NakedShorts

Financial Markets: An Apology

In common with other media outlets, we may have given the impression in recent months that we held a negative opinion of the prospects for global financial markets. As well, we may have suggested that certain individuals—including, but not limited to, Sir Henry Paulson, Lord Lloyd Blankfein, ‘Tricky’ Dick Foolled, Earl James E. Cayne, Capo di tutti Capo James ‘Five Times’ Dimon, and Baron Kevin ‘Cappuccino’ Davis—might have been less than entirely forthcoming in various matters relating to both the financial condition of their enterprises, and related exposure to various alleged risks.

Headlines such as ‘Lehman: Man bites dog latest,’ ‘Crack prices plunge—Fred Reserve,’ ‘The trouble with having three heads,’ ‘Classic Cappuccino Man,’ and ‘Fed raises collateral standards’ may have contributed to this unfortunate misunderstanding.

We now realize that there was not a jot or scintilla of truth in any of the above and that the bottom is in, we are nearer the end than the beginning, values are compelling at these levels, readings on core inflation have improved somewhat, and that purely temporary mark-to-market losses are a healthy sign of delevering and the necessary repricing of risk. The aforementioned gentlemen represent the pinnacle of financial achievement, and are comparable to Alan Greenspan, Robert Merton, Paul Eustace, Victor Niederhoffer and John Meriwether rolled into one transcendent genius of our age. Or, as the relevant deity is known in the Hindu pantheon, “Vikram Pandit.”

We apologize unreservedly for any distress caused by our earlier reports.

Paulson Says US Credit-Market Crisis Is ‘Closer to the End’
by Peter Cook and John Brinsley [Dudley Moore, surely?—Ed]
Bloomberg May 1 2008

Brighter crunch picture weakens rate cut hopes
by Nick Hasell
The Times May 1 2008

FDIC wants US aid to pay down risky loans
by John Poirier and Al Yoon
Reuters May 1 2008

(Knocked off from an idea by Private Eye)

CFTC nails jelly to wall

The kill-joys at the Commodity Futures Trading Commission today announced having pulled the plug on the not quite $7.2 billion New York Financial Co and its principal Robert J. Sucarato. Usual stuff—fraudulent solicitation, concealing trading losses, issuing false statements, embellishing the resume, manufacturing audits—not to mention a slight discrepancy in assets under management; Sucarato apparently raised “at least $1.5 million from at least five individuals [Morons, surely?—Ed].”

On a more positive note, investors who might have missed the hedge fund boat are welcome to join Sucarato in his latest—and doubtless highly profitable—venture:

NYFC Properties, LLC is a private investment company and owns both commercial and residential properties in the United States and abroad. We are always on the lookout for new properties to add to our portfolio. NYFC Properties does look for certain types of properties and situations, but are always willing to listen to project proposals and meet with prospective buyers and sellers. We also do not mind joining investment groups if the project is deemed beneficial to us.

NJ Federal Court Freezes Assets of Hedge Fund
Commodity Futures Trading Commission press statement
Apr. 30 2008

CFTC v. Robert Sucarato
Apr. 22 2008

NYFC Properties LLC

New York Financial Company

Arrest these rumor-mongers, now!

Two widely-followed investment gurus—Peter Bernstein, best known as author of “Against the Gods: The Remarkable Story of Risk,”and GMO chairman Jeremy Grantham—obviously didn’t get the memo, and spent the weekend fomenting anarchy.

Bernstein chatted with The Wall Street Journal:

WSJ: How long do you think this whole process will take, before we get back to normal?

Mr. Bernstein: Longer than people think. The people who think we will have turned in 2009 are wrong. There has to be a respite along the way. Nothing goes in one direction forever. But it will take longer than people think. If that weren’t the case, I would be talking entirely differently. I would be saying, “What an opportunity we have got.” And I just can't believe that the opportunity is here yet. There is too much to unwind.

Grantham, in GMO’s quarterly newsletter, goes even further, having the temerity to suggest that moral hazard may be afoot:

What’s worse, those who took on unjustified risk live to prosper and reinforce the existing agency problems. These problems were big enough already: stock options, for example, that encouraged risks by rewarding upside success and not punishing failure...To maintain a healthy respect for risk taking, it is surely necessary to punish egregious over-reaching or spectacular misjudgment with the spectacular penalties they deserve and used to get but get no longer. Bear Stearns and others leveraged 20, 30, and 40 times...Such extreme leverage may be fine if you get away with it, but of course failure should have very painful consequences or the leverage will be 50 times next time. But this time the Fed volunteered to transfer the pain from ineffably rich bankers to the taxpayers. No wonder Volcker could hardly control his disgust last week: “The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers [spit], transcending in the process certain long embedded Central Banking principles and practices.” (Hawk and spit!).

One Guy Who Has Seen It All
by E.S. Browning
The Wall Street Journal Apr. 26 2008

Immoral Hazard  !Time Sink Alert!
by Jeremy Grantham
GMO Quarterly Letter, Apr. 2008

Classic Cappuccino Man

Be he ever so humble, it does rather keep piling up around MF Global chief executive Kevin Davis:

April 24 (Bloomberg)—MF Global Ltd., the derivatives brokerage that lost $2 billion in market value since February, is seeking to sell $200 million of convertible debt to private equity firms, according to two people familiar with the talks...

Funnily enough:

...“We have no plans to issue convertible debt,” Davis said on a Feb. 28 conference call with analysts. “We would regard that as being a last resort, and we do not currently believe that we will need to do so.”

Last resort, huh? That sounds promising.

MF Global Seeks $200 Million From Private Equity
By Matthew Leising
Bloomberg Apr. 24 2008

Recently on NakedShorts
Hey Kev, it’s cappuccino time
Apr. 18 2008

Disclosure: Long MF. Now, very nervously.

Systemic weekend reading

How old is the credit crunch? Old enough, it seems, for the “How we got here and how it will all end” books to have started hitting the shelves. Last weekend, The New York Times’ sane business columnist Floyd Norris reviewed “Wall Street: America’s Dream Palace” and “The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash”—the latter characterized as “brief but brilliant”—in the Sunday Book Review.

Barry Gewen added to the week’s cheery start on Monday with a review of Kevin Philips’ “Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism.”

The final pages of his bleak new book...tell of an “unprecedented” number of Americans planning to leave the country or thinking about it. Readers of “Bad Money” may come away with a similar impulse to flee.

The price is definitely right for the unintentional comedy in the Useless Bank of Switzerland’s “Shareholder Report on UBS’s Writedowns.” The sanitized version of a report demanded by the Swiss Federal Banking Commission explains the bank’s adventures in US residential mortgage securities. Shockingly, the losses were entirely due to the chicanery of people currently pursuing other interests including, no doubt, consulting attorneys as to whether or not the non-disparagement provisions of their severance agreements have been breached.

The other systemic issue confronting the global financial system is, of course, regulatory incompetence. “Fooling Some of the People All of the Time,” by Greenlight Capital’s David Einhorn, tells the story of his six year all-in battle with the extraordinarily sleazy Allied Capital (ALD), and its sleazy allies at the US Securities and Exchange Commission.

It is a surprisingly dark story, in which Mr. Einhorn’s usual winning touch vanishes for most of the narrative. As he struggles to figure out why, he appears naïve at certain times, petulant at others. But he presses on anyway, confident that vindication will come. It never really does...

...Large chunks...amount to an angry man's recital of his grievances—and Mr. Einhorn has some good ones. An SEC lawyer who quizzed him aggressively about his short-selling methods later went into private practice and registered as a lobbyist for Allied.

Links to the reviews after the jump...

Stories you’ll never see

SEC Charges Trader With Spreading False Rumors

Washington DC, April 24, 2008 - The Securities and Exchange Commission today charged David S. Products, a trader formerly associated with Bid’emToBang’em Securities LLC, an affiliate of NakedShorts InterGalactic Media Ltd, with securities fraud and market manipulation for intentionally spreading false rumors about several prominent financial stocks.

The SEC alleges that over recent months, Products has disseminated false rumors through blog postings, email and instant messages to numerous individuals, including traders at brokerage firms and hedge funds. The false rumors included such statements as “the bottom is in,” “the Fed has Dick Fooled’s back,” “valuations are compelling at these levels,” and “investment banks have sufficient capital.”

Citing one specifically egregious example, the SEC noted instant messages sent by Products concerning monoline insurer Ambac (ABK). On several occasions this year, ABK stock rallied on false rumors spread by Charlie Gasparino (ooops, sorry) Products that, among other things, the company’s AAA-ratting had been confirmed by Grumpy’s and Standard & Pooh; that New York State Prostitution commissioner Eric Spitzer had ordered a bailout of the company by Global Megabank NA; and that ABK had raised sufficient capital to meet its obligations. ABK more than doubled in price over Jan. 22-23, and gained almost 30 percent on Mar. 7 because of Products’ false rumors; the stock gained more than 10 percent on several other days this year.

“The message of this case is simple and direct. The commission will vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and stock purchases,” said SEC chairman Christopher “Flaccid” Cox.

“Today's action makes clear that the commission will act swiftly and decisively against those who would seek to profit by disseminating false information to the marketplace,”said Linda Chatman Thomsen, director of the SEC’s division of enforcement. “I am certain this action will greatly enhance my prospects for future gainful employment at Sue Aguirre & Runne.”

“The stories disseminated by Products were a figment of his imagination,” said Scott W. Friestad, associate director of the SEC’s division of enforcement. “Conduct like this is particularly insidious because it harms investors by distorting the information they use to make investment decisions.”

Without admitting or denying the allegations in the SEC’s complaint, Products agreed to settle the charges against him by consenting to the entry of a final judgment enjoining him from future violations of the anti-antifraud and up-the-anti-manipulation provisions of the federal securities laws, and requiring him to disgorge $26,129 in profits and interest, pay a maximum third-tier penalty of $130,000, and consent to the entry of a commission order barring him from association with any blogger or dealer.

The SEC’s investigation is continuing.

SEC Charges Trader With Spreading False Rumors
US Securities and Exchange Commission press release
Apr. 24 2008

Carry On Insider Trading

Infamy! Infamy! They’ve all got it in for me!

While the world’s been agog at the volatility of the career path of GLG emerging markets hot-shot Greg Coffey—now apparently resolved as an amicable ‘See ya,’ effective October—the UK-based, NY-listed, hedge fund manager quietly filed its 10K/A with the US Securities and Exchange Commission reporting the latest consequence of its congenital inability to play by the rules:

On January 25, 2008, the [Autorité des Marchés Financiers, the French securities regulator] notified the Company of proceedings relating to its trading in the shares of Infogrames Entertainment (“Infogrames”) on February 8 and 9, 2006, prior to the issuance by Infogrames on February 9, 2006 of a press release announcing poor financial results. The AMF’s decision to initiate an investigation into GLG’s trades in Infogrames was based on a November 19, 2007 report prepared by the AMF’s Department of Market Investigation and Supervision (the “Infogrames Report”). According to the Infogrames Report, the trades challenged by the AMF generated an unrealized capital gain for GLG as of the opening on February 10, 2006 of €179,000. The AMF investigation of the Company relates solely to the conduct of a former employee; however the Company was named as the respondent. If sustained, the charge against the Company could give rise to an administrative fine under French securities laws.

Noted with interest I: The filing curiously omitted mention of at least one other GLG entry in the 2007 Excellence in Compliance Cup:

GLG Agrees to Pay More Than $3.2 Million to Settle Charges
US Securities and Exchange Commission press release
Jun. 26 2007

Noted with interest II: GLG principal Manny Roman (pictured) is a member of the UK Hedge Fund Working Group, which earlier this year created a set of (self-described) high quality best practice standards. One might think that Mr Roman and his unindicted co-conspirators at GLG might try living up to the standards, but they didn’t get where they are today by leaving €179,000 on the table over a little matter of mere ethics.

GLG Partners Inc
SEC Form 10-K/A
Apr. 22 2008

Signs of the IPO apocalypse

1. Ken Griffin’s Citadel Investment Group LLC, normally prone to handing out information with Cheneyian enthusiasm, has hired a flackery.

---

From: Maynes, Emmy
Sent: Wednesday, April 23, 2008 09:34
To: Maynes, Emmy
Subject: Citadel News

Good morning.

I wanted to make sure you got a copy of the attached announcement released today; Derek Kaufman will be joining Citadel as a Senior Managing Director and Head of the US Fixed Income Business.

Please let me know if you have any questions.

Kind regards

Emmy Maynes
Junior Associate

---

2. NakedShorts has been accorded membership of the distribution list.

Swoon.

The Worst is Over Day I

Guest commentary
by David S. Products

OK, here is what we're trying to do.  As you no doubt have been proclaiming on your pixels “the worst is past, the bottom is here, all is well, go ahead and start spending again.”  You may be wondering why we are doing this ruse?  Well, the deal is that all the banks are pretty much insolvent so we need to recap all of them.

Especially in the UK where, and I know this is hard to believe, the lie factor is much higher.

So now we’ve had a rip in the stock market that means that we can:

1. Find fooles to invest in wiped out banks (see: National City and Corsair Capital (and, to be clear, it is pure coincidence that Corsair is a spin-off from JPM—what are you, a conspiracy freak or something?)) and
2. These uber-fooles (because they are by definition “greater”) will believe in a valuation big enough to be more than zero.

Oh, and in reading about National City over the weekend, a timeline of the crisis showed “Ten ways National City could have avoided trouble.”  Nine of the 10 were a variation on not making so many loans to people who couldn’t afford them, but Number 5 was:

Not buy back stock in early 2007
National City bought back more than $3 billion worth of its own stock in early 2007, when the price was at its highest in years and near its highest level ever. (It hit an all-time high of $39.44 in October 2004).

The buyback came in two waves—with the second approved by the board of directors in April 2007, just as the bank was gearing up to disclose that its first-quarter financial results weren't all that good.

A week after the second buyback was announced, the bank said first-quarter profits plunged by nearly one-third because of the slumping home loan sector. At the same time, the bank quadrupled its reserves for loan losses, believing that more tough times were ahead...Companies buy back stock to show that management feels good about the future and, sometimes, to increase earnings per share or spend unused cash.

They did what?  As you know crime never pays and I’m sure those responsible for that will be brought to full and fair justice.  It’ll be a big trial, I’m sure.  I can safely assume they are working on arrest warrants as we speak.

Noted with interest: Lehman spent over $750 million on share repurchases in its most recent quarter, while growing assets by another $90 billion and pushing leverage well over 40 times. It was, of course, able to refinance those repurchases by finding fooles to kick in $4 billion. (Please note the date on this Bloomberg article).

The Worst is Over Day II

Hours Minutes of fun on The Network

See how quickly you can fill in a row, column or diagonal while watching the business channel, and you'll get an idea of the extent to which a brief relief rally has convinced analysts that all of the difficulties of the economy and the markets are behind us.

(Click for a larger image)

If it takes more than 15 minutes to check every box—let alone rows, columns and diagonals—step away from the KoolAid and pay attention.

Intentionally Avoiding the Risk Trade
by John P. Hussman
Weekly Market Comment Apr. 20 2008

Things go better with Coke

Not to be confused with crack

Another polemic from hedge fund manager David Einhorn is in the wild, with his presentation at Grant’s (Interest Rate Observer) Spring Investment Conference earlier this month spreading across the financial interwebs with the virulence of a Britney crotch shot. At the macro level he blisters the usual suspects—rapacious investment banks, flawed risk models, mentally impaired credit ratting agencies, and captive regulators—before calling out Lehman Bros and its charismatic management, applauded recently for “not playing bridge while the franchise implodes.”

On recent market actions:

The next question is whether the bail-out was a good idea. It really comes down to Coke vs water...Coke tastes better and provides an immediate sugar rush and caffeinated stimulus while quenching thirst. Water also quenches thirst, but it isn’t as stimulating...It doesn’t make you fat and is much better for your long-term health...

One of the things I have observed is that American financial markets have a very low pain threshold. Last fall with the S&P 500 only a few percent off its all time high prices after a multi-year bull market, certain commentators and market players were having daily tantrums demanding that the Fed give them the financial equivalent of Coke. Other parts of the world endure much greater swings in equity values without demanding relief from central planners.

The Fed responded by providing liquidity and lower rates...now they have introduced the Big Gulp, also known as the Bear Stearns bailout and an alphabet soup of extraordinary measures to support the current system. If that doesn’t turn the markets, they are threatening the financial equivalent of having the water utilities substitute Coke for water throughout the system.

Private profits and socialized risk
by David Einhorn
Apr. 8 2008 [Tug o’ the forelock: Alchemy of Trading]

Earlier on NakedShorts
The Einhorn Agenda
Oct. 26 2007

Hey Kev, it’s cappuccino time!

But when these guys talk, PAY ATTENTION

[UPDATED] Activist hedge fund Jana Partners LLC yesterday disclosed an 8.2 percent stake—almost 10 million shares, or $100 million-worth, more or less—in the stumblin’ and bumblin’ and fumblin’ futures brokerage MF Global Ltd (MF). Putting aside what it delights in characterizing as legacy issues, MF Shippe of Foolles has, since lumbering to a high of $32.20 in late December:

• Lost, in less than entirely transparent circumstances, chief financial officer Amy Butte;
• Conceded a $141.5 million pillaging to a trader who, in late February, exploited a known, and deliberately maintained, flaw in its order entry systems to get seriously upside down on rather more wheat futures contracts than he should; and
• Bungled the imposition of higher margin requirements on its CFD clients in the UK, triggering rumors that MF Shippe of Foolles was once again flirting with icebergs.

On the sort-of positive side, it hired a new CFO—whose own butte had been on the beach since being kicked off the Ameritrade bus, apparently on grounds of being surplus to the requirements of a profitable business, in mid-2007—and caught something that looked suspiciously like a life-line tossed out by its former parent, the UK-based hedge fund manager Man Group plc.

So, a free piece of advice for olde pal of these pixels Kevin Davis, MF Global’s chief executive officer: Do not pull your

I don’t know who they are. I just do a good job of pretending that I am interested in what they say

act when your new shareholders show up in reception. Jana plays rough and that benign 13G will turn into a 13D missile quicker than you can blow the froth off the ceremonial cappuccino.

Jana Partners founder Barry Rosenstein says sometimes management needs a wake up call to improve the way it is running a business...

...“I think you have instances where you have Sleepy [not to mention Arrogant and Dopey—Ed] management” and sometimes it is necessary to shake-up a firm in order to “reenergize management.”

With any luck, game on.

[UPDATE: MF this morning released a trading statement saying that everything is hunky dory. Your mileage may vary.]

MF Global Ltd/Jana Partners LLC
SEC Schedule 13G
Apr. 17 2008

Jana’ s activist investing
Thomson Reuters Apr. 11 2008

Earlier on NakedShorts
He’s a pretender (and good at it)
Oct. 24 2007

Disclosure: (Nervously) Long MF. Somewhat comforted by a basis somewhat less than half the price Davis and his acolytes coughed up in a touching, but sadly premature, $3 million display of faith in their own dubious management talents after that little wheat fracas.

Nnnnnnnnooooooooooooohhhhhhhhh

The great ETF nightmare continues

We recently filed a prospectus
with the SEC to offer a
new MacroShares oil product

At the close of business yesterday, the MacroShares Oil Up (UCR) was trading at a 5.61 percent discount to NAV, while its evil twin, the MacroShares Oil Down (DCR), closed at $3.97, a 114.6 percent premium to NAV.

MacroShares Oil reaches an early termination trigger
MacroMarkets LLC press release
Apr. 17 2008

Banned in China

From: [Redacted]
Sent: Thursday, April 17, 2008 10:49
To: Greg Newton
Subject: Re: [Redacted]

Ha, I am in China and they don't let me open your blog...can you send the copied text to me?

[Redacted]

Certainly.

It’s a small world: GLG edition

As reported in these very pixels Tuesday, GLG Partners Inc, the London-based but New York-listed $20 billion-plus hedge fund manager, admitted overstating its GAAP earnings by the razor-thin margin of $600 million over the last couple of years. Please follow along for the latest edition of connect-some-dots:

• GLG’s New York Stock Exchange listing in Dec. 2007 was accomplished by reverse merger with Freedom Acquisition Holdings Corp (original trading symbol FRH), a special acquisition company (SPAC).
• GLG’s trouble-making auditor is Ernst & Young.
• FRH was controlled by, among others, Marlin Equities II LLC, “an investment vehicle majority owned by its managing member, Martin E. Franklin, the chairman of [FRH’s] board of directors...”.
• Franklin’s day job is chairman and chief executive of Jarden Corp (JAH), possibly a “world-class consumer products company with a diverse product array that are the brands of everyday life.” Or, as a NakedShorts’ correspondent put it, “an over-levered pig of a consumer products company.'”
• On Feb. 29, JAH announced that its audit committee had fired Ernst & Young.

Reached during his birthday celebrations in Washington DC yesterday, Pope Benedict XVI said “Was für ein zufall!” Which is pretty much what NakedShorts said last June about the flagrantly suspicious trading in FRH on the last business day before the GLG transaction was announced.

It’ll be interesting to see how long it is before E&Y gets dropped off the GLG bus. The under/over at this book is 15 minutes.

Earlier on NakedShorts
Convicted crooks restate results
Apr. 15 2008

Oh Happy Day!

About the only redeeming feature of the controversial MacroShares Oil Up (UCR) and Oil Down (DCR) ETFs is that they automatically blow up—sorry, are subject to a termination trigger—if the NYMEX Light Sweet Crude oil contract settles over $111 on three consecutive days. The May 2008 contract settled at $111.76 on Monday, and $113.79 yesterday.

It would only take a 3.5 percent move down—easily imaginable if, for example, the storage report shows an increase in supplies—to let the ETFs live another day. Facing big percentage losses are the holders of DCR; it closed yesterday at $4.12, a mere 83 percent premium to the NAV at which it will be paid out in the event of the termination event.  While that premium is down from over 100 percent on the $5.55 close Monday...

Sell, Mortimer, Sell!

Earlier on NakedShorts
Kill these ETFs now
Nov. 8 2007

Convicted crooks restate results

GLG, the London-based hedge fund manager that achieved the unique distinction of being sanctioned by regulators in three countries—the US, the UK and France—before listing on the New York Stock Exchange on Nov. 5 2007 didn’t get the ‘Mind the GAAP’ warning:

The total effect of the restatement for the error on the Company’s combined and consolidated statements of operations was:

[blah blah blah]

• a reduction in net income attributable to common stockholders of $403.1 million and $201.5 million for the years ended December 31, 2007 and 2006, respectively; and
• a net loss per share of $2.11 for the year ended December 31, 2007 and net income per share of $1.16 for the year ended December 31, 2006.

[blah blah blah]

Far be it from me to point out that $403.1 million is in the general neighborhood of the restatement that sent Scammy (20 years), Dan (20 years) and Jimmy (51 months) up the bayou without a paddle. While a similar outcome is probably unlikely here, it’s hard to see why anybody would want to invest in either the stock of, or funds managed by, a company congenitally incapable of abiding by either regulatory or accounting rules.

Tug o’ the forelock: Dealbreaker

GLG Partners Inc
SEC Form 8K
Apr. 15 2008

Investor presentation

Fixing the PWG’s best practices

The main problems with the reports on hedge fund ‘best practices’ released today by the President’s Working Group on Financial Markets’ asset managers’ and investors’ committees are easily fixed:

Principles and Best Practices for Hedge Fund Investors
Apr. 15 2008

Best Practices for the Hedge Fund Industry
Apr. 15 2008

Hot air alert

The two private sector committees created by the President’s Working Group on Financial Markets will release their separate sets of best practices for hedge fund investors and asset managers [today]. US Treasury secretary Henry M. Paulson, Jr will deliver remarks with Eric Mindich, chairman of the Asset Managers’ Committee, and Russell Read, chairman of the Investors’ Committee. Treasury assistant secretary for financial markets Anthony W. Ryan will answer questions with the committee chairmen following their opening remarks.

So, thanks for opportunity and hezzaquestion:

NakedShorts: We’ve already got the Managed Fund Association’s Sound Practices for Hedge Fund Managers, the Alternative Investment Management Association’s Sound Practices for Hedge Fund Managers, and even Hedge Fund Standards by the UK Hedge Fund Working Group. Why will this go around be any different?

Paulson: It won't. Although the new reports repeat the phrase 'principles-based' more than 6000 times, thereby proving the need for a new era of non-regulation regulation in financial services.

NakedShorts: Thanks. The transparency of your fraudulence is remarkable.

PWG Hedge Fund Committees Release Industry Best Practices
US Treasury press release, Apr. 14 2008

Isn't this a little late?

(Click for a larger image).

In a related development, Moody’s offers an e-learning program called...

...wait for it...

CLUE. So, at a rough guess, Moody’s Irony Detector is broken.

The Masters

An 85-year-old legally blind golfer from southern Arizona made a hole in one this week on a par-3 course. Robert Dunham accomplished the feat on the third hole at Tortuga in Green Valley...A volunteer assistant lined him up with the ball, handed him a 9-iron and stepped back. “I thought they were kidding me,” said Dunham, a World War II veteran who lost his vision about 10 years ago.

Blind golfer’s hole in one
Associated Press (via The New York Times)
April 12 2008

A commodity hedge fund advised by Brian Hunter, the energy trader whose bad bets triggered $6.6 billion of losses at Amaranth Advisors LLC in 2006, returned 49 percent in the first quarter, according to two investors. The Peak Ridge Commodity Volatility Fund, run by Boston- based private equity firm Peak Ridge Capital Group Inc., gained 6 percent last month and 103 percent since it was started in November...

Brian Hunter Helps Deliver 49% Return for Hedge Fund
By Saijel Kishan
Bloomberg Apr. 11 2008

Bayou judge goes soft on Scammy

Judge Colleen McMahon today sentenced Samuel Israel III, co-founder of the fraudulent Bayou hedge fund complex, to 20 years imprisonment for his part in the historic pillaging. But, perhaps worn down by Scammy’s relentless grizzling about his various ailments—at last count, his pacemaker, “an electronic device implanted in his body to address pain,” and his spine (if any)—she allowed him until Jun. 9 to surrender to the Bureau of Prisons.

Or, perhaps not:

He suffered from these ailments
while he did the crime...he can
deal with them while he does the time

McMahon handed the same sentence to co-conspirator Daniel Marino, Bayou’s chief financial officer, on Jan. 29, but ordered him incarcerated immediately. Marino is being held in the Metropolitan Detention Center, Brooklyn.

Bayou's Israel Gets 20-Year Term for Hedge-Fund Fraud
by Thom Weidlich and David Glovin
Bloomberg Apr. 14 2008

Damgard? Scamgard? Whatever

FIA boss pleads for Scammy

One sure sign of having way too much time one’s hands is digging through pre-sentencing court filings, and especially the letters from friends and family attesting to the defendant’s generally wholesome nature, wonderful family, health issues and other allegedly redeeming virtues and excuses. It’s all entirely predictable, and generally falls somewhere in the continuum between risible and pathetic.

Which does raise the question of what John Damgard, the long-time president of the Futures Industry Association, was thinking on Jan. 9 2006 when, in his official capacity no less, he went to bat for Bayou founder Samuel Israel III. Yup, the president of the futures industry trade association putting in a good word for someone who ranks high on any list of financial flim-flam artists.

Good work, John, sends just the right message. And coming to light on a day when the bizz is running into an egg-splattering for its core philosophy of We Keep The Winners, The Customers Take The Losers.

To Whom It May Concern
John Damgard, President,
Futures Industry Association
in re: US v. Samuel Israel III

Scammy tries one more for the road

Seeking judge’s recusal. Blog mockery?

Samuel Israel III, the Bayou hedge fund founder due to be sentenced on Monday, isn’t going down without trying one last scam. His attorneys have asked Judge Colleen McMahon to recuse herself, saying that a “confluence of facts” creates the appearance that she is “biased or prejudiced” against Scammy, and that her “impartiality might reasonably be questioned.”

The sudden concern with McMahon’s partiality ostensibly rests on events since early February, when the judge pitched a paddy about “granting endless extensions of time so that Mr Israel could be sentenced at his convenience (which is, apparently, never).” In reality, the recusal motion is the old college try at both keeping Scammy out of the clutches of the Bureau of Prisons for another few weeks, and finding a more sympathetic jurist after McMahon put Bayou’s chief financial officer Daniel Marino away for 20 years on Jan. 29.

Evidence of McMahon’s bias? Pretty thin gruel.

• McMahon retained control of the Bayou criminal cases when she moved from White Plains to New York in 2007, despite issuing a memo transferring her entire pending docket to another judge.
• The Department of Probation’s sentencing report was issued Feb. 19, but a “substantially different, with substantially more information” report followed Feb. 27; according to Scammy’s counsel, they should have had until Mar. 12 to respond, instead of the Mar. 7 deadline set by McMahon.
• The judge’s decision to docket, on the court’s electronic filing system, a letter from Scammy’s counsel that contained confidential medical information. Although the letter was subsequently removed, the damage was already done: at least

one blogger had discovered
the docketed letter and had
publicly mocked Mr Israel’s medical
condition on the internet

The least I could do. You’re very welcome.

Memorandum of law in support of motion for recusal
US v. Samuel Israel III
Apr. 3 2008

Earlier on NakedShorts
Wiping the smirk off his face
Feb. 27 2008

The Sports Page

Oh c’mon, the banks aren’t that befouled

[UPDATED] Richard Sandomir, The New York Times’ sports business columnist, on the challenges facing Donnie Walsh, named Thursday to replace Isiah Thomas as president of basketball operations for the New York Knicks :

He faces fixing a team that is the basketball equivalent of Bear Stearns, the investment firm that gambled badly on mortgage securities, saw two hedge funds collapse and needed a bailout by the Federal Reserve and an on-the-cheap acquisition by JPMorgan Chase to survive...

...Walsh’s task is not all that different from that of Vikram Pandit, the chief executive of Citigroup, which has been battered by turmoil in the credit markets and taken more than $20 billion in write-offs.

The Knicks are 20-56 this season after losing again on Thursday night. Since Thomas, who was named president in Dec. 2003 and added the coaching duties before the 2006-07 season, the Knicks are a sparkling 53-105.

Fixing A Broken Dream One Night at a Time
by Richard Sandomir
The New York Times Apr. 4 2008

[UPDATE Apr. 6 2008]
Absolutely, Positively the Worst Team in the History of Professional Sports
by Jeff Koplon
New York Magazine Apr. 6 2008

Positions: Former Knicks (nose-bleed) season ticket holder
(1990-2004).

Serve him right

SPhinX liquidators sue Angolan resident

Sorry to tease, but the latest suit in the Refco/MinusFunds/ SPhinX shambles runs 280 pages, names—rough count—some 50 defendants, and, well, takes some wading through. This morsel could not, however, wait:

Defendant Christopher Sugrue...
Upon information and belief has
fled the United States and
currently resides in Angola

Several things:

• Bad news: Angola does not have an extradition treaty with the US. Doh.
• Good news: Downtown Luanda is pretty much indistinguishable from midtown New York.
• Better news (especially if Sugrue decides to take a drive in the country):

Travel within Angola remains unsafe due to bandit attacks, undisciplined police and military personnel, sporadic high-intensity military actions in interior provinces, and unexploded land mines in rural areas. Foreign nationals, especially independent entrepreneurs, are subject to arbitrary detention and/or deportation by immigration and police authorities (Source).

Much more next week.

The Bear Stearns hearing

By the very low bar of past performance, today’s Senate Banking Committee on the Bear Stearns inferno was well worth watching. The politicians managed to keep their grandstanding to a minimum and even managed an intelligent question or two; the defendants (Is that right?—Ed) actually answered some of the questions, although the chatter about the need for transparency didn’t actually extend to providing much about the quality of the collateral, or the role that Goldman South Treasury played in setting the takeout price.

The most telling moment for me came when committee chairman Christopher Dodd (D. Conn) recalled a conversation with Bear Stearns chief executive Alan Schwartz in Aug. 2007. Dodd, doubtless begging for campaign contributions, apparently stopped talking long enough—and anybody who’s been in the same room as Senator Forehead (© Jeff Matthews) knows that wasn’t long—for Schwartz to say that investments banks should have access to Federal Reserve’s discount window. Which tells me at least three things:

1. Schwartz has been, despite all the happy talk in the earnings releases and television appearances, a worried man for a long time.
2. Despite those concerns, Bear Stearns made little effort to raise capital (see Lehman Bros, last week). And
3. It was suicide, not homicide.

Turmoil in U.S. Credit Markets:
Examining the Recent Actions of Federal Financial Regulators
Senate Banking Committee
Apr. 4 2008

Speechless

NakedShorts’ favorite senator, Iowa’s Chuck Grasshole, is at it again.

To aid homebuilders and other businesses hit hardest by the economic slump, Baucus and Grassley would extend a law allowing corporations to apply excess net operating losses to tax returns from prior profitable years and receive any applicable refunds.  For 2008 and 2009 losses, the provision would extend the “net operating loss (NOL) carryback” to four years (back to 2004 and 2005, respectively) from the two years currently in law. Measures to prevent companies from abusing the intent of the provision are also included (Source).

Unbelievable. Or not.

The last days of Bear

Did Goldman email trigger death spiral?

Roddy Boyd, the long-time New York Post reporter who recently hung his shingle at Fortune, reports on the Bear Stearns melt-down, with evidence that Bear Stearns’ chief executive Alan Schwartz and chief financial officer Sam Molinaro were, at best, economical with the truth in the days leading up to firm’s collapse.

But by March 10, the problem had metastasized into something direr than a rumor. Late the preceding Friday, a major bank—accounts differ on which—had rebuffed Bear's request for a short-term $2 billion loan. Such securities-backed repurchase (or “repo”) loans are crucial for investment banks, which borrow and lend billions to fund their daily business. Being denied such a loan is the Wall Street equivalent of having your buddy refuses to front you $5 the day before payday. Bear executives scrambled and raised the money elsewhere. But the sign was unmistakable: Credit was drying up.

On Tuesday, Mar. 11:

That morning Goldman Sachs’s credit derivatives group sent its hedge fund clients an e-mail announcing another blow. In previous weeks, banks such as Goldman had done a brisk business (for a handsome fee, of course) agreeing to stand in for institutions nervous, say, that Bear wouldn't be able to cough up its obligations on an interest rate swap. But on March 11, Goldman told clients it would no longer step in for them on Bear derivatives deals. (A Goldman spokesman asserts that the e-mail was not a categorical refusal.).

Both Schwarz (Mar. 12) and Molinaro (Mar. 11) appeared on CNBC denying rumors about the firm’s stability. In what was doubtless mere coincidence, Mar. 11 was the day that 55,000 March puts (which expired Mar. 20) traded at the $30 strike, while Bear’s stock was trading around $65.

Nobody would be surprised to find a strong correlation among recipients of the Goldman email and the put buyers. But Boyd’s story strongly suggests that Bear’s demise was based on much more than mere ‘rumor.’

The last days of Bear Stearns
by Roddy Boyd
Fortune Mar. 31 2008