Lawsuits

  • 09 Feb 2012 at 5:13 PM
  • Banks

The Mortgage Settlement Is Fine

By Matt Levine

When people who hate banks and love homeowners are full of wild rage about this here mortgage settlement, and when people who love banks and hate homeowners are full of equal and opposite rage, that is pretty good evidence that the mortgage settlement is sort of meh and compromise-y and not that interesting, so let’s not talk about it. Oh, fine, let’s. You could go read all sorts of explanations and FAQs and diagrams and “top n things to know” (n = 3, 5) but I will give you a list of only one most important thing to know about it, which is that it will not reduce my mortgage so it’s all just noise. When will politicians start sticking up for me?

There is one sort of interesting thing that is probably most cogently explained here: Continue reading »

  • 16 Dec 2011 at 5:42 PM

Maybe The SEC Decided To Throw A Trial So It Can Go Back To Settling Everything

By Matt Levine

I try to be honest when telling you that a court complaint or SEC filing or research paper is a fun read, just in case you might go read it, though of course there’s no accounting for tastes and I may enjoy many things that you don’t.* And that’s okay. In any case I doubt anyone will find the SEC’s fraud complaints against Fannie Mae and Freddie Mac filed today all that fun to read. “Very, very boring” would be more like it. The only bits that I enjoyed were the names of some of the loan programs, including Freddie’s “Touch More Loans” and the Fannie/Countrywide joint effort “Fast and Easy” which, boy, different times.

But there are some fascinating things about the case. A small one: I was kidding when I said “complaints against Fannie Mae and Freddie Mac.” They’re complaints against former Fannie CEO Daniel Mudd, former Freddie CEO Richard Syron, and a handful of their executives. The SEC signed weird neither-admit nonprosecution agreements with Fannie and Freddie themselves, in which the GSEs agree to help the SEC make its case against their former bosses.

This all seems like very good PR. You are learning, SEC. The neither-admit-nor-deny thing might be awkies, but slapping a big fine on the taxpayer-funded GSEs wouldn’t make a whole lot of sense. And the people who are upset that the SEC are not going after big names connected to the financial crisis have to be happy about the fact that the SEC here is going after the CEOs of big entities that in most people’s minds are intimately connected to the cause of the financial crisis. Suing them is not quite as good as throwing them in jail, but the SEC can’t do that, and this is a start anyway.

The bad news is that the SEC’s case sounds just absolutely terrible. Here it is: Continue reading »

  • 15 Dec 2011 at 3:28 PM

Don’t Even Entertain The Thought Of Serving Jon Corzine With A Lawsuit While He’s On His Break

By Bess Levin

As you may have heard, today is Jon Corzine’s third day testifying in Washington about the whole MF Global thing. All morning and this afternoon have been devoted to questioning by the House Financial Services Committee, with a couple of the standard 15 minute recesses sprinkled in. In fact, there was one not too long ago. You know what Corzine uses his break time for?  Grabbing a snack. Shooting the breeze.  Taking a piss. Watching YouTube clips. Telling himself “You, got this, Jon,” in the bathroom mirror. You know what he doesn’t use it for? Being served with papers from some messenger boy on behalf of some jerk trying to sue him. Thinking about testing him on this? DO SO AT YOUR OWN RISK. Continue reading »

  • 28 Nov 2011 at 3:11 PM

Surely The SEC Is Sick Of Going To Court By Now?

By Matt Levine

A lot of legal issues look like substantive things but are actually things about what institutions can and want to do. Obviously more people want to think about questions like “should the U.S. have universal health insurance?” than about questions like “does the Anti-Injunction Act bar lower federal courts from reviewing the individual mandate until taxes are collected in 2014?,” but judges tend to get into the latter question. That’s why they’re judges. That difference can make judicial decisions sort of hard to interpret.

Today everyone’s favorite federal judge, Jed Rakoff, surprised few but pleased many by beating the ever-loving crap out of the SEC’s settlement with Citigroup, in which Citi had agreed to pay the SEC $285 million in exchange for the SEC not asking too many questions about its synthetic CDO deals that were maybe not so hot. Here’s the gist of it:

Applying these standards to the case in hand, the Court concludes, regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest. Most fundamentally, this is because it does not provide the Court with a sufficient evidentiary basis to know whether the requested relief is justified under any of these standards. Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt, the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.

Here, the S.E.C.’s long-standing policy – hallowed by history, but not by reason – of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations, deprives the Court of even the most minimal assurance that the substantial injunctive relieve it is being asked to impose has any basis in fact.

Right on! But also maybe just a little disingenuous. Judge Rakoff was not being asked for “substantial injunctive relief,” not really. It looks like that on the surface, in the sense that (1) the SEC and Citi worked out a deal where Citi gives the SEC money, promises not to violate the securities laws again, and agrees to do some remedial stuff like telling its salespeople to stop peddling synthetic CDOs structured by the protection buyer without telling anyone because somehow that is still a problem; and in the sense that (2) the SEC was asking Judge Rakoff to enshrine that agreement in an injunction. And then, if Citi didn’t keep its agreement – by not doing the remedial things, say, or by violating the securities laws again – the SEC could go back to court and say “hey, Citi violated the injunction” and Judge Rakoff could hold Citi in contempt and fuck. it. up. Continue reading »

  • 21 Nov 2011 at 4:26 PM

Hank Greenberg Wants To Know Why His Bailout Was So Much Crappier Than Everyone Else’s

By Matt Levine

The complaint in Hank Greenberg’s lawsuit against America is now online, and strange and entertaining in equal measures. I’m pretty sure Occupy Wall Street will be interested to hear his theory that the Constitution allows Fed bailouts of struggling financial institutions, but requires those bailouts to be much gentler than the one handed to AIG.

There is some sensible stuff here. Greenberg’s suit makes good use of the SIGTARP report finding that the government didn’t exactly conduct hard-nosed negotiations with AIG’s CDS counterparties. Instead, it bought off the assets covered by CDS at par (even though some of the counterparties might have accepted a haircut), tore up the CDS contracts, and waived any claims AIG might have against those counterparties. And the description of how the government avoided and ignored legal requirements to get a shareholder vote to authorize new shares for the government, and kind of maybe lied about it a bit in disclosure documents, is kind of interesting for shareholder-voting nerds, of whom there are about five and I am one.

But that’s all just a political smoke screen: lots of people are good and mad that the government funneled too much money through AIG to Goldman Sachs or Deutsche Bank or whatever, but pretty much zero of them think that money should have gone to Hank Greenberg instead. And lying in disclosure documents, like insider trading, isn’t a crime if the government does it.

Greenberg’s case really boils down to two claims. First is the constitutional argument that the bailout-in-exchange-for-equity was unconstitutional because “everyone else got a no strings attached bailout, so we should have gotten one too.” And “everyone” included “Libya”:

Throughout the global financial crisis, the Government allowed many domestic and foreign institutions access to the discount window. … [D]iscount window loans peaked at about $110 billion at the end of October 2008. Foreign banks borrowed approximately 70% of that amount; for example Dexia SA of Belgium borrowed about $33 billion; Dublin-based Depfa Bank, Plc, subsequently taken over by the German government, received approximately $25 billion; Bank of Scotland borrowed $11 billion; and Arab Banking Corp., 29% owned by the Libyan Central Bank at the time, received 73 different loans. Wachovia also borrowed $15 billion, and numerous investment banks were also granted access. At no time did the Federal Reserve Board require that it be given control of, or an equity stake in, these institutions. … If AIG had been given similar access to the Federal Reserve’s discount window or other sources of liquidity like these other institutions, AIG would easily have met its liquidity needs.

Well, okay. Maybe! The legal theory of “the constitution requires that anything you give to Libyans you have to give to me” is a bit untested – if true, I am planning to assert my Constitutional right to call down air strikes on my enemies (who are legion). Continue reading »

  • 21 Nov 2011 at 11:47 AM

Hank Greenberg Estimates If The Government Had Minded Its Own Damn Business Back In ’08, AIG Would’ve Been At Least $25 Billion Ahead Right Now

By Bess Levin

Remember September 2008? Remember how American International Group was doing in September 2008? Kind of not so hot? Maybe needed the government to front it some cash to the tune of $85 billion? Maybe needed even more money after that, even though they swore they just needed that one hit, just to get them by? Maybe would’ve been- how to say this?- fucked, if not thrown a bone? Well Hank Greenberg’s been thinking about September 2008, for a while now, and what he’s concluded is that as an AIG shareholder, he was screwed, big time. And, the window of opportunity for apologies being long closed, he figures the only way he can be made to feel better about the situation is for the US to cough up $25 billion. At least. Continue reading »

  • 14 Nov 2011 at 4:30 PM

MF Global Employees Not Going Down Without A Fight

By Bess Levin

They see your firing and raise you a $25 million lawsuit. Continue reading »

  • 07 Nov 2011 at 10:23 AM

Hedge Fund Founder Sued For Telling Employees How He Really Feels

By Bess Levin

One of the most difficult and important part of being a hedge fund manger is the constant need to come up with new, outside the box ideas. This is, of course, crucial specifically with regard to investment ideas but also just generally, there is the never-ending pressure to maintain freshness in all matters of business. For instance, keeping employees motivated, hungry and on their toes. If you’re Don Brownstein, you (allegedly) “walk around a crowded conference room table while slapping the palm of [your] hand with a baseball bat, stopping behind traders while stating ‘The only way you can leave this firm is in a body bag.’” If you’re another luminary of the investing world, you go with white board markers as a means of positive or negative reinforcement, one marker good, two markers bad, respectively. If you’re John Duffield, who is being sued by a former employee for bullying, you suggest that the staff you employ does not act in compliance with the law and wonder aloud a) how they can look themselves in the mirror and b) whether or not they have any remorse for disappointing you, ’cause they should. Continue reading »

  • 03 Nov 2011 at 2:09 PM

If He Could Turn Back Time…If He Could Find A Way

By Bess Levin

In 2003, things were going pretty well for Todd J. Remis. Great, even. The equity research analyst had left Warburg Pincus Asset Management to found Hygrove Partners LLC, he was living the good life in New York City and he’d recently married Latvia native Milena Grzibovska. The wedding was an intimate affair that included less than 40 guests and took place at Castle on the Hudson in Tarrytown. A proud husband, Remis sent a photo of the happy couple to his alma mater for inclusion in its newsletter, for all his former Bowdoin College classmates to see.

Fast forward six years, and things were going less swimmingly for Todd. For starters, the Chicago Booth grad’s marriage had hit the skids, with a separation in 2008 and an official divorce by 2010. Additionally, he was unemployed, having been laid off or fired from his job at Legg Mason’s ClearBridge Advisors. And with that kind of loss and time on his hands, Todd wanted nothing more than to sit around looking at photos of memories past, specifically of the day he married Milena. Only Todd couldn’t do that, could he? At least not in the way he wanted to, which was by going through the photos chronologically, very beginning to very end, from Milena getting dressed to the bouquet toss to the last dance, laughing, crying, wiping his tears with each shot, laying down naked on a pile of them scattered on the bathroom floor and remembering how he felt that day. The reason he couldn’t do that? Because someone FUCKED Todd, good and hard. And the more Todd thought about it, the more he decided that he had to make that person pay. Continue reading »

  • 27 Oct 2011 at 6:28 PM

Federal Judge Wants To Know Why SEC Is Only Charging Citi 1/5th As Much As It Charged Goldman For Ripping Off CDO Investors

By Matt Levine

If the SEC really wanted to reduce the chances of embarrassing itself, besides better Internet monitoring software it really ought to look into filing securities lawsuits outside of New York. Every bank is incorporated in Delaware and does all of its activities everywhere – surely they could find a CDO investor in California. But the SEC keeps suing in New York, they keep drawing Judge Rakoff in the suspiciously random assignment system, and he always goes and does this:

A federal judge has raised questions about why he should approve the government’s $285 million civil settlement with Citigroup, suggesting that he is skeptical of the pact. … He posed nine questions to the parties, including how a fraud of this nature and magnitude could be the result simply of negligence. The judge also asked why the court should approve a settlement in a case in which the S.E.C. alleged a serious fraud but the defendant neither admits nor denies wrongdoing.

They’re good questions, including “Why … is the penalty in this case less than one-fifth* of the $535 million penalty assessed in SEC v. Goldman Sachs … ?” And you do get the sense that most other judges wouldn’t have bothered with them and would skip straight to “wow, that’s a lot of money, willing buyer willing seller, I’ll approve the settlement.”
Continue reading »

  • 17 Oct 2011 at 6:10 PM
  • M&A

Delaware Judge To Goldman: Here, Let Me Re-Do That Fairness Opinion For You

By Matt Levine

A thing I liked about being a banker, but that made me consistently terrible at managing my PA, was that in banking you don’t really get paid to be right about things. Nobody made any money telling AOL and Time Warner that maybe they’d be better off on their own. Instead, your job is telling a persuasive story – a story that often ends with “so that’s why you have to [buy this company][sell your company].” You tell that story with DCFs and PowerPoint and steak dinners, but ultimately all the numbers and charts are aimed not at objective reality but at persuasion. And the easiest way to make a story persuasive is to tell people what they want to hear.

It is, however, possible to take that concept too far. Fairness opinions are a troublesome example. Nobody in the real world believes all that much in fairness opinions, but banks actually take them pretty seriously because they represent in a vague and highly caveated way a bank’s conclusion that the price paid in a merger is (within a wide range of) “right,” or at least somehow connected to objective reality. This is a hard mindset to get into when your day job is basically persuasion, and you can expect some slips every now and then.

Here, for instance, is a useful tip for any junior analysts: this is not what a DCF looks like:
Continue reading »