As Rates Rise, So Will Investor Lawsuits

It's about to get crazy up in here...and by "Here" we mean "Securities Law Firm Profits"
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Phil Falcone Will Borrow Hundreds Of Millions Of Dollars From Any Gated Investor Fund He Pleases

Phil Falcone, as some of you may know, has made some mistakes in the last couple years. Pouring his investors' money into a wireless start-up that may or may not ever get off the ground. Offering those who wanted out illiquid LightSquared equity instead of cash. Not getting his wife a driver for party-time.  If you're wondering why we haven't mentioned the time he borrowed $113 million from a gated fund in order to pay personal taxes, which he had not set aside enough money to cover, it's because Phil doesn't count it as a mistake, regardless of what you, or the SEC, or anyone else says. Hedge-fund manager Philip Falcone and his firm, Harbinger Capital Partners LLC, formally signaled their intent to seek the dismissal of fraud charges filed against them earlier this year by securities regulators, according to people familiar with the case. In June, the Securities and Exchange Commission filed civil charges accusing Mr. Falcone of putting his own interests, including maintaining a "lavish lifestyle," ahead of those of Harbinger's investors. The agency accused Mr. Falcone, Harbinger and Harbinger's former operating chief, Peter Jenson, of misleading investors and an outside law firm when Mr. Falcone took out a $113.2 million loan in 2009 from a Harbinger fund to pay his personal taxes, even as other investors in the fund were prevented from pulling their money. Lawyers for Mr. Falcone and Harbinger sent a letter to Judge Paul Crotty of U.S. District Court in Manhattan Friday, the deadline for responding to the SEC's complaint, saying they intended to seek dismissal, the people said. The letter also summarized arguments for the dismissal. Mr. Jenson also filed a letter Friday through his lawyers saying he intended to seek dismissal of the complaint. Representatives of Mr. Falcone and Harbinger have said before they planned to fight the allegations. In negotiations with securities regulators leading up to the charges, they had argued that Mr. Falcone and Harbinger were simply following sound advice from their legal counsel. Which, for those who missed it, was: “[L]ending money to principals is not part of the fund’s investment program” and "a loan . . . will never be a good idea" and "[We are] unequivocally against the loan idea for a number of reasons." Falcone To Seek Case's Dismissal [WSJ] Earlier: Phil Falcone’s Alleged Piggish Behavior Made Him Some Enemies

So Maybe Greek CDS Will Be More Than Fine?

Gaaaaaaaaaaaaaaaah Greece. Okay so all systems appear to be go on the Greek debt exchange, which means its time to decide What This Means, and, I just. Really. Greece. Come on. All I want is to talk about 13D reporting requirements, and now I have to pay attention to Portugal? No. Just no.* Still here is arguably a fun factoid: On Wednesday, Swiss bank UBS AG started quoting a "gray market" in new Greek sovereign bonds ... using as a guide details of the debt swap Greece has put on the table for private investors to accept until Thursday evening. The "bid" price for a batch of future Greek bonds due in 2042, or the highest price the dealer was willing to pay, was around 15 cents on the dollar; the "offer" price, or the most the dealer was willing to sell at, was 17 cents on the dollar, the first person said. ... The prices quoted by UBS imply that losses private creditors to Greece will take are more like 79% of face value, not the original haircut of 70-75% many had expected. Yeah but. If you believe this horrible CDS mechanics stuff that various people including me have been yammering about for weeks - here is the best explanation - that means that if for some reason you had the foresight to be long Greek bonds and hold CDS against them you'd end up with a package worth (1) 21 on the bonds and (2) 83 on the CDS (assuming that the 17 offer for the 2042 bonds represents a real price for the cheapest-to-deliver new bond in the Greek auction) for (3) 104 total which is (4) more than par, so you win this particular game, yay. Which you were at risk of losing - a week ago one of our fearless commenters spotted the longest new bonds at 25ish vs. 24ish for the old-bond-y package, for a total of 99 for the hedged holder - losing 1 point versus par.**

Mark Zuckerberg Will Never Make It As A Banking Analyst

The best part of this morning's Journal story about Facebook buying Instagram is clearly Mark Zuckerberg's valuation approach, which I hope will be taught in future M&A banker training sessions: Now, however, Mr. [Instagram CEO Kevin] Systrom found himself in Mr. Zuckerberg's house asking $2 billion for Instagram. Mr. Zuckerberg suggested looking at the value of Instagram as a percentage of the value of Facebook, people familiar with the matter said. Mr. Zuckerberg, who planned to pay for Instagram mostly with stock, asked Mr. Systrom what he thought Facebook would be worth, the people said. If he believed Facebook would one day be worth as much as a company like Google at $200 billion or more, then the equivalent of 1% of Facebook would be sufficient to meet his price, Mr. Zuckerberg told Mr. Systrom, the people said. It was as good an argument as any, considering that traditional ways of valuing a company — by its cash flow, or the sum of its parts — are ineffective when that company makes only one product and gives it away free. "It was as good an argument as any" given that it is a TERRIBLE ARGUMENT. Here it is as best I can make out: (1) Instagram is worth $2bn (2) Facebook is worth $100bn (3) At some point in the future Facebook will be worth $200bn, I guess (4) Therefore $100bn = $200bn (5) Therefore $1bn = $2bn (6) Therefore you should accept $1bn because it's $2bn B+ students in those future M&A banker training sessions will object to using a zero discount rate (for equity!) and/or the failure to probability-weight Facebook's future $200bn valuation; the more advanced may notice that this argument proves that 1 = 2 and is thus a reductio ad absurdum of itself. These numbers are all sort of imaginary anyway so I will concede that this "was as good an argument as any" so long as we recognize that it is also literally the worst argument that it is possible for anyone to make about anything.*