The Goldman-Paulson fraud suit threatens to throw a spotlight on a realm of Wall Street that has escaped most scrutiny throughout the financial crisis: the hedge fund industry. Top hedge fund managers profit from Wall Street’s business model of fraud and collusion more than any CEO at the big banks, but tend to evade accountability because of the opacity of their industry and their extraordinary power.
One such hedge fund manager is Richard Perry. Perry, a former Goldman Sachs trader, became known as one of the subprime winners in 2007 — one of the hedge fund managers who saw the crisis coming, and placed profitable bets that the housing market would collapse. Perry reportedly shorted $3 billion in subprime-related securities, netting a $1 billion profit on the trade.
Around the same time, in late 2006 and 2007, Perry’s hedge fund, Perry Corp, began buying up shares in a certain financial management company that had a close business relationship with Goldman Sachs. His stake grew from 5% to 8% (around $30 million in early 2007), to the point where Perry Corp was disclosed as a major shareholder in the company in the prospectus for one CDO put together by Goldman in August 2007.
That company: ACA Capital, the same firm wrapped up in the Goldman Sachs-John Paulson CDO deal that the SEC has deemed fraudulent.
The Goldman fraud suit continues to dominate the media cycle. After the initial shock of the US government actually doing something to hold Wall Street accountable, the business press — led by Goldman Sachs and their lawyers at Sullivan and Cromwell — has turned to questions about the merits of the suit. Today, the New York Times gave A1 real estate to a piece headlined “A Difficult Path In Goldman Case.”
The article opens by saying that the SEC is “pursuing an unusual claim that could be difficult to prove in court” according to legal experts. But the article only quotes one legal expert clearly criticizing the substance of the case: Allen Ferrell, a professor at Harvard Law School. According to his CV, Ferrell has been engaged as an “expert for large financial institution involving subprime-related litigation (details confidential).”
This is clearly a potential conflict, but the entire article appears to be based around Ferrell’s lone, critical quote. This is irresponsible journalism, especially considering the landmark significance of the Goldman suit. So I wrote the following letter to the Times ombudsman to alert him to the conflict and request a proper correction/disclosure:
Paulson a major Cuomo donor
By Andrew Stecker • Apr 19, 2010 at 08:07 EST
Individuals from Paulson & Co., the hedge fund at the center of a fraud suit brought by the SEC against Goldman Sachs, have given nearly one hundred thousand dollars in campaign donations to New York Attorney General and presumed gubernatorial candidate Andrew Cuomo. Paulson & Co. is not charged in the suit, but its role in the generation of a mortgaged-backed security sold by Goldman Sachs lies at the heart of the SEC’s claim.
According to the New York State Board of Elections’ campaign finance data, John Paulson and his employees Putnam Coes, Paolo Pellegrini, Stuart Merzer, Michael Waldorf, and Andrew Hoine donated a combined $92,650 to Cuomo’s campaigns since 2008. The largest sums were given in 2009 by Paulson’s former partner Paolo Pellegrini ($45,000 on June 3rd) and Paulson himself ($25,000 on April 29th).
Paulson & Co. was also implicated in the recent Greek debt crisis, where it sought to profit from a fiscal situation that stemmed in part from swaps arranged by Goldman Sachs.
Paulson’s firm made huge profits in recent years by betting against the subprime mortgage industry.
Cuomo’s top campaign contributors include another hedge fund owner who profited by shorting subprime; James Dinan, head of York Capital Management gave Cuomo $25,000 in January 2008, and an additional $50,000 in June 2009. Dinan is also a major contributor to former NYS Insurance Commissioner and AG candidate Eric Dinallo ($55,900 in October 2009). Dinallo also received $10,000 from John Paulson and $5,000 from Paulson’s employee Michael Waldorf.
Our investigation of the bubble barons concluded earlier this month — below is the piece I wrote for AlterNet, summarizing our findings. A big thanks to all the analysts who participated! On to social security.
Following the deadly mine explosion in West Virginia last week, the CEO of the company that owned the mine quickly emerged as a sort of Dickensian villain in media reports. Massey Energy CEO Don Blankenship’s cavalier, profit-obsessed approach to mining had led him to dismiss pressing safety concerns at his mines. He had called safety regulators “as silly as global warming” and ordered managers to spend more time “running coal” and less time building ventilation structures. One miner told ABC News that working for Blankenship was “like living under a hammer. It’s all about the bottom line, we all know that.”
Blankenship was the hammer, but whose bottom line was he looking out for, exactly? The answer is somewhat surprising.
By Dennis J. Seese aka sundin
Don Blankenship, CEO of Massey Energy — the company that owned the mine where disaster struck last week — notoriously commented to Forbes in 2003 that “we don’t pay much attention to the violation count” even though the same article went on to note that the company’s three biggest rivals mined “twice as much coal in the state as Massey” and were only cited 175 times collectively, as opposed to Massey’s 501 citations in 2000-2001. Blankenship chalked it up to Massey’s being “unfairly targeted” by regulators (a common theme). Yet, a member of West Virginia’s Surface Mining Board referred to one of the violations Massey wasn’t “paying attention to” in this time period as “absolutely the worst behavior by any company that any member of this board has ever seen over the decades that this board has been in existence.”
But, honestly, why should Mr. Blankenship pay attention to violations when he can buy sympathetic judges and friendly legislators adverse to enforcing, and in some cases favoring efforts to roll back, those unfortunate regulations?
The Company Behind the Mine Disaster
By Kevin Connor • Apr 07, 2010 at 10:09 EST
The death toll in the West Virginia mining explosion has climbed to 25, the worst mining accident since 1984, and the company that owns the mine, Massey Energy, is coming under intense scrutiny for a record of safety violations that suggests it could have done far more to guard against disasters like the one that occurred on Monday.
Think Progress has compiled extensive data on violations at Massey’s Upper Big Branch Mine, where the accident occurred, showing that the company has been cited a staggering 3,007 times since 1995 for violations at that mine, with assessed fines of $2.2 million (Massey is currently contesting $1.1 million of that amount).
Disregard for worker safety was central to Massey’s business model: keep labor costs low to keep profits running high. That meant breaking unions and issuing memos like this one from CEO Don Blankenship which informed mine superintendents that “RUNNING COAL” was more important than any safety-related activity in the mines.
The Bubble Baron Network
By Kevin Connor • Apr 01, 2010 at 12:23 EST
The LittleSis.org/AlterNet citizens’ investigation of the Bubble Barons concluded last night, after a month of digging deep on the super-wealthy individuals who benefit most from our bubble economy. Thanks to all who participated! I am currently working on a final piece on the investigation and our findings.
In the meantime, to give you an idea of how much information the bubble baron research crew dug up, take a look at the following two network graphs. The first one shows a snapshot of LittleSis.org data on the bubble barons prior to the investigation. The second one shows this network graph after the investigation. The nodes represent bubble barons and the organizations and individuals they are connected with, and the lines represent relationships between them.
A network graph of the bubble barons, before the investigation (click through for the full-size image):