Levine on Wall Street: Manipulation and Bankruptcy

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.
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How's FX manipulation going?

Is it a crime in the U.S. for a Swiss person in Zurich to conspire with an Englishman in Singapore to manipulate a London interest rate? The Swiss person is arguing no, and if he wins it would not only make his Libor case tougher but also "make it harder for the U.S. to ensnare foreign traders in its probe of currency manipulation." My impression is that everything that anyone does anywhere is a crime in the U.S., and if you are not currently in federal prison it is because prosecutors have decided to go easy on you. So I don't love his chances. Meanwhile, banks are reserving hundreds of millions of dollars for a foreign-exchange-manipulation settlement -- Citi yesterday, RBS today -- and there is a "possibility of a major deal soon, instead of the firms settling with regulators one by one." I don't love the chances of that either, though you can imagine prosecutors and regulators giving a volume discount so they can announce a really really big number. At this point if a manipulation settlement isn't the biggest ever, why bother?

A bankruptcy story.

It's apparently two weeks old, but I learned about it from Bob Lawless's Credit Slips post yesterday, and it's pretty good. I will further stylize Lawless's stylized facts: JPMorgan had made two secured loans to General Motors. GM paid one off. JPMorgan told its lawyers to make a filing terminating its security interest in the collateral with respect to that loan. The lawyers accidentally filed to terminate the security interest with respect to both loans, leaving JPMorgan unsecured on a $1.5 billion term loan. Then GM went bankrupt. Everyone discovered that JPMorgan was an unsecured creditor. JPMorgan argued that should be secured because come on, that was an accident, don't take filings so literally. A bankruptcy court agreed with JPMorgan. The Second Circuit disagreed; the whole point of the Uniform Commercial Code security-interest filing system is that people are supposed to be able to look at the filings and see who has a security interest, so you can't take back filings just because you made a mistake. There is further litigation to come. You would not want to be the lawyer who made JPMorgan's $1.5 billion loan to a bankrupt company unsecured.

Elsewhere in bankruptcy.

On Thursday a bankruptcy judge confirmed the the bankruptcy plan of the city of Stockton, California, and it's sort of a striking view into how lawless bankruptcy is. Bankruptcy is about equity, and the judge says things like "This plan, I’m persuaded, is about the best that could be done, or is the best that could be done" -- or, in response to Calpers's claim that Stockton couldn't terminate a contract with it, "Bankruptcy is all about the impairment of contracts. That’s what we do." So a dispute between Franklin Templeton Investments -- which is getting full recovery on a secured claim and almost no recovery on a larger unsecured claim -- and Stockton's employees and retirees -- who are losing retiree health benefits but keeping their full pensions -- seems to have been settled on rough-justice, everyone's-losing-something grounds.

A pump-and-dump story.

Some people invested in a marijuana company called GrowLife via convertible-loan-type investments where they got lots of rights to buy shares at way-below-market prices. The stock went up, and as the lockup on their investments was about to expire they started licking their chops via text messages like "April 10 is your day! Buy two houses in Miami!" and "Lol you are my hero." But then the Securities and Exchange Commission halted trading in the stock before they could sell, citing "potentially manipulative transactions," apparently based on those texts. Which sound ... celebratory rather than manipulative? I don't know. I suppose the implication was that these guys were involved in hyping the stock, rather than just passively waiting to sell into a rising market. And there's a text saying "We need to re up this is a giant social shift like the iternet [sic]," so I guess that's how the hype worked.

A SIP failure.

The "securities information processor" is the thing that consolidates stock prices from all of the exchanges and sets the official national best bid and offer. If you want to trade stocks anywhere, you have to know what the NBBO is, since you're not allowed to trade through the NBBO. If you just get direct quote feeds from every exchange, then you can ignore the SIP, but some brokers and exchanges and dark pools rely on the SIP. One theory is that this is because the SIP is slower than the direct feeds, so high-speed traders who have the direct feeds can take advantage of slower traders in dark pools that price on the SIP. Another problem with the SIP is that it keeps crashing for some reason. Like it did yesterday, when the SIP for New York Stock Exchange stocks crashed, which caused dark pools that use the SIP to shut down briefly, and other trades to re-price or be broken.

Henry Blodget interviews Clay Christensen.

There is a lot of good stuff here, including Christensen's statement that "Many of society's most important and vexing problems were created by unnamed people in the past who decided unilaterally to combine things that should be separate and to separate things that should be together." Also here is a pretty astonishing story about life at the Boston Consulting Group some time ago:

And the way that my wife, Christine, and I -- the way we wrestled with that problem -- we decided that Clay is an incorrigible driver of achievement, and he's never going to change. And so let's put a boundary around that. So we decided I would never work on Saturday. That's for the family -- and Sunday for God. And I wouldn't work past 6 p.m. Those were kind of the rules that we made a commitment for. Then, when I worked for BCG, about a month after I started, the leader of my team came to me and said, “Clay, we're going to meet on Sunday at 2 p.m. because we've got a big presentation on Monday, and this is what you've got to be ready for. So we're going to do a dress rehearsal.” And I told Mike, “I can't do this on Sunday,” and explained why.

And he just went bonkers, and he said, “Everybody works on Sunday.” And I said, “I just can’t. We made a commitment to spend that day for God.” And so he blustered away really mad. And he came back, and he said, “Look, I talked to the rest of the team. Let's meet Saturday at 2 p.m.” And I said, “I can't do that either. I'm sorry.” And, boy, he was mad at me. So then he came back, and he said, “Do you happen to work on Fridays?”

Now he's a professor.

Things happen.

Dan Davies makes fun of earnings calls. Ray Dalio and Paul Tudor Jones are big Tony Robbins fans. Why Matt Taibbi left First Look Media. Rich people's family offices are opening branches in the U.S. Standard Chartered is being investigated for lying about sanctions violations while settling a sanctions violations case, awesome. Don't buy penny stocks in companies that don't exist, says the SEC. Blackstone Group and the Barclays Center. Trends in Material Adverse Change clauses. Man charged with harassing owl on motorised paraglider (via). Don't look at money.

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:
Zara Kessler at zkessler@bloomberg.net