Lawsuits

Standard & Poor’s asked a federal judge on Monday to dismiss a U.S. Justice Department civil suit against the rating agency, arguing the government’s case is based on vague statements that cannot be used to prove fraud. In a $5 billion suit, the U.S. government accused the rating agency of issuing inflated ratings on faulty products to drum up business before the financial crisis, despite company statements that its ratings were objective. S&P has vociferously defended itself in public since the case was filed in February in U.S. District Court in Los Angeles, denouncing the lawsuit as meritless and accusing the government of cherry-picking emails to misconstrue what its analysts did…While the government says those messages, which include one analyst performing a pop song parody about the housing market burning down, paint a picture of a company knowingly slapping inflated ratings on structured finance products, the company’s filing says otherwise. Those messages, instead, the company said, show internal squabbling or even “robust internal debate.” [Reuters]

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 »

  • 08 Apr 2013 at 7:14 PM

Snowflake Greenberg’s Trust Fund At Risk

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.

John Paulson Does Not Have To Defend Himself To You, Hugh

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 »

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]

Back in the pre-Lehman days Citigroup owned a lot of things that, in hindsight, turned out to be awful. Everyone knows that now but various people didn’t know it then, including (1) the people who bought some of those awful things from Citi, (2) the people who bought stock in Citi while it hung on to the bulk of those awful things, (3) the people who bought bonds in Citi while it hung on to the bulk of those awful things, (4) the people who bought preferred stock in Citi … you get the idea. The world being as it is – full of lawyers1 – each of those groups of people is slowly making its separate peace with Citi. We’ve talked about some of them before, including a rather controversial $285mm SEC settlement on behalf of the awful-thing-buyers and a $590mm private settlement on behalf of the stock-buyers. Today brings the biggest settlement yet, $730mm on behalf of the bond- and preferred-stock and TRUPS-buyers, who lost billions when Citi defaulted on its bonds.

Hahahaha no I’m kidding, Citi never defaulted on its bonds. Here’s the Journal:

In the case settled Monday, plaintiffs alleged the New York company misled them about Citigroup’s possible exposure to losses on securities backed by home loans, understated its loss reserves and said some assets were of higher credit quality than they actually were. The pact covers 48 preferred-stock and bond deals between May 2006 and November 2008.

Those possible exposures became real exposures, and Citi incurred plenty of unpleasantness. But these bonds mostly didn’t. Read more »