Small Investor Smacks Down Crony Capitalists for $3.3 Billion
by Chriss W. StreetCrony capitalism is when businesses form shady relationships with government officials to gain benefits through favoritism in areas such as contracting, government grants, tax breaks, or even legal rulings. Most Americans are concerned there has been a frightening expansion of this activity over the last number of years. Perhaps the most despicable form of crony capitalism has been on display in U.S. Bankruptcy Courts; where rich and powerful “vulture capital” hedge funds and their high end law firms have been able strip assets in numerous bankruptcies at the expense of minor creditors. Nate Thoma, acting as his own lawyer, fought for and won in Delaware against the vultures what could turn out to be a $3.3 billion judgment and may send some of the richest Americans who manage these hedge funds to long prison terms.
In the $327.9 billion Washington Mutual (WaMu) bankruptcy; there was $33 billion in assets and $8 billion debt after the busted bank was sold to J.P. Morgan. When WaMu filed for bankruptcy the vulture capitalist hedge funds of Appaloosa Management, Aurelius Capital, Centerbridge Partners, and Owl Creek Asset Management used their size and crony buddy-buddy knowledge of the Courts to quickly buy up depressed securities. These vultures used the size of their purchases of the distressed debt of WaMu to qualify to serve on the creditor’s committee to supposedly represent all large and small creditors.
Once on the committee, the vultures learned extremely valuable inside information about tax and litigation recoveries and settlement talks that would increase the recoveries to creditors of the bankruptcy estate. But instead of performing their fiduciary duty to represent all creditors of WaMu; the vultures used this top-secret information to trade WaMu stocks and bonds and negotiate terms for the reorganization that would generously line their pockets.
Unlike U.S. money managers that are required to report their investment activities to the SEC; hedge funds are usually set up off-shore on tax haven islands to shield disclosure of their activities. But in December 2008 a scandal broke that the Bernie Madoff hedge fund had bilked investors through a Ponzi scheme out of $64.8 billion. On March 12, 2009, Madoff was sentenced to 150 years in prison and required to pay restitution of $170 billion. In an ode to the crony capitalism’s power to corrupt, Bernard Madoff sat on the Board of Directors of the Securities Industry Association and his beautiful niece, Shana Madoff, married an SEC compliance official after a 2005 investigation gave the Madoff firm a clean bill-of-health.
Humiliated by charges of crony capitalism in Madoff; the FBI and SEC have been cracking down hard on hedge funds violation of securities laws. The $7 billion Galleon Group was raided by the FBI and SEC in 2009 and its billionaire founder, Raj Rajaratnam, was later found guilty of insider trading and his prosecutors have asked that he be imprisoned for 19 1/2 to 24 1/2 years. Over twenty-one other people have been arrested in the sprawling probe of Galleon and over twenty have pleaded guilty. Last year FBI agents made numerous raids on hedge fund offices; including Level Global Investors LP, Diamondback Capital Management LLC and Loch Capital Management LLC.
As a small dollar creditor in a bankruptcy, Nate Thoma could not afford the attorney cost to take on the legal fire-power of the billionaire vulture capitalist in bankruptcy proceedings. So Mr. Thoma represent himself as a Pro Se party and directly petition the Court that the vultures committed fraud when they traded on inside-information while sitting on the committee.
In a first ever event, Delaware Bankruptcy Judge Mary Walrath found “colorable claims” and ruled that a “claim for equitable disallowance” had been established based on violations of insider-trading rules that could strip up to $3.3 billion from the vultures. Judge Walrath stated:
“Based on the evidence presented thus far it appears that the (settlement) negotiations may have shifted towards the material end of the spectrum and that the settlement noteholders traded on that information which was not known to the public. Consequently, the court finds that the equity committee has stated a colorable claim that the (hedge funds) received material nonpublic information.”
The judge said she couldn’t discern a pattern in the hedge funds’ trading, but found that the equity committee “has made sufficient allegations and presented enough evidence to state a colorable claim that the (hedge funds) acted recklessly in their use of material nonpublic information.”
Nate Thoma never intended to be a hero to small creditors; he is just a regular guy who felt he had been cheated by powerful crony capitalists that with a wink, a nod, and a platoon of lawyers can lie, cheat and steal their way to further riches. The real hero in this story is Judge Mary Walruth; who has re-established that crony favoritism has no place in the halls of justice.
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52 Comments
Crony capitalism is the only sort of capitalism Obama's helped….Goes with his Marxism agenda.
Thank you Mr. Thoma, and Judge Mary Walruth. DRUM THESE crony corrupto-crats out of business forever!
"Delaware Bankruptcy Judge Mary Walrath found ……. violations of insider-trading rules that could strip up to $3.3 billion from the vultures."
This COULD "strip up to $3.3 billion from the vultures?" And how long will it take to find out if it WILL strip that money? Or if anyone goes to jail?
And why do I get the feeling holder is in the background somewhere, sweeping things like this under the rug?
Oh, and by the way, is it any wonder the politicians on the "right" AND the "left," HATE Sarah Palin so much? She is actually honest enough to expose this crap and bring an end to it. Then what would the political establishment do?
Oh yeah, they'd GO TO PRISON.
Appeals by these dirty bag vultures will drag this out into the next century,also the SEC is as corrupt as the Obama administration so don't expect a payout,looks nice on paper though.
Wow. Now you know these politicians does not work for us. Everyone is in cahoots to fleece America. In their mind, "who cares about these faceless little people." They really think they deserve to enrich themselves. To add more insult to injury, politicians and their crony friends think they are in upper echelon of the society because they must be f**cking genius.
Time for indictment for looting the treasury.
There is a fine line between crony capitalism and bribery. One is an ethical violation. The other is a criminal activity. Moving forward, it would serve us well to keep that distinction firmly in mind.
3.3 billion to them is chump change. How about 3.3 billion PLUS 100 billion fine! Maybe that would send a clear message.
Forget "crony capitalism and bribery," there is no line between "insider trading" made possible through crony capitalism, and influence peddling.
This story is not talking about earmarking money for political reasons. It's about buying a place at the insider's table.
Doesn't the Constitution say something about how "We the People" will protect our country from both foreign and domestic threats…………?
$100 billion fine would be good, but add to it a sentence to a maximum security prisons for life without the possibility of parole would be a better deterrent.
I am specifically concerned about Michelle Bachmann accusing Rick Perry of a crime on National TV with no proof whatsoever and no one calling her on it but Rush Limbaugh.
Everyone has jumped on this newly popularized buzzword and are throwing it around like it was free for purely political purposes.
I'm not defending crony capitalism, I'm opposing libel and slander…and the incorrect usage of the term "crony capitalism".
A may be wrong but it seems to me that colorable claim is a long, long way from a judgment. I'm not optimistic. Especially in the banana republic that the USA has become under Barry.
We could make room for these scumbags by moving some of the less destructive inmates, like mass murderers and serial rapists, to medium security!!!! I mean those inmates only harm a few dozen people, these scumbags have hurt us ALL!!!
Well in all honesty I didn't want to sound too harsh but I'd really like to see any white collar crime that involves more that a million dollars be a capital crime.
I wish something could be done about the lawers that lie in defending these scumbags. Does the Bar examine casses to see if the lawers knew their hedge fund manager clients were guilty? Do these lawers have a legal responsibility (forget moral) to step forward with this information, or is lying not only accepted but encouraged?
I understand everyone is inocent until found guilty, but the perponderance of facts and evidence allow for a lawer to say, "He didn't do it!"?
The point's well-taken. But just like "earmarking" was not "illegal," it became a political hot potato. The same thing is happening with the phrase "crony capitalism." The issue here is not that crony capitalism is itself an illegality, but that it will almost always accompany the highest levels of real criminality in this present time of "financial crisis." "Winners and losers" are being bought and sold to an incredible degree. We're going to need to follow the money, and the "connections," if we're ever going to expose the real crimes.
Crony Capitalsim is finally becoming a household word. Yeah!
Now let's ask ourselves what exactly is the benefit of all these hedgefund/derivative markets offshore that produce absolutely nothing out of thin air? The only thing you hear is the sucking sound of our capital being stuffed into a few pockets. Dodd/Frank did nothing to change this. Oh sure their arresting all the little fund managers, you can be assured the big boys will go untouched.
Our legal code…just like our tax code…is so perversely twisted that it is going to be nigh impossible to straighten this out to any large degree.
I don't know if you are a fishing man, but our society's laws remind me of a "bird's nest" in a bait casting reel. Sometimes the only thing to do is cut the line and re-spool. Life was never meant to be this complicated.
Doubtful. You forget the golden rule…the man with the gold makes the rules.
No. You're thinking of the Loyalty Oath.
Unlike Income Tax rates, we better adjust this amount for inflation, or pretty soon, they will get the kids for stealing a pack of gum!!!!!!
I've been waiting for BG to report on this story. America would be stunned at the level of corruption in the bankruptcy courts. I learned it the hard way with this case.
Unfortunately they don't. A complaint has to be brought to the bar against an attorney and even then it might not be considered. I was a Pro Se objector in this case and I caught an attorney lying in open court. I also caught him filing a document with false statements. But that doesn't mean that the judge will refer him to the bar. And with so many enormous issues in this case, unfortunately, complaining about a lawyer lying almost seems petty. It's disgusting to imagine that they can do this and get away with it.
The one relief you have is to keep diligent track of their unethical activities and then file a complaint with bar. If you get a group of provable offenses and then have multiple parties file complaints…you have a better chance of getting some sort of action taken.
This sounds more like New Orleans Politics than Washington Politics. Every 8 years when there is a new Administration that comes in, the United States Attorney uncovers Tons of illegal contract and millions of Dollars that were stolen. One thing different: Not one Mayor has ever been indited. Marc Morial was really nervous about this aor the last few years as every member of his extended family is now in Prison.
Crony Capitalism. Does this surprise anyone?
Heh… I came to this information directly after reading these interesting goings on behind the Solyndra debacle:
Solyndra – A Few New Facts. A Few New Questions http://www.istockanalyst.com/finance/story/542185...
Here's the original full post with comments: http://brucekrasting.blogspot.com/2011/09/solyndr...
What do you folks think?
Mr. Street,
Your second paragraph refers to Appaloosa Management.
Somewhere, over the course of the last year, I was doing some due diligence on another article here and kept running into Appaloosa Management. (I can't remember where, or what it pertained to, and I can't find it). In reading your article, there it is again.
If you research Appaloosa, it's core interests are distressed securities. They are a predator competitor, focusing on insider deals. They are not Venture Capitalists. They are Vulture Capitalists. They pick the corpse clean. There is nothing illegal with what they do, they play by the rules, and use them to their advantage.
Your article, and what I had done due diligence on, are linked. It is one of those "connect the dots" moments. Unfortunately, I do so much due diligence, and comment on so many articles, that for the life of me, I can't remember, but your article rang a bell.
This could be one of those "tip of the iceberg" times…………
I think they should bunk in the same cells as the mass murders, rapists etc. add a few CCtv cameras and throw it up on PPV, at say 15$ a shot, I bet we could ease the debt by a few trillion in a few years, I mean who wouldnt like to see Bernie Made-off have to reenact the Gimp scene from Pulp Fiction? Or the Solyndra ass sitting down to "dinner" with a Hannibal Lecter type?
Wayne Madsen Discusses Obama's Indonesian Citizenship and Fraudulent CT. SS# – 9/15/11
http://www.youtube.com/watch?v=tvGLo8ZCklY
Already have it going (different article) a few clips down from the top on the BG page.
BUT, it looks like a sh!t sandwich, thats missing the bread.
WHO are the hedge funds who are the protected class in the Solyndra scandal ? Warren Buffet ? George Soros ? Who are the other investors who, like Obama, circumvent the law on the books that they get paid back before taxpayers? Let us see the list of investors which no doubt include the usual green suspects in Congress.
You had me at PPV.
Mr. Street: In your article you used the word "busted" to describe the condition of Washington Mutual Bank and this is not accurate.
Washington Mutual was systematically weakened and undermined by the efforts of JPMChase via their "Project West" program. Treasury Secretary Henry 'Hank' Paulsen, and the FDIC head Sheila Bair, were both instrumental and complicit in the "Gifting" of this fully capitalized bank WAMU to JPMChase. WAMU was never allowed to go bust, as it was intentionally harmed and then seized prematurely according to Emails from The Office of Thrift Securities.
To date no listing/accounting of WAMU/WMI assets; listing/accounting of what was actually sold to JPMC; and/or FDIC Form 3.1a, has ever been produced. The Board of Directors for Washington Mutual INC, have been disbanded/hijacked and the Shareholders have been denied a Meeting for three years, in violation of Washington State law.
JPMChase is slotted to receive billions in tax refunds from this bankruptcy, however JPMC is also a "TARP" recipient. According to "TARP," recipients are precluded from receiving these refunds. How is this even possible without the aid of those in power?
Busted NO, Stolen YES
You are both right. This story is about crony capitalism coming to an end in bankruptcy court and the expected piling on that will take palce as the FBI and the SEC take Judge Walruth's ruling and begin the criminal process of enforcing insider trading rules. Once a Court issues this typoe of judgment, it becomes precedent throughout Courts around the country.
There was no "government" interest in this case, because the hedge funds had co-opted the system through their cadres of hooked-up lawyers. It took a determined individual and an Honorable Judge to begin the clensing of the system.
Once the man with the gold looses the gold; everbody turns on him.
Prison has its own ethics and attitude adjustment mechinism. Crony capitalists are elitists that keep themselves anticeptically seperated from the great unwashed they fleece. I gaurantee you that there are plenty of people in prison who think their stock market loses were because of hedge funds.
Appolossa Mangement is run by David Tepper. This is very big connected money. Enclosed is the Wikipedia link http://en.wikipedia.org/wiki/David_Tepper
That is what is incredible about Nate Thoma acting as his own Pro Se lawyer. No big law firm is going to take on a massive potential customer like Appolossa. Mr. Thoma and Judge Mary Walruth are national heros for making sure the little guy has the right to justice.
Believe me, I know plenty of people who have lost money (including myself) because of the hedge funds and MM's. No one in the press has wanted to report on this case for three years. Now that this judge has come down with this finding, the press is going crazy.
If people knew what really happened with this company and in this bankruptcy case…they would bring back the stockades.
I never tried to fedend J.P. Morgan or their deal. I used the term "busted" to avoid taking a position about what happened when WaMu was seized and flipped.
The story I wanted to bring to Big Gov was that for once the little guy got a fair break. Having a Judge rule there are Colorable claims will now bring on the FBI and the SEC. It is possible that as the "government" pursues the vultures some of the past history will also come to light. I will continue to follow this story and give updates if anything explosive pops up.
We are just at the front of opening the vault on what these 4 vultures were involved in. I believe there will be lots of collateral investigations that will spin out of this ruling by Judge Walruth.
And Appaloosa retaliated against Nate by attempting to get discovery on him. Nate stood his ground, refused to comply and Appaloosa withdrew their request. But you get the idea. They have no compunction about using intimidation tactics to silence anyone they feel is a threat.
Yes.
I know.
I remember that, from my due diligence earlier this year. I still haven't remembered what article I was researching this for, and I'm not sure if it was David Tepper, one of his board members, or a law firm they used, but somewhere, in the vague recesses of my mind, this rings a faint bell.
There is something more to this.
I had thought about adding this issue of the Saintly David Tepper going after insignificant Nate Thoma. This would have been interesting, but it would have taken me off the real story of Judge Mary Walruth turning on all the crony lawyers and allowing the little guy to have equal access to justice.
This case is reallllllllllllllllllllllllly going to reverberate among the Judiciary.
Unfortunately Cowboy I'm involved in this one. That's the reason I haven't been able to post here on the Bigs for so long. I'm a shareholder in this case. I'm also a Pro Se objector like Nate. I've been traveling back and forth to Delaware, appearing in court for the last 8 months or so. The truth is, Nate saved the shareholders back in December. And we've been fighting like crazy ever since.
There is a lot dirty stuff going on in this case. I've had quite an education about the bankruptcy courts. I do have to say, it's nice to have a reason to be back on the Bigs again. Even if it's only for a day or two. I've been eating, sleeping and breathing this case for so long that I don't know what's going on in the rest of the world.
The stories I could tell you about this case…holy cow. You would have material for the next 6 months.
A nice jail in China sound good to me !
Welcome back.
I wondered what happened to you.
Corruption in Federal Bankruptcy Court?
Say it isn't so…………!
I learned first hand, about Bankruptcy Court.
Back in the 80's, when the oil crash happened, there was a glut of oil and gas properties that went bankrupt and ended up in Court. Bankruptcy Trustees are not oilmen. They had no idea what to do, or how to deal with it. I jumped in with both feet, and started buying up everything I could buy.
Boy, did I get an education.
I can't begin to tell you, hoe many times I was offered a bribe, or asked to look the other way, or do a favor for a Bankruptcy T
Bankruptcy Court, Bankruptcy Trustees, and those that deal in distressed companies are all specialists. It is a tight little club. They are the most corrupt, dishonest, and unethical people I have ever met.
After a day of dealing with them, I always wanted to hurry home and take two hot showers. They made my skin crawl.
Classy.
While I have never been offered a bribe, my experience has been strikingly similar. They are all so sleezy, I want to wash off the filth of having to appearing in court with bleach and a brillo pad. And yet, they all think they're such wonderful people. Since this ruling was handed down, we're going to have a break for a month or two. So I can get some rest. But this will probably drag out for at least another 6-10 more months. The only real reward I'll get from this will be the potential prison sentences these hedge funds may face.
Mr. Street: I appreciate your response and your effort to remain neutral, however as long as it is incorrectly reported that WAMU failed/crashed/busted/etc the public will assume that is what indeed occurred. WAMU was simply seized, and anything beyond that simple explanation/description is just a regurgitation of the spin and not based on any factual information. JPMC and the FDIC took all the records at the time of seizure, so there has never been an accounting of what was originally there; what was seized; and/or what was sold.
FYI – I have been associated with a large International group of Washington Mutual shareholders, who are currently holding both debt and equity, for the past three plus years. Nate Thoma is a member of our group. Our group is made up of judges/attorneys/doctors/CPA's/ and every other flavor under the sun. We have been working diligently on compiling mountains of information/evidence/theories that we have been feeding to the legal teams. We have also raised funds to support the pro se shareholders in their appearances before the Court and to offset any legal fees/travel/expenses.
Our group was also responsible for feeding information to a reporter for the Puget Sound Business Journal, Kirsten Grind, who because of her reporting was a Pulitzer Prize finalist and was awarded a book deal. She is currently in the process of finishing up her book on Washington Mutual. At first she was real gung ho, however she quickly cooled upon receiving the accolades. I suppose we will have to wait for her book to see how cool she truly became.
FWIW – The New York Post, among others, reports that JPM Chase now controls publishing companies with over $5 billion in total annual revenues …
http://www.nypost.com/p/news/business/item_NH5DsG...
Our group recognized, early on, how the media would spin the Court reporting, etc, and with a little digging we discovered that the reporters worked for publications owned by JPMC.
Some day the truth may be told of how JPMC was in worse condition than WAMU, however JPMC is one of Eastern elite, so WAMU was seized and gifted in order to shore up the ailing JPMC.
I thank you for your article, because sunlight is the best disinfectant.
Crony Capitalism is just a nice term for Fascism.
It's all just so fascinating, isn't it Larry? And thanks for everthing.
Bet
This story is about an admirable fellow Nate Thoma, and a truly Honorable Jurist, Judge Mary Walruth. Many people are referring to this publication as the "Feel good story of the year". It is a sad comment on the moral state of America when the "feel good of the year" is justice that should be available always available to everyone; but it is not!
Mr. Thoma understood that the lawyers the vultures hired were there to facilitate the vultures insider-trading and stripping assets. Mr. Thoma understood that bankruptcy Court has a reputation of a revolving door of $300 per hour lawyers becoming Judges; then going back into private practice as $800 lawyers. Mr. Thoma understood the parties willing to pay the highest per hour and total size of legal fees are the vultures.
I have been writing for the last two years to help level the playing field against the equally corrupt and also lazy main-stream-media. Now that I have outed the crony capitalism of Bankruptcy Court in Big Gov; there will be an over reaction in other bankruptcy courts to punish vulture hedge funds that engage in insider-trading and asset stripping. I believe this story will heighten the probability that some of the richest and most powerful people in the world will get sentenced to hard time
I will write further on this story as the the criminal system in WaMu cranks up. Now that Judge Walruth has made it perfectly clear that there is justice available in her court; you should double your efforts to fight the injustice you have suffered. If you make progress, I will be there to write the story.
God Speed!
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