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2. Five top SAC Capital execs hold key to criminal charges

Hedge funds---the likes of Paulson & Co., Fairholme Capital and Perry Capital---have snapped up preferred shares of Fannie Mae and Freddie Mac at very low prices, betting that they'll be able to influence the Washington bureaucracy in ways that will lead to extraordinary gains. There has been a lot of maneuvering as of late, with a lot more to come.

The latest: Perry Capital has filed a federal lawsuit that accuses the government of illegally seizing the profits of the big housing GSEs. The lawsuit, filed in U.S. District Court in Washington, alleges that the Treasury Department and the Federal Housing Finance Agency violated a 2008 law that placed Fannie and Freddie into conservatorship to prevent them from bankruptcy.

"Congress originally authorized Treasury to collect 10 percent dividend payments from Fannie and Freddie every quarter as a condition of the government's $188 billion bailout of the companies. Treasury amended the terms of the agreement last year to make Fannie and Freddie give the government most of their profits, a move known as the "sweep amendment," according to the Washington Post.

"The lawsuit alleges that the dividend sweep was tantamount to a purchase of new securities, which Treasury did not have the authority to do. It also claims that FHFA has failed to conserve the assets of Fannie and Freddie by allowing Treasury to take most of their profits. Perry Capital is not seeking damages but is asking the court to strike down the changes Treasury made, a decision that would benefit its investors."

This has become a rather high stakes battle, given that both GSEs are generating enormous profits as the housing market recovers. The government has benefitted tremendously at a time when revenue has been hard to come by.

As of now, it would appear that the hedge funds are fighting an uphill battle; the mood in Congress remains one favorable to winding down the entities. It will take some hard lobbying to win big. We'll see if the funds can pull it off.

For more:
- here's the article

Read more about: Fannie Mae, Freddie Mac
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By Jim Kim

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3. Strong exit environment for PE portfolio companies

When it comes to personal criminal charges against SAC Capital founder Steven Cohen, the conventional wisdom holds that unless former employees Mathew Martoma or Michael Steinberg turn states evidence, Cohen is in the clear. So far, neither has shown any willingness to do so. But that has seemingly emboldened prosecutors to find other ways to charge SAC Capital criminally. As it turns out, there are several avenues for prosecutors to take.

The latest indication that they are successfully mounting some sort of case: five executives, including Thomas Conheeney, president, and Steven Kessler, chief compliance officer, met with prosecutors in recent weeks and answered questions about compliance procedures and trading practices, according to DealBook.

"If prosecutors continue to seek their cooperation, the executives are expected to testify before a grand jury."

That would be an ominous sign for the SAC Capital. "In interviewing Mr. Cohen's senior executives, prosecutors are gathering evidence for a possible indictment against SAC under the theory of corporate criminal liability, a move that would effectively destroy the fund," the article notes.

"Under that theory, the government can impute criminal liability to a company based on the benefit it received from an employee's acts that the authorities say are criminal. The government is loath to bring criminal charges against a corporate entity, fearing job losses and economic damage, but will pursue a case if it believes that the wrongdoing at the company is pervasive or condoned by management."

So it appears that charges are coming, one way or another. No matter what, the company will never be the same. It's already well on its way to becoming a family office. Cohen apparently believes investigators are out to destroy him.

For more:
- here's the article

Read more about: SAC Capital, Criminal Charges
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By Jim Kim

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4. Will ISS recommendation give Michael Dell a victory?

For the private equity industry, these are bad times and good times---all at the same time. The environment for deals, a few potential blockbusters notwithstanding, has been negative for the better part of the year, with many funds facing a surfeit of dry powder. By one estimate, the industry has a combined $187 billion in funds that must be put to work.

On the flipside, however, the environment for exits has rarely been so strong. Prequin notes that there were 324 private equity-backed buyout exits in the second quarter, valued at $92 billion, up from $50 billion in the first quarter and second. The total was second only to the second quarter of 2011, when 364 exits took place, valued at $128 billion.

However, private equity-backed buyout deal flow was down sequentially, with 606 deals announced globally for a value of $62 billion, compared with 678 deals in first quarter, valued at $86 billion.

The exit environment was particularly strong in public market, as 73 exits via the public market took place in the second quarter. That was the second highest number quarterly since 2006. The highest quarterly volume was the 84 exit via the public markets in the fourth quarter of 2010.

Industrials and information technology were the most prominent areas of buyout activity in the second quarter, representing a combined 43 percent of aggregate deal value.

It would not be surprising if volatile market conditions put a pause on IPO exits in the near future. Hopefully, it will not last long.

For more:
- here's the Prequin release

Read more about: Private Equity Exits
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By Jim Kim

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5. Bank of America board on hot seat for bonuses?

In something of a surprise, Institutional Shareholder Service (ISS) has come out strongly in favor of the offer put on the table by Michael Dell and Silver Lake.

"The issue facing Dell shareholders at this meeting has been framed in some media commentary as a choice between the sale to Michael Dell and Silver Lake Partners, or the leveraged recapitalization proposed by Icahn and SAM. It is not," ISS said in its report today, as noted by Bloomberg. "The alternative to accepting the buyout offer is to continue holding equity in a publicly-traded Dell, with continued exposure to the risks and rewards of ownership."

The endorsement was surprisingly mainly because the board's special committee seemed to be expecting an opposite recommendation. Indeed, it had advised Michael Dell that he should considering boosting his offer, anticipating perhaps bad news from ISS. But Dell, in some fine poker-playing, decided to sit tight with his bid.

It's unclear just how decisive the ISS recommendation will be. And it will be interesting to see how other proxy advisory companies weigh in on the issue. Some may disagree. But the ISS report is for now a clear victory for Michael Dell, and it bodes well for his chances at the upcoming special meeting of shareholders. At this point, one would have to say that he's in the pole position. Of course, Carl Icahn and Southeastern Asset Management will have a lot to say on this. They'll not likely give up soon.

For more:
- here's the article

Read more about: ISS, Leveraged Buyout
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By Jim Kim

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