A scheme funded by New Zealand taxpayers netted billionaire Peter Thiel tens of millions of dollars while his publicly funded investment partner barely broke even.
The partnering of Thiel's Valar Ventures and the Government-owned New Zealand Venture Investment Fund (NZVIF) was launched by minister Steven Joyce in March 2012, nine months after Thiel took his oath of citizenship at the New Zealand consulate in Santa Monica.
Joyce said at the time the venture was "part of the Government's comprehensive business growth agenda", but a Herald investigation has discovered the arrangement was quietly ended in October when Thiel activated a generous buyback option allowing him and his private partners to claim all profits from the venture by cheaply buying out his public co-investor.
Valar and Thiel did not respond to questions about the buyback this week, and have also declined to comment after numerous requests from both local and international media about the wider issue of his Kiwi citizenship.
A Wall St analyst told the Weekend Herald the clause left the Government facing a "horrendous risk-return proposition" that had no place in agreements between commercial parties.
"If a professional investor signed this deal, they would be the butt of their colleagues' jokes all the way out the door," the analyst said.
"This is a clear 'heads I double win, tails I lose', 'heads the taxpayer loses, and tails the taxpayer loses' proposition, and a very savvy deal for Thiel."
This assessment is echoed by Auckland-based Castlepoint Funds partner Stephen Bennie, who said he would leap at the chance to sign up to a deal if a partner offered such a clause.
"You'd take it. And obviously a fairly smart guy did. Thiel didn't need to be asked twice," Bennie said.
The play appears to have left Thiel with an investment worth least $30 million after contributing just under $7m. The NZVIF, by contrast, confirmed in a statement to the Weekend Herald that it received just $10.2m following the October move after having earlier contributed $9m.
Labour Party immigration spokesman Iain Lees-Galloway said the revelation raised questions about both the competence of the Government when negotiating with commercial parties and the rationale for awarding Thiel citizenship in 2011.
"This looks like a terrible deal for New Zealand. No one can blame Thiel for seizing an opportunity to make an awful lot of money at very low risk. It's very easy to look like an amazing investor when you've got people like Steven Joyce prepared to give you a sweetheart deal like this," Lees-Galloway said.
Finance Minister Joyce, who was Minister for Economic Development at the time the Valar partnership was signed and operated, was asked if the buyout option represented a good deal for taxpayers.
"On the face of it, no," the minister said.
Joyce said he had inherited the settings for the NZVIF, including the buyout clause, and suggested Lees-Galloway direct his criticism elsewhere.
"If he's got a problem with it -- and I don't argue with him that he should -- then he needs to go back and talk to the Labour ministers at the time  who set this up," Joyce said.
Thiel was granted citizenship in June 2011 by then-Internal Affairs Minister Nathan Guy under a rarely used "exceptional circumstances" clause, largely on the basis of promises that he would invest in and help grow small New Zealand technology companies.
Joyce said he had met Thiel only once, at a seminar at Auckland University, and only exchanged pleasantries while both were on stage. He said he had never discussed any investment or citizenship plans and was made aware citizenship had been granted only when news of it broke in the Herald a fortnight ago.
The Citizen Thiel saga is rapidly becoming an international embarrassment for the Government, with London's Financial Times placing the unfolding story on its front page earlier this week.
The existence of the buyback option, described by a Wall St source as having exposed the Government to a "horrendous risk-return proposition", meant Thiel was able to cheaply acquire the NZVIF's share if the investment performed well, but share losses equally if it failed.
The NZVIF said the buyback option had been a standard part of its investment partnership since 2002 and was intended to encourage private-sector involvement.
"Rather than making an investment return, NZVIF's primary role has been to develop market activity, participation, awareness and capability," a spokesman said.
But the use of the buyout in this case represents the first -- and probably only -- time the clause been activated. Treasury reports as far back as 2013 flag its use by Valar as a "near-certainty", and in 2015 the Government directed it be avoided in future contracts.
Joyce said this decision came after he became concerned that a successful fund would see the private partner receive "the lion's share of returns".
"I discouraged them from applying it in future. And they haven't applied it since," he said.
Valar Ventures' deal with the NZVIF has long been shrouded in commercial secrecy, with its precise book of investments the subject of much speculation in technology and financial circles.
The Herald pieced together the partnership's structure, and conservatively estimated its positions through disparate disclosures in public and corporate documents and interviews with those familiar with details of the funds operation.
Despite claims at the time of launch that Valar Ventures would invest $40m in local technology companies, it ended up committing only $18m -- the bulk of which went towards accumulating shares in the NZX-listed cloud accountancy software company Xero.
Thiel had, prior to the partnership, bought into the cloud accountancy software firm and he continues to hold a separate stake. According to the company's share register, various entities controlled by Thiel own a combined 5.64 per cent stake in Xero valued in excess of $150m.
Xero's founder and chief executive, Rod Drury, wrote a letter in 2011 supporting Thiel's citizenship. He said Thiel's investment in, and championing of, his firm had been instrumental in Xero's success.
During the period Valar Ventures was buying up the company's stock, its share price soared from $3 to as high as $45, making the Xero-dominated fund extremely valuable. By mid-2016 its stash of Xero shares was worth $43m, representing the vast bulk of the fund's value.
It remains unclear where the buyout leaves Valar Ventures' New Zealand adventure.
Thiel wrote a letter to Internal Affairs officials considering his citizenship application saying he incorporated the limited partnership after meetings with senior Government figures John Key, Bill English and Gerry Brownlee.
He said it was intended to be "dedicated exclusively to funding and aiding New Zealand technology companies".
He appears to have invested in only one new local company -- point-of-sale software firm Vend -- since being made a New Zealander.
Valar's current website contains no mention of New Zealand, but plenty about recent investments in South America. Its current listing on the Standard & Poors business directory says the firm retains an international outlook.
"The firm seeks to invest outside of United States, focusing on Brazil."