Tags: ABACUS, ACA, Goldman Sachs, Lawsuits
Everyone knows the story of Abacus 2007-AC1 by now: Goldman Sachs sold some mortgage-backed-security CDOs to some people, and those people thought that the underlying mortgage-backed securities were chosen by an outfit called ACA Management to be Good, but in fact they were chosen by Paulson & Co. to be Bad, and they turned out to be Bad, and that was Bad. The SEC sued Goldman over it, and Goldman settled for $550 million, and then everyone else sued too because they had been lied to about who picked the mortgage-backed securities (Paulson, not ACA) and why (to fail, not to succeed).
Among the people who sued was ACA, whose role in the transaction was (1) pretending to pick the underlying RMBS and (2) issuing a financial guaranty policy (to Goldman) referencing the super senior tranche of Abacus. That tranche more or less went poof, and ACA ended up owing $840 million to Goldman (though, really, ABN Amro paid the $840mm, and Paulson got it).1 Since ACA was in the business of writing terrible financial guaranty policies, it blew right up and ended up paying only $30 million. Then it sued Goldman for the $30 million back, plus punitive damages. ACA’s claim is that, while it knew that Paulson had selected the underlying RMBS, it thought Paulson was net long Abacus, because Goldman schemed and lied, and that it wouldn’t have insured Abacus if it’d known the truth about Paulson’s position.
Yesterday ACA lost when a New York appellate court dismissed its case. The court split 3-2, and the opinion is short and pretty weird; basically the majority says “it doesn’t matter that Goldman lied to ACA about Paulson’s position, because ACA should have kept asking until it got the truth,” which is a funny law.2 The two dissenting judges seem to have rather the better of it.3
Still the result seems right. Read more »
Tags: Andrew Cader, Annabelle Bond, child support, Goldman Sachs alums, hedge fund managers, Lawsuits, Steel Partners, Warren Lichtenstein
Time was, Warren Lichtenstein and Annabelle Bond, pictured at left, were the best of buds. Now? Warren might not even take a gander at the photos Annabelle has spent a lot of time and effort posing for. Read more »
Tags: Bloomberg, CFTC, Futures, futurization, Lawsuits, swaps
I confess that I have not followed the swap-futurization thing closely but my assumption was that the politico-regulatory view was:
- Swaps are evil instruments of financial instability and fraud and should be discouraged, and
- Listed futures are mostly harmless.
I mean, look around. Swaps blew up AIG, Oakland, Monte dei Paschi, the U.S. housing market, whatever. Futures just blew up those old guys in Trading Places.
You can have various objections to this preference for futures,1 but surely the most compelling is that swaps and futures are to some reasonable approximation the same thing. They’re just delta-one exposures to some underlying quantity; calling them a “swap” or “future” doesn’t matter economically.
That, anyway, is Bloomberg’s line of argument: Read more »
Tags: AIG, dogs in peril, Hank Greenberg, Lawsuits, Snowflake
Insurer American International Group Inc has asked a court to block Maurice “Hank” Greenberg’s efforts to sue the U.S. government on AIG’s behalf, saying its former CEO has not proven he should have the right to do so. Earlier this year, AIG drew sharp criticism from members of Congress and an outraged public when the firm considered the possibility of joining Greenberg’s lawsuit, which challenges the terms of the insurer’s $182.3 billion bailout by the federal government in 2008. AIG said Greenberg had forced its hand in even deliberating the prospect, but that ultimately it did not want to sue anyway amid a public backlash. Absent AIG’s participation, Greenberg is pursuing a derivative claim, seeking to sue the U.S. government on AIG’s behalf over the terms of the $182.3 billion rescue. Greenberg and his company Starr International, which owned 12 percent of AIG before the rescue, are also suing the government directly.
Tags: Cerberus Capital Management, Dodd-Frank, Hedge Funds, Lawsuits, Lisa Marie Vioni, RMBS, whistleblowers
My favorite financial news story of 2013 so far might be the Reuters story last Friday about how NYSE and Nasdaq each listed more IPOs than the other during the first quarter. A normal human might find that odd: listing an IPO is the sort of thing that you tend to notice and keep a record of, so you could pretty easily just add up the IPOs you listed and compare. But to a banker, it’s obvious that everyone would claim, with some sort of semi-plausible justification, to be first in every league table. In fact the explanation is perfectly, almost paradigmatically natural: Nasdaq excludes REITs, spin-offs, and best efforts deals.1 I remember when I used to exclude REITs! Excluding REITs is, like, 20% of what a capital markets banker does.
A deep tension at the heart of the financial industry is that it attracts a lot of quantitative logical evidence-oriented people and then puts them to work in essentially sales roles, and a lot of what it sells is unsubstantiated mumbo-jumbo. You wrote your senior thesis on geometric Brownian motion in the prices of inflation-linked Peruvian bonds from 1954 to 1976? Great, go make a page telling clients why Bank X is so much better at underwriting commoditized debt deals than Bank Y. Or: your thesis took for granted the truth of the efficient markets hypothesis? Great, go market a hedge fund that charges 2 and 20 to beat the market. You have to be quantitative enough to manipulate the data to get it to say what you want (“This fee run is 0.2% higher if we exclude REITs” “Well, do that then”), but not so quantitative that you find the whole process revolting. It’s a hard line to walk, and it’s not surprising that Eric Ben-Artzi or Ajit Jain or the quant truthers at S&P end up disgruntled and either blowing whistles or writing regrettable emails.2
Does that explain Lisa Marie Vioni? I dunno, her economics degree came with a side of French, she became a hedge fund marketer, and she’s done it for over 20 years, so I’d have pegged her as pretty comfortable in the gray areas. But in January 2012 she went to work for Cerberus as an MD selling its RMBS Opportunities Fund, and in February 2013 they fired her, and now she’s suing them. She’s suing in part for gender discrimination, which is hard to evaluate from her complaint but sure, maybe.3
But she’s also suing as a Dodd-Frank whistleblower, because she complained about what she thought were misleading marketing materials and was more or less told to go pound sand. And those accusations go like this: Read more »
Tags: Hugh F. Culverhouse, John Paulson, Lawsuits, Paulson and Co, Sino-Forest, trees
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 »