One of the most difficult and important part of being a hedge fund manger is the constant need to come up with new, outside the box ideas. This is, of course, crucial specifically with regard to investment ideas but also just generally, there is the never-ending pressure to maintain freshness in all matters of business. For instance, keeping employees motivated, hungry and on their toes. If you’re Don Brownstein, you (allegedly) “walk around a crowded conference room table while slapping the palm of [your] hand with a baseball bat, stopping behind traders while stating ‘The only way you can leave this firm is in a body bag.’” If you’re another luminary of the investing world, you go with white board markers as a means of positive or negative reinforcement, one marker good, two markers bad, respectively. If you’re John Duffield, who is being sued by a former employee for bullying, you suggest that the staff you employ does not act in compliance with the law and wonder aloud a) how they can look themselves in the mirror and b) whether or not they have any remorse for disappointing you, ’cause they should. Read more »
In 2003, things were going pretty well for Todd J. Remis. Great, even. The equity research analyst had left Warburg Pincus Asset Management to found Hygrove Partners LLC, he was living the good life in New York City and he’d recently married Latvia native Milena Grzibovska. The wedding was an intimate affair that included less than 40 guests and took place at Castle on the Hudson in Tarrytown. A proud husband, Remis sent a photo of the happy couple to his alma mater for inclusion in its newsletter, for all his former Bowdoin College classmates to see.
Fast forward six years, and things were going less swimmingly for Todd. For starters, the Chicago Booth grad’s marriage had hit the skids, with a separation in 2008 and an official divorce by 2010. Additionally, he was unemployed, having been laid off or fired from his job at Legg Mason’s ClearBridge Advisors. And with that kind of loss and time on his hands, Todd wanted nothing more than to sit around looking at photos of memories past, specifically of the day he married Milena. Only Todd couldn’t do that, could he? At least not in the way he wanted to, which was by going through the photos chronologically, very beginning to very end, from Milena getting dressed to the bouquet toss to the last dance, laughing, crying, wiping his tears with each shot, laying down naked on a pile of them scattered on the bathroom floor and remembering how he felt that day. The reason he couldn’t do that? Because someone FUCKED Todd, good and hard. And the more Todd thought about it, the more he decided that he had to make that person pay. Read more »
Federal Judge Wants To Know Why SEC Is Only Charging Citi 1/5th As Much As It Charged Goldman For Ripping Off CDO InvestorsBy Matt Levine
If the SEC really wanted to reduce the chances of embarrassing itself, besides better Internet monitoring software it really ought to look into filing securities lawsuits outside of New York. Every bank is incorporated in Delaware and does all of its activities everywhere – surely they could find a CDO investor in California. But the SEC keeps suing in New York, they keep drawing Judge Rakoff in the suspiciously random assignment system, and he always goes and does this:
A federal judge has raised questions about why he should approve the government’s $285 million civil settlement with Citigroup, suggesting that he is skeptical of the pact. … He posed nine questions to the parties, including how a fraud of this nature and magnitude could be the result simply of negligence. The judge also asked why the court should approve a settlement in a case in which the S.E.C. alleged a serious fraud but the defendant neither admits nor denies wrongdoing.
They’re good questions, including “Why … is the penalty in this case less than one-fifth* of the $535 million penalty assessed in SEC v. Goldman Sachs … ?” And you do get the sense that most other judges wouldn’t have bothered with them and would skip straight to “wow, that’s a lot of money, willing buyer willing seller, I’ll approve the settlement.”
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In things that are not a surprise, a Delaware court this week threw out a lawsuit against Goldman Sachs directors and officers for paying bankers and traders The Wrong Way. Specifically:
The Plaintiffs contend that Goldman’s compensation structure created a divergence of interest between Goldman’s management and its stockholders. The Plaintiffs allege that because Goldman’s directors have consistently based compensation for the firm’s management on a percentage of net revenue, Goldman’s employees had a motivation to grow net revenue at any cost and without regard to risk.
The Plaintiffs allege that under this compensation structure, Goldman’s employees would attempt to maximize short-term profits, thus increasing their bonuses at the expense of stockholders’ interests. The Plaintiffs contend that Goldman’s employees would do this by engaging in highly risky trading practices and by over-leveraging the company’s assets. If these practices turned a profit, Goldman’s employees would receive a windfall; however, losses would fall on the stockholders.
Now, it should be said that this theory is not unprecedented, and not entirely crazy. Nor is it entirely sane: generally maximizing income is good for shareholders, and if you don’t like trading risk you could always, I don’t know, not buy shares of an investment bank. Linking comp to net revenue is broadly better than linking it to lots of other things, like peer-benchmark pay or fanciness of country club memberships.
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Remember Andrew Oberwager and Karolina Stefansi? For those who need a refresher: they’re two highly educated kids who were once in love and are now suing each other in court. When they met, Oberwager was a PM at Columbus Circle Partners, who had earned the right to not only put the letters C, F, and A after his signature, but M and D as well, having graduated from Harvard Med school before getting into investing. Stefanski, left, was a former Playboy model from Germany, who had earned her journalism degree from Suffolk University (the $33,000 tuition for which Obes covered). Thing were good.
Then MDCFA might have started an affair with a chick from Texas he met online, a relationship Stefanski was not cool with even though it probably meant nothing to Oberwags (i.e. he didn’t put her through vet school), she moved back to Germany and cashed the blank, signed checks he had given her, including one for $80,000.
Apparently this set Andy off and in July, he sued Karolina, a) claiming those checks were “meant to pay for household expenses” and b) demanding the tuition funds be paid back, plus interest, arguing that the couple had “drawn up a contract on his personal computer” (which has since gone missing) because “she said she didn’t want charity…it was actually her idea to make it a loan.”
Anyway, Karolina has now come back to 1) let Andrew know he can go fuck himself and 2) tell the court that this man is a liar. Read more »
In fairness, no one straight up asked him “is Full Tilt a global Ponzi scheme,” as opposed to “a legitimate poker company.” Read more »
How Much Money Will Fannie And Freddie Get From Banks For Crappy Mortgages, Use To Make Further Crappy Mortgages?By Matt Levine
The Federal Housing Finance Agency’s lawsuits against every bank paint a pretty dastardly picture of the seventeen big banks – three of which are now BofA – committing all sorts of frauds in securitizing mortgages and selling them to Fannie Mae and Freddie Mac. This in turn caused Fannie and Freddie to have a series of accidents that left them wards of the state under FHFA conservatorship. FHFA’s lawyers are thorough, quoting among other people the Financial Crisis Inquiry Commission, SEC investigations and suits, and even Matt Taibbi. One thing they don’t do, however, is give any hint of how much money they’re looking for.
Others have jumped in to do the math for them. A popular approach, taken by FT Alphaville and Nomura, guesstimates that the damages will be around 20% of the original principal amount. The reason for this is that it seems to be the amount claimed by FHFA in its suit filed against UBS in July – there, FHFA sought $900 million on $4.5bn notional of mortgages. As the total claims against all the banks are around $200 billion, that gets $40bn of potential damages.
Keefe Bruyette & Woods has a higher estimate of $60 billion. They note that the potential liability is for “rescission”: if the FHFA proves that the banks lied materially in their prospectuses, then the banks are on the hook to buy back the mortgages at par, and thus are at risk even for losses due to the general housing market downturn and unrelated to shoddy underwriting.
Goldman has a note out today that uses two methods – the 20% UBS precedent, and the precedent of the proposed $8.5 billion settlement that Bank of America negotiated with its non-FHFA private label mortgage investors:
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Attention Single Men Looking For Love And/Or To Get Their Hedge Fund Off The Ground: Westchester Divorcée’s Got What You NeedBy Bess Levin
From Forbes: “In a 15-page complaint filed in Manhattan’s New York state court earlier this week, Simon accuses his wife, Linda Simon, of hacking into a password-protected Twin Capital computer located in the Simon’s home in Purchase, N.Y. and duplicating the hard-drive. The lawsuit claims that the hacking took place shortly after Simon had vacated the residence in late July and Linda Simon initiated divorce proceedings in New York state court…“Highly confidential financial records, intellectual property, trade secrets, and attorney-client communications were unlawfully stolen,” a court document filed by Twin Capital Management says. “Continued possession and use of the highly confidential materials they stole from Twin Capital is likely to cause substantial damage to Twin Capital.” Simon’s Twin Capital says it is suing for $25 million and the return of all the materials copied from the computer.” Read more »
Although you know that Eliot Spitzer was slightly preoccupied during his time as New York’s Attorney General, maybe you can understand why William Gilman and Edward McNenney might have thought that he was devoted full-time to bullying them. Gilman and McNenney, formerly executives at insurance broker Marsh & McLennan, have not exactly had positive interactions with the Spitz these past seven years. Let’s go down the list: Read more »
Jeffrey Gundlach is a hugely talented man. The bond manager, who is currently being sued by his former employer for alleged theft of proprietary information that he snuck out of the office in a secretary’s bra, can do it all. In addition to being, as he’s previously stated, “The guy who can make it rain the desert,” Gundlach is a self-described genius (who once asked a colleague, “What’s it like having lunch with a genius?”), a modern art expert, a dildo collector, an adult film critic, and a guy who’s got a legitimate shot at becoming an auctioneer at Christie’s or an announcer at the Greyhound Classic, which is the Kentucky Derby of dog graces. What you may not have known about Gundlach is that he is also a budding thespian, whose speciality is impressions of French guys that used to be his boss. Read more »
In 2006, George Soros was eating lunch in the Hamptons when he feasted his eyes on something he thought looked even tastier than his soft-shell crab sandwich: 23 year-old Brazilian soap star Adriana Ferreyr. A “smitten” Soros asked for her phone number and the two dated for the next five years, with Soros promising to buy her her “dream home” at 30 East 85th Street, a convenient two blocks from his own pad. A few days after a contract was signed Soros “heartlessly dumped.” Ferreyr was pretty pissed about the situation but, as these things go, the duo “briefly reconciled for a romantic night together” during which Jorge supposedly had the Soroses to “whisper in her ear” that he’d given the keys to her dream house to another one of his gal-pals. That’s when this allegedly happened: Read more »