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Day Trading Hipster Takes On David Tepper

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Nate Thoma is 33 year-old with "scruffy beard" who lives in Queens and sometimes wears plaid shirts. He's also a sometime day trader who has "about $500,000 in investments" and in fall 2008, saw his investment in Washington Mutual wiped out after regulators seized the bank. Thoma spent "weeks in front of his Scottrade account, trying to figure out how to recoup money he had lost" and after studying WaMu's capital structure "saw an opportunity to make it back."

He bought trust preferred securities, a hybrid of debt and equity, which rank above common and preferred shares. That enabled him to essentially jump ahead in line for any money distributed from the bank's estate. Those securities were quoted at around one cent in November 2008, when Mr. Thoma first started buying—they are now at 16 cents—but they rarely traded and were hard to buy through his online brokerage account. In the following months, Mr. Thoma bought in lots of 500 or 1,000 units. But he noticed other investors were occasionally able to buy them in much larger amounts, at one point as many as six million units in a day. "I was envious," he said. "They were like whales passing in the night." Mr. Thoma suspected the buying was being made by hedge funds, which already owned the bank's bonds. Owning large chunks of both classes of securities would help them control the bankruptcy's course, he figured. While this practice is standard in most bankruptcies, in the case of Washington Mutual, the hedge funds' strategies affected thousands of retail investors, who still owned the bank's securities.

Like Thoma, who thought it was bull shit.

In his December objection, Mr. Thoma said he thought it was unfair that hedge funds were able to eventually negotiate on behalf of trust preferred holders, seeing as they were also bondholders and involved in settlement talks. He questioned whether they were acting in all of the preferred holders' best interests...The 33-year-old Washington Mutual investor, with no legal experience, delivered what people in the courtroom called an unusually eloquent speech, helping persuade the judge to investigate trading by some of the nation's biggest hedge funds and to reject a plan for the bank's exit from bankruptcy...His actions infuriated the likes of David Tepper, head of Appaloosa. They also served as a call to arms for small investors in the case, many of whom lavished him with accolades on Yahoo message boards.

According to Thoma, who remains so "obsessed with the case" his wife has "banned Washington Mutual from household conversations," he's done with Wall Street. "The thrill is gone. It's such a big game, [individuals] just can't compete. I'm picking up freelance Web work again."

Nate Thoma Battles Hedge Funds [WSJ]