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Today's Top News1. Citibank embroiled in law firm implosion
The implosion of law firm Dewey & LeBoeuf led to a whole lot of recrimination and ill-will, and the accusations now include charges that the law firm was essentially running a Ponzi scheme in which recently added partners were victimized by the old guard. Unsurprisingly, Citigroup has now been drawn into the mess. The bank acted as the firm's lead banker and as such, it extended loans to joining partners to finance their capital contribution. According to Reuters, former Dewey partner Steven Otillar argues that he and other partners were "fraudulently induced" into signing up for such capital contribution loans, the proceeds of which went to a firm on brink of failure. He contends that Citigroup had an obligation to inform him of the true state of the law firm's finances. Had he known that the firm was close to collapse, he argues he never would have joined the firm. By not informing him, the bank misled "me, my wife and countless other unsuspecting lateral hires and their spouses," Otillar says in his motion. Otillar was previously sued by the bank for defaulting on his loan. No other partner apparently has been sued. This is an intriguing issue, and it would make for an interesting trial. The notion that the law firm knew it was failing and needed new partners to prop it up seems to be worth exploring. For more: Read more about: Citigroup, Law firm
2. Columnist blames Facebook CFO for IPO
In picking apart the Facebook IPO debacle, influential DealBook columnist Aaron Ross Sorking recently wrote that, "It is David Ebersman's fault. There is just no way around it." "When it came to Facebook's catastrophe of an initial public offering — the stock reached a new low on Friday, closing at $18.06 — it was Mr. Ebersman, not Mr. Zuckerberg or Ms. Sandberg, who was ultimately the one pulling the strings. Now, three months after the offering, the company has lost more than $50 billion in market value. Let me say that again for emphasis: Facebook's market value has dropped more than $50 billion in 90 days. To put that in perspective, that's more market value than Lehman Brothers gave up in the entire year before it filed for bankruptcy…He signed off on the ever-increasing offer price, which ended up at $38 after the company had originally planned a price range of $29 to $34. He — almost alone — pushed to flood the market with 25 percent more shares than originally planned in the final days before the offering. And since then, as the point person for investors, he has done little to articulate how or why the company's strategy will lift the stock price any time soon." It may be unfair to blame him completely. I assume that he was wholly dependent for advice on Morgan Stanley. In any case, he's the CFO, and he must take responsibility. The really interesting decision here belongs to Mark Zuckerberg. Will he respond to the failed IPO, or will he let sleeping dogs lie? Most likely, he'll just exist with the status quo. You can't undo what's been done, but deep down you have to assume he has lost confidence in his top finance guy. A rising stock price would fix everything, but that's going to take a while. The moment at which Facebook could have been deemed a must-own phenom stock has passed. That chance will never come again. For more: Related articles: Read more about: Morgan Stanley, CFO 3. Wall Street critic pens satirical Goldman Sachs memo
Janet Tavakoli has earned a reputation as of the most trenchant critics of Wall Street. She was in rare form when she wrote a satirical Goldman Sachs memo, offering Prince Harry a job. It's funny stuff--"You've been overexposed. We completely understand that feeling!"--though Goldman Sachs no doubt would not take any suggestion that it is somehow become a rogue bank seriously. The "memo" spans a litany of events that Goldman Sachs would like to think have been put in the past. Tavakoli, in an interview with AdvisorOne, says that several banks beyond Goldman Sachs are in the same category: Never held accountable. Whether she's right or not--you could argue it several ways--it would appear that her thesis is becoming somewhat tired. She has every right to decry the fact that no major executive of a top Wall Street firm has been indicted criminally. They all got away with whatever they did, but that ship has sailed. No amount of criticism will produce an indictment. The prosecutors have moved on. As a historical exercise, attempts to excavate what happened and how are more than welcome. They are essential to pinning down what went wrong and to frame the regulatory response. Tavakoli has penned an e-book, The New Robber Barons, which attempts to take such a look. For more: Read more about: Goldman Sachs 4. Advertising proposal a boon to hedge funds?
What are the implications of the SEC's proposal to relax the historic restrictions on hedge fund advertising? On the surface, it would seem to be a big win, as hedge funds will be able to cast a very wide net in search of potential limited partners. But as with other new recent rules, the industry just might find the new law less of a boon than an interesting development that allows them a bit more flexibility but that's about it. When it comes to prospecting for investors, the pitch is pretty specific and hedge funds already have effective way of reaching institutions. When it comes to accredited individuals, the new rules may help a bit, but it's unclear how much. There's a chance that the new rules might lead to added confusion that detracts from the funds' cause. The bottom line is that the rules on investor accreditation aren't going to change. So if an alternative investment provider wants to come up with retail friendly products and advertise widely, the firms will have to make sure that they are focusing specifically on their targets (retail investors) and making clear the very limited products they qualify to buy. If they are advertising widely for accredited investors, the messages could end up getting mixed up. The last thing you want is for non-accredited investors to think they have access to certain funds now. This is a classic case of segmenting the market with appropriate marketing. The proposed rules do not necessarily make that much easier. If the proposals become law, my sense is that few hedge funds will step up their general advertising radically. For more: Related articles: Read more about: advertising
What can be said about the Jumpstart Our Business (JOBS) Act, which was aimed at aiding emerging growth companies that sought a public listing and therefore to help them create jobs? So far,the bill has been received tepidly by Wall Street banks and the companies the law was designed to help. A good example is the provision that allows underwriters to release research about the stock earlier is being viewed with skepticism. What has evolved in reality is a shortening of the quiet period to 25 days from 40 days, which may not have been what the JOBS sponsors were counting on. Another example is the secret filing provisions of the Act, which allows companies to file for the offering confidentially. The company does not make any filings public until a few weeks before the road show. Deal Journal takes a look at the Workday filing and notes how the new rules are playing out. "The move hammers home some of the strategic quandaries that the JOBS Act has presented to eligible companies. Confidential filings have regularly leaked or have been announced to the press, including Workday's back in July, negating at least that element of the secrecy. Some bankers also believe in having financials out there to give investors the impression that if someone wanted to buy the company, they could have a look – potentially giving a bit of a valuation bump. Whatever the reason, it goes to show the degree of mystery that has been introduced into these proceedings this year. There is little agreement among bankers and lawyers about how to use some parts of the JOBS Act, both in legal and strategic terms. Time will tell whether it all will lead to more companies actually making it public." For more: Related articles: Read more about: IPOs, JOBS Act Also Noted
SPOTLIGHT ON... David Einhorn fares well in August Not all big-name hedge fund managers are suffering. David Einhorn of Greenlight Capital has racked up a 4.2 percent gain in August, notes Reuters. For the year, the fund has informed investors that it is up nearly 11 percent, which stands in contrast to several other big funds that struggled, notably Paulson & Co. Coventry Health Care, which will be bought by Aetna, powered the gains. Article Company News: And Finally…Amazon sneaks ahead of Netflix. Article
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Wednesday, September 5, 2012
| 09.05.12 | Citibank embroiled in law firm implosion
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