Daily Archives: September 5, 2014

Did Harvard Know It Was Invested In Payday Lending Scheme?

Alex Slusky was under pressure to put the money in his private-equity fund to work.

The San Francisco technology financier had raised $1.2 billion in 2007 to buy and turn around struggling software companies. By 2012, investors includingHarvard University were upset that about half the money hadn’t been used, according to three people with direct knowledge of the situation.

Three Americans on the Caribbean island of St. Croix presented a solution. They had built a network of payday-lending websites, using corporations set up in Belize and the Virgin Islands that obscured their involvement and circumvented U.S. usury laws, according to four former employees of their company, Cane Bay Partners VI LLLP. The sites Cane Bay runs make millions of dollars a month in small loans to desperate people, charging more than 600 percent interest a year, said the ex-employees, who asked not to be identified for fear of retaliation.

Slusky’s fund, Vector Capital IV LP, bought into Cane Bay a year and a half ago, according to three people who used to work at Vector and the former Cane Bay employees. One ex-Vector employee said the private-equity firm didn’t tell investors the company is in the payday-lending business, where borrowers repay loans out of their next paychecks.


Read on.

It’s Not Eric Cantor We Need To Worry About. It’s His Staffers

The Hill is run by young staffers who are unelected, unaccountable, and want to cash in as lobbyists.

Here is what David Dayen is saying here:

But Cantor keeping one foot in D.C. actually speaks to what we should really look out for when it comes to his departure: where his staff relocates. Sen. Warren surely knows that Cantor’s colleagues are not “writing policy” or “making laws.” Neither did Cantor in his tenure. His underlings do it. The key policy aides actually author the laws, and interact with other staffers, and know far more about the inner workings at the Capitol than anyone really lets on. (Perhaps the only time I’ve ever seen this captured was not by a news outlet, but the Armando Iannucci movieIn The Loop, when Malcolm Tucker meets with the young kid at the White House who he assumes is an intern, but is actually directing policy.)

As it happens, ex-Cantor aides currently litter K Street lobby shops, working for the American Bankers Association, the Financial Services Forum, PhRMA, and major firms like the Glover Park Group, Capitol Counsel, Alcalde & Fay and Blank Rome Government Relations. These ex-staffers lobby on behalf of such corporations as Expedia, Comcast, Best Buy, Blackstone, Citigroup, General Motors, T-Mobile and Halliburton, to name a few.


There’s a fair amount of debate about whether these lobbyists have lost power now that the Majority Leader has moved on, and whether the current crop of ex-Cantor staffers will be able to hook on. But I don’t buy it. K Street values former high-level Congressional aides, not just for their contacts with their old boss, but for their contacts with other offices, other staffers, ex-lobbyists who rotated back to Congress, and on and on. That’s especially true with a Majority Leader staff, who must interact with virtually every office in their caucus. Yes, the endless gridlock in Congress has crashed K Street budgets to some extent. But a policy aide for the ex-Majority Leader is going to be able to arrange a safe landing. The fact that a number of Cantor expats have already moved over to Majority Leader Kevin McCarthy and Majority Whip Steve Scalise’s office makes the ones who head to K Street that much more valuable.

We know some of these staffers are looking for work. Cantor’s chief of staff Steven Stombres reportedly held a conference call the same night Cantor lost his primary, assuring everyone that they would get the best placement he could find them. Stombres himself got calls for jobs within two days of the loss. “Certainly the folks that are closest to the king will be the most valuable,” said one K Street headhunter.

“Everybody knows that Cantor guys are to be taken care of,” said another insider.Stombres already announced that he was leaving Capitol Hill. And Rory Cooper, Cantor’s former communications director, was picked up by Purple Strategies, a top D.C. public relations shop. Others in demand – like top health care aide Cheryl Jaeger, financial policy aide Aaron Cutler and deputy chief of staff Doug Heye – haven’t chosen their next employer yet.

This how-to guide for these lobbyists-to-be is particularly unseemly:

“A lot of these folks will have to be able to advocate on their own behalf, call in the chits they’ve been accumulating and cash them in,” said K Street recruiter Julian Ha of Heidrick & Struggles.

Ha added that Cantor aides, or anyone else in a similar boat this cycle ought to think about the lobbyists who have visited them through the years and create a target list of potential job opportunities

[…] “Set up those coffees,” Ha said. “The three rules of finding your next job: network, network, network. It takes a little bit of shoe leather and a lot of rejection to ultimately get to the source who will then lead you to the lead.”

These jobs range from $250,000 to $750,000 just to start.

This tends to sound like inside baseball, but if you want to understand the Washington influence factory, you have to start by knowing that staffers run the show, to what the layman would consider an uncomfortable degree. The revolving door is much easier to negotiate for these folks because it happens outside the public eye. But it matters when a staffer with deep experience starts advocating for Citigroup or Blackstone. It matters for the laws that get written and the priorities that get set.

Whether Eric Cantor makes a bunch of money because M&A clients get stars in their eyes when he calls them up means nothing to me. But where Steven Stombres lands? That’s actually important.

Ferguson, the Foreclosure Crisis and America’s Hedge-Fund Landlords

The events in Ferguson last month laid bare many of the tensions that are simmering in America. In areport for The New York Times’ Dealbook, Matthew Goldstein adds another to the list: Americans are still reeling from the 2008 fiscal meltdown, the resulting crash in the housing market and monied interests taking advantage in minority neighborhoods like Ferguson’s.

Nationally, 17 percent of homeowners are underwater — they owe more on their mortgages than their homes are actually worth. In Ferguson, that figure sits at 50 percent. Because so many homeowners are struggling, the town is ripe for institutional investors — often hedge funds or private equity groups on the coasts, thousands of miles away — to buy up homes, then rent them to low-income tenants. And that’s what has happened. Investment firms are responsible for roughly a quarter of all recent housing purchases in the town.

Goldstein profiled two Ferguson families renting from one Los Angeles-based investment firm, Raineth Housing:

Housing advocates worry about what will happen if investors in firms like Raineth become dissatisfied with the returns from leasing homes to low-income families. The commitment of out-of-state landlords to maintaining properties also is a concern. Tenants and local housing officials have given Raineth mixed grades as a landlord.

Mr. Bryant, 24, who lives on Mueller Avenue in Ferguson, said he and his mother had been generally pleased with their home, which they have rented for four years. He said the landlord’s property manager had been fairly responsive about making repairs, although Mr. Bryant said the house, which has white siding and burgundy trim, “needs to be worked on, or updated.”

The Walkers, who moved into their two-bedroom white brick home on La Motte Lane a year ago, tell a different story. Ethel Walker, 54, a custodian at a local school, said her asthma has worsened because of a persistent mold problem in the house, which she blames on a leaky pipe and water in the basement. More recently, Ms. Walker and her daughter said they had had to deal with raw sewage gurgling up in their yard.

“When you’d flush the toilet it’d come up in the backyard,” Tasha Walker, 31, said.

As Goldstein notes, tenant advocates say the problem comes when investors try to turn too quick a profit on their investment — or fail to turn a profit at all. In New York City, for example, private equity firms have invested in neighborhoods — often low-income communities that investors were unfamiliar with — where the economics of their investment didn’t work out and tenants suffered. In some cases, residents watched their buildings fall into disrepair as their new Wall Street landlords sought to wring maximum profit. In others, tenants faced intense pressure to leave their homes as new landlords tried to gentrify neighborhoods and raise rents. Tenants’ rights groups have dubbed this style of landlordship “predatory equity.”


Read on.

Big banks face CDS lawsuit

It’s about time….

Investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default, an article in Reuters said.

While dismissing part of the case, U.S. District Judge Denise Cote said investors may press claims that the defendants’ Sherman Act violations caused them to pay unfair prices on CDS trades from the autumn of 2008 through the end of 2013, even as improved liquidity should have driven costs down.

“The complaint provides a chronology of behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence,” Cote said.

According to the article, the defendants include Bank of America (BAC), Barclays, BNP Paribas, Citigroup (C),Credit Suisse Group (CS), Deutsche Bank (DB) , GoldmanSachs (GS), HSBC Holdings (HSB), JPMorgan Chase(JPM), Morgan Stanley (MS), Royal Bank of Scotland Group (RBS) and UBS AG (UBS).

Source: Reuters

AIG Unit Ducks Insurance Suit Over Guantanamo Bay Contract

Law360, Washington (September 04, 2014, 9:16 PM ET) — A Seattle federal judge on Wednesday dismissed a suit from a construction company alleging an American International Group Inc. subsidiary owes it money arising from a subcontract to construct military housing in Guantanamo Bay, Cuba, citing lack of jurisdiction.

U.S. District Judge Robert S. Lasnik said that his court lacked jurisdiction to hear a case brought by IMCO General Construction Inc. against AIG subsidiary Insurance Company of the State of Pennsylvania.

The court said that ICSP is a Pennsylvania corporation with its principal place of business…

Source: Law360

EQUITY ALERT: Rosen Law Firm Reminds Ocwen Financial Corporation Investors of Important Class Action Deadline — OCN

NEW YORK, Sept. 3, 2014 (GLOBE NEWSWIRE) — Rosen Law Firm reminds purchasers of Ocwen Financial Corporation (NYSE:OCN) common stock between May 2, 2013 and August 11, 2014, inclusive of the important October 14, 2014 lead plaintiff deadline in the class action.

To join the Ocwen class action, go to the website athttp://rosenlegal.com/cases-326.html or call Phillip Kim, Esq. or Kevin Chan, Esq. toll-free at 866-767-3653 or email pkim@rosenlegal.com orkchan@rosenlegal.com for information on the class action.


According to the lawsuit, Ocwen misstated and/or failed to disclose: (a) Ocwen’s mortgage servicing practices were unlawful; (b) Ocwen’s Chairman engaged in self-dealing that unjustly enriched himself; and (c) as a result Ocwen’s public statements to investors were materially false and misleading. The lawsuit claims that when this adverse information entered the market, the price of Ocwen’s stock dropped, damaging investors.


Read on.

Barclays, BofA, Citigroup Sued for ISDAfix Manipulation

Barclays Plc (BARC), Bank of America Corp., Citigroup Inc. (C) and 10 other banks were accused in a lawsuit of conspiring to manipulate ISDAfix, a benchmark used to set rates for interest rate derivatives and other financial instruments.

The Alaska Electrical Pension Fund sued yesterday in Manhattan federal court, claiming the banks colluded to set ISDAfix at artificial levels that allowed them to manipulate payments to investors in the derivatives. The banks’ actions affected trillions of dollars of financial instruments tied to the benchmark, the pension fund said.

The banks communicated using electronic chat rooms and other means of private communication, typically submitting identical rate quotes beginning at least in 2009, the Alaska fund said.


Read on.