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Interview with Valhil Capital's Jimmy Vallee

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This hour-and-some-change will go at warp speed, which is a fitting pace for a conversation that takes aim at the world of digital payment rails and frictionless nostro-vostro bank accounts.

Interview with Valhil Capital's Jimmy Vallee

This episode's guest is the mergers and acquisitions juggernaut, elite securities designer, and best digital plumber in the western hemisphere, Mr. Jimmy Vallee. Jimmy has parlayed an illustrious and decorated legal career in the American energy sector into his current role as the Managing Director of Valhil Capital.

Valhil Capital is as unique as it is ambitious. In addition to managing the balance sheet for holdings in the construction, fitness, and energy sectors, Valhil Capital has a specific investment thesis in the realm of cryptocurrency: sovereign governments and thus global finance will soon embrace the Central Bank Digital Currency ("CBDC") model in the effort to remove friction from the movement of value.

More than that, Valhil Capital is on the bleeding edge of locating and developing "use cases" for the Ripple ecosystem and is raising the bridge asset flag for the XRP community as it does so.

Jimmy and I start small. You'll hear about Jimmy's beginnings in the practice of law, his innate desire for a career in the world of high finance, and the unlikely opportunity he seized as a first-year associate in a firm of more than 400 lawyers to become the name to know in the post-shale revolution Texas energy acquisitions market.

We crescendo into the lesser known realities of the global digital asset market and what American citizens should expect out of its government with respect thereto by the end of 2021.

It is safe to say this is but Part I in a series of insightful talks to come. And I trust you'll enjoy listening as much as I did recording. This is Jimmy Vallee, the Managing Director of Valhil Capital. Find Jimmy, Valhil, and more about the digital asset frontier at JimmyVallee.com, ValhilCapital.com, and AstroLightMediaGroup.com.


Podcast Transcript

NORM PATTIS (NP):

Welcome back to Law and Legitimacy. This is Norm Pattis for another episode of “As the World Churns.” We continue to produce these interviews from time to time amid a set of crumbling and decaying institutions in this, the potentially failed United States of America. But I digress.

As I begin each week, I should say “thank you” to Mike Boyer. Without his technical assistance, I would just still be writing blogs, which I’ve stopped doing since I started doing this. And I got complaints the other day. I was flattered. I walked into a federal court, and a marshal said, “How come you haven’t been blogging?” And I said, “Have you ever admitted to anybody around here that you’re reading?” “Well, no.” I said, “Well, if you admit you’ll read, I’ll start writing again.” But I’m not. But, anyhow, thanks to Mike Boyer and the Carolina Craft Legal group located in North Carolina.

Mike, since I had contact with you online, I forgot your phone number. How do people find you when they have complex regulatory matters that need attending to, with a government that doesn’t know how to listen and needs to be confronted with lawyers determined to tell the truth, the whole truth, and nothing but the truth and that vigorously advocate on behalf of their clients?

MIKE BOYER (MB):

Norm, we’ve handled this before. They just call my mom.

NP:

And that’s it. 1-800-HotMama. But don’t tell them folks because there’s no telling what you’ll get. What’s that number?

MB:

336-944-2132. Or you can go to CarolinaCraftLegal.com.

NP:

And give us that number again for people who are driving.

MB:

336-944-2132.

NP:

And those of you who are driving and crashed while trying to write the number, look back to our interview with Jim Nugent, one of the country’s premier personal injury car accident lawyers.

Today, we’re trying something different, and I have some reservations about the interview I’m doing today based on my inability to understand the man I’m going to interview. His name is Jimmy Vallee, and he’s with something called “Valhil Capital.” He occupies a very interesting place in the United States economy right now. He’s very involved in cryptocurrencies and believes that governments and central banks should consider using cryptocurrencies as a unit of exchange in the international marketplace, given the general collapse of the dollar and confidence in the dollar around the world. But I’ll let him tell that story.

First, welcome to Law and Legitimacy, Jimmy.

JIMMY VALLEE (JV):

Thank you, Norm. It’s good to be here with you.

NP:

I think we met, you and I, about four years ago down south somewhere, when we were both mistaken invitees to a Mensa conference, right?

JV:

Correct. It’s actually been about five or six years ago now. Can you believe it? I think that was in San Diego.

NP:

I’m surprised. I had to buy my way in, and then I had to pay people to attend. I attended your talk. It was standing room only, and Mensans were saying, “What was he talking about?”

So, when did you go to law school? Why law?

JV:

Law, or business, was my second career. I, actually, right out of high school, went and got an audio engineering degree and went to Los Angeles and was in the music and film business, not only recording records and mixing music, which was kind of my passion, but also doing post-production work for films. I kind of chased that around for a few years.

I ended up going to Nashville for about a year and doing the singer-songwriter circuit, Writers in the Round, played the Bluebird Café, Douglas Corner Café. All these, what are now, iconic places.

I didn’t know anything about business, but it actually ties into what we’re going to talk about. We knew a lot about technology, and we’re talking about the late 80s, early 90s at this point. We had access to the internet and were doing things, and we can talk about that later. But it really informed what led me down the current path I’m on.

I ended up moving back to Texas—

NP:

That’s where you’re from?

JV:

Yeah, I’m from Texas.

NP:

Did you leave your Texas twang aside for this?

JV:

I think between living in California and doing these transactions that I did throughout my legal career, where I spent a ton of time in New York and all over the world, really, I think it just went away. It got smoothed out.

NP:

I’m going to test your knowledge of American dialects. You are in the hotel, and you need to get a ride somewhere and the concierge says, “Can I get ya a cah?” Where are ya?

JV:

That sounds like Boston, kind of.

NP:

Alright. So, you’re traveling the country, and where did you go to law school?

JV:

I went to law school at Texas Tech. I didn’t really intend to go into law, but when I started going to college, I took my first accounting course, and it turns out I had this aptitude for capital structure, accounting. My grandfather was a banker. My uncles were accountants and lawyers, so I guess that was in my DNA, honestly. Whereas music really wasn’t.

I started when I was in college, really. I just threw myself into business. I enjoyed it so much, and I was reading books about it, things about Michael Milken and all that stuff that was happening in the corporate raider era of the 80s, junk bonds, all that. That high finance world really fascinated me. So, I really wanted—I was either going to be an investment banker or an attorney, but I knew I was going to do mergers and acquisitions. I really knew I wanted to do deals and be in board rooms and do that type of work. So I ended up—

NP:

And how old were you when you knew that?

JV:

I graduated college when I was 26. So, this is like 24, 25, probably.

NP:

And you knew all that then. How in the world? I mean, I’m not even sure now that I know what a merger and acquisition is. How did you figure that out?

JV:

It was really reading about it. It started with this love of business and then led into learning about business, which took me into reading biographical accounts of business things. I started learning about these deals that people had done, like “The Taking of Getty Oil,” “Den of Thieves,” and “Barbarians at the Gate,” about KKR’s takeover of RJR Nabisco. It fascinated me. There was something about it that really resonated with me deeply, and I’ve enjoyed the hell out of doing it, too.

Anyway, I ended up getting a scholarship. I got a scholarship to go to Texas Tech School of Law. It was a full ride. In fact, they paid me $4,300 a semester to go to law school, and I graduated number two in my class from undergrad. I think that had part to do with the scholarship.

NP:

Where did you go to undergraduate school?

JV:

I went to, as we call it, “Harvard on the Neches,” Lamar University in Beaumont.

NP:

Harvard on the Neches. It’s rare that I’m caught speechless. Every state’s got its Harvard, so now I know where Texas’ is. You were number two in your class, and you get a full ride to law school. You arrive at law school. What’s your first thought on the first day of class?

JV:

Uhhh.

NP:

Please, Jesus, get me out of here?

JV:

It scared the sh*t out of me because my first class was Professor Baker, who taught civil procedure, and he came down the stairs. It’s that amphitheater-type classroom setting. He came down the stairs with a 32-ounce tumbler of coffee and threw his stuff on the podium and said, “Mr. Pattis, give me the facts of blah, blah, blah.” I mean, that’s how class started. I crapped my pants. It was exactly like Professor Kingsfield from “The Paper Chase.” I had read “One L” and all that stuff in preparation for going to law school.

NP:

You’re talking about Scott Turow’s classic.

JV:

Yeah. The other thing was, and for you people who are thinking about going to law school, the assignments come out before school begins. It’s just one of these many things that they do to train you to think like a lawyer.

I show up, I don’t know, three days before class, just walking the halls or something, and I had already assigned—I had to read “A Civil Action,” which I didn’t even have.

NP:

Was that Jonathan Harr’s book?

JV:

Yeah. It was overwhelming from the beginning. That’s the first year of law school. First year, they scare you to death. Second year, they work you to death. And third year, they bore you to death. And that’s very accurate about my experience in law school.

NP:

What class stood out the most, is the one that you most enjoyed, or, in the alternative, that had the greatest influence on you?

JV:

There’s a couple. I took an international business transactions course with the dean of the law school, Frank Newton, who was great. He was an enigma type of a guy. I really enjoyed that, probably because he was the one teaching it.

I had a very good oil and gas law professor, Bruce Kramer, who had written all the treatises and hornbooks on oil and gas law in Texas. He’s a legend in oil and gas law, and he was very hard on us. I took it as a third year. You’re not supposed to be taking hard classes your third year, but I knew it was going to be on the Bar. The oil and gas law is on the Texas Bar.

I took it because I knew I was going to have to know it for the Bar. I really had no interest because of my family, actually. I had very little interest in being involved in oil and gas at that time. I wanted to be in the high finance world, the corporate transaction, public company-type stuff, public company M&A.

I can tell you the classes I hated the most were the classes I went to law school thinking I was going to like the most, and that was contracts and securities law. Securities law is mind-numbingly encyclopedic. It’s horrible. Just so rule and code-oriented.

Once you figure out the structure, it kind of opens up for you. Doing the work I’ve done, whether that be in the merging or using operation of law to create securities or issue securities, I very much enjoyed the designing of securities, which kind of ties into the stuff we’re doing now at Valhil.

But, yeah, studying it in law school was absolutely horrible. Contracts was horrible. I was halfway through the semester in contracts, and I was really wondering if I had made a mistake if this is what I’m going to do. We spent a lot of time on Article 2 of the UCC. Now, with the wisdom of being an older person and thinking about how it does really take you through the fundamental elements of offer and acceptance and consideration and remedies, about how you deal with nonperformance and all that, but going through it in law school was absolutely horrible.

NP:

We have that in common. I had a guy named Richard Kay, University of Connecticut. He had gone to Harvard Law School, and he taught with a chip on his shoulder. He wanted us to know he was the smartest guy in the room. He tried to make contracts sound erudite and, to me, it’s far from erudite. It is quotidian, meaning it is basic, common sense, and its permutations applied to all the things that can go bump in the night on a failed promise.

So, I’d watch him go up there and pontificate and this and that. He could never say hello without saying, “I’d like to introduce you to myself. My name is...” So, I zoned out. I’d usually bring something else to read, and I’ve got news for you, my grade showed it.

So, you endured law school, survived, and where did you go from there? Tell us about your career. You worked in big firms, Am Law 100-type firms.

JV:

Yeah.

NP:

So, you are the first—I wish we had the capacity to do a drum roll. I don’t know, do we, Mike? Because you are the first Big Law guy that we’ve had on Law and Legitimacy. Most everybody’s been a people’s lawyer.

JV:

That’s cool.

[Applause sound effect]

People, go back. I’m in New Haven. We just had 300 people try to storm the office. They’ve got signs out, “We want his autograph.” F*ck you. I’m here. You want his autograph, you’ve got to go to Valhil Capital. We’ll talk about that.

Tell us about your career, why large firms. I think I know the answer, but I want to hear it from you.

JV:

I wanted to do mergers and acquisitions, so when I was in law school, I was contacting - the other thing that informed where I ended up was because I had the experience in Los Angeles, I knew I really didn’t want to be in L.A. or New York. I had my practice in Texas.

NP:

What’s wrong with L.A. and New York?

JV:

Well, we don’t have to talk about that, but, you know, it’s just—I mean, we can.

NP:

No, I don’t want to cast aspersions to a couple PC sh*tholes. I just don’t want to do that. So, you wanted to stay in Texas.

JV:

I wanted to stay in Texas, so that kind of limited me, because of the work I wanted to do, to basically Dallas or Houston. I would call the big Texas corporate law firms—Baker Botts, Vinson & Elkins, firms like this—when I was in law school, and I’d tell them, “Hey, I want to be an M&A lawyer.” And they would tell me, “Yes, son, M&A is highly specialized. You should really just try to be a good corporate lawyer. If you become a good corporate lawyer, maybe you can do some M&A at some point in your career.” I’m like, “F*ck that. I want to do M&A.”

So, I end up clerking, like everybody does after your second year, and I clerked for a firm called Winstead, which is a Texas-based law firm. They’re out of Dallas, but they had a really robust Houston office as well, and they did a lot of middle-market M&A. They hired me into the group. So, that’s where I went. I started my career at Winstead in Houston when I graduated law school, and it was a really great thing.

NP:

How many lawyers in the firm?

JV:

They probably had 400 lawyers at the time.

NP:

Did you need a roadmap to find your office?

JV:

Well, we had this whole program. There’s the clerkship program. They had what they called a “PLA,” a personal liaison attorney who liaised with me. He got me to all my dinners with the partners and all that kind of stuff.

NP:

If I was going to get liaised, she’d have to be hot. I don’t want to be liaised by some guy.

JV:

That’s hilarious.

NP:

So, you got liaised by a guy in Big Law. We won’t talk about that. This is a family-oriented show.

JV:

Understood. And we shouldn’t.

NP:

So, what did you do there?

JV:

The first deal I worked on was basically like going to Navy Seal training for M&A. It wasn’t really that massive of a transaction. It was one of our clients, it was a small public company that was doing credit facility. They were doing a $250 million credit facility.

NP:

What does that mean?

JV:

They’re getting a loan. That’s the fancy way we say “loan.”

NP:

Yeah, you go to law school, and it takes you like three years. You can’t say “loan.” “Well, it’s a credit facility. That will be $912, please.”

JV:

You got it. That’s the gig. So, being the junior guy, they gave me what was a pretty pedestrian type of assignment. They were pledging the stock of their subsidiaries as the collateral for the loan, and my assignment was to prepare the secretary certificate. This is the type of thing paralegals do. It’s not a hard thing to do. But, I was preparing the secretary certificate for each of the subsidiaries. So, basically, sounds pretty easy.

NP:

Maybe to you. I’m having a heart attack here.

JV:

Well, to your business people who tune in, this is no big deal. But where it started to get complicated was, first of all, there were 82 subsidiaries, and they didn’t tell me that until after they gave me the assignment. But still, we had computers. It’s a copy and paste-type thing. Change the name. That’s what the partners were telling me.

But we were certifying each of these institutions, and each of these companies was certifying that these were their articles, these were their bylaws, and these were—

NP:

Okay, I get it now.

JV:

And that they can do the deal, saying that their equity can be pledged. I actually had to prove that up. I had to go do the diligence to actually support the fact that these were there, and those were attached as exhibits, you know, these were the articles. Still, this is not hard stuff.

What had happened, though, is that our client during the late 90s, when the equity markets were quite frothy, they had used their equity as consideration for a bunch of deals. They were rolling out a bunch of smaller companies, ma-and-pa-type companies using their equity. What I discovered in the first week was that a lot of the mergers and stuff that had been implemented to do the transaction had either never been filed, or things were going so fast that they never finished out the corporate paperwork.

So, in the first month of my practice, I did like nine mergers. By the time I got into month two of my practice, I knew so much about our client because of all this stuff. I just went to work round-the-clock until it all happened. I ended up writing the legal opinion on the issue because I knew more about—I had more experience with the due diligence and the materials than anybody else in the firm.

NP:

This is a really stupid question, forgive me. I warned you beforehand that I’d do this to you. What is a merger?

JV:

A merger is something that happens by operation of law. It’s a statutory recreated thing in the corporate statutes of each state. It is, effectively, combining the two entities. You’re kind of colliding them into each other. There’s one that’s declared the survivor.

It’s a magical thing. It is, because you can take that event of this collision of the two companies to basically redo all of their corporate materials. You can invent new securities in their articles of incorporation. You can have new bylaws. You can have a new board. You can have a new executive team. All these things kind of cascade out of this collision by operation of law.

And in most states—in Texas specifically, we’re very clear on this in our corporate statutes—when the merger occurs and the assets get moved, it happens by “operation of law,” and so there’s no assignment, there’s no transfer of the asset. So, for example, in a lot of contracts, you have prohibitions on assignment. You have prohibitions on transfer. So, this is a way, if the transaction is significant enough that a merger is warranted, this is a way to get around or legally blow through—

NP:

Yeah, avoid a lot of unnecessary complications.

JV:

Correct.

NP:

So, you hit the jackpot, then. You walked in and were given a nominal task that gave you the opportunity to do exactly what you wanted to, and it sounds like you were damn near close to being the captain of the ship within six weeks in a very significant transaction.

JV:

That’s basically what happened.

NP:

Man, oh, man. How did you engineer that? Who did you have to kill? Where are the bodies? Is that just luck or what?

JV:

Shockingly, it’s been my experience that most people don’t like to work that hard. And when you’re the junior guy, you know how the sh*t rolls, right? It wasn’t that—

NP:

No, no, Jimmy, you’ve never worked, maybe, in a boutique firm. I’m a small firm, and when we’ve got five lawyers, it’s a lot. In a small firm, sh*t flows uphill. I used to have white hair, and now it’s brown, and you can draw your own inferences about how that happened.

But, anyhow, you captained this deal, you’re a month out of law school, you repaid the debt for—Watkins was the name of the firm?

JV:

No, Winstead.

NP:

Winstead, sorry about that. I should have done better homework. How long did you remain at Winstead?

JV:

I worked at Winstead for a year and a month. Jones Day, probably the elite brand in Big Law firms, came to Houston sometime during my first year of practice, and one of the partners who I worked for for many, many years who was a great guy actually recruited me from Winstead.

I went to work at Jones Day in Houston in 2001. It was just after September 11th. Jones Day’s offices at the time in Houston were in Chase Tower, which is the tallest building in Texas. It’s 85 stories, so it’s the closest-looking thing to what one of the World Trade Center towers looked like. I remember one of the questions I was asking was, “Are you concerned about being up here?” because I think we were on 65. We had 65 and 68 floors.

Jones Day is a blue-chip law firm, a wonderful firm. They were a firm that all that reading that I had been doing in college and law school about these big firms that do these mega deals, they were one of those firms.

NP:

How long did you stay at Jones Day?

JV:

I was at Jones Day for about 12, 13 years. I made partner at Jones Day.

NP:

And you left. That’s amazing. That’s quite an accomplishment, to become a partner at one of the most prestigious firms in the world that’s doing the kind of deals you want. Why did you leave?

JV:

Well, you’re honing in now.

NP:

I’ve got the naked pictures. I just want to see if you’ll acknowledge them.

JV:

At the time, I was a young guy and pretty ambitious. We were experiencing another market phenomenon in Texas at that time. The shale revolution had occurred. We were extremely busy. If you had the aptitude to know oil and gas and know public company law, there were some really big opportunities for us to basically walk across the street, and that’s what I ultimately ended up doing.

NP:

You ended up, while at Jones Day, acquiring an expertise in oil and gas?

JV:

Yes. Right away at Jones Day, our clients were BP, Chevron, the really super majors. If you go back pre-2006, and I call that “pre-shale revolution,” the only companies that were doing the types of deals that could hire a Jones Day were the super majors.

There wasn’t a ton of M&A volume at that time. We were doing stuff like joint ventures between a Unocal and a Marathon Oil. I worked on a few import terminals for BP, LNG import terminals. These are massive infrastructure projects that take years and years to realize.

NP:

So, when you say “LNG,” do you mean “liquid natural gas”?

JV:

Yeah.

NP:

I’m just trying to break it down for listeners.

JV:

Another deal that we ended up working on, which was great and actually took six years to do, we represented Continental in its merger with United Airlines. When we started that deal, I was a fourth-year associate—it was in 2004—and when we signed it, it was 2010 and I was a partner.

NP:

What year did you leave Jones Day?

JV:

I left Jones Day in 2013.

NP:

You say you walked across the street as though I’d know what that means. What does that expression mean?

JV:

That meant I went to work for a competitor. There was another fantastic firm, Paul Hastings, and I worked there. When I was at Jones Day, you could say there’s that pre-shale period, where it was just the super majors, and then there’s the post-shale period, where I’d say Wall Street and private equity arrived on the scene.

NP:

I want to stop for a minute. The shale revolution. You’re from Texas. You know oil and gas. Most of us aren’t and don’t. So, what constituted the shale revolution?

JV:

It really traced back to—there was a businessman out of Houston named George Mitchell who had a company called Mitchell Energy. Basically, by the 80s and 90s, the oil and gas business in America is very mature. There’s not a lot of action happening. Mr. Mitchell, who was a great person in our community, developed The Woodlands, which is north of Houston. He did a lot in Galveston. He was a philanthropist. He was a business tycoon, a massive real estate developer, and he was a really great guy.

He had some property in what became known as the Barnett Shale. It was up around the Fort Worth area. His petroleum engineers had a dream that they could actually unlock what they called “source rock.” If you think about oil and gas being under the ground, there’s all this strata of rock that basically keeps the hydrocarbons down deep in the ground, which is where they drill down to.

Shale rock is such that they couldn’t figure out how to unlock the natural gas from it because it would become mud and collapse. When they would put fluids down there, it would just collapse on itself, and it would keep the hydrocarbons compressed and captured down there.

So, they went to work on this combination. They had two technologies. One of them was horizontal drilling. Most wells, up until that time, were what we called conventional oil and gas, and they were just drilled vertically. You drain the reservoir. It’s just a straight up and down thing.

But what they had was the ability to drill down and then start turning the drill bit and going horizontally. They were using that technique, and then they started working in what they call “hydraulic fracturing,” which is applying liquids of some type and fracturing the shale.

NP:

Is that fracking, basically?

JV:

Yeah.

NP:

Okay, I think I get that. So, you helped organize that in terms of financial markets? Was that your role?

JV:

I want to say Mitchell finally successfully does that in the late 90s. It didn’t really take off in the capital markets, in the corporate world, until the 2006, 2007 timeframe. In the years leading up to the financial crisis is when this takes off.

So then guys like me, M&A-type guys, started doing all these corporate transactions for companies that were either acquiring oil and gas properties, or they were developing the midstream infrastructure to bring those hydrocarbons to market, you know, supply lines and gathering systems and things like that. So, that’s what we started doing.

NP:

You wrote a book about your experience in gas and oil and energy. I think it’s called “Giant Shifts: Energy Trends Reshaping America’s Future.” When did you write that, and why did you write it?

JV:

I published that in the spring of 2017. The reason I wrote it was, it kind of tracks back to—I told you I was either going to go into investment banking or law, and I got the scholarship which pushed me into law. But I always had this desire to really be in business. I wanted to be a businessman, either in private equity or investment banking, and be a principal in the deals. So, because of my upbringing, my family was involved in the oil and gas business going all the way back to Spindletop.

NP:

And the death of the first dinosaur that said, “I’ll be back”?

JV:

Not quite that far.

NP:

But a while.

JV:

A while. So, I had that in my background and the transactions that I ended up doing in the corporate space. I thought I had some things to share with the world about the way the oil and gas business worked, certain efficiencies, certain regulatory challenges that we had.

NP:

Now, ironically, you wrote that book and you ended up leaving oil and gas, didn’t you?

JV:

Not really. Not completely.

NP:

But you left Paul Hastings, right?

JV:

I did leave Paul Hastings. I briefly went to work for another firm, as a partner, called Winston and Strawn. Valhil Capital, I actually started back in 2006, and it was my family investment vehicle.

NP:

So, let’s talk about that. You now work as the managing partner at Valhil Capital, correct?

JV:

Right.

NP:

What is Valhil Capital?

JV:

Valhil is a family investment firm where we are basically managing the balance sheet of my family. My father was a Vallee and my mother was a Hill, so there you go. That’s the name. But we’re involved in private equity. We have a commodities trading business. We have a fitness business. We have a construction business. It’s kind of a broadly dispersed thing.

NP:

How many employees do you have there at Valhil?

JV:

With all the portfolio companies, it’s probably 50.

NP:

Good grief. So, are you practicing law any longer?

JV:

Not really. I still read a lot of contracts and comment on them, but I don’t bill hours anymore.

NP:

So, you’re now full-time at Valhil?

JV:

Correct.

NP:

When did that happen?

JV:

We announced to the world that I was going to go do that on October 1, 2020.

NP:

Were you scared?

JV:

Oh, yeah.

NP:

What were you afraid of?

JV:

Well, obviously, there’s a rhythm to life as a corporate lawyer that works at a big firm. There are the accoutrements of success, and as a real professional for over 20 years of doing that, that’s what I had done. So, the thought of taking that leap and having the underlying cash flows and assets start to support me was scary. It was a leap of faith.

NP:

What does it mean to say it’s a private equity firm? What does that mean?

JV:

We invest in private transactions. We’re not a public company.

NP:

So, you don’t have shareholders or a board of directors or that kind of thing.

JV:

We have partners. We do have investors. When I describe this as a family office versus traditional private equity, a traditional private equity is a group of individuals who sit at the general partner level that then raise a series of funds from their limited partners. They go take those funds and invest in businesses that the management team and the general partner know very well, whether it be oil and gas or consumer products or technology, whatever their fund is supposed to go do.

They basically raise a bunch of money from third parties, and then they go out and invest that money. That has its own regulatory requirements and landscapes, especially after the Bernie Madoff scandal that happened in connection with the financial crisis and the Dodd-Frank regulations that came out. Now to do that, when you’re managing third-party money, you have to be a registered investment advisor. There’s a whole—

NP:

You can only take accredited investors, people who are presumably able to absorb the risk and have been notified of the risk and so forth. Are you saying that you don’t have the same strictures in a private equity context?

JV:

We don’t, because we don’t manage third-party money. We’re investing our money. So, when we have “investors” or partners in our deal, they’re right alongside us directly in the deal. We’re not managing their money. We’re making money on—you’ve heard the thing about the carried interest, in traditional private equity—

NP:

Tell our listeners what carried interest is.

JV:

That is taking the capital that’s put in by your third-party investor, and then once that money comes back to the investor, the profits are then shared between the private equity principals and the investor. So, you’re basically making money off of their money.

NP:

Got it. It’s not a bad place to be.

JV:

It’s fantastic. And I’m not saying we won’t be there eventually. I’m just saying that’s not what we do right now.

NP:

Valhil Capital has a real interest in cryptocurrencies. That was the real reason I wanted to have you on. I’m fascinated by cryptocurrencies. What is a cryptocurrency?

JV:

Cryptocurrency, the easiest way to say it, is a unit of value that moves on a network. It’s a little package of value that’s moving on a particular network and moving value from me to you and you to somebody else. I actually try to use the term “digital asset” more. But the crypto comes from—there’s an encryption process because, basically, what they call “blockchains,” these networks, are viewable by anyone. So, anybody that has the requisite skill can look at these networks and see the details of the transaction.

You have to encrypt pieces of the transaction. Like, it’s Norm, and it’s Norm’s wallet that’s at this IP address. Those types of details need to be encrypted so that they’re not discoverable unless the other party has the cipher to solve the encryption.

NP:

How big a deal is this blockchain technology? Do you think it’s going to transform the way business is done?

JV:

We do.

NP:

Tell us why. Now, as I understand it, I want to break it down. I have some inchoate understanding, not yours, but I think that there’s the problem of a trusted intermediary. One of the reasons that banks have become popular and necessary is that we use various currencies, and according to Mann’s treatise on the legal aspect of money, money is a unit of account. It’s a measure of value. It’s a medium of exchange. And fiat currency is what the government issues and banks manage well.

Banks serve as a clearinghouse for that, and we trust them. But in the course of doing so, banks make a lot of money because there are transaction fees, there are delays, and there are regulatory hurdles in the form of such things as know-your-customer regulations and whatnot. If you wanted to send me X amount of dollars to do some work for you, it might take three or four days to get there, and the bank is taking its fee, so the cost of your retaining me is up by that fee.

The blockchain I get. I remember when Bitcoin and Satoshi Nakamoto’s paper was published. I remember all the hope that there was going to be digital anarchy, you know, information wants to be free, and Bitcoin was going to change the world. And I thought, “I don’t know about that.”

Why is there more than one digital currency? Do you care to add anything to that sort of sketch of the blockchain?

Because I think what the blockchain is intended to do is remove the intermediary and remove the problem of a trusted intermediary. Because it’s distributed network over many computers, those with authority or the ability to read it can do it. We can confirm one another’s work without the need for banks. Am I reading that right?

JV:

Generally, that’s pretty accurate, but there’s more to it. I think we’re at a moment in time with blockchain technology where people focus too much on the coins, the price of the coins and that type of thing, and even start to think about it from an “Oh, we get to”—there’s a Libertarian-type ethos to it. “Oh, we’re going to get rid of all these banks and all this stuff.” And that’s just not the way I like to think about it or the way we even think about it.

NP:

It’s also unrealistic. I mean, we have governments for a reason. We may not like them, but these institutions are time-tested, and we rely on them to have some expectations to make civilized life possible. I don’t think we’re going to be able to get rid of banks with the turn of a digital switch. I mean, if we do, maybe you’ll tell us how.

JV:

Maybe that’s later in the talk. This is really about use cases of this technology. You’re kind of talking about one part of it, which is the middleman part, the banks making fees and all that type of stuff. But, really, this is about making payments at the micro level as efficient as possible, removing friction from the system of moving value back and forth between people anywhere in the world.

Here’s the type of thing that I think. Right now, I think it’s around two billion people or something like that that are unbanked. They don’t have access to a bank. These are farmers in Africa, this type of stuff. But they trade in mobile minutes. So, they’ll farm their cocoa beans or something like that, and they have cell phones and will trade in mobile minutes.

NP:

I don’t know what that is, a mobile minute.

JV:

It’s time, time on the phone.

NP:

Okay, okay. Got it.

JV:

It’s not unlike airline miles or something like that. It’s things that exist in their own little ecosystem that have value. So, how do you get someone like me to do business with someone like that, where even if I wanted to give them a thousand dollars, there’s no way for me to give them a thousand dollars? But I may want to transact with them, and they may want to transact with me. It’s just that I got to get them these mobile minutes.

So, that’s where these digital assets come in. They make it possible for me to put my dollars into the ecosystem and have this farmer take mobile minutes back out of it. There’s a transfer of value in the “currency” that each of us operates in in our daily lives. And, suddenly, there’s a whole new trade link that just developed because of that.

So, the way we focus our blockchain business and our investment activities, it’s almost like we’re plumbing. Seriously, we are putting these traditional businesses on these new and improved payment rails. You’ve got to start establishing the relationship based on that payment rail versus sending fiat currency, sending a wire. Once you get two people who can agree to transact in a certain other alternative value, we can still move the fiat money. It's just happening super fast and super efficient.

NP:

So, has Bitcoin met its promise or the hype? There was so much hype initially. I know you’re keen on Ripple. So, tell us why Ripple, what’s the difference between Ripple and Bitcoin, why Valhil Capital is all in on Ripple? I think you’re all in on Ripple. I may be wrong on that.

JV:

I’d say from a digital asset-that-we-hold standpoint, XRP—

NP:

That’s how Ripple trades, right, yeah.

JV:

Yeah. XRP and Ripple are two different things. XRP is the native digital asset that travels on the XRP ledger. Ripple is a company that basically is looking for use cases for XRP. They’re really different.

NP:

Okay.

JV:

I think it’s important because I think a lot of people think about XRP almost like Ripple’s stock or something like that.

NP:

I do, yeah. That was a mistake I just made.

JV:

That’s not what it is. XRP was not even really issued by Ripple like a stock is. We can get into all that, but it’s not important to this conversation, I think.

So, you asked about Bitcoin. Satoshi’s paper, which is brilliant, birthed this industry. Bitcoin was set out to become a payment solution. The protocol that Bitcoin uses is called “proof of work.” That is these computers that we call “miners” basically hashing out to solve the problem, solve the equation, and then once they do, they publish blocks to the chain.

NP:

And are given coins in exchange.

JV:

It’s slow, and it costs money. So, to be a micropayment-type solution of which it set out to be, Bitcoin has already failed in that mission, and all proof of work will fail in that mission. The nature of the protocol is too energy-intensive. I’m not even trying to say the energy is consuming because there’s a lot of different ways to do that, but it’s too hard, basically, to be a micropayment solution.

NP:

Or, as you put it the other moment, there’s just a lot of friction in the system.

JV:

Right. So, here we are going off in this digital asset world to resolve all the friction, and this is an asset that really has a bunch of friction.

NP:

So, how does Ripple avoid that, or XRP?

JV:

The XRP ledger is on a consensus. The protocol is called “consensus.” All of the XRP was created at its inception. So, the 100 billion XRP was created at inception and basically put onto the network. So, there is no mining to be done to create a token. The tokens are there.

And the consensus protocol operates a little differently, a lot differently, from proof of work. As it goes through its problem solving, it needs a majority of the networking validators to agree that the thing has been solved, and that’s what’s getting published.

NP:

And it seems to do so almost instantaneously. How does it do that?

JV:

It’s moving at the speed of electricity. It’s moving at the speed of light, anywhere in the world that’s connected on the network.

NP:

Now, Valhil Capital believes, and you believe, I think, that XRP has a potentially fundamental role with respect to central banks, that there should be a central bank digital currency and XRP might be it. Am I right about that?

JV:

That’s right.

NP:

Make the case for that. Tell us about that. Why?

JV:

If you start to conduct due diligence on these different protocols and you really dig into it, it doesn’t take long until you learn about all of the partnerships between Ripple and the central banks and the test cases that the central banks are using XRP. There’s others. XLM is up in there. It’s talked about as a potential solution as well.

There is an overwhelming amount of due diligence documentation among the central banks. They’re coming right out and telling you they’re using it. We’ve had Qatar; you mentioned the Bank of England. Ripple’s on the Digital Pound Foundation to do their CBDC. The central banking system is moving to central bank digital currencies. That is happening. They’re all publicly saying they’re doing it.

So, then you’ve got to say, “What is the asset to facilitate them doing so?” Now, think about the merger we talked about. Right now, Qatar has their central bank digital currency and the UK has theirs. We’re talking about two separate networks that have their own currency on the networks. If they try to talk to each other, they can’t talk to each other. They are not the other.

It’s exactly what’s happening in the fiat world today. The central bank of the UK has the pound, let’s say, and China has the yuan. They have to keep accounts of each other’s money in their own banks so that when they send the transaction to China, China can basically take that amount of pounds. These are called nostro vostro accounts.

NP:

What are they called?

NV:

Nostro vostro. All of these central banks basically have a whole bunch of currency in the group that they will actually permit to be trading partners. There are a lot of countries, the G7 countries, that won’t even trade currency with Peru or something. I don’t know if that’s one. There are smaller countries that don’t have access to the main central bank.

NP:

How does XRP improve this situation?

JV:

XRP is an interoperable asset. You can basically put your pound in and get the yuan back from the other side. You can put your dollar in, and the African farmer can get his mobile minutes. It’s a completely interoperable—it’s a bridge asset, is what it is. It’s a neutral bridge asset. You can basically apply value on this side of it, and it will deliver that same amount of value out the other side in the currency that that receiving party wants to deal in.

NP:

Is it a security?

JV:

No, it’s not a security. I don’t believe it’s a security.

NP:

You talked a little bit earlier and I meant to ask that, so I thought I’d save it to the end. What is a security? Apply this to a famous Supreme Court case. The Howey Test. How does the Howey Test define it?

JV:

That part of security is something called an investment contract. If you read the Howey Test, it’s about—if an investment contract, then a security. Now, there are other securities. There’s debt and equity instruments that aren’t “investment contracts.” Howey basically applies the Howey analysis. I think it’s four parts. It’s common enterprise, relying on the work of others, investment of money with the expectation to receive a profit.

I tell you, Ethereum is a security because their protocol, their network, did not exist. They sold Ethereum into the market and took those proceeds to then build the network. The holders of the Ethereum bought that. They invested in that with the expectation that once the network was built, they would then be able to sell that into the secondary market and receive a profit.

NP:

How is it the SEC is not all over Ethereum and they’re tangling with Ripple?

JV:

Now you’ve really asked the question, haven’t you?

NP:

I have.

JV:

No one knows why that’s the case.

NP:

There is the whiff of corruption, and an SEC Chairman finagled that on the way out the door. Gave himself a goodbye kiss. I’m not going to ask you to comment on that, because God only knows the regulators start asking you questions. They won’t, I’m confident of that.

So, Ripple, central banks. How realistic is it to assume that a central bank will use Ripple as a medium of exchange replacing the dollar?

JV:

XRP.

NP:

XRP. Thank you. I keep making that mistake.

JV:

We’ve already seen announcements from several central banks that they are using RippleNet and working with Ripple to basically develop their own central bank digital currencies.

NP:

Wow.

JV:

At Valhil, we believe this is a foregone conclusion. It’s just being revealed to the world. They’ve got to make sure everything works properly before they issue their central bank digital currencies. The Bahamas has one. They have the Sand Dollar, which is their CBDC.

NP:

Didn’t Bhutan, the Royal Monetary Authority of Bhutan, just move into XRP?

JV:

Yeah. You’ve got Bhutan, you’ve got Qatar, which basically is the Middle East, and then you’ve got London now.

NP:

When’s the Fed and the United States going to make that decision?

JV:

China already issued their digital yuan. Their central bank digital currency has been out since, I think, March or April. It’s already been distributed to a ton of citizens. There’s millions and millions of dollars in digital yuan out there. So, you asked the question, “Is it going to happen?” Literally, every country in the world except for the United States has already said it’s happening.

NP:

So, what’s our problem here, Jimmy?

JV:

I don’t know.

NP:

Is it a failure of imagination?

JV:

Well, look, this gets into monetary policy, it gets into the fact that the world uses the dollar. The dollar is the world’s reserve currency right now.

NP:

Yeah, but that’s changing. People are groping for something else. It’s no longer going to be a unit of accounts as the American economy reaches a semi-tipping point. I can’t imagine China would be happy with a world in which the dollar remains the unit of account. We need an alternative.

JV:

Well, I think they’re already—China has already struck the deals with Iran, with Russia, Saudi Arabia to start dealing in hydrocarbons and using the yuan. There are a few countries that have opted out of the dollar system.

NP:

Can I take a few more of your minutes? I told you I’d take an hour, and I just did. And of course, Valhil Capital is billing me the nominal rate of $20,000 an hour for this. So, I’d ask for a little consideration as we wrap it up here.

Tell me, what do the next five years look like in terms of digital currency and the Federal Reserve, let’s say, in the United States?

JV:

We’re moving at warp speed. I don’t think people really understand how fast this is all happening. Even Chairman Powell has been coming out. They’re working on the digital dollar, this US CBDC right now. It could be out by the end of this year.

NP:

The end of 2021? We’re in October, for goodness sakes.

JV:

Right. It could be the end of this year or the very first quarter of next year.

NP:

I’m not reading about this in the press. Why?

JV:

It’s there, but mainstream media is not covering it.

NP:

And is Valhil Capital on it?

JV:

What do you mean, “Are we on it?”

NP:

Is this a focus, a primary focus of Valhil Capital, to make sure that your investors are heard in this forum?

JV:

Yes, we have actually proposed a transaction with the Fed to do a deal in XRP.

NP:

Really?

JV:

Yeah.

NP:

How’s that going? I don’t want to jinx the deal. Maybe we shouldn’t talk about it. I don’t want to announce the wedding until she says, “I do.”

JV:

Correct.

NP:

Thank you for sharing that. I really don’t want to jinx something that you’re working on. What does the future hold? How old are you, Jimmy?

JV:

I just turned 51 yesterday.

NP:

Well, happy birthday.

JV:

Thank you. Appreciate that.

NP:

On Mike’s standards, you’re long in the tooth. By mine, you’re a spry youth. Ten years from now, what is Jimmy Vallee doing?

JV:

I have a feeling I’ll be in a lot of board meetings for our companies that we’re building right now, which are going to be these next-generation energy companies or tech companies or media companies. We are so excited. We go to work every day completely feeling like we’re taking over the world, and it’s a super fun thing to do.

I imagine at that point in time, 10 years from now, we will have made a lot of wealth for the firm and our investors. I see myself at that point in time as kind of a global citizen, living in the ether and not really in a jurisdiction. More of a sovereign individual type of a thing.

NP:

A digital Warren Buffett. That’s what I’m hearing.

JV:

A digital Warren Buffett. There you go.

NP:

We never even got a chance to talk about non-fungible tokens. Maybe some other time. Jimmy Vallee, I’m impressed. I hope my listeners are, too. Are you available for public speaking or for interviews? And if so, how do people find you?

JV:

Yeah, obviously, we’ll do some interviews from time to time. They can reach out to [hidden email].

NP:

That works. Jimmy Vallee, thank you for sitting with Law and Legitimacy. I think this is the second time we talked. When I met you at Mensa, I was so intimidated. Now, I’m even more intimidated. I’ll confess to our listeners, I followed about 85% of this and did what I do with most complex things in life; I bluff through the rest.

Check out Jimmy’s book. I learned a lot reading it years ago: “Giant Shifts: Energy Trends Reshaping America’s Future.” I think what I heard Mr. Vallee tell us is that there’s a digital world that’s going to reshape our future as well. I’ll be keeping an eye on Valhil Capital and Jimmy Vallee, and you should, too. Thanks for listening to Law and Legitimacy.

And remember, if they’re knocking on your door and they got a badge, there’s only three words you need to know, “Get a warrant.” Thanks for listening to Law and Legitimacy.