Comments on: What did hedge funds know about the Picower negotiations?

By: morristhewise

morristhewise — Sat, 18 Dec 2010 15:04:34 +0000

Nazi`s and Fascist`s were overjoyed when they discovered that Bernie victimized thousands of Liberal`s and Zionist`s. They would have awarded him the Iron Cross but Bernie only accepts cash.

By: y2kurtus

y2kurtus — Fri, 17 Dec 2010 21:37:06 +0000

Put me down as betting that the HSBC and JPM settlements will be togeather be something below 1 billion.

By: Beer_numbers

Beer_numbers — Fri, 17 Dec 2010 18:54:44 +0000

BKLawyer, thanks for the reference. As I read it, the Drain & Schwartz article seems to indicate that bankruptcy claims are not securities because there “is an existing regulatory alternative to the securities laws” (namely, the bankruptcy code. They also point to the (presumably inappropriate) transformation of non-securities into securities that could happen with bankruptcy claims treated as securities.

Assuming you buy either argument (and I’m not sure I do), would this extend to Madoff claims? Would it extend to claims on class action shareholder lawsuits?

Not an expert, but I lean towards these being securities, using the expansive definitions that I’ve seen.

By: Beer_numbers

Beer_numbers — Fri, 17 Dec 2010 18:42:29 +0000

Felix,
I’m not an expert in this area, but are you certain that these claims aren’t securities? My understanding is that the scope of “securities” is quite broad, and includes many instruments that one wouldn’t naturally think of as being similar to the securities traded on public markets.

Looking at my Loss & Seligman text, SEC v. W.J. Howey (1946) lays out the following test to determine whether a note is a security:
a note is a security only if it evidences “(1) an investment; (2) in a common enterprise; (3) with a reasonable expectation of profits; (4) to be derived from the entrepreneurial or managerial efforts of others”

This reads to me like the contingent Madoff claims could plausibly be viewed as securities.

By: bklawyer

bklawyer — Fri, 17 Dec 2010 18:05:46 +0000

Why wouldn’t Picower be able to talk about the status of her settlement? Her lawyers might have told her it would be a good idea to keep her mouth shut, but she wouldn’t be compelled to do so. There may have been confidentiality agreements regarding the settlement negotiations, but that would be likely only to restrict Picower’s ability to disclose information she might have received from Picard. It is pretty unlikely that a confidentiality agreement would contain, effectively, a complete gag provision barring Picower from speaking about anything related to Madoff. All Picower would need to say to anyone is that “I am only willing to settle for X.” That is entirely her information to do with as she pleases.

By: dfriedman

dfriedman — Fri, 17 Dec 2010 17:54:55 +0000

Why do you assume that Picower was free to talk about the status of her settlement? Either her lawyers could have told her to keep her mouth shut or Picard et al could have insisted on that. There’s no reason to assume that the settlement discussions are not confidential.

By: bklawyer

bklawyer — Fri, 17 Dec 2010 17:52:30 +0000

The agreements by which the claims were transferred would have specifically included “big boy” provisions, i.e., that the buyer might have information regarding the claims that might not be readily available to the seller. While section 29(a) of the Exchange Act casts doubt on the enforceability of big boy letters, that shouldn’t be applicable here as bankruptcy claims are not (and shouldn’t be) securities. See Robert D. Drain & Elizabeth J. Schwartz, Are Bankruptcy Claims Subject to the Federal Securities Laws?, 10 AM. BANKR. INST. L. REV. 569, 576 (2002).

There would be relatively little basis for such trades to be rescinded, even if hedge funds had been talking to Picower.