Matt Levine

Posts by Matt Levine

A while back Oppenheimer & Co. let some people trade illegally in some penny stocks and today they got in mild trouble for it, settling with FINRA over charges of selling unregistered securities, inadequate supervision, and inadequate anti-money-laundering compliance programs. Oppenheimer agreed to pay a $1.4mm fine and hire a bunch of stop-doing-that consultants to tell them to stop doing that.

The FINRA complaint is mildly amusing; its list of “red flags indicating that there may have been sales of unregistered securities1 that should have prompted further inquiry” includes “the customer had walked into a branch office with share certificates of thinly-traded securities for deposit.” Not in 1920, I mean, in 2008: a customer “carried into the Newport Beach office and delivered into his new account share certificates for 255,000,000 and 500,000,000 shares of NBVG.” I just love that image for its old-fashioned solidity; I’ve entrusted my entire life savings to some bits floating around the internet but this guy was hauling around paper stock certificates. Worth, apparently, hundreds of millions of pennies!2 Read more »

  • 05 Aug 2013 at 12:18 PM

Everyone Thinks Everyone Else Is Manipulating Herbalife

There are puzzling reports that Bill Ackman has been complaining to the SEC about George Soros’s investment in Herbalife, claiming that “Soros’ firm broke insider-trading rules by tipping hedge funds about its purchases” at “idea meetings.” You might remember Bill Ackman as the man who called a big press conference to tell everyone that he was short Herbalife and they should join him. There was PowerPoint! It was like eight hours long. I suppose some people traded on it though I also suppose they regret it.

So what’s his problem? I do not understand this at all. The allegation of insider trading is particularly weird; as far as I know no one has any obligation to keep their share ownership – or plans to buy more shares – secret. A cynic might say that the business of fundamental equity fund management consists mostly of telling people about your positions, which is why CNBC exists. It’s also why Ackman’s Herbalife drama exists; one irony is that if he had not called that press conference he probably would never have baited Carl Icahn into becoming Herbalife’s biggest proponent. Should have kept it to an idea meeting! Read more »

  • 02 Aug 2013 at 4:27 PM
  • M&A

Dell Pretty Sure That This Time It’s Figured Out This Merger Thing

Did you fly to Round Rock today to vote on Michael Dell and Silver Lake’s buyout of Dell? No, you did not, even I can’t keep up that fiction any more. By my count this is the third same-day cancellation of the special meeting but everyone’s figured out the game by now. Dell will eventually actually hold a shareholder meeting, but no one will come, which will be awkward except not really because nobody really comes anyway. The proxies come, that’s what matters.

Anyway today’s cancellation was because Dell signed a whole new merger agreement, under which: Read more »

Poor Fab, but it could be worse. Michael Lewis has a heartbreaking, enraging story in Vanity Fair about poor Sergey Aleynikov, the former Goldman programmer and current Dostoyevskyan holy fool who was sentenced to federal prison for eight years for stealing computer code from Goldman, won a complete victory on appeal, was released, has lost his life savings, and is now being prosecuted under state law just because Goldman, or someone, but probably Goldman, really hates him. It is troubling stuff not least for Lewis’s clear implication that a jury trial may not be the best way to arrive at the truth regarding complex financial-technological questions. E.g.: Read more »

  • 01 Aug 2013 at 5:58 PM
  • M&A

Even Carl Icahn Wants To Wrap Up This Dell Thing

Carl Icahn’s ideal literary genre may be the press release – or, possibly, the tweet – but sometimes you want to write at length and filing a 25-page complaint in the Delaware Court of Chancery gives you that luxury. Plus I guess some lawyers to write it, but the complaint Icahn filed against Dell today is pretty Icahn-y, in that it is full of colorful language and doesn’t seem to be all that connected to any, y’know, legal theory. Basically he’s mad at Dell’s board for offering to move the special meeting on the merger to September, so he’s suing to stop them from doing it, even though they haven’t done it. And his theory is that, by moving the special meeting and the associated record date, Dell is putting more votes into the hands of merger arbs, as part of its nefarious plan to convince long-term shareholders to sell by talking down the stock. I found this passage downright poetic: Read more »

Poor Fab! I, for one, was utterly persuaded that he didn’t commit securities fraud by sending an email that he admitted was “not accurate” but not “false,” but the significance of that distinction seems to have eluded the jury:

A federal jury found former Goldman Sachs Group Inc. trader Fabrice Tourre liable for misleading investors in a mortgage-linked deal that collapsed during the financial crisis, delivering a historic win for a U.S. regulator eager to prove its mettle inside the courtroom.

The panel of nine jurors reached their verdict during the second day of deliberations, finding Mr. Tourre liable on six of seven claims that he violated federal securities law. … Mr. Tourre, who left Wall Street to pursue a doctorate in economics, may face a fine and a ban from the securities industry.

I think it’d be a shame to deprive the securities industry of Fab’s financial-structuring creativity and proclivity for sending embarrassing emails, but as we’ve established I’m in the minority here. Read more »

  • 01 Aug 2013 at 11:44 AM

Bond Rating Agency Decided To Try To Rate Some Bonds

What does a AA credit rating mean? The intuitive answer is something like “it means that the rating agency rating the thing thinks it has a probability of default no higher than X% and no lower than Y%,” where X and Y are the boundaries of AA- and AA+ respectively, and sure, that’s about right. But there’s an important loophole there which is that each rating agency can set X and Y to be whatever they want. I can make AA a ~1% probability of default, and you can make it ~20%, and no one can tell us who’s right and who’s wrong, because it’s just some letters, y’know? There’s no a priori relationship between those letters and any particular probability of default.

That seems sort of odd, so Congress in the Dodd-Frank Act directed the SEC to look into standardizing the relationship, and the SEC looked into it, and in 2012 they came back to Congress and said no dice. Because basically everyone – ratings agencies but also issuers of and investors in bonds – preferred the current non-standardized system where ratings agencies just rate bonds however they want.1 Read more »

I think we can all agree that the Dell board’s latest proposal to its buyout group – to up the price from $13.65 to $13.75, not change the voting rules, but move the vote to mid-September, with an August record date – is a bad idea. I mean I’m sure we can’t all agree on the substance, but just, September? Do you want to be reading about this in September? Sheesh. Carl Icahn has some Herbalife craziness to attend to; let’s wrap this thing up.

The Dell board is in a really weird place, no? It has decided that the thing that is in the best interests of shareholders is to sell to Michael Dell and Silver Lake for $13.65 per share. Shareholders have mixed feelings about the matter, but a majority of them agree, though only a plurality of the shareholders not named Michael Dell agree.1 The board now, in its more or less absolute discretion, gets to choose between: Read more »