Levine on Wall Street: Lawsuits and Buybacks

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
Read More.
a | A

Pershing Square and Allergan are suing each other a bit less.

Quick recap: Pershing Square and Allergan were suing each other in Delaware court because (1) Pershing Square wanted Allergan to call its shareholder meeting earlier than the December 18 date that it had set and (2) Pershing Square wanted Allergan to hold the shareholder meeting even if it found, like, typos in Pershing Square's requests for the meeting. Also they are suing each other in California federal court because (3) Allergan wants Pershing Square to be prevented from voting its shares because it thinks those shares were acquired via insider trading and (4) Pershing Square and Valeant are accusing Allergan of some miscellaneous securities fraud. Anyway yesterday they settled the first lawsuit by splitting the baby: The meeting will be held on December 18, as Allergan wanted, but it will definitely be held typos notwithstanding, as Pershing wanted. And they can keep suing each other in California, as the lawyers wanted.

Companies are buying back stock.

A lot of people have a lot of conspiracy theories about market manipulation in a lot of markets, but I am a skeptic. Manpulation is, you buy a lot of an asset to push the price up, but then you have to sell it to make money, and if your buying pushed the price up then your selling should push it right back down. So you need a trick -- a price-insensitive or locked-in or formula-based buyer -- to make your manipulation make sense. Anyway:

Companies with the largest buyback programs by dollar value have outperformed the broader market by 20% since 2008, according to an analysis by Barclays PLC.

"There are a couple of reasons why companies do buybacks," said Jonathan Glionna, head of U.S. equity strategy at Barclays. "One is that it seems to work; it makes stocks go up."

The trick of course is that the companies don't need to sell stock to benefit from pushing its price up. Simply raising the price of its stock is the sole purpose of the public corporation, isn't it? Perhaps not. Also though executives tend to have stock-linked pay, and raising the price of the stock by spending $X of corporate money, so you can sell $Y of your personal stock at the higher price, Y < X, can be a sensible trade.

Know your customer.

I have some sympathy for big banks that get in trouble for aiding and abetting Ponzi schemes by providing fund services for the Ponzis. A custodian bank can't be the only line of defense against Ponzis, and it's a little hypocritical to look around for a big pocket and blame it for the Ponzi's misdeeds. But! This Morgan Stanley settlement with the Commodity Futures Trading Commission features some pretty bad due diligence:

Wilson provided MSSB with prospectuses and similar documents regarding the non-existent SureInvestment entity claiming a compounded average return on investment from 2003 to 2009 of 2,850%, with profits earned in 72 of 76 months of trading including a string of 45 consecutive profitable months.

You might want to double-check any fund that returned 2,850 percent across the financial crisis -- the S&P 500 index was up about 26 percent over that same period -- but you don't even have to get that far; anything named "SureInvestment" is probably fake. Elsewhere, former Amaranth trader Brian Hunter reached his own CFTC settlement for allegedly pounding the close. And pump and dumps remain popular.

Oh UBS.

"I sleep with my interns, that is the only reason to hire interns," an older male Long Island wealth manager at UBS allegedly told his young female intern, and he was ... probably not kidding? This story is pretty sad honestly; you get the sense that her $10 an hour, 20 hour a week internship -- which she got after he met her at the bar where she was bartending, and which she texted him that she was "really proud of" -- consisted of not much more than fending off the wealth manager's sexual advances. So when she complained to UBS, the result was that he was fired and her internship ended. Naturally she is suing, but the glib lesson is, don't go to work for strange wealth managers you meet in Long Island bars.

Oh Olive Garden.

Here is Darden's presentation in response to Starboard Value's criticism of Olive Garden. (Previously.) It is not very responsive: It never addresses the accusation that Olive Garden doesn't salt its pasta water (or toss the pasta with sauce, for that matter), and it doesn't really get to the heart of the unlimited-breadsticks issue. Also it's only 23 pages; Starboard's was 294, so assume a lot of other arguments are dropped as well. Just on the papers you'd have to declare this one for Starboard, but Business Insider went to an Olive Garden anyway and, though "[t]he waitstaff seemed unaware of the scathing hedge fund presentation," the experience seems to have been in line with Starboard's accusations. Except on the breadsticks: At least in New York, Olive Garden is adhering to its old policy of N+1 breadsticks for a table of N.

Oh rich people.

I have nothing against rich people, some of my best friends are rich people, but why would you join a social network for rich people? You wouldn't, is the answer that is well established by history, though people keep trying to start them. I guess you can't blame that on the rich people who don't join them. Come hang out on Twitter with the rest of us goons. Related: Why would you join a dating site that's only for elites? You wouldn't, again, but again people keep trying.

"Spare some love for mandatory convertibles."

You don't have to, honestly, but my love for mandatory convertibles is deep, and here is an Absolute Return column arguing that issuers should be selling a lot of mandatories now both because there is a lot of demand and because their tax treatment might get worse in the future. So strike now while the etc. Here is a $1.25 billion Alcoa mandatory launched yesterday.

Things happen.

Now is a good time to insider trade in the U.K., since the Financial Conduct Authority is too busy with currency manipulation. And when an attorney general says that something is not a victimless crime, doesn't that always sound like protesting too much? Here is a creepy FBI press release. Whose card should you use for Apple Pay? SEC filings are hard to read, and I'm late to this but here is one of the Wall Street Journal's greatest self-parody hedcuts. Fundless sponsors. "The failed 90s beverage will be sold exclusively through Amazon." A cool hobby for busy executives is longsword fighting. Yos are down. Dan Davies is in the Alps. Buridan's robot.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matthew S Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Toby Harshaw at tharshaw@bloomberg.net