Friday, 30 January 2015
Last updated 5 hours ago
Nov 30 2011 | 12:11pm ET
Former Treasury Secretary Henry Paulson may have given a group of hedge fund managers the insider-trading opportunity of a lifetime three-and-a-half years ago.
At a July 21, 2008, meeting at the offices of Eton Park Capital Management, including about a dozen prominent hedge fund managers and other Wall Street players, Paulson said that the federal government was considering a "conservatorship" plan for government-backed mortgage lenders Fannie Mae and Freddie Mac. Under such a plan, the lenders' shareholders would be all but wiped out, Paulson told the attendees.
Paulson's words—which came true seven weeks later, when Fannie and Freddie voted to enter conservatorship under the newly-created Federal Housing Finance Agency—were in stark contrast to the positive spin he had offered Congress and the press about the two companies in the days and weeks leading up to the meeting, Bloomberg Markets reports.
Among those sitting down with the Treasury chief that day were Eton Park's Eric Mindich, Evercore Partners' Roger Altman, Taconic Capital Advisors' Frank Brosens, Kynikos Associates' James Chanos, GSO Capital Partners' Bennett Goodman, Lone Pine Capital's Stephen Mandel, Och-Ziff Capital Management's Daniel Och, Quadrangle Group's Steven Rattner, TPG-Axon Capital Management's Dinakar Singh and Reservoir Capital Group's Daniel Stern. The full roster is unclear; at least one person whom the Treasury Department expected to attend, Ripplewood Holdings' Timothy Collins, said he did not. And Stern was not on the Treasury list.
At least five of those present—Brosens, Mandel, Mindich, Och and Singh—all worked at Goldman Sachs, which Paulson led as CEO from 1999 until 2006.
There is no evidence that any of the hedge funds represented traded on Paulson's information.
Paulson also told the assembled money managers that he regretted not punishing Bear Stearns shareholders more severely—indicating that he might deal more harshly with Fannie and Freddie stock owners.
The fund manager who recounted the story to Bloomberg Markets—and to the Financial Crisis Inquiry Commission—said he immediately called his lawyer after leaving the meeting. His lawyer warned him that Paulson's information was material and non-public, and told the fund manager to stop trading Fannie and Freddie securities.
The fund manager complied—and profited. Barred from covering his shorts, he watched as Fannie and Freddie shares plummeted following the conservatorship vote. Most of those who attended the meeting declined to comment. Brosens said he didn't remember the details of the meeting and Rattner said he didn't trade in either company's securities after the meeting.
A spokeswoman for Paulson referred to the former Treasury secretary's recent book, which makes no mention of the Eton Park meeting.
Jan 23 2015 | 1:00pm ET
In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…