Tag Archives: hedge funds

Hedge Funds Can’t Sue Over Investments in Fannie and Freddie

Hedge funds largely failed in their legal challenge to the U.S. government’s capture of billions of dollars in profits generated by Fannie Mae and Freddie Mac after their bailout, sending shares of the mortgage guarantors plunging.

Perry Capital LLC, the Fairholme Funds and other big investors lost a bid to overturn a judge’s ruling that said they can’t sue the government over the dividend change. The change known as the “net-worth sweep” forced the companies to send almost all their profits to the U.S. Treasury, leaving shareholders with nothing. The companies have been under government control since being bailed out during the 2008 financial crisis.

The funds may still be able to pursue some contract-based claims.

Read on.

Trump’s US Treasury Pick Moves in Secretive Hedge Fund Circles

As a hedge fund manager, Goldman Sachs trader and bank chief executive, Steven T. Mnuchin has long been a member of the financial elite.

Yet even on Wall Street he was not widely known before Donald J. Trumpchose him to be his campaign fund-raiser last spring.

Now, Mr. Mnuchin is on a path to become the first hedge fund manager to head the Treasury. As befitting that closed-door world of finance, Mr. Mnuchin’s record shows a willingness to take on risks and a penchant for secrecy that members of both parties expect will be a focus of his Senate confirmation hearing.

A case in point is a Delaware company that he owns, Steven T. Mnuchin Inc., whose existence has not been reported outside of official records.

Read on.

Hedge Fund Manager Profited Off Terminally Ill, SEC Says

(CN) — The Securities and Exchange Commission brought charges Monday against a hedge fund manager it says made deals with terminally ill patients that netted him huge payouts when they died.
Donald “Jay” Lathen Jr., 48, is described as the owner and CEO of hedge fund Eden Arc Capital Management.
The Manhattanite is accused of picking through nursing homes and hospices for patients whose prognoses gave them less than six months left to live.
Regulators say Lathen recruited at least 60 terminally ill patients and paid them $10,000 each to use their names on joint investment accounts with “survivor options.”
Also known as “death puts,” such options allow for the resale of an investment to the issuer upon the death of the holder.
The SEC says Lathen’s hedge fund was able to exercise the survivor options with sufficient speed and accuracy to maintain extremely high investment returns on various medium- and long-term bonds and certificates of deposit.
Eden Arc reaped more than $9.5 million, a total return of 74.73 percent, from May 2011 and September 2015, according to the SEC.
Lathen’s attorney, Harlan Protass with Clayman & Rosenberg, said his client did nothing wrong.
“We have no doubt that Mr. Lathen’s investment strategy is entirely legitimate and violates no law,” Protass said in a statement. “Mr. Lathen looks forward to clearing his name.”

Read on.

Refund America Project report: Nearly half of the debt owed by Puerto Rico is not actually money that the island borrowed, but instead interest owed on bonds underwritten by Wall Street firms

Series of banks were lead underwriters on the bonds, including Citigroup, Merrill Lynch—now under Bank of America—Goldman Sachs, UBS, Banco Santander.

Refund Project website:

A fact sheet on Puerto Rico’s capital appreciation bonds (CABs). Haga clic aquí para una versión en español de este informe.

 

Panama Papers reveal yet another secretive aspect of hedge funds

HIGHLIGHTS

Bernard Madoff’s feeder funds show up in the Panama Papers

2 other managers who used offshores to hide assets find themselves in jail

One fund manager says there is room for more transparency

The kinds of secret offshore companies that have hidden political corruption and tax evasion around the world are often used by Wall Street’s biggest money makers — the $2 trillion hedge fund industry.

The now-famous Panama Papers leak offers rare insight into the workings of this exclusive investment club.

Hedge funds accept individual investors with net worths of $1 million or more and worker pension funds with $5 million or more. They and their investors often locate in tax havens such as the Cayman Islands or the British Virgin Islands.

The names found in the leaked files from the Panamanian law firm Mossack Fonseca include two now-imprisoned hedge fund managers, a major “feeder fund” that was part of the largest-ever Ponzi scheme run by Bernard Madoff and several anonymous investors whose offshore companies became tangled in the Madoff web.

In the aftermath of the Madoff scandal and the 2008 U.S. financial crisis, hedge funds have been forced to register with regulators, and they face severe penalties under a new “bad actor rule” if they take money from criminals or proceeds of corruption.“Most financial institutions do require considerable information on investors” today, said Robert Van Grover, an attorney with Seward & Kissel LLP in New York who thought the abuses found in the Panama Papers “would be very difficult in the United States” now.

But the hedge fund managers and their investors identified in the leaked documents by McClatchy and partners underscore what has been a weakness in oversight: They often used secret offshore companies, which hid investor fraud and potentially unsavory investors from U.S. regulators.

Hedge Funds Sue Puerto Rico in N.Y. Over Fiscal Crisis Law

Puerto Rico was sued in New York by a group of hedge funds claiming it’s illegally using an emergency fiscal-crisis law to dodge payments on $3.5 billion in bonds that are supposed to be guaranteed by the island’s constitution.

The Emergency Moratorium and Financial Rehabilitation Act, signed into law in April just 48 hours after being presented to Puerto Rico’s legislature, can’t be applied to the general-obligation bonds at the center of the case, the group said in a complaint filed Tuesday in Manhattan federal court.

Governor Alejandro Garcia Padilla “has flouted centuries-old federal constitutional protections for contract and property rights,” Mark Stancil, an attorney for the bondholders, said in a statement.

The U.S. territory can’t pay all its debt, and the hedge funds’ decision to sue instead of keep negotiating “demonstrates their continued refusal to acknowledge the reality of the commonwealth’s fiscal crisis,” Grace Santana, Padilla’s chief of staff, said in a statement. She called the suit an attempt “to disrupt the commonwealth’s ability to keep the lights on and provide essential services.”

Read on.

Here’s Bernie Sanders’ Plan To Save Puerto Rico And Stick It To Vulture Funds

His new bill would put the island’s economy ahead of vulture fund profits.

Huffington Post:

More than half of Puerto Rican children already live in poverty, its unemployment rate is over 12 percent and the government has been closing schools and curbing public services to help make short-term debt payments. On Monday, the U.S. Supreme Courtruled that Puerto Rico is barred from requiring vulture funds — those that invest in distressed debt — to take haircuts on government bonds. The ruling grants the federal government exclusive jurisdiction over any debt reduction scheme for the U.S. territory. Wall Street hedge funds were thrilled.

But the July 1 deadline and the Supreme Court ruling also strengthen the hands of Washington politicians — including those more enamored with traditional thinking at the International Monetary Fund than with the demands of Puerto Rican citizens.

Thus far, there have been two positions on resolving the Puerto Rican crisis circling through the nation’s capital. Vulture funds have pursued a “screw you, pay me” strategy that has gained traction with many congressional Republicans, while decimating Puerto Rico’s economy. The Obama administration, by contrast, has backed a bipartisan bill to impose further budgetary austerity on the island, coupled with meaningful debt reduction. The bill’s austerity intent is clear. It would allow for the minimum wage to be suspended, and would lift President Barack Obama’s new overtime pay expansion island-wide. American citizens in Puerto Rico might well ask whether being stripped of labor protections provided to mainlanders is a product of the island’s colonial history. It’s hard to see what private-sector investment in such plans would encourage other than, say, payday lending.

The choice, in other words, is between madness and masochism. So, late last week, Sen. Bernie Sanders (I-Vt.) quietly unveiled an alternative. Sanders would cut vulture fund investors out of any benefits from a debt-reduction deal, while establishing a long-term infrastructure plan to fix the root problem of Puerto Rico’s debt: a dysfunctional local economy.

The Sanders bill faces major political headwinds. While Obama’s strategy has cleared the House, the executive branch is all but begging the Senate to vote on it in time to avert a July 1 debacle. And Sanders is not exactly an ideological ally of Senate Majority Leader Mitch McConnell (R-Ky.), whose support will be needed to pass any law to salvage the Puerto Rico situation. But the Sanders bill is a clever approach to a problem that could upend traditional thinking on financial crisis management around the world — one that prioritizes the well-being of Puerto Ricans over Wall Street profits.

Obama and House Speaker Paul Ryan (R-Wis.) have blessed The Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, which Sanders has savaged on the presidential campaign trail. PROMESA would set up a new Washington-appointed oversight board empowered to direct spending and taxation plans for Puerto Rico, and, if all goes well, reduce the the island’s overall debt levels.