NakedShorts

777 DOWN! A reader poll

At yesterday’s close, the S&P 500 was off roughly 30 per cent from its Oct. 2007 peak...but is still almost 45 per cent ahead of its Oct. 2002 low. Survey says: 

Online Surveys & Market Research

Shamans of the Day

To commemorate yesterday’s $2.5 billion sale of Neuberger Berman, the core of Lehman Bros’ asset management business, to private equity firms Bain Capital and Hellman & Friedman, step forward another clutch of Wall Street’s Finest (© Jeff Matthews): 

Neuberger Berman, based on comparisons with other asset management firms, is valued at $6.5 billion by Standard & Poor's equity research and $13 billion by Ladenburg Thalmann & Co. The business is worth $8 billion according to Fox-Pitt Kelton Cochran Caronia Waller. Hintz, a former chief financial officer at Lehman who rates Lehman shares “market perform,” estimates the unit’s value at $7 billion.

Valuations that, to be fair, were no more delusional than most in Dick Fooled’s Fantasyland.

Nice trade, Brad!

Lehman May Get $7 Billion for Neuberger, Hintz Says

by Yalman Onaran

Bloomberg Aug. 12 2008

Burt Kozloff gets 15 months

Burt Kozloff, the prominent hedge fund salesman, was sentenced to 15 months jail for tax evasion when he appeared before Judge Colleen McMahon in federal court in White Plains on Friday, Sep. 26. He admitted the charge in Jun. 2007, and his sentencing had been deferred several times.

Kozloff was also ordered to pay off his outstanding tax liability of $404,491, and a special assessment of $100. Due to report to prison on Jan. 9, he will be subject to three years of supervised release after completing the sentence.

Both Kozloff’s attorney, and a spokesman for the US Attorney, said that the sentencing reports had been filed under seal. While the public version of these reports is often significantly redacted to, for example, maintain the confidentiality of personal medical records, it is, in NakedShorts’ admittedly limited experience, unusual for the reports to be sealed in their entirety.

NakedShorts declines irresponsible media speculation at this time. Subject to change without notice.

Earlier on NakedShorts

Kozloff cops tax evasion plea

Jun. 28 2007

 

Disclosure: NakedShorts has, under an assumed name, known Kozloff professionally for more than 15 years, and wishes him well for the future.

Feel free to make up numbers

Bankers, including Citi’s Vikram Pandit (center), huddled under a hastily-assembled TARP this weekend. Helicopters, from the Paulson Flight of the USS Taxpayer, will begin delivering relief supplies within the next few days.

Bye-bye 157. The Andy Fastow Rules are back

SEC.132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING.

     (a) AUTHORITY.—The Securities and Exchange Com-

mission shall have the authority under the securities laws

(as such term is defined in section 3(a)(47) of the Securi-

ties Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to sus-

pend, by rule, regulation, or order, the application of

Statement Number 157 of the Financial Accounting

Standards Board for any issuer (as such term is defined

in section 3(a)(8) of such Act) or with respect to any class

or category of transaction if the Commission determines

that is necessary or appropriate in the public interest and

is consistent with the protection of investors.

    (b) SAVINGS PROVISION.—Nothing in subsection (a)

shall be construed to restrict or limit any authority of the

Securities and Exchange Commission under securities

laws as in effect on the date of enactment of this Act.

Emergency Economic Stabilization Act of 2008
Page 88

Tricky little devil, that Michael Lauer Liar

A veritable bomber-fleet of stuff has sneaked under the credit shambles-obsessed radar over the last several weeks, but NakedShorts can always spare a pixel for inmate-in-waiting Michael Lauer. 

The Internal Revenue Service unloaded his “neglected [Greenrich, Conn.] backcountry mansion” for $2.5 million on Friday, three days after Kenneth A. Marra, US District Judge for the Southern District of Florida, more-or-less terminated more than five years of a civil action by characterizing Lauer’s operation of his Lancer hedge funds (d. 2003) as an “egregious, pervasive [and] premeditated” fraud.

Lauer is currently living in New York, where his entertainments include filing motions seeking the relaxation of bail conditions that, among other things, include 24/7 “home confinement with electronic monitoring paid for by the defendant” interrupted by “medical visits for self, wife and children; religious services; 3 times weekly visits with mother in [Conn.]” and “2 times weekly visit with children in NY.” But, hey, not all is lost. According to The Advocate, of Scamford, Conn.:

His attorney, Norman Moscowitz, said Lauer is not guilty...

And a ho-ho-ho to you too, Norm. Lauer’s criminal trial is scheduled for Apr. 2009. 

SEC Wins Major Hedge Fund Fraud Case

US Securities and Exchange Commission
Press release Sep. 24 2008

SEC v. Michael Lauer et al

Order and opinion on motion for summary judgement

Sep. 23 2008 

Sole bid of $2.5M nets house in Greenwich

By Colin Gustafson 

The Advocate, Sep. 27 2008

7 Dwight Lane [Greenrich, Conn.]

by Chris Fountain

For What It’s Worth Sep. 5 2008

Gutless hypocrite du Friday

Retailer of the decade, Eddie Lampert’s two-wrongs-don’t-make-a-right Sears Holdings Corp (SHLD), took shelter under the Cox short-ban umbrella on Friday. The irony being that SHLD has been a tough borrow since, approximately, right after it became clear that the founder of ESL Investments Inc, a hedge fund, had started believing the lubricious press cuttings clips nominating him as ‘The Next Warren Buffett.’ 

Chairman Also Asking To Be Added To ‘No Executive Kidnapping’ List

by Bess Levin

Dealbreaker Sep. 26 2008

NYSE adds 7 companies to short-selling ban

Reuters Sep. 26 2008

Earlier on NakedShorts

Eddie up a ladder with a saw

Feb. 6 2006

Lampert to acquire GM, Ford 

Jan. 9 2007

Porkie* du Credit Shambles

The Unbearable Lightness of Goldman Sachs

A Goldman spokesman said...that the firm was 
never imperiled by AIG’s troubles and that
 Mr. Blankfein participated in the Fed
discussions to safeguard the entire
financial system, not his firm’s own interests.

I think we’ve reached the point where somebody really needs to go to jail. And 85 Broad would be an excellent place to start rounding up a few of the usuals.

Behind Insurer’s Crisis, a Blind Eye to a Web of Risk
by Gretchen Morgenson
The New York Times Sep. 28 2008

*Cockney Rhyming Slang: Porkie = Pork Pie = Lie

Weekend reading

Amidst shelling, out from their shells

The riotage brought (at least) a couple of hedge fund managers out of their shells. 

Let’s step back. Wall Street’s greed and short sightedness, and the consumers’ real-estate bacchanalia, was certainly a big part of recent events, but the biggest drivers in creating the current crisis were (IMHO) not the fault of private enterprise but, as usual, of the government...

Cliff Asness Is Mad As Hell

by Joe Nocera

Executive Suite (NYT) Sep. 21 2008

There is nothing wrong with Government coming to the rescue of financial institutions where mismanagement has caused risk of failure in a way that jeopardizes the stability of the entire financial system. What is wrong, and is both a violation of public trust and a display professional incompetence, is to contribute taxpayer money in a way that enriches management and the owners of these mismanaged companies rather than the taxpayers. 

Violating Trust and Professional Incompetence

by Tim McCormack

via Opalesque Sep. 24 2008

On the other side

1. Rip van Christopher Cox

2. The perils of lying to Dave
    in re: Letterman v. McCain

3. Spot the Braincell

    in re: Palin v. Python

4. Breaking: The ratters sold their souls

The commodities hedge fund flap

Metal Bulletin this week runs 1850-or-so elegantly arranged pearls, assembled by yours truly under an assumed name, on the general theme of commodity hedge funds, their beatings in August and year-to-date, and what it might mean for their future.

It probably seemed a good idea at the time, but naming a commodity hedge fund after a solitary bird of prey turned out to be new proof of the old adage that birds of a feather flock together.

Ospraies and Red Kites were not alone in being savagely plucked by summer’s turmoil in the stock and commodity markets, but their spectacular losses set off a rather louder-than-usual dawn chorus of squawks and screeches...

Flight Or Fall
by Greg Newton
Metal Bulletin Sep. 22 2008

Disclosure: NakedShorts, again under an assumed name, headed the US businesses of Metal Bulletin plc (RIP) from 1987-2004.

I was rather proud of this

Not that anybody noticed.

We, the unknowing, are throwing
you, the unwilling, under the bus,
to save the unconscionable. We
have messed up so much,
for so long, at such great
cost, we are now qualified to 

do nothing with everything

Go read the whole damn thing.

Does electronic lumber. . .

...build Houses of Pixels? Come to think of it, they could might work out rather better than the current House of Cards. 

Kulcha Kornuh

Being of catholic taste, a cheapskate (someone else bought tickets) and in a world entirely bereft of depressing news, NakedShorts took himself last Saturday to a preview of the critically acclaimed (well, in London, anyway) production of Chekhov’s ‘The Seagull.’

A thoroughly unpleasant evening was endured, not helped by the fact that, had this been a Southwest Airlines flight, the person on my right would have had to buy an entire row. ‘The Seagull’ is the tale of the most miserable bunch of self-absorbed misanthropes ever to have walked the earth, delivered with all the panache of a Dodge Aries with a duff head gasket.

The highlight of the evening came when the whiny pissant of a protagonist finally blew his brains out, saving me, by seconds, from self-inflicting a similar fate. The box office declined a request for the return of three hours wasted. 

Other than that, highly recommended. Ben Brantley had it right, but probably not in the way his pointy little head intended. 

The world’s most complex oxymoron

(BN) *DODD SAYS DEMOCRATS, REPUBLICANS AGREE 'PRINCIPLES'

2008-09-25 16:57:47.490 GMT

Parsing The President

The Morons’ Moron Guide to Economic Salvation

SPEAKER: PRESIDENT GEORGE W. BUSH: Good evening. This is an extraordinary period for America’s economy.

We’re (word that rhymes with) plucked. 

We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action.

We’re clueless, but that won’t let that stop us taking decisive action.

Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets.

We, the unknowing, are throwing you, the unwilling, under the bus, to save the unconscionable. We have messed up so much, for so long, at such great cost, we are now qualified to do nothing with everything. (© Mother Teresa.)

This rescue effort is not aimed at preserving any individual company or industry. It is aimed at preserving America’s overall economy. 

I repeat, this crisis is strictly contained to housing. OK, a teensy bit leaked through but only to commercial real estate, the automobile industry, retail, credit cards, gas guzzlers, and the job export industry. Other than that, tightly contained.

First, how did our economy reach this point? Well, most economists agree that the problems we’re witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad because our country is an attractive and secure place to do business. This large influx of money to US banks and financial institutions, along with low interest rates, made it easier for Americans to get credit.

The war on drugs is working out as well as the war on terrorism. Damn furrn’uhs. 

Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.

Greenie, you did a heckuva job.

See, in today’s mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world. Many investors assumed these securities were trustworthy and asked few questions about their actual value.

Moody’s sprayed  gold paint on wet newspapers, so we could meet margin calls on the the cocaine bill. 

SEC triggers prison construction boom

Right about now, a whole bunch of people should be sweating buckets.

Washington, D.C., Sept. 24, 2008 – The Securities and Exchange Commission today charged a San Luis Obispo, Calif.-based investment adviser and its owner with fraud for failing to disclose a material conflict of interest when recommending that their clients invest in a hedge fund...

The SEC alleges that WealthWise LLC and its principal Jeffrey A. Forrest recommended that more than 60 of their clients invest approximately $40 million in Apex Equity Options Fund, a hedge fund managed by Salt Lake City-based Thompson Consulting, Inc. (TCI)...WealthWise and Forrest failed to disclose a side agreement in which WealthWise received a portion of the performance fee that Apex paid TCI for all WealthWise assets invested in the hedge fund.  From April 2005 to September 2007, WealthWise received more than $350,000 in performance fees from TCI.  Apex collapsed in August 2007, and WealthWise clients lost nearly all of the money they invested.

“Today’s action demonstrates that investment advisers will be called to account when, as we allege here, they receive undisclosed kickbacks for putting their clients into investments,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.  “We will aggressively pursue advisers who seek to line their pockets at the expense of their clients.”  [Emphasis added]

Investment advisors, or similar, taking undisclosed fee-splits from hedge funds in which they invest client assets? Or multiple similar variations on the fee-sharing theme, all featuring the word “undisclosed”? While not generally in the business of making predictions, NakedShorts predicts a tornado of revised disclosure memoranda. 

SEC Charges California Investment Adviser With Fraud

US Securities and Exchange Commission

Press release Sep. 24 2008 

A Chinese currency ETN behaving badly

NYSE-Arca, Susquehanna, got ’splainin’ to do

In the context of today’s unceasing trench warfare between massed armies of manipulators, it was little more than a bar-room brawl between off-duty corporals. But wild swings last week in the Market Vectors’ Remnimbi/USD exchange-traded note (CNY) showed the peril that awaits the unwary in placing market orders on thinly traded ‘stocks’ in violent markets. 

CNY ostensibly tracks the relationship between the US dollar and the Chinese currency. Ostensibly. On Sep. 17 it slumped more than 25 per cent below its close Sep 15. By contrast, the WisdomTree-Dreyfus Chinese Yuan (CYB) ETF declined less than one per cent over the same period. 

Its not exactly clear why CNY behaved as it did; the chain of responsibility includes its promoter, Van Eck Global; the financial backer, Morgan Stanley; the market-maker, Susquehanna International Group; and, ultimately, NYSE-Arca, the casino on which it lists. However the evidence — based on mile-wide spreads — would strongly suggest that Susquehanna was, at best, out to lunch. 

Investors had one solid reason to run from CNY; as an exchange-traded note, the shares are a debt obligation of Morgan Stanley (MS), which was almost incinerated in last week’s burning of the investment banks. 

Steel datapoint du jour

American Metal Market
Sep. 24 2008
(Article not directly linkable)

Earlier on NakedShorts

Here and here and here and here and here.

Disclosures

1. Short X, NUE. 

2. A long, long time ago...NakedShorts wielded, under an assumed name and to remarkably little effect, a business card which said that he was president of American Metal Market LLC.

Einhorn comes off no-short list

[UPDATED Sep. 24] While listed hedge funds and shadow hedge funds — not to name names, but GLG Partners (GLG), Och-Ziff (OZM), Fortress (FIG), Blackstone (BX) and General Electric (GE) spring to mind — shelter under the ban on short selling financial stocks, David Einhorn has pulled Greenlight Re (GLRE) off the SEC’s original list of protected species.

Meanwhile, add Man Group plc (EMG.L), the world’s largest hedge fund manager, to the ranks of gutless hypocrites. 

[UPDATE: EP and Bess are officially on fire.]

Disclosure: NakedShorts is long GE (bangs head on table).

...led by morons etc etc (Chapter 48,478)

In its surge to make the world safe for assorted rogues, pirates and racketeers, the Federal Reserve Board advertently played the Henry Ford — “History is bunk” — card Monday night and invited the ultimate foxes into the tumbledown henhouse with the carp-loaded balance sheet.

The Federal Reserve, unleashing its latest attempt to inject more cash into the nation's ailing banks, loosened longstanding rules that had limited the ability of buyout firms and private investors to take big stakes in banks. 

Rules, of course, put in place after rogues anciens used aforementioned banks as personal treasure troves at the expense of their customers and other stakeholders (starting to sound familiar?), a fact that Depression-era scholar Ben Bernanke appears to have conveniently forgotten.

So not only are More-or-less-gone Stanley and Goldman Sachs now nuzzling up to the FDIC-insured trough, they will be joined by such public-spirited citizens as Leon Black, Henry Kravis, J.C. Flowers, Steven Schwarzman and ol’ Three Heads himself, Cerberus’s Stephen Feingold, master of the no-need-for-a-bailout-here Chrysler and GMAC universes.

But K Street is on the job. According to Ed Yingling, chief executive of the American Bankers Association,

the banking industry will watch closely to make sure the new policies are strictly enforced to prevent “activist investors” from doing an end run around the Fed's scrutiny.

So that's all right then.

Not that any this came as an absolute stunner to any Goldman Sachs’ alums. 

 

Funds Get Freer Hand in Buying Bank Stakes

by Peter Lattman and Damian Paletta

The Wall Street Journal Sep. 23 2008

Policy statement on equity investments in banks

Federal Reserve Board Sep. 22 2008

Earlier on NakedShorts

A nation of idiots, led by morons (© Barry Ritholtz)

Sep. 23 2008

OK Janet, what do you really think

The specific section of the TARP Act about which the estimable Ms Tavakoli doth protest so much reads:

(c) DIRECT PURCHASES.—Where the Secretary determines that the purposes of the Act are best met through direct purchases from an individual financial institution where no bidding process or market prices are available, the Secretary shall pursue additional measures to — 

(1) ensure that prices paid for assets are reasonable; and 

(2) share potential benefits of the purchase to the financial institution, including, but not limited to, warrants or other similar mechanisms. 

Such measures are not required where purchases are made from an individual financial institution for the purpose of gaining greater control over a particular issue of securities for the purposes of facilitating loan work-outs.

Or, as it’s thought of here, the great, big eff-you Mr Market, I can drive a semi-trailer, make that a 200-car coal train, through that and my buds John and Lloyd and Dick (whooopth, too late) and Fred’s pals Ken and James, and their friends...will be just fine. No, really. And when Ken gets his hand on the tiller at Merrill, that’ll leave my mortgage banker consigliere John Thain...

The TARP Bill
(which somehow seems to have escalated from three pages over the weekend, to a svelte 42 pages now).

Shock and Awe? Try Shockingly Awful
by Randall W. Forsyth
Barron’s Sep. 23 2008