1. Hardly Shocking: Hedge Funds Premiums Increase After Multiple Lawsuits
The New York Times doesn’t always report on insurance premium movements but after the number of news stories about insider trading and hedge fund scandals over the last year they decided it was important to note. While rates are nowhere near their 2009 levels (post-crash & post-Madoff), rates for hedge funds are steadily rising as a result of the widespread Galleon and “expert-network” scandals. (Calling your group an expert-network can be a much more professional sounding way to describe a crew of insider traders.) With little in the way of empirical evidence, the Times is citing sources that claim that hedge fund premiums have risen 5-10 percent in recent months. Insurer Chubb recently announced that in the fourth quarter of last year they raised renewal rates for professional liability coverage for the first time since 2009. However, given the extensive press coverage and the SEC’s numerous announcements about expanding insider trading investigations the fact that insurers are gradually raising premiums can scarcely come as a surprise. What makes this article newsworthy is that the general business press is talking about insurance premiums.
2. Bank Gamble Pays Off
Like a very high-stakes hand of Texas Hold ’em, Texas billionaire Gerald Ford bet large and won large. In so doing, the savvy investor has single-handedly established that there is money to be made in the current market reviving distressed banks crippled by the recent economic crisis. In 2010 Ford bought a very troubled Pacific Capital (parent of Santa Barbara Bank & Trust) and invested $500 million in the California institution. Putting new management and controls in place the bank has gone from a 2009 loss of $421 million to a profit last year of over $70 million. Japanese megabank Mitsubishi UFJ’s California subsidiary was impressed by what it saw and will be buying Pacific Capital for $1.5 billion. Ford will double his investment. The FDIC, as preferred shareholder in the nearly failed bank, will also profit nicely. I have no doubt we will see other investors profiting handsomely from investment in troubled banks over the next couple of years. As Kenny sang, you do have to “know when to hold ’em.”
3. Recouping the Missing Madoff Money
New York Mets owners Saul Katz and Fred Wilpon were investors with Bernie Madoff who withdrew the bulk of their funds well before the felon’s Ponzi scheme came to light. In fact, Irving Picard the court-appointed trustee for the Madoff’s victims is seeking $83.3 million in purported profits that Katz & Wilpon withdrew in the two years prior to Mr. Madoff’s arrest. Before the pair can be ordered to return the money, Mr. Picard must establish that they were “willfully blind” to the fraud acting in bad faith. In Global-Tech Appliances v. SAB the Supreme Court’s found two requirements to prove someone was willfully blind:
- The defendant must subjectively believe that there is a high probability that a fact exists.
- The defendant must take deliberate actions to avoid learning of that fact.
The outcome now rests on the determination of whether the two wealthy investors were blind to Madoff’s scam.
4. Our Father Who Art… Foreclosed
Residential homes weren’t the only houses impacted by the financial crisis. Houses of worship have suffered as well. Until 2008 it was rare to see a church foreclosure. In the last two years, 270 churches have been sold as a result of defaults. Most church loans aren’t standard mortgages; they are short-term, often 5 year, commercial loans that generally mature with the entire balance due at maturity. In the past, banks were generally willing to work with churches to refinance overdue loans. However, in the current environment, with regulators and nervous shareholders watching, banks are becoming much tougher with ecclesiastical borrowers. Once again, the banks are placed in the role of villain as they foreclose on churches around the country, including some well-known historical places of worship like Boston’s Charles Street African Methodist Episcopal Church built in 1818. The numbers are relatively small when compared to the general housing market, but angry congregations may bring litigation and attract substantial press attention. Keep the churches, and even the bankers, in your prayers.
5. “5 Stories You May Have Missed…”
And no stories you didn’t. You don’t need me to tell you about that infamous resignation letter in The New York Times.