You've got to hand it to the guys at Austin-based Amherst Holdings, they've got some serious moxy. Over the past year, Amherst sold credit protection to JPM on some Lehman-issued subprime MBS and later encouraged the servicer, Aurora Loan Services, to buy the outstanding loans. This made the CDS it sold to JPM completely worthless (BAC and RBS also bought protection on the bonds, but through other counterparties). Far from admitting any impropriety, Amherst contends that it was simply in the right place at the right time.
Amherst says it didn't do anything improper, but took advantage of an opportunity when it emerged. A lawyer reviewed and blessed the strategy for the firm, according to people familiar with the matter.
Privately held Amherst says it acted in good faith trying to limit losses for clients, who had sold credit-default swaps on the securities. "We wouldn't jeopardize our business and reputation by entering into an opportunistic trade knowing what the outcome would be," said Amherst's chief executive, Sean Dobson.