Remember Paulson & Co’s investment in Sino-Forest? One of the less than stellar trades that helped contribute to 2011 being an annus fucking horribilis for the hedge fund? Got a former investor named Hugh F. Culverhouse all riled up, shouting about “gross negligence” and “failure to properly monitor” the situation and making claims that it was clear no one at P&C bothered to perform any due diligence on the company, because if they did, “the Paulson companies could…have foreseen Sino-Forest’s problems?” Things actually worked out for JP&Co on this one. Read more »
Lawsuit Claiming Banks Worked Together To Fix Libor Dismissed Because Banks Were Supposed To Work Together To Fix LiborBy Matt Levine
I’ve occasionally pointed out that one problem with the antitrust Libor lawsuits is that the allegations are mostly “the banks lied about Libor in order to trick each other about their creditworthiness and/or screw each other on some swaps trade,” so it’s hard to claim that they were all working together in a big antitrust conspiracy. But Judge Naomi Reice Buchwald, who mostly dismissed a batch of Libor lawsuits on Friday, has an even better objection, which is that even if it was a conspiracy, it was supposed to be a conspiracy:
[T]he process of setting LIBOR was never intended to be competitive. Rather, it was a cooperative endeavor wherein otherwise-competing banks agreed to submit estimates of their borrowing costs to the BBA each day to facilitate the BBA’s calculation of an interest rate index. Thus, even if we were to credit plaintiffs’ allegations that defendants subverted this cooperative process by conspiring to submit artificial estimates instead of estimates made in good faith, it would not follow that plaintiffs have suffered antitrust injury. Plaintiffs’ injury would have resulted from defendants’ misrepresentation, not from harm to competition.
As Judge Buchwald points out, in a delightfully sensible 161-page opinion, antitrust violations require a competitive market that can be subverted by a conspiracy. Here, there was no competitive market to subvert, and the injury that the plaintiffs suffered – manipulated Libors – could have come as easily from individual bank manipulation as from a grand conspiracy. Normal markets don’t work that way: if I just decide to charge you twice the going rate for my product, and no one else does, that tends not to work. If I submit twice the real rate for my Libor, and no one else does, that kind of still works, though I guess it works better if everyone joins in.
So, so much for antitrust. Read more »
George Soros will be the first to be quizzed by lawyers in his battle with former mistress Adriana Ferreyr, a judge ruled yesterday. The billionaire will be deposed by the end of July. Also to be quizzed is Soros’ new fiancée, Tamiko Bolton, on Sept. 27 — which could interfere with their planned fall wedding. While Soros didn’t attend the Manhattan hearing, Ferreyr sat with her attorney William Beslow and stared down Soros’ counsel Gary Stein. Ferreyr is suing Soros for $50 million, claiming he promised her a $1.9 million apartment but gave it to Bolton. [NYP, earlier]
The antitrust lawsuit against all the big private equity firms, accusing them of colluding with each other to drive down prices on LBOs in the 2003-2007 boom, was always a bit of a puzzler. On the one hand, there were lots of emails between private equity firms that they’d probably like back, to the effect of “hey thanks for not bidding on my last deal, hope you enjoy my not bidding on your next deal!” On the other hand, the lawsuit was sort of a mess, full of hazy accusations, unsupported conspiracy claims, and the sort of unfalsifiable tin-hattery that sees occasional fierce bidding wars between private equity firms as just a cunning cover-up of their conspiracy not to bid against each other.
Plaintiffs persistent hesitance to narrow their claim to something cognizable and supported by the evidence has made this matter unnecessarily complex and nearly warranted its dismissal. Nevertheless, the Court shall allow the Plaintiffs to proceed solely on this more narrowly defined overarching conspiracy because the Plaintiffs included allegations that Defendants did not “jump” each other’s proprietary deals in the Fifth Amended Complaint and argued in response to the present motions that the evidence supported these allegations. Furthermore, the Court concludes that a more limited overarching conspiracy to refrain from “jumping” each other’s proprietary deals constitutes “a continuing agreement, understanding, and conspiracy in restraint of trade to allocate the market for and artificially fix, maintain, or stabilize prices of securities in club LBOs” ….
And so he ruled today on a summary judgment motion, getting rid of most of the crackpottery but letting the plaintiffs go forward on the claim that the private equity firms had an agreement not to jump each others’ deals after they’d already been signed. Read more »
Guy Who’s Short Herbalife Says Guy Who’s Long Herbalife Saying Guy Who’s Short Herbalife Saying Herbalife Is A Fraud Is A Fraud Is A FraudBy Matt Levine
One day Herbalife will either be put out of business by consumer-protection regulators or it won’t. If it is then Bill Ackman will make a lot of money and Carl Icahn will lose a lot of money, and if it isn’t Ackman will lose a lot of money and Icahn will make a lot of money, and in the meantime everyone will shout that everybody else should be investigated.
That’s proceeding apace. Ackman yesterday:
In a statement late Tuesday, Pershing Square Capital Management’s Ackman said that he was pleased that the NCL was requesting an FTC investigation and believes it will show that the company is a pyramid scheme.
We regret that the National Consumers League has permitted itself to be the mechanism by which Pershing Square continues its attack on Herbalife. If anything, it is Pershing Square that should be investigated by appropriate authorities. Its actions are motivated by a reckless $1 billion bet against the company based on knowingly false statements about Herbalife.
Now Herbalife may or may not be a pyramid scheme but I’ve always thought that demands to investigate short sellers are unfair and one-sided. People who say mean things about stocks they’re short are always accused of manipulation. People who say nice things about stocks they’re long – which happens all the time – are rarely accused of market manipulation.1
Maurice “Hank” Greenberg, the former American International Group chief executive, has more than doubled the size of his class-action lawsuit against the United States over the insurer’s bailout to roughly $55.5 billion from $25 billion. In an amended complaint filed late Monday in the U.S. Court of Federal Claims, Greenberg’s Starr International Co said it is now seeking damages over Maiden Lane III LLC, a vehicle designed to rid banks of toxic debt underlying transactions with AIG. The claims are in addition to claims that Starr previously asserted over the government’s taking of a 79.9 percent stake in AIG in September 2008, which was eventually swapped for 562.9 million common shares. In the amended complaint, Starr said it is seeking to recover, on behalf of shareholders and the company, $23 billion over the government’s 79.9 percent stake, plus as much as $32.5 billion of collateral it said was given away through Maiden Lane III. It is also seeking unspecified damages related to AIG’s 1-for-20 reverse stock split in June 2009. [Reuters]
If you own stock in a company that announces it’s being acquired, and you think the acquisition price undervalues the company, there are three things you can do about it: you can vote down the deal, you can find or propose an alternate deal, or you can sue. No I’m kidding of course you can’t do any of those things: you don’t have enough shares to vote down anything, you don’t have the money to propose something else, and you aren’t a plaintiff’s lawyer (are you?) so you aren’t in the business of suing companies, which turns out to be the sort of specialized skill you can’t just acquire in a fit of pique. Those are the tools, but they can only be wielded by specific people.
Steven Davidoff has a delightful piece in DealBook today about the state of the M&A lawsuit market and it is sobering reading:
[L]ast year, 92 percent of all transactions with a value greater than $100 million experienced litigation. The average deal brought five different lawsuits. In addition, half of all transactions experienced multi-jurisdictional litigation, typically litigation in Delaware and another state.
Left out of that description is what percentage of last year’s mergers were agreed to by lazy corrupt self-dealing boards of directors who were putting their own interests above those of shareholders. I submit that it’s strictly between 0 and 92%.
Take the recently announced buyout of Dell. There are already 21 lawsuits pending in Delaware Court of Chancery, and three more pending in Texas state court.