Levine on Wall Street: Bad Romance
The most romantic of estate tax shelters
There is a lot going on in this Bloomberg News story about the grantor retained annuity trust, or GRAT, a tax shelter invented by a lawyer named Richard Covey that allows rich people to leave gifts to their heirs without paying estate taxes. One of the most outspoken (and richest) of those rich people is casino magnate Sheldon Adelson, and if you are not familiar with his schtick you will enjoy the fact that he "follows closely" his ranking on the list of the world's richest people, or this quote from his publicist: "Mr. Adelson did tell me to tell you that he has no intention of ever dying. So the estate-planning conversation is moot." Even better, though, for my tastes, are the lawyers, including one who helped draft the tax law that ended up allowing for these trusts and says: "How do I say it? When Congress enacts a law, it isn't always well thought out." And then there is Covey, who invented the GRAT, and who "uses the words 'romantic' and 'beautiful' to describe the most elegant tax maneuvers." I think the GRAT qualifies.
Fabrice Tourre, who structured a synthetic collateralized debt obligation at Goldman Sachs and sold it by saying things that, in his words, were not "false" but also "not accurate," was found liable for fraud in a civil trial this summer. And now the Securities and Exchange Commission wants him to pay more than a million dollars for his sins, even though he is just a poor Ph.D. student and not a high-flying investment-bank employee making more than a million dollars a year. (You're thinking of Fab circa 2007.) The SEC "drew criticism for pursuing its case against a midlevel bank employee," but isn't backing down; "the SEC urged the court to bar Goldman or any other entity from paying Mr. Tourre's fines and other penalties." Because it is important to put the responsibility for this transaction structured by teams of traders, salesmen and lawyers at multiple banks, investment firms and law firms squarely where it belongs: on one mid-level Goldman salesman. No one else!
Poor Tom Hayes
Tom Hayes, the former UBS and Citigroup rates trader who umm let us say appears in a lot of written conversations manipulating Libor, pled not guilty to manipulating Libor today. Hayes had been expected to plead guilty and cooperate, and you could see how both he and the prosecutors might have been keen on that. He once texted a reporter "This goes much much higher than me," which is probably a text that sets you up better for cooperating than for defending yourself at trial. "Nonono I meant the innocent non-manipulation of Libor goes much higher than me."
If you are bad, the activists will get you
Here is a SharkRepellent report that looks at companies targeted by activist hedge funds and finds that "median one-year underperformance leading up to the week prior to campaign announcement is 21.9% versus same-period Russell 3000 return, and three-year underperformance is 39.0%." People debate a lot about the value of activism -- does it make companies better, or just bring a quick payday for activists? -- but if you're going to have that debate you have to consider all the companies that avoid activist campaigns. If you're a manager and you know that (1) activists target underperforming companies and (2) being targeted by activists is unpleasant, then you have an extra incentive not to underperform. So shareholders of good well-managed companies should be thanking Bill Ackman and Carl Icahn for their services as boogiemen.
The business book all-name team
Here is a list of the must-read business books of 2014 (yes) that includes "Leaders Eat Last," "Quick and Nimble," "Small Move, Big Change," "Scaling Up Excellence," "Everything Connects," "Thanks for the Feedback," and "Smartcuts" but that nonetheless is not, as far as I can tell, a parody. Look out for my upcoming business best seller, "Thanks, Leaders, For The Quick Feedback Connected To Smartcuts That Helped Me Nimbly Scale My Excellence, And Also For Letting Me Eat First," which will change the way you think about some buzzwords in 2014.
Journalism does not get much better than Inside Lacrosse's annual list of the best male and female names in college lacrosse. (Via Deadspin.) Here you can find Pierson Fowler and Murphy Vandervelde and Fleet Jernigan and and Talley Perkins and Addington Elliott and Ashmore Standing and Eggy Plastaras and you get the idea. The connections to finance are too obvious to require discussion.
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Matthew S Levine at email@example.com