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Thursday 19 February 2015

No Smoke Without Fire: Cerberus Capital Swap-Betting

Q.How did you go bankrupt?
 A. “Two ways, gradually then suddenly!” 
Ernest Hemingway, The Sun Also Rises.

Executive Summary:
As an insider in financing RadioShack’s troubled operations it has been alleged that Cerberus Capital and others sold / wrote credit default swaps, which ensures contingency payments on RadioShack debt for its buyers, in the event of a debt default event. RadioShack is currently in bankruptcy proceedings. And Cerberus et al of course didn't payout on the insurance which they deny having sold / wrote!   It is insinuated that RadioShack was allowed to survive until the expiry of the credit default swaps written by the hedge funds, to the detriment of normal business strategy to close some of its loss-making retail stores. Premise of lawsuit was that Cerberus and others were engaging in exploitation of troubled companies for insider financial trading profit at the expense of main street RadioShack and its stakeholders. Some may say “wow!”, others succumbing to what-was-and-is say “so what?”   FPM say about it in consternation astonishment and bewilderment “What the deuce!”

 No Smoke Without Fire: Cerberus Capital Insider Swap-Betting

For exemplification of FPM Reputation Risk we have locked onto Stephen A. Feinberg and his founded investment management Cerberus Capital Management (Cerberus). He and his hybrid investment firm, capable of private equity and hedge fund strategies such as  distressed investments are represented today in a Delaware bankruptcy court against allegations that it breached its fiduciary duty[1]. The electrical retailer group, RadioShack Corporation (now delisted from public exchange), is demised antagonist of its financiers. The 76-year old electrical stores firm made a well publicized Chapter 11 bankruptcy filing on 5th February 2015, evoking capital markets corruption via “conflict of interest”. The collusive fiduciary conduct of RadioShack’s distressed debt investors, namely Standard General, Salus Capital Partners, Litespeed Management and FPM-targeted, Cerberus Capital Management, is being questioned of hedge fund activism. Distressed investing and corporate activist strategies of hedge funds are often as destructively controversial as their nearby cousins the private equity buyout strategies.

While Standard General with nearly 10% stock in Radioshack and other mentioned and as yet unnamed hedge funds are perhaps exploitatively contributory to RadioShack's demise, FPM turn the spotlight on Cerberus Capital for its implied corrupt capitalism shenanigans. Our NSWF:Reputation© spotlight came to rest on Stephen Feinberg and Cerberus due to the historical joined-up enterprise via “Reputation Risk and Guilt by Association (RRGA)”, "Spreading Like Wildfire (SLW)" and "Reading Smoke Signals (RSS)". From basic research of Mr Feinberg, his absent without leave reputation map suggests roguery in his professional DNA. Here we apply our enterprise model to form the basis of FPM’s side-carting regulatory enforcement:
1) RRGA: Mr Feinberg joined Drexel Burnham Lambert, the brokerage investment bank, in 1982 after graduating from politics (while creditably a tennis captain at college). Drexel filed for bankruptcy on February 13, 1990 after years of Federal regulatory scrutiny and souring capital markets. Drexel are the infamously storied innovators of ‘junk-bond’ offerings. Risky types of loan liability because in bankruptcy the repayment priority is lower down in the capital structure of the issuing company, often with a low credit rating. A loan investment respectably referred to as leveraged loans and high yield bonds used by corporate financiers. FPM’s ‘reputation and guilt by association’ presumption of Mr Feinberg was flagged through our rogues gallery links with the Drexel. Drexel being the Madoff of its day by being “too-good-to-be-true” fraudsters of the 1980s; clearly with caveat that not all Drexel activities and deals were based on securities fraud.

2) SLW: Dennis B. Levine pleaded guilty to insider trading while at Drexel in May 1986. In his wake he also brought down other notable headline crooks of that era for insider trading, among other financial frauds. Namely Ivan Boesky, Michael Milken and Martin A. Siegel. Mr Siegel was co-head of Drexel's mergers and acquisitions department, and Mr Levine was an M&A specialist in the office next door. This brief “Den of Thieves”[1] essential ‘history lesson’, so discouraged by senior bankers, of course puts Mr Feinberg in the frame as an impressionable youngster in the exorbitant wealth creation yet amid maelstrom of naughty illegality. His tenure at Drexel overlapped with Mr Milken’s bond-desk stewardship exhibiting excessive capitalism of the 1980s. Mr Milken’s prototype lending is attributed partly to causing the savings and loans crisis and for the many business failures. Similarly, did Cerberus and the collective financier firms machinate RadioShack’s bankruptcy proceeding? Countering distracting propaganda is a truer image of vultures circling, then feeding off the carrion. This is akin to the bestial nature conveyed of immoral corporate financiers / capitalists. As financial history has tended to repeat itself, perhaps the financial class are steeped in madness, expecting a different outcome in the stale relationship between bankers lending and businesses borrowing.

3) RSS: FPM liken Drexel practices to the 1880-established Gruntal and Co, when  in its latter days before its bankruptcy-filed demise 25 years ago in February. Gruntal was a boutique investment banking and brokerage firm was a spawning ground for financial cheats including as yet unindicted Steven A. Cohen. Similarly, we draw a hypothetical parallel between Mr Cohen's SAC Capital (now a family office Point72 Asset Management) and Mr Feinberg’s Cerberus. Here’s the thing, SAC and Cerberus both formed as hedge fund strategies in 1992; just as other now established and dominant hedge fund sponsors Blackstone Group and other specialist private equity firms were established earlier between mid-1980s and early 1990s. For instance, Leon Black’s Apollo Management started business in 1990 out of the ashes of Drexel, and Blackstone five years earlier. There has often been much made of the kowtowing cheats-club members whom were by degrees connected through their ethnic creed backgrounds. Drexel diasporas also spawned Mr Black’s Apollo, as well as numerous others of the financial elite class, all of whom are registered in FPM’s ©NSWF:Reputation database. In the name of financial and corporate creative-destruction these investment bankers collude and coerce unsuspecting “empty-suit” investors and savings fiduciaries into building risky asset bubbles and then bursting them to act as white knight, corporate raider or financier? We like the DeepCapture.com term ‘bust out’ meaning ‘loot and destroy’.

4) Anecdotally, we notice UK’s prominent right-wing U.K. Independence Party (UKIP) political leader Nigel Farage, as having done a City of London tenure at Drexel Burnham Lambert between 1982 and 1986, after he left school to make money instead of choosing university. His credentials as party of dissent and distraction is not our remit.

5) While we may dismiss some industries by describing then as made of cliques cronies or of incestuous relationships the Drexel diaspora has indeed become a behemoth of secret collective conglomeration contentiously independent and seemingly in competition with each other. However, we note from attendees at Milken Institute conferences and the extravagant 60th birthday party of billionaire Mr Black that their collective identity is significant, and we don’t understate that cohesion by referring this club as exhibiting cordial relationships. Since Martin Siegel was co-head of Drexel's M&A department with Mr Black, it stands to reason that Mr Black might have known about illegal activity. While Mr Black was subpoenaed with Mr Siegel at the time of the investigation in 1986, the latter was never was charged. FPM believe this omission of complete and full justice was due to resource-constrained priorities of DoJ, such as pursuing Michael Milken as the big scalp.
6) The academic evidence of ‘corrupt capitalism shenanigans’ via the Drexel Diaspora is astounding, while overwhelming FPM research endeavours:

Companies owned by Apollo Global Management LLC and Cerberus Capital Management LP defaulted on their debt more than those owned by 12 of the other largest private-equity firms, according to Moody’s Investors Service.” Bloomberg via Newsmax 7/06/2014

[1] Den of Thieves is a book by Wall St journalist and Pulitzer prize winner James B. Stewart detailing the “Greed Decades” of the 1980s in investment banking.

Saturday 14 February 2015

YAALA! In With the New and Out With the Old!

"You're 'Avin A Laugh Alright!" a.k.a YAALA! - In this FPM digest written in a concise nature than our regular exhaustive deliberating posts, we aim to share some of our fund- and investments-related observations and activities. We anecdotally and analytically question and challenge established investment wisdom.

With the approach of Global Divestment Day on 14th February 2015 to show our support for a fossil free future, FPM target investors in BP Capital Management funds (nothing to do with the British oil giant) to exit their investments. We understand some energy sector investors have already bolted for the exit doors since the more than 50% drop in crude oil prices from the summer of 2014.

While FPM on first-impressions reputation respect the veteran oil tycoon and head of BP Capital, T. Boone Pickens. We understand Mr Pickens' energy investment companies are for the chopping blocks! Or at least into “Alt M&A” play.  While Mr Pickens is a legendary and constant promoter of the energy industry, having a created multi-billion dollar energy company  before concentrating on investing in them, by forming BP Capital in 1996, he’s time has come and gone. In With the New and Out With the Old in his environmentally damaging sponsorship of dirt energy companies.
Aside of his regular promotion of his oil / gas views focused on the USA via his blog website, we notice even today his opposition to Barack Obama’s Government policy to prevent Trans-Alaska pipeline and the Keystone pipeline projects.

He’s one of the largest sponsors of the US energy industry over the last half century yet selfishly or for his investors he seems ignorant of Climate Change concerns. Whether he is passionate in his fear-mongering beliefs (see below quote) or is routinely endorsing energy industry as he has instinctively done, we dare to suggest that the venerable oil entrepreneur is merely protecting his proverbial laurel crown.
"Should the president make this view a reality, America’s energy security will be dangerously undermined, and the prospects of a prolonged downturn in gasoline prices that benefit consumers to the tune of $720 per year will be in serious jeopardy… President Obama’s recent proposal to extend wilderness status to 12 million acres of the Arctic National Wildlife Refuge threatens the viability of America’s biggest oil pipeline: the Trans-Alaska pipeline" Source: T. Boone Pickens, Forbes 10 January 2015

We can only transition towards an alternative energy future if the mainstay die-hard fossil fuel energy and investment companies move out of the way, or sincerely steer their business model towards newer renewable clean energy sources.This is the sector in transition transactional and brokerage value to FPM's creative-destruction model of business.

FPM have analysed the performance of BP Capital Management's top 10 holdings, and other select energy firms. We will disseminate this investment review of the energy sector by calling investors such as London Pension Fund Authority  to urge divestment or switch recommendations, in the coming weeks. Fossil fuel divestment on climate change concerns isn’t just about “environmentalist-placating” policies but to broker the change and face of capitalism in an increasingly globalised plutocracy which is nudging the future inhabitants of the Earth towards the precipice of destroying humanity through the destruction of his habitat.  

Why Is A Fossil Free Future Important?

Climate change is the greatest challenge humanity has encountered. Warming in excess of 2°C will have catastrophic consequences. In order to have a chance of staying below this maximum upper limit of warming 80% of known fossil fuel reserves must not be burnt.

The fossil fuel industry currently holds vast carbon reserves which if burnt would result in emissions 5 times larger than what it is deemed to be safe. All available evidence suggests that fossil fuel companies intend to burn the reserves within their control. In addition, companies such as Shell are actively trying to discover new reserves, often in environmentally sensitive regions.

If it is wrong to damage the world we live in, then it is wrong to profit from that damage. Responsible investors should no longer be profiting from the destructive activities of these companies. Source FPM and 350.org

Calling All Creeds Activists:If you’re not already signed up, please join us 12.30, Sat 14th at City Hall to demand our city goes fossil free.