DOCSLIB.ORG

CEO Aubrey Mcclendon Relied on Financial Engineering to Build His Company; Now He Needs More and More Deals Just to Tread Water

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
CEO Aubrey Mcclendon Relied on Financial Engineering to Build His Company; Now He Needs More and More Deals Just to Tread Water DRILLING FOR CASH CEO Aubrey McClendon relied on financial engineering to build his company; now he needs more and more deals just to tread water. Chesapeake’s deepest well: Wall Street BY CARRICK to investors – akin to the MOLLENKAMP way subprime housing loans NEW YORK, MAY 9, 2012 were turned into securities and sold last decade. ar from the drilling rigs Deals like Glenn Pool are of Oklahoma, America’s known as volumetric produc- Fsecond-largest natural tion payments, or VPPs. These gas producer is having to dig and other sophisticated financ- ever deeper into the well that re- ings are central to the business ally fueled its growth: Wall Street. model of a company that in some In a Times Square office build- ways resembles a hedge fund, us- ing, a team tapped by Chesapeake ing borrowed money to make big Energy Corp deployed more than 40 financial bets. bankers, lawyers and other experts to The financial-engineering strat- plot another chapter in that strategy. egy began as a way for CEO Aubrey Dubbed Glenn Pool, it was more McClendon to expand the company. financial engineering than petroleum Now, Chesapeake has become so reli- engineering. In essence, Chesapeake ant on deals like Glenn Pool that more sold future rights to the gas in its wells. such transactions may be necessary just The deal took in approximately $850 mil- to tread water. lion last year. Today, the Oklahoma City company is Glenn Pool proved so innovative that taking in more money from bankers, other a trade magazine honored it in March. investors and its own financial bets than In an especially creative twist, the borrow- it is from its oil and gas. Most big energy ings were chopped into two slices and sold companies, such as Exxon Mobil Corp, typi- SPECIAL REPORT 1 DRILLING FOR CASH ChesapeaKE’S deepest WELL: WALL STREET cally earn more selling oil and gas than they Chesapeake has a superb total amount of financing McClendon has spend on investments, financing and other track record for completing large taken out against his stakes in wells drilled costs, making them cash rich. Chesapeake transactions. We’ll let our record by Chesapeake. Of that amount, $1.33 is expanding so fast that it takes in much speak for itself. billion came from EIG – which has also less revenue from its oil and gas than it helped line up $2.5 billion for Chesapeake spends, leaving it stretched. Michael Kehs itself since November. Hence its business depends on deal- Chesapeake spokesman The disclosures have embroiled the making: raise money from investors to company in a corporate-governance crisis, acquire land and drill wells; sell the rights prompting the board to strip McClendon to the gas and oil in those wells; plow that of his chairmanship and U.S. regulators to money into new land and wells; repeat the open informal inquiries. cycle all over again. EIG is drawing attention for its central role in financing McClendon’s personal FUNDING SHORTFALLS borrowings, which he took on to fund a Now, some analysts question whether lucrative perk giving him the right to re- Chesapeake can keep striking enough deals ceive stakes in company wells so long as he to sate its cash needs, which are growing shoulders his share of the costs. acute as natural gas prices languish. The gap The coterie of financial engineers is between cash coming in and cash going out much wider. It includes executives at Jeffer- shows “massive internal funding shortfalls,” ies & Co, chiefly Ralph Eads III, a Hous- according to an April report by Standard ton oil banker and McClendon’s fraternity & Poor’s. brother at Duke University. On Wednesday, Moody’s Investors Ser- The deals are so big that they require vice changed its outlook for Chesapeake’s UNDER FIRE: McClendon was stripped of the major trading partners and financiers, debt to negative from stable, citing “an chairmanship over his personal financial dealings like Barclays PLC, which handled Glenn even-larger capital spending funding gap but remains CEO. REUTERS/SEAN GARDNER Pool. Wall Street’s biggest banks, including for 2012,” due both to lower energy prices Deutsche Bank AG, Morgan Stanley, and and higher spending. Wells Fargo & Co, stepped in as both trad- Between now and the end of 2013, varying market conditions,” said spokes- ing partners and lenders, according to court Chesapeake expects as much as $23.1 bil- man Michael Kehs. “We’ll let our record documents and company statements. lion in costs for outlays such as wells and speak for itself.” All told, the financiers have helped property, according to the company and A Reuters examination of Chesapeake’s Chesapeake raise approximately $40 billion analysts. Yet funds from operations over the books, VPP deals by the company and its in financing since 2000. They’ve used their same period are expected to total as much CEO, and other novel transactions shows trading desks to hedge bets on gas prices as $8.3 billion. To cover the gap, Chesa- the financing is growing increasingly com- and interest rates, and advised on a host of peake plans to raise as much as $20.5 bil- plex and costly – and in some cases is in- deals, records show. lion from new ventures, including selling tertwined with the personal finances of the Some of the same financiers that have future production rights. chief executive. bankrolled Chesapeake’s deals also have “There seems to be little acknowledge- Last week, Reuters reported that Mc- made personal loans to McClendon, includ- ment by management or the board that the Clendon had co-owned and actively traded ing Goldman Sachs Group Inc. and Wells company faces a major financial crisis,” ana- in a $200 million hedge fund that bought Fargo, according to filings in Oklahoma. For lysts at International Strategy & Investment and sold the same commodities produced collateral with Goldman, McClendon put Group in New York said in a report May 1. by Chesapeake. up part of his wine collection. Wells Fargo Chesapeake says it has no trouble keep- On Tuesday, Reuters reported that one of and Goldman declined to comment. ing itself well-financed. Chesapeake’s chief financiers, EIG Global Chesapeake has strengths that could en- “Chesapeake has superb assets and a Energy Partners, arranged $450 million able it to ride out the storm. Low interest track record of successfully completing in personal financing for McClendon in rates have made its junk bonds popular with large transactions to monetize assets in March. That brought to $1.55 billion the investors. What’s more, Chesapeake is “asset SPECIAL REPORT 2 DRILLING FOR CASH CHEsaPEAKE’S DEEPEST WELL: Wall STREET An innovative deal The Glenn Pool transaction was a breakthrough, generating approximately $850 million for Chesapeake. Here’s how it worked: Chesapeake had about 3,300 wells in oil and Helped by bankers at Barclays, it put those natural gas fields in northern Oklahoma. assets in two trusts. GLENN POOL OIL AND GAS TRUST I $397.4 million $482.2 million GLENN POOL OIL AND GAS TRUST II Chesapeake Barclays received fees for Moody’s rated the trusts Investors will receive money received cash. arranging the deal, which as investment grade. generated from natural gas included “hedges” on gas prices. produced at the wells. Source: Moody’s Investor ServiceNote: The $850 million figure is net of reserve and transaction costs rich,” S&P said, noting how the company The deals allow Chesapeake to sell to ing scandals involving Enron and others a “has been adept at structuring varied and in- trading partners future natural gas and oil decade ago. novative transactions to generate funds.” production in exchange for upfront cash. Among McClendon’s advisers on these With its aggressive financial manage- Rivals have used VPPs, but Chesapeake has deals are Jefferies & Co. and its vice chair- ment, some analysts say, Chesapeake could tapped them much more frequently. man, Ralph Eads III. Both were members be making a correct bet that it can reinvest Reuters tallied 10 VPP deals by Chesa- of the Sigma Alpha Epsilon fraternity at the cash it’s raising in higher-yielding as- peake and two by McClendon. Chesa- Duke, are big donors to the North Caro- sets,Striking such as new wells. it rich peake’s use of VPPs has grown as rivals lina university, and share a love of expensive Chesapeake has raised about $38 billion “They know what they are doing,” said have moved away from them. The problem, French wine. Jefferies’ connections extend since 2000 John Rittenhouse, chief executive of EDF analysts say, is that a company gives up fu- into Chesapeake’s corporate suite. Mc- Trading,Volumetric aproduction London firm that isHigh one yield of ture cash from a well. They also are a rela- Clendon has credited his CFO, Domenic payments* corporate debt Chesapeake’s largest trading partners. “It is tively expensive source of capital. Dell’Oso, a former Jefferies banker, for $6.40b $15.50b a question of redeploying capital.” “It is rare for (exploration and produc- forming the “industry-leading VPP pro- IPO tion companies) to use VPPs as financing gram.” 15 MILLION ACRES $0.51b $38.04b vehicles, especially in recent years,” said Jo- A Jefferies spokesman declined com- Chesapeake’s remarkable rise dates to seph Allman, a J.P. Morgan Chase & Co ment. Dell’Osso didn’t reply to a request 1989,Follow-on when McClendon co-foundedConver tiblthee analyst who follows Chesapeake. for comment. company.offerings He dispatched “land men” acrossdebt Technically, VPP deals don’t increase a Chesapeake has disclosed some but not America$7.11b to scout out energy plays, eventu$8.52b- company’s debt, because they are deemed all of the details of its VPP structures in ally*Pref buildingerred share an empireSource: on 15 Thomson million Reuters acres to be asset sales.
Load more

Recommended publications
  • Friday, February 8, 2013 Stephen M. Ross School of Business Blau Auditorium
    Hosted by Alternative“Fireside Investment Chat” Presented by Professor David “FiresideManagement Chat” Jeff Gelfand Brophy “Fireside Chat” Brought to you by The UM Center for Venture Capital and Private Equity Finance Friday, February 8, 2013 Stephen M. Ross School of Business Blau Auditorium Session 1: Women in Investment Management, 9:30am - 11:15am Introduction: Alison Davis-Blake, Dean, Stephen M. Ross School of Business Moderator: Marcy Engel, Chief Operating Officer, Eton Park Capital Management Caryn Seidman-Becker, Chairman and Chief Executive Officer, CLEAR Kelli Turner, President, RSL Capital Leslie Rubler Warner, Vice President, Goldman, Sachs & Co. Amy Wildstein, Fund Manager, Boldcap Ventures Session 2: Buy Side v. Sell Side, 11:30am - 1:15pm Moderator: Marc Nabi, Managing Director, UBS Evan Damast, Managing Director, Morgan Stanley & Co. Steve Sakwa, Senior Managing Director, ISI Scott Schefrin, Portfolio Manager, Magnetar Capital Eric Sealove, Head Trader, TPG-Axon Capital Doug Shapiro, Senior Vice President, Time Warner Session 3: Hedge Fund Portfolio Management, 1:45pm - 3:15pm Moderator: Richard Lui, News Anchor, MSNBC Steven Shenfeld, President, MidOcean Credit Drew Marcus, Managing Partner, Sugarloaf Rock Capital David Goldman, Managing Director, PointState Capital Andrew Kim, Vice President, Paulson & Co. John Long, Partner, PointState Capital Steve Rosenberg, Investment Analyst, Hoplite Capital Session 4: Day in the Life of a Hedge Fund COO/General Counsel, 3:30pm - 5:00pm Moderator: Marcy Engel, Chief Operating Officer, Eton Park Capital Management Jeff Gelfand, Senior Managing Director & Chief Financial Officer, Centerbridge Partners Jason Herman, Partner, Simpson, Thacher & Bartlett Dan Hunter, Partner, Schulte, Roth & Zabel Ian Sandler, Chief Operating Officer, Carlyle Global Please RSVP to [email protected].
    [Show full text]
  • Copyrighted Material
    Chapter 1 Catch A Wave COPYRIGHTED MATERIAL 9 cc01.indd01.indd 9 111/17/091/17/09 99:38:56:38:56 AAMM cc01.indd01.indd 1100 111/17/091/17/09 99:38:56:38:56 AAMM he recruiter ’ s message was garbled and vague: Large, well - known private equity player looking to launch multi - strategy hedge fund. T It was late November 2006. I already worked for a large, well - known hedge fund fi rm, Magnetar Capital. Magnetar was launched in April 2005 by a 39 - year - old numerical savant named Alec Litowitz, formerly the Head of Equities at Citadel Investment Group and considered to be a master of merger arbitrage. Litowitz had joined forces with ex - Glenwood Capital Partners president Ross Laser. Man Group Plc had acquired Glenwood in 2000, pro- ducing a nice windfall for Laser; Litowitz, meanwhile, had been producing handsome profi ts at Citadel. Together, the two set up headquarters in Evanston, Illinois, outside Chicago and not far from Northwestern University. Magnetar opened its doors for business with $ 1.7 billion in assets under management. At the time, it was one of the largest hedge fund startups ever. Less than two years later 11 cc01.indd01.indd 1111 111/17/091/17/09 99:38:56:38:56 AAMM diary of a hedge fund manager Magnetar ’ s assets neared $ 4 billion, it had expanded its reach to open offi ces in New York and London, and it was charging after numerous forms of portfolio strategies not limited to merger arb or equities. Around the time Magnetar was forming, I launched, along with my partner Harry Schwefel, a hedge fund management com- pany called Falconhenge Partners, and a fl agship hedge fund of the same name.
    [Show full text]
  • SEC Complaint V. Edward S. Steffelin
    UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK U.S. SECURITIES AND EXCHANGE COMPLAINT COMMISSION, [Securities Fraud] Plaintiff, 11-CV-___________ ( ) v. ECF CASE EDWARD S. STEFFELIN, Jury Trial Demanded Defendant. Plaintiff Securities and Exchange Commission (“Commission”) alleges as follows against the defendant Edward S. Steffelin: SUMMARY 1. The Commission brings this securities fraud action relating to the structuring and marketing of a largely synthetic collateralized debt obligation (“CDO”) called Squared CDO 2007-1 (“Squared”). The investment portfolio for Squared consisted primarily of credit default swaps (“CDS”) referencing other CDO securities whose value was tied to the United States residential housing market. J.P. Morgan Securities LLC (f/k/a J.P. Morgan Securities Inc.) (“J.P. Morgan Securities”) structured and marketed to investors notes in this $1.1 billion “CDO squared” in early 2007 when the housing market and the securities referencing it were beginning to show signs of distress. Synthetic CDOs like Squared contributed to the recent financial crisis by magnifying losses associated with the downturn in the housing market. 2. The marketing materials for Squared – including the pitch book, term sheet, and offering circular – all described the process by which GSCP (NJ) L.P. (“GSC”), a registered investment adviser with experience analyzing credit risk in CDOs, purportedly selected the investment portfolio of Squared. Undisclosed in the marketing materials and unbeknown to investors or to the special purpose vehicles (“SPVs”) that issued the securities to investors in Squared, a large hedge fund, Magnetar Capital LLC (“Magnetar”), with economic interests adverse to investors in Squared, played a significant role in the portfolio selection process.
    [Show full text]
  • Complaint V. JP Morgan Securities
    UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK U.S. SECURITIES AND EXCHANGE COMPLAINT COMMISSION, [Securities Fraud] Plaintiff, 11-CV-___________ ( ) v. ECF CASE J.P. MORGAN SECURITIES LLC (f/k/a J.P. MORGAN SECURITIES INC.), Defendant. Plaintiff Securities and Exchange Commission ("Commission") alleges as follows against the defendant J.P. Morgan Securities LLC (f/k/a J.P. Morgan Securities Inc.) (“J.P. Morgan Securities”): SUMMARY 1. The Commission brings this securities fraud action relating to the structuring and marketing of a largely synthetic collateralized debt obligation (“CDO”) called Squared CDO 2007-1 (“Squared”). The investment portfolio for Squared consisted primarily of credit default swaps (“CDS”) referencing other CDO securities whose value was tied to the United States residential housing market. J.P. Morgan Securities structured and marketed this $1.1 billion “CDO squared” in early 2007 when the housing market and the securities referencing it were beginning to show signs of distress. Synthetic CDO squareds were designed to, and did, result in leveraged exposure to the housing market and therefore magnified losses when the United States housing market experienced a downturn. 2. J.P. Morgan Securities’ marketing materials for Squared – including the pitch book, term sheet, and offering circular – all represented that the investment portfolio of Squared was selected by GSCP (NJ) L.P. (“GSC”), a registered investment adviser with experience analyzing credit risk in CDOs. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Magnetar Capital LLC (“Magnetar”), with economic interests adverse to investors in Squared, played a significant role in the portfolio selection process with the knowledge of J.P.
    [Show full text]
  • NAC Statutory Disqualification Decision SD-1904
    BEFORE THE NATIONAL ADJUDICATORY COUNCIL FINANCIAL INDUSTRY REGULATORY AUTHORITY In the Matter of Continued Membership Notice Pursuant to Rule 19h-1 of Securities Exchange Act of 1934 J.P. Morgan Securities, LLC, SD-1904, SD-1905, and SD-1984 with FINRA December 18, 2014 I. Introduction On August 16, 2011, J.P. Morgan Securities, LLC (“the Firm”) submitted two Membership Continuance Applications with FINRA’s Department of Registration and Disclosure (“RAD”). On March 14, 2013, the Firm submitted a third Membership Continuance Application (together with the August 16, 2011 applications, the “Applications”) with RAD.1 The Applications seek to permit the Firm, a member subject to statutory disqualification as a result of three separate judgments, to continue its membership with FINRA. Hearings were not held in these matters. Rather, pursuant to FINRA Rule 9523, FINRA’s Department of Member Regulation (“Member Regulation”) recommended that the Chair of the Statutory Disqualification Committee, acting on behalf of the National Adjudicatory Council, approve the Firm’s continued membership with FINRA pursuant to the terms and conditions set forth below. For the reasons explained below, we approve the Applications. II. The Statutorily Disqualifying Events A. The June 2011 Judgment The Firm is subject to a statutory disqualification as a result of a judgment entered against it in the United States District Court for the Southern District of New York, dated June 29, 2011 (the “June 2011 Judgment”). The June 2011 Judgment, among other 1 SD-1904 and SD-1905 correspond to the MC-400A applications filed by the Firm on August 16, 2011, in connection with the June 2011 judgment and the July 2011 judgment, respectively, which are described below.
    [Show full text]
  • Synthetic Cdos, Conflicts of Interest, and Securities Fraud
    O'HARE 482 AC (DO NOT DELETE) 1/6/2014 8:45 AM SYNTHETIC CDOS, CONFLICTS OF INTEREST, AND SECURITIES FRAUD Jennifer O’Hare * I. INTRODUCTION Following the financial crisis, the synthetic collateralized debt obligation (“CDO”)—a complex derivative that received little mainstream attention prior to the housing meltdown—became big news.1 Journalists wrote numerous articles explaining how synthetic CDOs spread the contagion of toxic assets throughout the financial system, nearly bringing down the global economy.2 Government hearings exposed the ugly conflicts of interest inher- ent in the structuring of synthetic CDOs, as big investment banks created, sold, and invested in synthetic CDOs and often bet against their clients.3 Some of the world’s largest financial insti- tutions, who faced bankruptcy when their investments lost value, bitterly complained that these synthetic CDOs had been “de- signed to fail” so that the investment banks could profit at their * Professor of Law, Villanova University School of Law. J.D., 1990, The George Washington Law School; B.S.E., 1986, The Wharton School of the University of Pennsyl- vania. The author gratefully acknowledges that research for this article was supported by a summer stipend from the Villanova University School of Law. The author is also thank- ful for the exceptional research assistance of Christopher Chuff. 1. See, e.g., Bloomberg News, JPMorgan in Talks to Settle S.E.C. Inquiry Into Secu- rities, N.Y. TIMES, May 7, 2011, at B2; Gretchen Morgenson & Louise Story, Banks Bun- dled Debt, Bet Against It and Won, N.Y. TIMES, Dec. 24, 2009, at A1.
    [Show full text]
  • United States District Court Southern District of New York
    Case 1:12-cv-02683-RWS Document 1 Filed 04/06/12 Page 1 of 44 (c UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK INTESA SANPAOLO, S.P.A., Civ. No. Oi2 Plaintiff, -against- CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, CREDIT AGRICOLE SECURITIES (U.S.A.) iNC., THE PUTNAM ADVISORY COMPANY, LLC, MAGNETAR CAPITAL LLC, MAGNETAR CONSTELLATION FUND, LP, AND MAGNETAR CAPITAL FUND, LP, Defendants. Plaintiff Intesa Sanpaolo, S.p.A. ("Intesa" or "Plaintiff'), by its attorneys Quinn Emanuel Urquhart & Sullivan, LLP, brings this Complaint against Credit Agricole Corporate and Investment Bank ("Calyon CIB"), and Credit Agricole Securities (U.S.A.) Inc. ("Calyon (U.S.A.)") (collectively, "Calyon"); The Putnam Advisory Company, LLC ("Putnam"); Magnetar Capital LLC ("Magnetar Capital"), Magnetar Constellation Fund, LP ("Magnetar Constellation"), and Magnetar Capital Fund, LP ("Magnetar Capital Fund") (collectively, "Magnetar") (all of the defendants collectively, "Defendants") and alleges as follows: Nature of the Case 1. This action arises out of Defendants' fraudulent scheme to secretly stack the deck against unknowing investors, including Intesa, in favor of the now-infamous hedge fund known as Magnetar. In July 2006, Calyon structured a collateralized debt obligation ("CDO") called Pyxis ABS CDO 2006-1 ("Pyxis"). Calyon marketed Pyxis to unsuspecting investors as an investment based on residential mortgage-backed securities ("RMBS") which had been chosen Case 1:12-cv-02683-RWS Document 1 Filed 04/06/12 Page 2 of 44 by a respected, putatively independent firm, Putnam, acting diligently and in good faith in the interests of long investors, and using a rigorous selection process that was consistent with the highest industry standards.
    [Show full text]
  • US Performance Awards 2013
    feature US performance awardS 2013 E T H L R S A L N E I N W Host for the day: journalist carl bernstein US HEDGE FUND PERFORMANCE AWARDS U S PERFORMANCE AWARDS THE INSIDE STORY FROM A NIGHT OF CELEBRATION AT NEW YORK’S CIPRIANI over 800 attendees, 40 awards and countless talking points were in place last week for the annual celebration of some of North America’s finest managers. AQR’s cliff Asness kicked off proceedings, collecting the headline outstanding contribution award, and telling the packed audience to “be proud of what we do” as an industry. Outstanding his was just the first award of a cOntributiOn night packed with big names and WinnEr cliff AsNess undercover stars. Turn the page for cliff Asness, managing and founding principal at AQR, with Pageant media editorial director Gwyn the winners in full…. Roberts. Award sponsored by misys. 24-30 oct 2012 hfmweek.com 21 feature US performance awardS 2013 NewcOmEr - OtHEr WinnEr Candlewood StrucTuRed cRediT MasTeR fuNd HigHLy cOmmEndEd BeAch PoiNT selecT fuNd Brian herr, Greg Garone and indra chandra, candlewood structured credit master fund, receive the award from michael Brown, special counsel, schulte Roth & Zabel. fund Of HEdgE funds NewcOmEr - Equity newcOmEr WinnEr WinnEr GrandmAsTeR Capital GAPsTow commuNiTy fuNd fiNANciAls fuNd Alice lustig, director within the capital michael secondo (left), senior vice-president - introductions group of Alternative investment business, u.s. Bancorp fund services, presents solutions, Newedge, presents the award to the award to Alison schwab
    [Show full text]
  • Hedge Fund Regulation: Prospects of the Alternative Investment Fund Directive in the Netherlands
    Hedge Fund Regulation: Prospects of the Alternative Investment Fund Directive in the Netherlands ARIELLE NJIKI TILBURG UNIVERSITY INTERNATIONAL BUSINESS LAW September 2012 Arielle Njiki Hedge Fund Regulation: Prospects of the Alternative Investment Fund Directive in the Netherlands Foreword During the course of my IBL master, I had little insight into the activities of hedge funds and the role they played in the events of the financial crisis. As regulatory deficiencies were analyzed during various subjects of the master, the contribution of hedge funds to the impact of the financial crisis and consequently the extent to which the deficiencies in the regulation of these funds had contributed to the main problems the financial systems faced, were not emphasized. With the insight of my supervisor E.P.M. Vermeulen, my attention was drawn to this particular segment of the financial sector and to the conflicting activities that influenced the impact of the financial crisis. In consequence, this dissertation gave me the opportunity to take a closer look at the structure and activities of hedge funds and to understand how more stringent regulation on the activities of hedge funds can contribute to a constructive recovery of the financial markets in the EU and more specific in the Netherlands. Although the financial crisis occurred in 2008, the impact of the events is still noticeable in the financial markets across the world. In this context, the aim of this dissertation is to contribute to the continuing debate on effective regulation of financial actors and their activities in the financial markets of the Netherlands. The writing of this dissertation has been an educational process on diverse levels and I trust that this instructive experience will be perceived through this paper.
    [Show full text]
  • 2011 Wall Street Fraud Read Just About Any Article in the Financial
    2011 Wall Street Fraud ―FALSUM IN UNO, FALSUM IN OMNIBUS‖ false in one thing, false in everything Psychopaths gain satisfaction through antisocial behavior, and do not experience shame, guilt, or remorse for their actions. Psychopaths lack a sense of guilt or remorse for any harm they may have caused others, instead rationalizing the behavior, blaming someone else, or denying it outright. Psychopaths also lack empathy towards others in general, resulting in tactlessness, insensitivity, and contemptuousness. All of this hampers their tendency to make a likable first impression; psychopaths have a superficial charm about them, enabled by a willingness to say anything to anyone without concern for accuracy or truth. Shallow affect also describes the psychopath's tendency for genuine emotion to be short-lived, glib and egocentric, with an overall cold demeanor. Their behavior is impulsive and irresponsible, often failing to keep a job or defaulting on debts. Psychopaths also have a markedly distorted sense of the potential consequences of their actions, not only for others, but also for themselves. They do not deeply recognize the risk of being caught, disbelieved or injured as a result of their behavior. Read just about any article in the financial press about a Securities and Exchange Commission settlement with some accused fraudster, and you probably will see two lines bound to get a lot of eyes rolling. One is that the “defendant neither admitted nor denied the SEC’s claims”. The other is that the “penalties include a court injunction or SEC order barring the alleged crook from breaking the securities laws in the future”, as if it had been perfectly legal to violate them beforehand.
    [Show full text]
  • Tomorrow's Titans
    2021 Tomorrow’s Titans TOMORROW’S TITANS 2021 Introduction Fifty Rising Stars HAMLIN LOVELL his is the sixth edition of handful of managers were seeded by family In the quantitative space, statistical learning and our Tomorrow’s Titans “Increased appetite offices, which are not usually disclosed. machine learning are areas of growing interest. report; previous reports At least six managers – ActusRayPartners, were published in 2010, on the part of Investment structures are most likely to be Blueshift, Leibniz, Rosetta, Manteio and 2012, 2014, 2016 and Cayman, Luxembourg or Ireland private funds Bayforest – are using some degree of machine 2019. The format has been managers to give or managed accounts, but a few have launched learning but all apply it differently in their own expanded from previous with a UCITS fund as their first vehicle: such as ways, and only one of them claims to be applying editions, which published interviews reflects a Venkat Pasupuleti of Dalton and Markus Schanta 100% deep reinforcement learning. fifty short profiles. This generally optimistic of BlueBalance. Tyear, thirty-six managers have short profiles, and Generally, the quantitative managers have fourteen have extended profiles written off the mood around hedge There is a wide range of assets under previously worked for larger quantitative back of interviews. management: some managers have raised more managers, such as AQR, Man Group, Tudor fund performance than $500 million or $1 billion – in some cases Capital Europe, and Credit Suisse Asset Increased appetite on the part of managers to give from day one – while others might have started Management, though one of them – Blueshift – interviews reflects a generally optimistic mood and asset raising.” with as little as $20 million, using a third-party came from a proprietary trading firm and another around hedge fund performance and asset raising, management company and outsourced service – Rosetta – was previously at an investment notwithstanding some anxiety around Brexit providers.
    [Show full text]
  • Limits of Disclosure
    Limits of Disclosure Steven M. Davidoff* Claire A. Hill* Preliminary and Incomplete Draft Please do not cite without author permission October 29, 2012 Abstract Disclosure has its limits. One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. But most of the criticisms of disclosure relate to retail investors. The securities at issue in the crisis were mostly sold to sophisticated institutions. Whatever retail investors’ shortcomings may be, we would expect sophisticated investors to make well-informed investment decisions. But many sophisticated investors appear to have made investment decisions without making much use of the disclosure. We discuss another example where disclosure did not work as intended: executive compensation. The theory behind more expansive executive compensation disclosures was that shareholders might react to the disclosures with outrage and action, and companies, anticipating shareholder reaction, would curtail their compensation pre-emptively. But it was apparently not the reality and instead compensation spiraled higher. The two examples, taken together, serve to elucidate our broader point: underlying the rationale for disclosure are common sense views about how people make decisions—views that turn out to be importantly incomplete. This does not argue for making considerably less use of disclosure. But it does sound some cautionary notes. The strong allure of the disclosure solution is unfortunate, although perhaps unavoidable. The admittedly nebulous bottom line is this: disclosure is too often a convenient path for policymakers and many others looking to take action and hold onto comforting beliefs in the face of a bad outcome.
    [Show full text]