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It has been argued that financial innovation and engineering are of questionable value to the world; that they serve merely to wildly enrich those financiers and lawyers who need no such enriching at the expense of those who do, and also at risk of blowing everything up, again to the disproportionate pain of those who can least afford it. This position is rather convincingly and luridly argued by the FT’s Sujeet Indap and Fintech Solutions’ Max Frumes in their new book about the Caesars Entertainment saga.

Too many people—and often twenty- and thirty-something-year-old men trying too hard to prove themselves as tough guys—private equity and hedge fund alike, were fighting merely out of vanity. Most of these funds took money from identical pensions—Texas Teachers, CalPers, CalSTRS. These fights to the death just moved money from different pockets of the same investors.

This is undoubtedly true. But we would argue that these battles royale do contribute something to the world: the incredibly foul-mouth, insolent and self-righteous outbursts of people like Oaktree Capital Management’s Ken Liang, threatening a multi-billion payout for his own investors out of a towering commitment to pique.

The scene: the apparently exceedingly lavish Kirkland & Ellis conference rooms at the Citigroup Center. The players: the ostensible winners over Apollo Global Management in the fight over the casino giant that Apollo had at the very least questionably kept alive for its own benefit at these players’ expense for years, including Elliott Management co-CEO Jon Pollock and representatives from GSO Capital and Angelo Gordon and others who no doubt have been quietly celebrating Leon Black’s difficulties and subsequent downfall. The issue: coming up with $130 million to save a $6 billion deal.

“We are not chipping in!” shouted Ken Liang…. “Go fuck yourself,” Liang told Mollett. “We fought our way into this room. All of you were cramming me down for zero fucking dollars during the last two years. Where was ‘the team’ then? Where is ‘the team’ on the preferred stock sweetheart deal Elliott is getting now? The rest of you can pay for this. If the deal breaks, fine. If you think it’s such a great deal, then give back some of your 120 percent recovery. I’m not reaching into your pocket. Don’t reach into mine,” screamed Liang….

“We are asking you, institutionally, to do the right thing here,” Jon Pollock, the co-CEO of Elliott, jumped in.

“Who are you?” shouted the incredulous Liang.

That’s gonna leave a mark. Time for cooler heads. Slightly cooler.

“Apollo stole from us. They can pay the difference. We are leaving thirty-four cents on the table. We are in the business of loaning money to private equity companies and this would be bad for business,” Oaktree’s Kaj Vazales interjected, explaining the precedent that caving now could set. Whatever grievance Oaktree had with its fellow creditors, it paled relative to the rage it harbored for Apollo, whose wheeling-and-dealing was the single, defining issue of the bankruptcy. Oaktree is here to drink the blood of Apollo, one person in the room would recall thinking at the time…. “We had to claw our way to victory. We’ve driven this case to its conclusion and you are not spending our recovery,” Vazales said.

Another cooler head is legendary bankruptcy adviser Jim Millstein, former chief restructuring officer of the United States and designated adult in the room. He’s going to try to calm Liang down, too. It backfires rather spectacularly.

“Oaktree does private equity stuff too. Maybe next time Oaktree is on the other side of this,” Millstein tried to reason./“Let me know the next time Howard Marks and Bruce Karsh get personally sued and have their personal bank statements subpoenaed,” Liang fired back…. [Apollo’s new CEO Marc] Rowan and [David] Sambur, along with David Bonderman, the TPG co-founder, were facing the possibility of personal liability in the case, a highly unusual situation that underscored the severity of the wrongdoing allegations against them.

Oooooh, check and mate! Or not, as it seems that while Millstein took Liang aside and tried again to talk him down and some sense into him, Jon Pollock made a phone call.

Liang’s phone rang. It was an Oaktree number. The founders of the firm, Howard Marks and Bruce Karsh, were on the line. “Paul Singer just called us and he was just wondering what you guys are doing on Caesars?”

In conclusion, is a more secure and equitable economic system really worth losing stories like this one?

Apollo, Caesars, and Wall Street’s ‘Billionaire Brawl’ for Control of a Gaming Empire [II]


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