Lawsuits

It’s no surprise that more Liborneriness is coming to a bank near you; with Barclays and UBS already pretty much having admitted wide-ranging Libor manipulation and Deutsche Bank seeming to be next up for a roasting. Maybe some people will go to jail, and certainly some more banks will pay fines, but also certainly those fines will be very very very small compared to the potential lawsuits. Because there are eight hundred quazillion dollars of Libor-referencing contracts, and if you screwed them up then in some loose theoretical way you owe money to everyone who got screwed without having any offsetting claims against anyone who benefited.

Now the US legal system being what it is the lawsuits long preceded the evidence of manipulation and there’s a big mishegas of a Libor lawsuit that’s been going on for years in New York. This suit looks a little quaint now, being based on the theory that all the banks got together in a room, smoked cigars, rubbed their hands together, and agreed to lower Libor for some unspecified nefarious purpose. Now we know that they all worked against each other to lower and/or raise Libor for a variety of clearly specified nefarious purposes,* until the crisis hit and they all started working independently to lower Libor for clearly specified and maybe public-spirited purposes. And the banks will tell you that themselves, in their motion in the case filed last week:

Plaintiffs themselves cite as the primary motive for the alleged false reports a desire by Defendants to hide their supposed financial weakness from each other and the public, which would naturally call for circumspection by such banks, not discussion and agreement among them.

See? We would never work together to manipulate Libor – we’re too sneaky for that. We’d prefer to lie to each other, too. Read more »

If you knew nothing about Phil Falcone but what you read in the SEC’s assortment of complaints against him today, you would probably conclude that he’s kind of a dick. The loan thing, of course – Falcone borrowed $113mm from Harbinger at the same time he was preventing investors from withdrawing their money – but also a whole range of new and exciting charges announced today. Like that time he got mad at his prime broker and so bought 113% of the issue of a bond that the prime broker was short, and then called in the prime broker’s borrow to screw them (and gloated to them about it). Or the time – sorry, three times – that he shorted stock of companies that were doing equity offerings and then illegally covered his short with his allocation in those offerings.

Robert Khuzami is right about the marvelous variety and inventiveness of Harbinger’s scammy ways, but lots of people do lots of bad things on Wall Street. It’s just that usually their victims are either diffuse markets (insider trading) or widows and orphans (Ponzi schemes etc.) – it’s rare to spend so much time screwing so many big institutions. And it’s maybe even rarer for the SEC to stick up for those institutions.

Start with the thing that’s gotten the most attention so far: the loan that allowed Falcone to take $113mm out of his fund when investors were not allowed to redeem. How did no one tell him that that was a bad idea? Well: Read more »

And as promised, Falcone will be fighting the charges. He wants to “borrow” $113 million from his clients that’s his business and nobody else’s. The defense rests! [Earlier]

Oh you can try a lawsuit but, historically speaking, it won’t do shit. Read more »

If you want to buy a company you can do it in one of two ways: you can negotiate a merger with the board, put it to a shareholder vote, and if you get above 50% then all the other shareholders are basically forced into the deal and you pay the merger price. Or you can buy shares, typically in a tender offer, and if you get above 50% then you … sort of own the company. But not exactly, because there are still other people who own 49%. And, generally speaking, those other people don’t like you.

Today some of those other people are suing Carl Icahn because (1) he owns about 80% of independent refiner CVR Energy, (2) they own about 20%, and (3) he is being kind of mean to them. Specifically, after tendering for the company and buying most of the shares at $30, he’s been taking advantage of the fact that no one really wants to be a minority shareholder in a controlled company by buying more shares at around $27.50.*

Some of those minority shareholders want to stop him doing this, claiming that “Once any genuinely independent board of directors learned of Icahn’s scheme, such a board would have adopted a poison pill to stop Icahn from making any more open market purchases unless and until the Board was able to negotiate a cash-out merger that provided the Company’s remaining shareholders with fair value.” And so they’re suing to force Icahn’s board to adopt a poison pill and prevent him from buying at market prices. That is strange: Read more »

Got an unhappy employee (or former employee) on your hands who’s decided to channel his or her anger by penning an Op-Ed in a major publication detailing egregious acts being committed at your firm and/or going to the Feds with allegations of fraud? Not sure how to handle the fallout? Why not take a page from Donald Trump’s playabook? He found himself in a similar situation with regard to Sheena Monnin, a first-year Miss Pennsylvania who “resigned her crown” over the weekend, claiming that the Miss USA pageant is “rigged.” Here’s how Don dealt with the matter and how anyone thinking about taking a more hands-on approach to dealing with disgruntled employees might too:

Threaten to sue.

“We’re going to bring a lawsuit against this girl,” Trump, who co-owns the Miss Universe Organization with NBCUniversal, told NBC’s “Today” show co-anchor Ann Curry on a phone interview; he used similar language in a phoner with George Stephanopoulos on ABC’s “Good Morning America.”

Read more »

It did not take long for plaintiffs’ lawyers to realize that there was good money to be made by complaining about the Facebook IPO – there are at least two class actions against the company and underwriters so far, not to mention other class-action lawsuits against NASDAQ for screwing up trades.

The securities-fraud lawsuits are the bigger tickets; the one filed in New York today claims $2.5bn in losses though I guess that number is down slightly today. The legal theory here is that Facebook lied in its prospectus, which would entitle buyers in the IPO to “rescission,” that is, to the right to hand their shares back to Facebook in exchange for the price they paid for them. This is a problematic theory in that the only lies that the plaintiffs point to are along the lines of: Read more »