostile states that stand to benefit from deploying privileged info garnered from spy/surveillance to generate off the books funds for all sorts of black ops.

The point being: the playbook is not unique to Russia.

The formula is simple and highly replicable.

1) Locate and recruit a good front man/mule - who you promise to make very rich. Ideally have it be someone you can trust or who you know you can control.

2) provide him and his team with insider info that lets him outperform the market.

3) Agree that he gets to keep a share of the wealth as long as he forwards the rest to wherever it may be needed. Maybe encourage him to be a vocal effective altruist from the very beginning. For maximum influence and disruption have him “donate” to all sorts of civil society orgs or political causes you want to influence.

4) if he gets sloppy and is found out throw him under the bus. If he refuses to comply (and you realise you’ve accidentally created an uncontrollable monster) panic slowly. If one of his team threatens to walk and spill the beans on all, pay them off until they go away.

5) keep your operations as low key and secretive as possible.

Makes you wonder just how many of the billionaires in this space might not be what they seem, eh?

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