Lawsuits

This lawsuit is mostly about the (alleged!) unapologetic Antisemitism of Knight Capital managing director Brendan Joseph McCarthy, which former employee and plaintiff Robert Morris Milloul claims caused him and others to lose their jobs in the algorithmic trading unit of the firm; we don’t need to summarize the allegations but we did think it was important to highlight the motivational technique he was said to use around the office. Read more »

If you had to pick a current or former Wall Street CEO to be your father-in-law, it stands to reason that Dick Fuld would have to be close to the bottom of your list, yes? Lloyd, obviously, would be a delight. Vikram would probably be fun, too. Something about Jamie just seems very pal-y, father-in-law-ish, once you get past him letting you know he’ll take you out in the middle of the night, no questions asked, no finger prints left behind if you ever do anything to hurt his child. Brian Moynihan would finally loosen up and stop being awkward around you circa your 20th anniversary. Hank would probably be slightly scary but in a good way. Someone who gets into “physical altercation[s]” with fans of the opposing team at a children’s hockey game is probably not a guy you want to sit across from at Thanksgiving or play squash with after he’s figured out you can “earn points by hitting your opponent with the ball when he/she is between you and the front wall.” And looking down the line, it stands to reason that Dick Fuld would definitely be close to the bottom of your list of candidates for ex-father-in-law, yes? Aaron Packles knows what we’re talking about. Read more »

  • 14 Jun 2013 at 5:02 PM

Bonus Watch ’12: Bank Of America

Bank of America Corp., the second-biggest U.S. lender, rewarded staff with cash bonuses and gift cards for meeting quotas tied to sending distressed homeowners into foreclosure, former employees said in court documents. Mortgage workers falsified records and were told to delay U.S. loan-assistance applications by requesting paperwork that the Charlotte, North Carolina-based bank had already received, according to statements from ex-employees filed last week in federal court in Boston. The lender improperly disqualified applicants to the Home Affordable Modification Program, or HAMP, according to a May 23 statement from Simone Gordon, a loss-mitigation specialist who left the company in 2012…Loan collectors who put at least 10 customers into foreclosure, including those who were in trial modifications, were given a $500 bonus, said Gordon, who worked at Bank of America for more than four years. Other rewards included gift cards for retailers including Target and Bed, Bath and Beyond, she said. [Bloomberg]

There’s an alternative theory of the 2007-2008 financial crisis in which it was just a minor hiccup that would have worked out fine for all concerned if the meddling U.S. government hadn’t been so trigger-happy in bailing out basically sound but momentarily embarrassed financial institutions.1 I mean, you probably won’t actually run into anyone who believes this theory, because it is a pretty loony theory. And yet! It keeps coming up in court, which I guess means the courts are full of loonies, QED.

Obviously Hank Greenberg is the most vocal and delightful proponent of this theory, since he’s been suing the government for ever and ever for taking over AIG when AIG actually would have been just fine with a little eleven-digit low-interest loan from the government. But Fannie Mae and Freddie Mac shareholders have come on strong of late, with weird lobbying for re-privatization of their shares and, now, a lawsuit filed yesterday seeking $41 billion in damages over their bailout.

The theory here should be familiar if you’ve been following along with AIG; it goes something like this: Read more »

So that’s nice. Read more »

Fundamentally if you’re a sell-side M&A banker your job is to find a buyer and get them to overpay for the company you’re selling. I mean, oh, you know, you’re a repeat player and reputational concerns and continued business relationships and all that militate against getting them to overpay too much. But mostly, the more they overpay the better you’ve served your client. Also, though, those reputational things etc., plus lots of fraud laws, militate against getting buyers to overpay by deceiving them about stuff relating to the company you’re selling. You can’t, like, just go forge financial statements. That’s cheating, and not in an admiring hahaha-you-got-me way. In a jail way.

So what’s left? One thing you can do is gently deceive them about the competitive dynamic. This might seem a little silly – if you’re buying a company, shouldn’t you be carefully determining its fundamental value rather than just bidding a penny more than whoever else is in the auction? – but in fact a lot of the M&A function is pretty much exactly that. You set up an auction, you demand confidentiality, you forbid bidders from talking to each other, you don’t tell them each others’ bids, you don’t announce to the world when a bidder has dropped out, all with the goal of creating the appearance of more competition than there is. When the bidders share too much information about their bidding plans with each other, you sue them. If a possibly viable but spivvy bidder comes along, you encourage them to stick around and throw out big numbers, just to keep the other bidders on their toes. “Yes, Carl Icahn, please, tell us more about your plans to buy our company,” is a sentence you might find yourself saying. You don’t outright lie, but you do your best to create the impression that your particular fertilizer-byproducts company is the prettiest girl at the dance or whatever the going metaphor is.

Or just do this: Read more »

Here’s a fun Libor lawsuit: the ghost of problematic former hedge fund FrontPoint is suing the Libor banks for (1) selling FrontPoint some interest-rate swaps and (2) manipulating Libor in a way that hosed FrontPoint on those swaps. Here is the complaint and here is Alison Frankel on the legal issues, which are interesting and which we can talk about a little below.1

Up here let’s talk about the trades that FrontPoint (and Salix Capital, which now owns these claims) is suing over. They’re interest rate swaps, of course, where FrontPoint received Libor, and where Libor was systematically manipulated lower by banks looking to enhance confidence in themselves by showing lower funding costs. But those swaps were part of a larger negative-basis package trade where (1) FrontPoint bought bonds (funded at a spread to Fed Funds), (2) FrontPoint bought CDS from a bank to hedge credit, and (3) FrontPoint entered into a swap with the bank to hedge interest rates. Schematically, when everything cancels, it looks like this:

If you asked FrontPoint what the trade was they might say “we are betting that the negative basis in these bonds will converge, making the bonds worth more relative to the CDS,” or alternately, that they would just ride the trade to maturity, getting paid that negative basis, and “earn a risk-free return by buying and selling the same credit exposure via alternative instruments in different markets.” That’s what the trade is primarily about: that orange thing in the lower-right-hand corner labeled “(Basis).” Read more »