Zombie Corporate Vikings Installment Four: Now With More TRUMP!!! (and some Russian heavies)

When we first saw Hannes Smárason way back in installment one, he was a dressed-up trashcan on the streets of Reykjavik, who years later had transmogrified himself into the new CEO of WuXi NextCODE, a more-or-less Chinese genomics company in the same way that deCODE Genetics (in many ways the progenitor of WuXi) had been more-or-less an Icelandic genomics company.  That unexpected reappearance was what first provoked me to revisit the figure of Smárason, who had been the founding Chief Financial Officer of deCODE before finding bigger fish to fry (meaning bigger entities to bring to financial ruin) in Iceland’s FL Group. I diverged to some of the financial history of deCODE in installment two, and then began documenting its bankruptcy proceedings in installment three; that is still incomplete, but will eventually narrate how deCODE would survive as a legal-corporate entity to eventually be sold a few years later to the U.S. biotech corporation Amgen for a rather astounding sum of money (about $450 million, of which deCODE’s previous investors, including many Icelanders, would see about $0.)

I’m postponing the completion of Installment 3 in this series on Zombie Corporate Vikings even further, since there’s some material pertaining to Smárason, that Zombie Corporate Viking who started me on this whole roll, that I’ve been sitting on for a while, but that has recently come alive again through some reporting on (it is still so hard to type this) president-elect Donald Trump.  I want to at least get the bare bones of this zombie corporate viking story up and shambling about, and then maybe come back and flesh it out a bit more when I have more time.

Smárason bailed from deCODE in 2000 to…well, I’ll let The Reykjavik Grapevine begin the story:

When all is said and done, it was the celebration of investment bankers and oligarchs by politicians, the fawning profiles of financiers and corporate raiders in the daily press along and the utterly uncritical celebration of “the market” as infallible, which was the real problem and the root cause of the bubble, and much of the wreckage it left in its wake.
A good example of how this works is the case of FL Group. In 2004, a former DeCode executive named Hannes Smárason gained control of the airline Icelandair with the help of Baugur and Jón Ásgeir Jóhannesson. Icelandair was at that time one of the most solid companies in Iceland, and one of few airlines in the world that was consistently profitable. Hannes set about to transform the company, changing its name to FL Group to reflect his ambitious global plans. These plans turned out to be a classic corporate raid, as Hannes sold all hard assets out of the company, leaving only cash and equity in other companies, which was then leveraged in order to turn FL Group into an “investment company”. Of course the main investments were in the financial sector—primarily in Glitnir (which was turned into a personal ATM for Jón Ásgeir and associates at a later stage in the game). The markets celebrated and the stock price of FL Group rose more than 50% in six months.
But while the business strategy of Hannes Smárason found favour with the stock market, several members of the board of directors, as well as the CEO of the company, realised that something was wrong. Within the span of six months in 2005, the majority of the board and the CEO of the company resigned without any official explanation. Hannes brushed these resignations off as the stock market gave him a vote of confidence and the price of FL Group stock continued to rise. The media saw no reason to make a fuss, and at the end of 2006 Hannes was voted “businessman of the year” by the most widely read business weekly, Fréttablaðið’s The Market (it might bear noting that Fréttablaðið is owned by the aforementioned Jón Ásgeir Jóhannesson). By then, FL Group’s stock value had more than doubled since Hannes assumed the reins.
Needless to say, FL Group was among the first firms to declare bankruptcy in 2008, its shareholders losing all their paper gains. Several questions remain unanswered about large transfers from FL Group to offshore banking accounts, and Hannes Smárason has been sued by the resolution committee of bankrupt bank Glitnir for his role, and the role of FL Group, in the looting the bank.

Smárason would face “a whole slew of cases,” including an alleged illegal loan and embezzlement, all of which he would walk away from.  (His defense on the latter charge was absolutely Nixonian, according to the Iceland Monitor: “During the trial, Smárason has maintained his innocence saying that he did not remember the emails he had written at the time and that he did not remember or recognise the documents presented.” )  But let’s return to his highest-flying oligarch days, when the FL Group entered into an real estate alliance with the Bayrock Group LLC,  to build Trump SoHo and several other buildings in which Trump had a 15% stake.  Part of this was a Trump tax dodge, as London’s Telegraph reported:

In 2007 Bayrock struck a deal with FL Group, an Icelandic company that had agreed to invest $50 million in four of Bayrock’s subsidiary partnerships. However, the deal was later relabeled as a loan.

In New York, the sale of a stake in a partnership would make the existing partners liable to pay more than 40 per cent in tax on their ‘gain’, based on the highest tax rate.

However, if the investment is classified as a loan no tax would be payable.

Former employees of Bayrock have alleged in a case against the company that the deal was intended to fraudulently evade some $20 million in tax through a disguised sale of partnership interests.

In a press release issued at the time of the initial deal, the FL Group described it this way:

FL Group announces that it has invested $50m in four active US-based real estate development projects alongside Bayrock Group, a US-based international real estate investment and development firm.

These projects are:

• Trump Soho – The development of a 5 star hotel condominium in Soho, Manhattan, in partnership with Donald Trump and the Sapir organization.
• Trump Lauderdale – The development of a 5 star hotel condominium in partnership with Donald Trump situated on Fort Lauderdale beach.
• Whitestone New York – The development of 13 acres of land located along the east river in Whitestone, Queens. Bayrock Group plans to build a number of luxury homes and town homes on this land.
• Camelback – The development of a 5 star hotel and residential condominium in Phoenix.

Commenting on the new venture, Hannes Smárason, CEO of FL Group said: “This is a very exciting venture, which highlights FL Group’s continued desire to take advantage of new and unique opportunities. The real estate market is an exciting, strong and competitive sector with great growth potential. We look forward to exploring this area with such a distinguished partner as Bayrock Group both in the US and internationally when the possibilities arise. ”


Tevfik Arif Chairman of Bayrock Group commented:

“We are delighted to develop a partnership with FL Group and secure the support of a financial partner with such excellent expertise. We look forward to working with the first-rate team.”

And this is where it gets even more interesting: who is Tevfik Arif, this man with whom Hannes Smárason is issuing press releases?  We turn to recent reporting (and thanks are due yet again to Mike the Mad Biologist for his link to the story) by James Henry in The American Interest:

Exhibit A in the panoply of former Trump business partners is Bayrock’s former Chairman, Tevfik Arif (aka Arifov), an émigré from Kazakhstan who reportedly took up residence in Brooklyn in the 1990s. Trump also had extensive contacts with another key Bayrock Russian-American from Brooklyn, Felix Sater (aka Satter), discussed below.8 Trump has lately had some difficulty recalling very much about either Arif or Sater. But this is hardly surprising, given what we now know about them. Trump described his introduction to Bayrock in a 2013 deposition for a lawsuit that was brought by investors in the Fort Lauderdale project, one of Trump’s first with Bayrock: “Well, we had a tenant in … Trump Tower called Bayrock, and Bayrock was interested in getting us into deals.”


According to several reports, Tevfik Arif was originally from Kazakhstan, a Soviet republic until 1992. Born in 1950, Arif worked for 17 years in the Soviet Ministry of Commerce and Trade, serving as Deputy Director of Hotel Management by the time of the Soviet Union’s collapse.10 In the early 1990s he relocated to Turkey, where he reportedly helped to develop properties for the Rixos Hotel chain. Not long thereafter he relocated to Brooklyn, founded Bayrock, opened an office in the Trump Tower, and started to pursue projects with Trump and other investors.


Tevfik Arif was not Bayrock’s only connection to Kazakhstan. A 2007 Bayrock investor presentation refers to Alexander Mashevich’s “Eurasia Group” as a strategic partner for Bayrock’s equity finance. Together with two other prominent Kazakh billionaires, Patokh Chodiev (aka “Shodiyev”) and Alijan Ibragimov, Mashkevich reportedly ran the “Eurasian Natural Resources Cooperation.” In Kazakhstan these three are sometimes referred to as “the Trio.”


The Trio has apparently worked together ever since Gorbachev’s late 1980s perestroika in metals and other natural resources. It was during this period that they first acquired a significant degree of control over Kazakhstan’s vast mineral and gas reserves. Naturally they found it useful to become friends with Nursultan Nazarbayev, Kazakhstan’s long-time ruler. Indeed, State Department cables leaked by Wikileaks in November 2010 describe a close relationship between “the Trio” and the seemingly-perpetual Nazarbayev kleptocracy.

You should read Henry’s entire article for more detail on these complex linkages — between Smárason and Bayrock, between FL Group and these (and other) Russian characters, and of course between the Russians and Trump.  Here’s a few more teasers to entice you:

There is much more for us to know about Iceland’s “special” relationship with Russian finance. In this regard, there are several puzzles to be resolved.

First, it turns out that FL Group, Iceland’s largest private investment fund until it crashed in 2008, had several owners/investors with deep Russian business connections, including several key investors in all three top Iceland banks.

Second, it turns out that FL Group had constructed an incredible maze of cross-shareholding, lending, and cross-derivatives relationships with all these major banks…This thicket of cross-dealing made it almost impossible to regulate “control fraud,” where insiders at leading financial institutions went on a self-serving binge, borrowing and lending to finance risky investments of all kinds. It became difficult to determine which institutions were net borrowers or investors, as the concentration of ownership and self-dealing in the financial system just soared.

Third, FL Group make a variety of peculiar loans to Russian-connected oligarchs as well as to Bayrock. For example, as discussed below, Alex Shnaider, the Russian-Canadian billionaire who later became Donald Trump’s Toronto business partner, secured a €45.8 million loan to buy a yacht from Kaupthing Bank during the same period…

Fourth, Iceland’s largest banks also made a series of extraordinary loans to Russian interests during the run-up to the 2008 crisis….

Fifth, there are unconfirmed accounts of a secret U.S. Federal Reserve report that unnamed Iceland banks were being used for Russian money laundering.

Sixth, there is the peculiar fact that, when Iceland’s banks went belly-up in October 2008, their private banking subsidiaries in Luxembourg, which were managing at least €8 billion of private assets, were suddenly seized by Luxembourg banking authorities and transferred to a new bank, Banque Havilland. This happened so fast that Iceland’s Central Bank was prevented from learning anything about the identities or portfolio sizes of the Iceland banks’ private offshore clients. But again, there were rumors of some important Russian names.

Finally, there is the rather odd phone call that Russia’s Ambassador to Iceland made to Iceland’s Prime Minister at 6:45 a.m. on October 7, 2008, the day after the financial crisis hit Iceland…

You really should read the whole thing.  But just to finish out the FL Group/Bayrock story, it ends like so many Smárason stories seem to end, in utter emptiness and ruin:

Completed in 2010, the SoHo soon became the subject of prolonged civil litigation by disgruntled condo buyers. The building was foreclosed by creditors and resold in 2014 after more than $3 million of customer down payments had to be refunded. Similarly, Bayrock’s Trump International Hotel & Tower in Fort Lauderdale was foreclosed and resold in 2012, while at least three other Trump-branded properties in the United States, plus many other “project concepts” that Bayrock had contemplated, from Istanbul and Kiev to Moscow and Warsaw, also never happened.

But maybe he’ll do a better job with those Chinese genomes.  Like Trump, Smárason and his company are enjoying some pretty good press at the moment.

Zombie Corporate Vikings Installment 3: Bankruptcies Go Better On a Fast Stalking Horse

(This post is incomplete, but I’m leaving the stub here and available until I can get around to finishing it.0

deCODE Genetics formally filed for bankruptcy on November 16, 2009 — what we in the U.S. sometimes refer to as a “Chapter 11 proceeding,” after the portion of the U.S. Code of Regulations that governs these matters.  But to understand deCODE’s case we have to be a little more precise: it was a Chapter 11, Section 363 proceeding — a type of bankruptcy that, as we’ll see, became especially popular during this period.  Many Chapter 11 proceedings can take years to unwind and “roll-up,” and get very messy and ugly in the process; a 363 bankruptcy usually only takes a few months, and the outcome can be relatively predictable and even profitable, for those in the right position.

We also tend to think that a bankruptcy is kind of the end of the story — I know I did, when it came to deCODE.  But in fact it’s better viewed as…well, I’ll let some bankruptcy experts explain it:

“The underlying reason for the practical success of today’s [363] bankruptcy sale process is that it enables a bankruptcy court to approve a transaction that achieves one of the most fundamental goals of the Chapter 11 reorganization process: to expeditiously and effectively separate a business’ past problems from its future prospects.”(ROBERT G. SABLE, MICHAEL J. ROESCHENTHALER, and DANIEL F. BLANKS,  McGuirewoods LLP, “When the 363 Sale Is the Best Route” emphasis added.)

So this is not the story of deCODE’s demise; it’s the story of how its previous corporate life was “expeditiously and effectively” separated from its life-to-come.  Another way of saying it: deCODE banked hundreds of millions of dollars on promises it made, and lost it all; the 363 bankruptcy proceedings described in this installment wiped that slate clean, allowing it to make an entirely new set of promises, “prospects.”  Another way of saying it: zombie corporate vikings and their zombie corporations never really die.  They may not be alive, but they always have future prospects.  And that, as we’ll see, can be quite lucrative.

The problem is: they also leave a lot of bodies lying around in the process.


Before getting into some of the details of deCODE’s 363 bankruptcy sale, let’s learn a little more about 363 proceedings in general, and their increasing frequency in this period.

There has long been the possibility for selling off a bankrupt corporation’s assets before fully completing legal proceedings.  To understand how an asset like DNA samples was treated in a 2009 bankruptcy, we should consider some history involving fashionable handkerchiefs:

“The history stretches back to the Bankruptcy Act of 1867, which permitted a sale of a debtor’s property prior to final liquidation. Congress stated: ‘‘[W]hen it appears . . . that the estate of the debtor, or any part thereof, is of a perishable nature or liable to deteriorate in value, the court may order the same to be sold, in such manner as may be most expedient . . . .’’

The Bankruptcy Act of 1898 did not include a specific provision permitting pre-adjudication sales of a debtor’s property. However, General Order in Bankruptcy No. XVIII maintained the requirements for sales when the property was perishable or liable to deteriorate in value. Over the next 40 years, the Second Circuit approved, inter alia, a private, pre-adjudication sale of a debtor’s fashionable handkerchiefs at a price above appraised value and at a time when the value of the handkerchiefs would decline greatly at the end of the holiday shopping season. The Second Circuit’s decision in this case, and several other cases, established that the concept of ‘‘perishable’’ included not just physically perishable assets, but also property ‘‘liable to deteriorate in price and value.”

…In 1978 Congress approved the Bankruptcy Code, including Section 363(b). Section 363 does not include the ‘‘perishability’’ or deterioration standards, or any requirement to show ‘‘cause,’’ thereby providing debtors “easier access’’ to Section 363(b) relief.”

DOUGLAS S. MINTZ AND MICHAEL A. STEVENS (CADWALADER, WICKERSHAM & TAFT LLP), So You Want to Sell (or Buy) A Company Under Section 363? Here’s How,” Bankruptcy Law Reporter, 24 BBLR 1526, 11/22/2012. Copyright 2012 by The Bureau of National Affairs, Inc.

Mintz and Stevens point out that, in the ten years between 1990-2000, less than 4 percent of large, public company bankruptcies were processed through a 363 sale.  But “with companies facing significant distress due to vast over-leverage,” in the decade from 2001-2010 “that figure rose to nearly 20 percent – peaking in 2011 when 43 percent of large public cases were resolved by an asset sale.”

In their bankruptcy filing, deCODE had to list its top 20 creditors.  The first entry is amusing, in a shocking kind of way — the $230 million debt to the Bank of New York dwarves all the remaining entries, and even just the next entry on the list by a factor of 1,000:


Zombie Corporate Vikings, Installment 2: From ponying up to stalking horse

Installment 1 in this series is here.

To better understand how zombie corporate viking Hannes Smárason shambled out of the destruction of, first, deCODE Genetics and later the entire Icelandic economy, and then re-emerged into the CEOship of WuXiNextCODE in 2015, let’s begin by reviewing the financial history of deCODE.  This is partial account of how deCODE raised its operating capital in different ways, from different sources, from its initial incorporation in 1996, to the “grey market” in Iceland a few years later, through its flourishing at the height of the NASDAQ speculative bubble at the turn of the millennium, and then to its bankruptcy in 2009.  (The next installment continues the story of post-bankruptcy deCODE.)  This is a story of big structures — capital, corporations, markets, legal and economic regulations — but also of how those structures are built and driven in part by individuals and their relationships.

Let’s take a look at the first deCODE Board of Directors, posed stiffly in 1998 against a lava backdrop:

decode board

That’s Kári Stefánsson in the middle, of course; I and others have said enough about him elsewhere that I’ll leave him aside for now,, but never forget that he is always in the middle of the picture. (I have to leave out most of the deCODE story in this more circumscribed financial accounting, but you can always buy the book!. And for a more detailed account of some parts of the story, especially regarding the Health Sector Database, see Skúli Sigurdsson’s 2002 article written as these events were still unfolding, “Bioethics Lite™: Two Aspects of the Health Sector Database deCODE Controversy.”)  On the far left is Vigdis Finnbogadóttir, a former President of Iceland, who resigned abruptly and somewhat mysteriously from the Board in December 1998, on the eve of the passage of the contentious and eventually unconstitutional Health Sector Database Act.  She provided symbolic capital, joining with Kári Stefansson to provide an Icelandic veneer to the story that deCODE was an “Icelandic company.” The rest of the figures here are the first sign of how that’s largely a symbolic phrase: none of the other Directors were Icelandic, but for now I draw your attention only to the man on the far right: Terry McGuire of Polaris Ventures, a Boston area venture capital firm. Polaris and Arch were the U.S. venture capital firms that ponied up the initial $14 million in start-up funds.  Mr. McGuire will return at the end of this installment, taking the different legal and symbolic form of a “stalking horse.”

The next big event in the perlan 3financial history of deCODE, and the first really public one, was the 1998 swearing of a promise of $200 million to deCODE from the Swiss multinational Hoffmann LaRoche. That’s how it was headlined in the popular and scientific press, anyway; technically the arrangement stipulated that it would be “up to $200 million,” contingent on deCODE reaching a series of research and business milestones, and as we’ll see, the actual amount never got quite up there (in reality it was more like $76 million).  But as with so much of the science of genomics, the details and complications get pushed to the background, and the attention-grabbing simplifications — “no one has ever promised $200 million to a startup genomics company before in the entire history of the world!!!” — get pushed to the front. Like many such oaths, this one called for ritualization, with Icelandic Prime Minister Davíd Oddsson, who led the political coalition that would later pass the controversial Health Sector Database legislation, passing the pen between Roche’s Jonathan Knowles and deCODE’s Kári Stefansson as they inked their million-dollar vows in the restaurant in the Perlan dome atop Reykjavik’s geothermal hotwater tanks.

Not even the wildest speculators among us then would have imagined that Oddsson would go on to become a central figure in an even larger financial disaster, doing his part as chief governor of the Icelandic Central Bank to bankrupt the entire nation. But that is getting ahead of the story.

So by the late 1990s, with some venture capital and some milestone payments from Roche, deCODE continued to leverage mostly mythical images of Iceland and the Icelandic population into corporate value. With no scientific publications (those would only come much later), and no other Big Pharma partner aside from Roche, in 1999 deCODE took advantage of a loophole in Icelandic securities laws – a loophole that would later be closed by Icelandic financial authorities in large part because of deCODE’s actions in this period – to secure its next capital boost. This gets complicated, and I am simplifying here, so you should consult Promising Genomics for a fuller, better documented version.

In June 1999, a full year before its stock would be offered to the public on the NASDAQ exchange, deCODE sold 5 million shares of its Series B stock at $7.50 per share to a Luxembourg holding company named Biotek Invest S.A., apparently set up for this and only this function. At the same time, an “oral agreement” was made – and while deCODE, like any other U.S. corporation, was legally a person, one may wonder what mouth it employed to make these kinds of spoken promises — an oral agreement was made that deCODE would be paid twice that amount if two conditions were met: the Luxembourg company had to sell at least half of the shares at $15, and the price in “the Icelandic market” didn’t go below $15 for the 6 months remaining in 1999.

Those two conditions were not only met, they were exceeded: 6,000 transactions were made in deCODE stock at prices between $30 and $65 per share on what was called “the gray market.” (For comparison, later at deCODE’s IPO on the NASDAQ in July 2000, the share price opened at $18, and bubbled briefly to $27; it never approached anything near those earlier prices again.) So in this “grey market” environment, deCODE took in $69 million from the bank accounts of probably hundreds of Icelanders eager to participate in a story of national genomic heroism purveyed by Icelandic TV and newspapers, stories tacitly if not explicitly encouraged by the Icelandic banks, which were buying deCODE stock from the Luxemburg holding company and then selling them to Icelanders.

Some of those Icelandars had gotten relatively rich from the recent licensing of the once-national (and hence “public”) fishing stocks, and were looking for places to invest.  Others were your average Icelandic Jóns. James Meek of The Guardian collected some of these grey market stories. “I’d never bought stocks before,” Henrik Jónsson told Meek. Jónsson had bought 5 million króna, or $65,000 worth of deCODE stock at $56 per share in the spring of 2000. “I watched the TV news carefully and saw the stock prices rising consistently. You had stories in the media telling people how high Decode stocks were rising. My heart is crying.”

Even worse was the case of the anonymous E., who had also bought in at the height of the exuberance in the spring of 2000, plunking down 30 million króna – about $400,000 – over three separate occasions. Some of the money he borrowed from the state-owned National Bank, from which he also bought the shares; in that case, E. mortgaged his house. He agreed to buy more from the Agricultural Bank, and arranged another loan with the Bank of Iceland. A day later, the Bank of Iceland cancelled all its loans to buy shares, but the Agricultural Bank would not let E. off the hook. He spent the next month trying to arrange other financing, during which time the share price fell from $64 to $50, but the bank insisted he still pay $64. Meanwhile, the National Bank moved to foreclose on its loan. “I asked them if I could wait at least until the shares rose to $15. The lawyer from the bank said, ‘You must know these shares won’t go up.’ I said, ‘You sold me these shares, telling me they would go up to $100.’ He said, ‘If you’re going to blame us you’d better pay up.’”

DVAnd Biotek Invest S.A.? It was liquidated in December 2000, having existed for barely a year and a half; assets of $5.25 million were transferred to some equally anonymous company called Damato Enterpises Inc. in Panama City, Panama. [In 2016, of course, Panama would be headline material for precisely these kinds of arrangements, and again connected to Iceland.]  After the Luxembourg legal notices documenting this baroque story of globalization began coming to light in 2003, the Icleandic newspaper DV ran a cover story on 5 February 2004 that looked like something from the New York Post: “HVER FÉKK 400 MILLJÓNIRNAR FRÁ DECODE?” ran the headline in huge, solid caps – Where did the 400 million kronur from deCODE go? A small picture of Kári Stefansson, rubbing his chin thoughtfully, was inserted next to the question mark. He never responded publicly.

[Here are the documents related to Biotek Invest SA: [biotek invest sa bilan 22.12.2000 biotek invest sa nomination d un liquedateur 21.12.2000 biotek invest status 4.8.1999 biotek invest status coordennes – modifications de statuts 6.8.1999 ]

Now we go from the period of the “grey market” (because of the deCODE events, the regulations governing such sales of securities in Iceland were changed) to the supposedly “white” or colorless market that exists in economic theory. At deCODEs IPO on July 17, 2000, some 11 million shares were sold, grossing $198,720,000. Morgan Stanley, the underwriters, took about $17 million of this as commission and expenses. That’s the colorless story.

Now for a bit of color: what does an underwriter do to earn its commission? In the case of Morgan Stanley in this period, they provided some services to their clients like deCODE which the US Securities and Exchange Commission thought were probably illegal and certainly ethically dubious.  The SEC brought action against Morgan Stanley, which decided it would rather settle with the SEC for $40 million rather than try their luck in court. Documents from that settlement between the SEC and Morgan Stanley detail how Morgan Stanley “allocated” future IPO stock offerings only to those investors who had promised to buy stock in other corporations underwritten by Morgan Stanley — companies like deCODE.  An email exchange quote in the settlement with the SEC gives a glimpse of how this worked:

Just for the record . . . despite a less than stellar allocation [a customer] was in buying decode in the aftermarket yesterday. As they said they would. Almost 200m at $28.

— Morgan Stanley sales representative email to syndicate manager, c. 2000

“I am very aware of their aftermarket. Kudos to them and it will be remembered.

  — Morgan Stanley syndicate manager email to sales representative, c. 2000

  (SEC vs. Morgan Stanley, No. 1: 05 CV 00166, United States District Court, District of Columbia, January 25, 2005)

So a sales rep informs his manager that a customer, despite a “less than stellar” allocation, had fulfilled their oral agreement to buy shares of deCODE, “as they said they would.” One almost admires the informal moral economy of promising at work here, as the manager expresses his familiarity with this gentleman’s arrangement to buy some crap or at least “less than stellar” securities, grants his “kudos,” and hints at the promise to come, as they always do in these kinds of gift exchanges: “it will be remembered.”   We don;t know how many large investors bought deCODE stock like this, simply because they promised to in order to be invited to future sales served up by Morgan Stanley; we know only that deCODE tucked away about $180 million from their IPO.

In retrospect, we are able to see that deCODE’s  timing was perfect, menaing incredibly lucky, since it  probably could not have raises so much public biocapital at any other time in recent history before or since. The spring and summer of 2000 saw the briefest, largest, and most intense wave of speculation in the biotech market, with almost twice as many IPOs closed as at any other time in the ten years before or since, generating almost twice the size of step-up in a company’s valuation than any other time before or since:


Source: “Beyond the biotech IPO: a brave new world,” Bruce L Booth, Nature Biotechnology August 2009; doi:10.1038/nbt0809-705.

But here’s what the next 8 eight years looked like for deCODE’s market valuation:

NASDAQ chart

After the cresting of the NASDAQ biotech wave in 2000, deCODE brokered a few more deals with Big Pharma – with Roche of course, in some new agreements that brought in an actual, not merely promised, $50 million spread over five years, and an arrangement with Merck, putting about $9 million per year for three years on the table. Later a contract with the NIH added another dollop of $5 million per year for five years. But those were quite modest revenues for a corporation burning through millions of dollars per month, although together with the biocapital amassed from the grey market and the slightly-less-grey-but-far-from-white IPO, it helped keep deCODE going.

And these arrangements functioned as cultural biocapital as well, and helped produce other forms of cultural biocapital as well, namely scientific publications. decode headlinesFor the first time in its financially lucrative history, deCODE actually began converting dollars consumed into scientific text communicated, securing a number of well-respected publications in noteworthy journals on multiple complex conditions from diabetes to myocardial infarction to prostate cancer. It was finally delivering on some of its promises.

At the same time, however, the bank account was being depleted, and deCODE was again banking on promises, this time in the form of debt. The risk disclosure section of its SEC filings was becoming longer and grimmer, and their 10-K annual report filed with the U.S. Securities and Exchange Commission was downright dismal. The agreements with Roche, Merck, and the NIH provided only a small and shrinking percentage of revenues. DeCODE issued $150 million in debt against its stock value in 2004, and borrowed another $80 million in 2006. So it was paying about $8 million in interest per year, with a final payment in full of $234 million coming inescapably due in 2011.




All told, by the end of 2008 deCODE had eaten nearly three-quarters of a billion dollars in debt, including a $33 million dollar “auction rate security” investment with by then defunct Lehman Brothers, which had already lost $20 million of its value and has got to be pretty near worthless now.  Even its remaining relative bright spot, the consumer ancestry and disease-risk testing service deCODEme, had to have its risks and uncertainties narrated to the SEC. And while deCODEme was indeed bringing in increasing revenue, those increases were offset by the increasing “costs of revenue” in the form of chemical sand reagents, advertsing and marketing, and also offset by decreasing “employee compensation” due to “decreased headcount.”


if weThings went from bad to worse. DeCODE stock, plummeting faster than both the NASDAQ general index and its biotech index, was now trading under a dollar per share and was delisted from the NASDAQ global market.


test common stockBy the winter of 2008-2009, not only was the entire Icelandic economy in the toilet, as the metaphor aptly goes, but men could literally piss on the icons of the once highest flying Icelandic financial speculators in the urinals of Reykjavik.


That’s former deCODE Chief Financial Officer Hannes Smárason in the second urinal from the right, although he mostly ended up there due not to his deCODE position but to his later involvement in the scandalous investment company FL Group. [See installment 4 of this series.] Hannes Smárason also got iconized as that dressed-up waste receptacle that we saw back in installment 1.

In January 2009, street protestors endured the only police tear gassing to occur in Reykjavik since the 1949 anti-NATO riots, and eventually brought down the government.

riotsDavíd Oddsson, who as Prime Minister ten years earlier had handed deCODE so much more than the pen used to ink the $200 million dollar promise with Roche, had gone on to help unleash speculative forces throughout the entire Icelandic economy as one of three governors of its Central Bank. Despite the line-up like quality of Time’s photograph,Davíd Oddsson was never arrested.


He did, however, hunker down at the Central Bank, refusing to resign or show any sign of repentance or regret, and forcing the Icelandic Parliament to re-legislate the entire Central Bank structure without him in it.

no reply

At more or less precisely the same time that Oddsson was holed up at the Central Bank, in one of those fortuitous gifts of history to the ethnographer. Kári Stefansson was again performing his biocelebrity status, promoting the deCODEme services on the TV show of not only the convinced, but convicted, biotech inside trader, Martha Stewart.

kari martha

So as an avid ethnographic reader of the genomic economy and SEC filings, I was hardly surprised when deCODE filed for bankruptcy in November 2009. And here is where Terry McGuire, the venture capitalist who started this circulatory game of consumption back in 1996. and Polaris Ventures come back into the story again, this time as a “stalking horse,” a term in bankruptcy proceedings drawn from a Native American practice of standing behind a horse, out of the sight of the animal you are hunting.  McGuire and Polaris had set up a new holding company, called Saga Investments (they never miss an Icelandic trick), which they then hid behind, in plain sight, ready to pick off whatever deCODE assets remained from the bankruptcy proceedings before anyone else had a shot at them.  And that takes us to the next installment.

Zombie Corporate Vikings: First Installment

When I last saw Hannes Smárason, he was a tuxedoed trash receptacle somewhere on the streets of Reykjavik:


You won’t find that photo of Hannes on Google Images (although maybe you will soon!); it was taken by my friend and Advance Man, Skúli Sigurdsson, in early 2009, in the immediate aftermath of the Icelandic financial meltdown.  Hannes helped make that happen. He had left his position as Chief Business Officer of deCODE Genetics in 2004 and became head of something called the FL Group, whose accomplishments included feasting on Icelandair and taking control of the Icelandic state bank Glitnir, before wrecking the entire nation.  In coming installments I’ll tell you some more about Hannes’s exploits as one of the more destructive of a group of individuals–men–who became mythologized as “corporate Vikings.”  Some of them are in jail now — Iceland is one of the few nations which actually tries and jails at least some of its corporate criminals, although some of them seem to stay at least one step ahead of the authorities.  Like Hannes Smárason, who fled the nation he had helped trash and then lived for a while in London…

…where I, like most others except the Icelandic special prosecutors, forgot about him.  Until yesterday:

Genomics England, the company set up by the country’s Department of Health to sequence 100,000 human genomes, has brought in China’s WuXi NextCODE as the first of its “clinical interpretation partners,” according to a report by state-owned news agency Xinhua.

Genomics England plans to sequence 100,000 whole genomes and is working with these interpretation partners to focus on people with rare diseases as well as common cancers. The company said the project could “lead to a better understanding of disease and more personalized care for patients in the future,” Xinhua reported…

Hannes Smárason, president and COO of WuXi NextCODE, said “we are very pleased to be playing a central role in a project that is a driving force for precision medicine worldwide. We look forward to putting our technology to work for NHS patients through interpretation and by applying the knowledge gained to advance the development of targeted new therapies for cancer and a range of rare conditions,” according to a statement the companies released.

Those 4 capital letters, C-O-D-E, were like some corporate haplotype marker signalling a story I had completely missed about the zombie Viking corporation, deCODE Genetics, from which the zombie corporate Viking Hannes Smárason had been spawned.  I thought I had closed the book on deCODE, and had decided not to write about its 2011 bankruptcy, and the temporary burial of its corporate remains in the vaults of the venture capital firms that had financed its first rise, before its spectacular and lucrative (but not for the thousands of Icelanders who invested in the first deCODE) $450 million resurrection by the U.S. biotech firm Amgen.  I have a different kind of story I want to tell about genomics, one that doesn’t feature, to mix my metaphors, zombie trash.

But the Viking corporate zombie trash story is haunting me — and that is no metaphor, mixed or straight up.  I laid awake last night, after a frenzy of googling, pondering and re-pondering the pieces of the story and the threads that stitched Iceland’s oligarchs to Luxemburg holding companies to bankruptcy courts to U.S. venture biocapitalists to a Shanghai pharmaceutical company to the latest large-scale publicXprivate genomic venture, where there are hundreds of thousands of genomes to be sequenced and millions of dollars to be made, before it all quite possibly comes crashing down again.  That’s the story the next installments will tell here, like ice to my other story of genomic fire, to reference both Icelandic imagery and Bob Dylan, who at the same time reminds us that there’s no success like failure…



Lichens, Species, Grids, Fieldwork, and the NSF

So obviously I have a thing for lichens.  It’s understandable, then, why it was a National Geographic story about lichens that broke me out of my months-long blogging slumber. (Yet another h/t to MtMB.)

At first, I thought the story would be interesting because it was about how genome sequencing of an organism can lead scientists to differentiate or re-classify organisms along species lines, leading into the meta-question of “What is a species anyway, and what are the protocols for making that decision?” In this case, one species of lichen, Cora, becomes 126 different species, by genome sequence standards.  But there was much more to grab my interest, above all the affect of interest-grabbing as a dimension of the scientific life.

The NatGeo writer Ed Yong quotes the Field Museum’s Robert Lücking, the lead author on the PNAS article, early on in his blog post:

It’s “the most spectacular case of unrecognized species richness” in any group of large organisms, says Lücking.

Except that Lücking didn’t say that–he wrote it.  The kind of thing that a scientist would indeed usually only say to a science writer, packing some of the afffective charge that is an important driver of science but usually gets edited out of the scientific publication, here managed to push a bit on those genre conventions.  And as the PNAS paper continues:

Our result is especially striking considering that these are conspicuous macrolichens well known to the scientific community, having been used in numerous environmental, ecophysiological, chemical, and ultrastructural studies.

This language suggesting the physical force of the affective charge “striking” the scientist becomes a bit more explicit in the oral exchange with the science writer: ““We were absolutely stunned by the result,” [Lücking] says.”

“Stunning” is not part of the permissible vocabulary for the scientific paper, but “striking” is a close approximation.  That word appears again in the PNAS paper, accompanied by “dramatic”:

Two genera, Cora and Corella, are foliose macrolichens, with a total of 16 species, corresponding to what was considered a single species, Dictyonema glabratum. This name is well known in the scientific community and even among nonspecialists and is included in the Listing of Interesting Plants of the World (17). The 16-fold increase in the number of species now recognized is a striking figure that even surpasses recent findings reported from the large macrolichens Lobariella and Sticta in the Ascomycota. The dramatic change in the taxonomic concept of these basidiolichens has important implications for recognizing their role in ecosystem function and as model organisms. Species of Cora abound in tropical montane regions and, with their cyanobacterial photobionts capable of fixing atmospheric nitrogen, serve as biological fertilizers. Cora is also one of the best studied lichens in terms of ecomorphology, ecophysiology, and biochemistry…


Although the number of 126 species in Cora and Corella
now recognized is staggering, it may still be far from the actual species richness in this group…

Maybe I’m struck more than I should be by these few mentions of staggerings, strikes, and drama.  But in a paper full of the usual measured and modest rhetoric — “this assessment is consistent with the observation…” and “This result does not appear to be a sampling artifact…” and “Our findings underline the importance of accurately documenting species richness…” and “as has been suggested for certain fungal lineages…” and “a figure of 452 predicted species does not seem out of the realm of possibility…” and “our data suggest that macrolichens might surpass even the fastest-evolving vascular plants in diversification rates…” — I find them to be…rather noteworthy.

In addition to these glimpses of affect, a number of other features of this study were striking to me.  The PNAS paper contains the following photo grid of lichens, reproduced at the head of the NatGeo piece by Yong:


Beautiful, yes?  And it makes you wonder how anyone could have ever collapsed that obvious diversity into a single species, how those sixteen Coras–let alone 126 Coras–could have ever been misapprehended as one.  Here the authors go into modest-mode, but again a hint of the surprise and drama that so suffuses science still manages to peek through:

Notably, most of these are not cryptic species recognizable
from molecular data only, but morphologically distinct taxa supported by phenotype features, substrate ecology, habitat preferences, and geographical distribution. Many are so distinctive that it is surprising that they have not been recognized before (Fig. 2).

Yeah, no kidding –how could a lichenologist miss that surprising diversity?  A surprisingly obvious diversity, and obvious for a surprisingly diverse set of reasons: they came from different places on the planet, they lived on soil or rocks or trees, and they had different “phenotype features” — i.e., “look at them!!!”  How do the authors explain this glaring (in hindsight) oversight?

The likely explanation is that important features such as color, texture, and substrate are lost in dried herbarium specimens, which makes these lichens a prime example of taxa to be studied in the field.

So working only from established collections cut scientists off from real difference. There was little hint of the actual diversity in the dried specimens.

And there is probably still more species diversity to be found in Cora.  The authors sequenced 376 Cora samples to come up with those 126 different species.  Where did those samples come from? Grid the Caribbean, Central, and South America into 209 squares, like so:

lichen grid

Those 376 samples were gathered in only 20 of those 209 squares, about 9% of the grid.  The authors considered only 2 squares “well sampled” (one in the Andes of Colombia, and one in the Brazilian rainforest), and those samples account for nearly half (51) of the newly identified species.  Using a variety of estimating techniques, the authors project that there are likely to be 452 species of Cora, “a further remarkable increase from the 126 species recognized in our current phylogeny and an unthinkably dramatic increase from a single species, D. glabratum, accepted until a decade ago.”  That’s not just drama–it’s unthinkable drama.

The other important methodological innovation to this study, complementing the DNA sequencing, was the photographing of samples as they were gathered in the field. Yong for NatGeo:

The problem is that you can only see this glorious diversity by studying the lichens in the wild—and most scientists had worked with specimens that were dried and stored in herbariums. Take them out of their natural setting, and important ecological cues vanish. Dry them out, and their stunning palette collapses into a few boring hues. Lücking’s team escaped this trap by snapping a high-resolution photo of every lichen that they took a sample from. “We were absolutely stunned by the result,” he says.

That’s not to underestimate the importance of the DNA sequencing itself, which carries a habit-breaking force:

Lücking also suspects that many lichenologists were also hamstrung by a weird circular logic. Lichens can look very different depending on where and how they grow, so a single species can take on many guises. That made it easier to believe that very different specimens were actually the same lichen, or that very big specimens were simply older versions of smaller ones. Only DNA could shatter that unity…

Yong gets a nice quote from another lichenologist, who also seems to have had some kind of  experienced of force when viewing the lichen diversity and beauty:

“This work beautifully illustrates how little we know about the numbers of fungi on Earth,” says Anne Pringle from Harvard University, who studies lichens. “I’m struck by the beauty of the lichens illustrated in the paper, and wonder if local peoples knew these species already, even though they aren’t described within the formal scientific literature.”

And Yong gets Lücking to expand a bit on the sigificance of lichens and this research into them, in language that does not make it into the PNAS article:

Most of these species live in paramos—small habitats in the Andes Mountains, above the forests but below the snow. In these cool worlds, the lichens control the amount of water and nutrients in the soil, setting stable foundations for food webs that include Andean condors, spectacled bears, and a unique range of fast-evolving plants.


“These ecosystems are highly threatened and have disappeared to a large extent,” says Lücking. “Each paramo that disappears takes unique species down with it. Previously, it was believed that all paramos were similar, so their genetic diversity could be conserved by conserving just a few fragments. But now we know that this is not the case.”

There was one part of this drama that Yong did not mention, but I think deserves to be part of the story.  All scientific research needs funding.  A basic point, but one I think especially important to highlight now.  And there are not many entities capable of or interested in funding lichenology.  So in addition to the long list of people who provided materials or helped in the fiedlwork, the Acknowledgments in the PNAS paper make visible another usually invisible component essential to scientific research: this stunning, striking, spectacular, suprising science was funded by two National Science Foundation grants, one to George Mason University and one to the Field Museum.  Although the vitality of NSF resources for scientific research likes this may not be as endangered as its support for the social sciences, I’d hate to see this kind of research go unfunded and thus undone because of dimwit rightwing Republicans.

Biomedical pyramid, de-structuring


How We’re Unintentionally Defunding the National Institutes of Health, by Michael White



Paula Stephan, an economist at Georgia State University, argues that many of the research community’s problems flow from two big features of how we do research. First, we staff our labs with low-wage, temporary workers—graduate students and postdoctoral fellows who move on after a few years. This means that universities have an incentive to recruit and train more students and postdocs, regardless of their eventual job prospects. The result is unsustainable. As Stephan writes, “the research enterprise itself resembles a pyramid scheme.”

The second structural problem is that career rewards in science are doled out according to a “tournament model,” a situation in which small advantages—in productivity, skill, or network connections—translate into large differences in rewards like faculty jobs, grant funding, and tenure. Tournament models foster intense competition, but they can be incredibly wasteful: the differences between a proposal that is funded and one that is not can be small and arbitrary. These small and arbitrary differences are making and breaking scientific careers in which taxpayers have invested substantial resources.


Paula Stephan, The Biomedical Workforce in the US: An Example of Positive Feedbacks,

Arrested Memory

I’ve only been arrested once.  I say that somewhat apologetically, since it seems like, at age 55, I should have been arrested countless times by now, given the number of things deserving to be arrested for.  (Ending a sentence with a preposition is not on that list.)

What’s left of the memory of it came floating back up as I listened to the radio coverage of the death of Nelson Mandela.  Amy Goodman was interviewing Randall Robinson, who in the 1980s led the non-profit organization TransAfrica‘s divestment efforts, which came to include protests and arrests at the South African embassy in Washington, DC. That had started with Robinson, Mary Frances Berry, Elanor Holmes Norton, and Congressman Walter Fauntroy all refusing to leave after a meeting with the South Afircan ambassador.  After that, TransAfrica kept organizing daily arrests at the embassy, with 4,500 eventually being arrested.

My memory consists really of three dream-like images: Telephone switchboard. Sunny sidewalk, cops chatting, police van.  Vaulted door and doorbell.  That’s it, essentially.  I re-build a narrative around them.

I was working then at the Institute for Policy Studies.  It must have been 1985, and I was on the switchboard.  (Maybe it was lunch time — everyone who worked at IPS took turns covering the switchboard at lunch — or maybe I was there for the day.  I was — and still am — a good switchboard operator and receptionist.  Robinson must have called, and I must have put him through to either Roger Wilkins or Nancy Lewis.  I can’t remember, but eventually someone came down and asked me if I would be arrested that afternoon.  There was some urgency, despite the routine that had developed — or because of it.  The daily arrests were well-orchestrated: sometimes it was a single high-profile person, like Senator Lowell Weicker, sometimes it was a group of people, like a church group or a union local, students, or the staff of a non-profit organization.  But it had to be daily, and that was a pretty remarkable feat to pull off, month after month.  And on that day, something must have gotten screwed up: someone couldn’t make it or canceled, I don’t know.  They needed someone to go get arrested, so I volunteered my services.  Maybe I had been intending to do it and had just not gotten around to actually volunterring — a habit of mine.  Or maybe I never planned to do get arrested at all, I don’t know. But I ended up saying yes.

I remember walking up Wisconsin Ave. — it wasn’t far from the IPS offices at the time, at 1901 Que St., at Dupont Circle.  It was a beautiful, sunny day.  I would have walked past the memorial to Orlando Letelier and Ronni Karpen Moffitt, two people who had worked at IPS some years before I landed up there, and who were assassinated there on Sheridan Circle.

I had been given instructions about what to do, but I remember being nervous — not about being arrested, but about doing it wrong.  I knew I was at the embassy when I saw the two cops out front, chatting amiably; they said hello to me.  They were used to this routine by then. I walked up to the door and rang the bell  I have a blurry memory of standing there, hearing someone speak through the intercom but I couldn’t make out exactly what they said.  I must have asked to see the duty officer of the day, which is what we were told to say.  I think I must have been asked to step back to at least 60 feet from the embassy (this was the law everyone was charged with violating: no demonstrations within 60 feet of the embassy), but again, I can;t really remember and I had the sense again that I wasn’t doing something right.  Maybe I was supposed to stay standing there, but I walked back down the sidewalk.  Or maybe I stayed there but didn’t say something else I was supposed to say.  Maybe the cops asked me to step back sixty feet and I did, instead of staying where I was.  But I guess they at least knew what they were supposed to do well enough, so that they very kindly said they wer eplacing me under arrest, read me me rights, put that plastic band on my wrist (in front, I think?), and put me in the back of the van.  I had done my wrong right enough.



Pinker punkd

Assholes like Steven Pinker think that people in the humanities resist their ideas because we don’t understand “science.”  But the truth is that many people in the humanities love and embrace the sciences:  there are historians of science, there are digital humanities, there are philosophers of technology.  What we resist isn’t “science”; what we resist are obnoxious fucking ignoramuses like you who come up in our house and tell us how ignorant we are, how much we don’t understand, and what we should be doing with our research. 

And there’s so much more.  Thanks again to Mike the Mad Biologist for getting me there…

“…with rigor and careful analysis…”

Drawn out of my deep blogging slumber by PZ Myers’s magnificent slam of bad evolutionary psychology (leaving the question of good evolutionary psychology open, since this is all about “…rigor and careful analysis…”).  It’s a long post that criticizes arguments made by Jerry Coyne (who weirdly enlisted Steven Pinker to do the heavy lifting) and worth reading for more than the few excerpts I pull out here.

My favorite part, responding to a particularly lame rhetorical move made by Coyne:

Please. Have I ever said that we shouldn’t study gender or racial differences? No. We know there are going to be differences. The catch is that they have to be studied very, very well, with rigor and careful analysis, because they are socially loaded and because science has a deeply deplorable history of using poor methods to reach bad conclusions that are used as ideological props for the status quo. I’m not putting up roadblocks against scientific research; I would like to put up roadblocks to sloppy, lazy ideological nonsense touted as scientific research. I should think every scientist would want that.

What I am most taken by is the phrase I quoted for my title, “with rigor and careful analysis.”  You could just read this as redundancy, repetition to make a point about why scientists can’t be “sloppy” or “lazy” (it may be that they can be “ideological,” so long as they are  careful and vigorous enough to be sensibly so, but that’s an argument for another day and I have to confess that “ideology” is not a subject I care to get into in general). But you could also read it in a way so that they appear to be two different things; “rigor” alone, then, is not enough for doing science well, but you also have to add this other thing called “careful analysis.” Going out on a limb farther than I probably should: Coyne and Pinker don’t lack for rigor, but it’s PZ Myers who comes off as the really careful one here…

(Comment threads at both places are extensive.  If I were forced to pick between which comment thread community to join, were I to ever do something like join a comment thread, the one at Pharyngula would win hands down.  Somebody named Jason gamely tries to take on some of the more stridently scientistic commenters with some references to Spivak, but there’s not much traction to be gained here.  For all my talk about ‘friendship with the sciences” and the importance of dialogue, this is a good reminder that some of them sure don’t make it easy.)