The Hedge Fund Law Report

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By Topic: Book Reviews

  • From Vol. 10 No.7 (Feb. 16, 2017)

    WilmerHale Attorneys Detail 2016 CFTC Enforcement Actions and Potential Priorities Under Trump Administration

    Fund managers that trade futures, swaps and other derivatives may be subject to both CFTC and SEC supervision. A recent web briefing by regulatory and enforcement attorneys from WilmerHale provided a comprehensive review of significant enforcement and regulatory actions by the CFTC in 2016, considered pending CFTC legislation and regulation and offered insight into what CFTC operations and priorities may look like under the Trump administration. The briefing featured WilmerHale partners Paul M. Architzel, Dan M. Berkovitz and Anjan Sahni, along with special counsel Gail C. Bernstein. This article highlights the panelists’ key insights. For additional insight from WilmerHale attorneys, see “FCPA Concerns for Private Fund Managers (Part One of Two)” (May 28, 2015); “FCPA Risks Applicable to Private Fund Managers (Part Two of Two)” (Jun. 11, 2015); and “Best Legal and Accounting Practices for Hedge Fund Valuation, Fees and Expenses” (Jul. 18, 2013).

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  • From Vol. 3 No.42 (Oct. 29, 2010)

    “Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry,” By Steven Rattner; Houghton Mifflin Harcourt, 336 Pages

    In early 2009, Steven Rattner found himself appointed as the nation’s “auto czar” by President Barack Obama, with a mandate to rescue General Motors and Chrysler.  Rattner, a former Lazard investment banker, ran the private equity firm Quadrangle Group LLC, which was known for media and telecom deals, and for managing New York City Mayor Michael Bloomberg’s fortune, but he had little experience with the manufacturing sector.  Although he may have seemed an unlikely savior, Rattner has written a memoir claiming that he and his handpicked “Team Auto” should be credited with one of the most important successes of the Obama administration.  Rattner gives a detailed account of the rapid restructuring of the companies through accelerated bankruptcy proceedings.  He asserts that his handiwork has left GM and Chrysler viable and competitive, giving taxpayers a reasonable chance of recovering most of the $82 billion in federal aid received by the carmakers.  While that judgment may be premature, with initial public offerings still pending, there have been some encouraging signs of progress.  Our book reviewer, Joshua A. Lustig, offers a comprehensive review of Rattner’s new memoir.

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  • From Vol. 3 No.19 (May 14, 2010)

    “Confidence Game: How a Hedge Fund Manager Called Wall Street’s Bluff,” By Christine S. Richard; Wiley, 335 Pages

    Bloomberg News reporter Christine S. Richard’s new book tells the story of hedge fund manager Bill Ackman’s six-year short-selling crusade against municipal bond insurer MBIA.  The tale is interesting on a purely personal level, as a study of Ackman’s remarkable character: his irrepressible outspokenness and obsessive tenacity in hounding his quarry.  But Richard’s book is most valuable for the new light it sheds on the credit crisis of 2008, illuminating the extent to which MBIA and its fellow “monoline” insurers were dangerous weak links in the financial system.  Having become dissatisfied with the profit margins from their traditional line of work, they ventured into the brave new world of “structured finance” and mortgage-backed collateralized debt obligations (CDOs), leading to a disaster that effectively killed off the bond insurance industry less than 40 years after its inception.  Of course, like many others burned by the subprime meltdown, MBIA’s management to this day insists that it could never have expected such an apocalyptic turn of events, and has brought lawsuits blaming banks and subprime lenders for its losses.  See “New York State Court Upholds 'Big Boy' Provisions and Dismisses Majority of MBIA’s Claims Against Merrill Lynch Relating to CDS Protection Sold by MBIA Referencing CDOs Issued by Merrill,” The Hedge Fund Law Report, Vol. 3, No. 17 (Apr. 30, 2010).  Unfortunately for them, Bill Ackman gave ample forewarning of the dangers back in 2002, when his first hedge fund management firm, Gotham Partners, issued a research report entitled, “Is MBIA Triple-A? A Detailed Analysis of SPVs, CDOs, and Accounting and Reserving Policies at MBIA, Inc.”  That title in itself indicates how Ackman’s pursuit of MBIA spanned the two major crises of capitalism of the last decade, from the earlier era of corporate fraud prosecutions epitomized by Enron and its off-balance-sheet special purpose vehicles (SPVs), to the late credit debacle stemming from the collapse of the CDO house of cards.  In Ackman’s view, MBIA was both fraudulent and insolvent, and he spent years trying to persuade regulators and the credit rating agencies to see the truth as clearly as he did.

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  • From Vol. 3 No.9 (Mar. 4, 2010)

    “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System,” By Henry M. Paulson, Jr.; Business Plus, 478 Pages

    Henry Paulson’s new memoir is, quite literally, a blow-by-blow recounting of the state of economic emergency that consumed much of his brief tenure as Treasury secretary at the end of the Bush administration.  The one-time Dartmouth offensive lineman narrates his frontline experience of the financial crisis essentially from a footballer’s perspective, as a relentless series of crushing tackles that he and his team absorbed as they desperately improvised novel blocking schemes to stave off a catastrophic loss.  Paulson’s visceral approach, in a detailed, day-by-day accounting, provides a close-up, field-level vantage point on the increasingly daring ad hoc actions he took to save what he always refers to with due reverence as “the system.”  His book is a timely reminder, as that system slowly returns to its old ways, of just how near it came to the abyss.  “On the Brink” can serve as a casebook for crisis management, demonstrating the skill and sheer endurance required to handle a total collapse of confidence in the financial markets.  This is the first high-level insider’s account of the federal response to the crisis; a very rough draft of history, but a valuable one, conveying with candor the intensity and fear of the sustained, exhausting effort to keep pace with a banking crisis whose scale had not been seen since the 1930s.  In a guest book review, noted author Joshua A. Lustig offers a comprehensive discussion and analysis of Paulson’s memoir.

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  • From Vol. 2 No.51 (Dec. 23, 2009)

    “The King of Oil: The Secret Lives of Marc Rich,” By Daniel Ammann; St. Martin’s Press, 302 Pages

    Swiss business journalist Daniel Ammann presents a remarkable revisionist view of an ingenious and notorious commodities trader in his new biography “The King of Oil: The Secret Lives of Marc Rich.”  The fugitive who went into Swiss exile in 1983 to escape prosecution for tax evasion and trading with the enemy, and received an explosively controversial presidential pardon on Bill Clinton’s last day in office, finally gets his side of the story told, after decades of bad press that caricatured him as a villainous, traitorous and utterly immoral financier.  Ammann seeks to set the story straight in a sympathetic yet scrupulously even-handed manner, basing his account on hours of rare interviews with the publicity-shy Rich and his associates, as well as information from many other sources familiar with Rich’s business career and his epic legal ordeals.  In a guest article, noted author Joshua A. Lustig reviews Ammann’s book.  In the course of his review, Lustig recounts Rich’s: upbringing; ascent at commodities trading firm Philipp Brothers; trading innovations; 1983 indictment by then-U.S. Attorney for the Southern District of New York Rudy Giuliani; guilty plea; controversial pardon by Bill Clinton; and legacy.

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  • From Vol. 2 No.47 (Nov. 25, 2009)

    “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History,” By Gregory Zuckerman; Broadway Books, 295 pages

    In 2006, hedge fund manager John Paulson realized something few others suspected – that the housing market and the value of subprime mortgages were grossly inflated and headed for a fall.  Paulson, who knew mergers and acquisitions, knew little about real estate or how to wager against housing.  But Paulson saw an opportunity to bet against the market in complicated derivative investments.  Colleagues at investment banks scoffed at him and investors dismissed him.  Even professionals skeptical about the housing market shied away from him.  But Paulson, obstinate, bet heavily against risky mortgages and precarious financial companies anyway.  Of course, timing is everything.  And, although Paulson lost tens of millions of dollars as real estate and stocks continued to soar, he redoubled his bet, putting his hedge fund on the line.  Then, the markets imploded in the summer of 2007, and Paulson saw profits.  By year’s end, Paulson had pulled off “The Greatest Trade Ever” in financial history, earning more than $15 billion (gross of fees) for funds managed by his firm, Paulson & Co.  In “The Greatest Trade Ever,” Gregory Zuckerman chronicles the unparalleled and unprecedented trade executed by John Paulson, with the help of analyst Paulo Pellegrini and others at Paulson’s firm.  The book provides insider insight into how Paulson and others profited from the subprime market’s demise.  In doing so, it details not only Paulson’s experience, but the experience of other individuals pursuing the same historic trade: Jeffrey Greene, an investor who emulated Paulson; Michael Burry, an investor who read the same problems in the market correctly but had poor timing; and Andrew Lahde, the hedge fund manager who succeeded like Paulson, but on a smaller scale, and then infamously penned a colorful goodbye letter to Wall Street.  None of these players, however, had quite the “smarts, good timing and a touch of the . . . renegade” of Paulson, according to Zuckerman.  This review examines Zuckerman’s remarkably insightful analysis of Paulson’s character, how Paulson was able to foresee the credit crisis based on a single chart, and how Paulson formulated, pursued and completed the “Greatest Trade Ever.”

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  • From Vol. 2 No.43 (Oct. 29, 2009)

    “Too Big To Save? How to Fix the U.S. Financial System,” By Robert Pozen; Wiley, 480 Pages

    Robert Pozen, Chairman of MFS Investment Management, offers an insightful examination of the causes of the current global financial crisis in his new book “Too Big To Save? How to Fix the U.S. Financial System.”  Pozen’s text provides a detailed framework to analyze the abundance of information about the financial crisis, to avoid repeating the mistakes of the past and to create an effective plan for fixing the financial system in the future.  In part one of his book, Pozen lays blame for the collapse of the financial system on the bursting of the U.S. housing bubble.  The bubble, he explains, resulted from excessive debt spread globally by mortgage securitization, which allowed lenders to easily obtain cash to make more loans.  When the mortgages underlying these securities began to default and later reached record highs, even the most conservative investors in mortgage-backed securities suffered heavy losses.  After describing the origins of the financial crisis, Pozen’s book explains in parts two through four: (1) the government’s correct and incorrect decisions in responding to this financial crisis; and (2) the actions it still must take to resolve the financial crisis and prevent its recurrence.  With regard to the latter, he recommends that the least burdensome regulatory strategy would be the government’s best chance of success.  In particular, he suggests that Congress should focus on encouraging financial innovation and on coping with systemic risks, specifically with regard to regulating hedge funds.  We offer a detailed summary and review of Pozen’s book.

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  • From Vol. 2 No.22 (Jun. 3, 2009)

    “A Failure of Capitalism: The Crisis of ‘08 and the Descent into Depression,” by Richard A. Posner; Harvard University Press, 368 pages

    The Honorable Richard A. Posner, a judge of the United States Court of Appeals for the Seventh Circuit and Senior Lecturer in Law at the University of Chicago Law School, first gained prominence in the 1980’s as a leader of a scholarly movement that analyzed legal questions through the prism of free-market economics.  In his latest book, “A Failure of Capitalism,” he offers a meticulous overview of the recent financial crisis and attributes its origins to the absence of rational government oversight, and to the rational (and to be expected) self-interest of private actors who took advantage of the economic environment and deficient regulatory framework.  To resolve the crisis and prevent its repetition, Posner advocates that the government should impose more intensive regulation, substantially increase deficit spending, prop up the banking industry, reform the current regulatory framework and relieve mortgagors of some of the burden of their mortgages.  We provide a detailed review of Posner’s book.

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  • From Vol. 2 No.1 (Jan. 8, 2009)

    “Hedge Fund Operational Due Diligence: Understanding the Risks,” by Jason A. Scharfman; Wiley Finance, 320 pages

    Until not too long ago, operational or non-investment-related risk was given short shift vis-à-vis its more directly bottom-line related cousins: market, credit and liquidity risk.  In the current marketplace, however, the impact of operational due diligence on the profit and loss of investments in and by hedge funds is being starkly illustrated every day, most notably in the unfolding Madoff scandal.  Hedge funds and investors in hedge funds need to understand many new issues, including counterparty risk, the impact of new accounting pronouncements and how to deal with fraudulent schemes and funds which suspend redemptions or restructure.  In his book, “Hedge Fund Operational Due Diligence: Understanding the Risks,” Jason Scharfman, a director with Graystone Research at Morgan Stanley identifies these operational risks and recommends a strong and innovative “operational” due diligence review program as the best defense against them.  Our review of Scharfman’s new book offers a thorough overview of the book and its lessons.

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  • From Vol. 1 No.24 (Nov. 12, 2008)

    “M&A Titans: The Pioneers Who Shaped Wall Street’s Mergers and Acquisitions Industry,” by Brett Cole; John Wiley & Sons, 226 pages

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  • From Vol. 1 No.22 (Oct. 10, 2008)

    “The First Billion Is the Hardest: Reflections on a Life of Comebacks and America’s Energy Future,” By T. Boone Pickens; Crown Business, 272 pages

    T. Boone Pickens is one of the great characters of American business.  At least he ought to be, given that matchlessly resonant name, so perfectly suited to his central-casting persona as the quintessential, plain-speaking independent Texas oilman.  But if his name harkens back to frontier times in the Wild West – and he first rose to prominence as founder of Mesa Petroleum way back in the 1960s, then won notoriety as a corporate raider (or, as he prefers, pioneering shareholder activist) in the 1980s – it’s also true that Pickens has made a late-life comeback in the 21st century.

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  • From Vol. 1 No.19 (Aug. 21, 2008)

    “When Markets Collide: Investment Strategies for the Age of Global Economic Change,” By Mohamed A. El-Erian; McGraw-Hill, 304 Pages

    According to Mohamed A. El-Erian, co-chief executive officer of money management firm PIMCO and former president and chief executive of the Harvard Management Company, the American consumer has finally stopped spending.  In his recent book, “When Markets Collide: Investment Strategies for the Age of Global Economic Change,” El-Erian argues that this unprecedented cessation has fundamentally changed the investment landscape, undermining the long-term case for investment in US equities and simultaneously buttressing the case for non-US investments.  In his book, the author explains the current turmoil in the global markets, outlines what investment strategies to use to take advantage of the changing landscape and offers advice to policy makers about how to handle the rapidly changing global economy.

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  • From Vol. 1 No.11 (May 13, 2008)

    Hedge Fund Due Diligence: Professional Tools to Investigate Hedge Fund Managers, by Randy Shain

    A new book provides a thoroughgoing blueprint for conducting due diligence on hedge fund managers prior to making an investment decision.

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