Yesterday we met Nick Dearden, head of an anti-capitalist British group called Global Justice Now and frequent contributor to the Guardian. As recently as January of this year, Dearden described Venezuela as a “beacon of hope.” He’s also blamed the poverty of countries like the Democratic Republic of the Congo on American “vulture funds.”
The word vulture appears frequently in Dearden’s work. In a 2011 piece, he wrung his hands over the economic plight of Argentina, which, again, he blamed not on the Kirchner regime’s massive corruption and financial irresponsibility but on the creditors who actually dared to expect the Buenos Aires government to honor its debts. Dearden gave a thumbs-up to Argentina’s 2001 default (which “was undoubtedly the right thing to do”) and slammed creditors (a.k.a. “vulture funds”) for refusing to walk away meekly and let Kirchner & co. screw them over. He further accused Argentina’s main creditor, NML Capital, of “harassing” Argentina – by which he meant that NML, in order to try to collect the money it was owed, had had to take the Kirchner government to court .
Meanwhile, the closest he would come to admitting the deep, endemic problems afflicting the Kirchner regime was to say that “Everything is not perfect in Argentina to this day.” He acknowledged that Argentina shouldn’t have borrowed such massive sums in the first place – but instead of criticizing the Kirchner regime for taking out loans, he blamed the banks for making them. Fighting poverty, Dearden asserted, requires profound systemic change: “The financial system…needs to be directed for the benefit of people everywhere.” And part of this change is that “[c]reditors must accept the downside when investments go wrong just as they happily accept the upside when they go right.” Meaning, apparently, that when debtors choose not to pay their debts, creditors should just shrug and walk away.
We’ve written at length about Joseph E. Stiglitz, the economist, who, among other things, is a big U.N. booster, championing the idea that the U.S. and other countries should effectively hand over their sovereignty to the international organization. Dearden is in the same camp, contrasting the G8 – which he views as a gang of imperialist, colonialist bullies that “should by rights be dead and buried” – with the U.N. itself, which he see as a compassionate force for the world’s poorer and less powerful countries.
In a 2009 article for the Guardian, Dearden cited Stiglitz approvingly and at length on the need for thoroughgoing “reform” of “the international trade and financial system,” including extensive debt cancellation, a “new reserve currency to replace the dollar.” Dearden also quoted, with hearty agreement, the then-president of the General Assembly, Nicaraguan priest Miguel d’Escoto Brockmann, to the effect that “[t]he anti-values of greed, individualism and exclusion should be replaced by solidarity, common good and inclusion” and that our “profit-centred economy” should give way to “a people-centred economy.”
Presumably like the terrific, robust one in Nicaragua. Or Venezuela, that “beacon of hope.”
Back in October we spent a few days pondering the Nobel Prize-winning economist Joseph E. Stiglitz, whose curious views are taken far more seriously in the corridors of power than they deserve. Stiglitz, as we pointed out, has called for a socialist U.N. superstate; so preoccupied is he with income inequality, moreover, that he views the Great Depression more fondly than he does the 1980s. Financial analyst Peter Tenebrarum has legitimately ridiculed Stiglitz’s claim that corporate tax rates have “little effect on investment,” observing that only “a life-long leftist academic and bureaucrat who has never created one iota of real wealth in his life” could ever utter such drivel.
Then there are Stiglitz’s deep and longstanding ties to the corrupt Argentinian President Néstor Kirchner (2003-7) and his wife and successor, Cristina Fernández de Kirchner (who left office in December). Stiglitz, who’s been a paid Kirchner advisor and consultant, filed an amicus curiae brief when Argentina defaulted on its debt in 2001; when it did so again in 2014, he once more took the Kirchners’ side.
Quite admirably, Argentina’s new president, Mauricio Macri, is trying to clean up the mess that his crooked predecessors created. To this end, he’s reached an agreement with his country’s major creditors that will set Argentina back on the road to fiscal responsibility and international respectability. Any sensible observer who respects the rule of law would applaud.
Not Stiglitz. In an April 1 New York Times op-ed, co-written with his protégé and frequent collaborator Martin Guzman, Stiglitz slammed Macri’s move – and Argentina’s creditors.
The very title of the op-ed was a lie: “How Hedge Funds Held Argentina for Ransom.” Ransom? When a government run by thugs – kleptocrats who’ve looted their country’s treasury – refuses to pay debts ruled legitimate by two U.S. courts, it’s not ransom. It’s the rule of law.
Let’s parse the op-ed’s first sentence. “Perhaps the most complex trial in history between a sovereign nation, Argentina, and its bondholders – including a group of United States-based hedge funds – officially came to an end yesterday when the Argentine Senate ratified a settlement.” Readers might assume, quaintly, that since this piece appeared in America’s so-called newspaper of record, there must’ve been some fact-checking. But apparently not.
First of all – and this is hardly a tiny detail – there has been no trial.
A trial generally indicates that there is some dispute over the facts of a case involving evidence that must be examined, typically by a jury. But no one ever disputed that Argentina defaulted on more than $80 billion in 2001 and refused to pay certain creditors in violation of their contractual agreements. The lawsuits over Argentina’s bonds were not disputes over these indisputable facts, but rather processes to determine the proper remedies for these violations. Furthermore, lest we be accused of being nitpicky about the terminology, it is also incorrect to say that this litigation “came to an end” last week. In fact, the litigation is ongoing, with important legal questions about Argentina’s settlement offers still pending before a U.S. Court of Appeals.
Second, the mention of hedge funds was a slick move, plainly intended to set knees jerking among anti-capitalist types for whom hedge funds are, by definition, pure evil. Never mind that there are other people – some of them citizens of Argentina – who also hold Argentinian bonds. In fact, it is precisely these small Argentinian bondholders who continue to litigate against Argentina due to the fact that Argentina has for some reason offered them less than it offered the hedge funds. (Stiglitz and Guzman would know this if they bothered to read the news sections of … the New York Times!) Thus, these small bondholders are doubly inconvenient for Stiglitz and Guzman – their existence both contradicts the pair’s erroneous declaration that the Argentinian debt saga has ended while simultaneously undermining their blatant attempt to blame the “evil” hedge funds for all of Argentina’s problems.
Third, the Argentinian Senate did not ratify a settlement. What it did was agree to lift the Kirchner-era laws that were intended to frustrate U.S. court rulings – and that led New York District Judge Thomas Griesa to hold Argentina in contempt.
The op-ed’s first sentence, then, was a minor masterpiece of misrepresentation. Perhaps we should thank Stiglitz and Guzman for making it clear from the git-go that what followed wasn’t going to be factually reliable.
“The resolution,” Stiglitz and Guzman went on to say, “was excellent news for a small group of well-connected investors, and terrible news for the rest of the world, especially countries that face their own debt crises in the future.” No: it was excellent news for the health of the international credit market, and terrible news for irresponsible governments that are inclined to pursue serial defaults.
Stiglitz and Guzman proceeded to describe Argentina as “[u]nable to pay its creditors” (a questionable contention) and to describe holdout investors as having “earned the name vulture funds.” Funny way to put it: these investors didn’t “earn” that name; it was coined by their debtor, the Argentinian government, and was taken up by Stiglitz and his ilk as a glib way of smearing creditors who’ve asked only to be paid what they’re owed. By obscuring the origins of the term “vulture funds,” of course, Stiglitz and Guzman were giving legitimacy to it – and providing themselves with a veneer of justification for repeatedly (and childishly) hurling this slur throughout their piece.
In what was perhaps the most dishonest part of their op-ed, Stiglitz and Guzman purported to sum up Griesa’s 2012 ruling. As they put it, he “threw the game in the vulture funds’ favor” by “blocking Argentina from paying” creditors who’d agreed to reduced settements “until it had paid the vultures in full.” The ruling “gave the vultures the weapon they needed: Argentina had to either pay them off or renege on the default they had negotiated, ruining the country’s credit in the future and threatening its recovery.” Omitted entirely from this tendentious summary – which makes it sound as if Griesa did something shady – is Griesa’s rock-solid legal reasoning: under the pari passu (or “equal footing”) clause in the bond agreement, Argentina was strictly forbidden from paying off some creditors while stiffing others. What Stiglitz and Guzman neatly sidestepped, in other words, is the fact that if Argentina had honored the pari passu clause, all its creditors could have been paid. The point, quite simply, is that Cristina Kirchner didn’t want to pay.
The op-ed’s mendacity continued with the claim that Macri’s deal “will carry a high price for the international financial system, encouraging other funds to hold out and making debt restructuring virtually impossible.” Nonsense. In fact, the market has already adjusted: in place of paripassu clauses, sovereign-debt agreements now include collective-action clauses. Stiglitz and Guzman would have us believe that nations like Argentina can’t protect themselves and can’t structure loans as they wish; instead of worrying about that, we should be concerned about those nations’ continued ability to default and force terms on bondholders.
“Most countries,” maintained Stiglitz and Guzman, “are intimidated by the creditors and accept what is demanded.” Intimidated? Was Cristina Kirchner intimidated when she maligned her creditors as “vultures” and basically gave Judge Griesa the finger? Our heroes then called sovereign-debt restructurings destructive – after all, they’re are often “followed by another restructuring or default within five years.” And what example did they cite? That of Greece, which underwent restructuring in 2012 and is already “in desperate need of more relief.” But the case of Greece doesn’t prove anything about restructuring; all it proves is that if a country is economically irresponsible on a colossal scale, the chickens will eventually come home to roost.
How, then, to resolve sovereign-debt conflicts? Easy: Stiglitz and Guzman touted a set of sovereign-debt “principles” that they themselves proposed to the U.N. General Assembly, which approved them overwhelmingly last September. Among those “principles”: that indebted nations should be immune from foreign courts’ verdicts and that creditors should be compelled to accept restructuring deals approved by a majority of their fellow debt holders. Predictably, the six countries that voted against the resolution were those whose citizens tend to be on the creditor end of these arrangements – Canada, Germany, Israel, Japan, Britain, and the U.S. The countries that approved the measure were, in effect, asserting their own right to dodge repayment of debts – not just debts owed to hedge funds, but debts owed to mom-and-pop investors, too. Some justice.
“Many countries have bankruptcy laws,” concluded Stiglitz and Guzman. “But there is no equivalent framework for sovereign bankruptcies….The United Nations has taken the lead to fill this vacuum, and as Argentina’s case proves, the initiative is more important than ever.” Saying this, however, doesn’t make it so. What Argentina’s case proves is that some countries, like some people, are deadbeats; if permitted to do so, they’ll default repeatedly on their debt for no other reason than that the law lets them.
None of this is new, of course – we already knew where Stiglitz stood on Argentina’s deadbeat behavior. In fact, he’s become something of a broken record on the subject. Take his hyperbolic claim in the op-ed that “[t]he resolution … [will make] debt restructuring virtually impossible.” He’s plagiarized this same claim from himself many times in commenting on various cases, at least once using virtually identical language in the same newspaper. Each time, he is proven wrong by subsequent sovereign debt restructurings that are successfully concluded via constructive, good-faith negotiations with creditors (i.e., the opposite of the coercive approach that he and Cristina Kirchner favor) – most recently in Ukraine.
So why now? Why has Stiglitz chosen this moment to repeat the same tired justifications of the Kirchners’ behavior and vilifications of Argentina’s creditors? For answers, look at the headlines surrounding the deal, and it seems clear at once: As the praise for Macri’s economic policies in general and his handling of the debt dispute in particular pours in from around the world, defenders and abettors of the Kirchners’ disastrous policies are looking worse and worse in retrospect. And, as you might expect, some have lashed out with desperate attempts to justify their actions and/or sabotage the Macri administration. Each is doing it with the tools at hand: For instance, former Kirchner Economy Minister Axel Kicillof now has a seat in Congress, so he is trying mightily to derail Macri’s settlement and keep Argentina mired in default. By contrast, Stiglitz has a standing invitation to bloviate on the op-ed pages of the Times. So bloviate he does.
But no amount of retrospective whitewashing can change the fact that the policies Stiglitz advocated as an advisor to the Kirchners were followed, and followed faithfully, with disastrous consequences for Argentina’s citizens. The Kirchners’ refusal to fully resolve the 2001 default in order to spite its creditors led directly and indirectly to the years of grinding legal battles, the punitive interest rates that Argentina was forced to pay as a result of its status as the world’s worst deadbeat, the falsified economic statistics that undermined its government’s credibility with everyone except for a handful of despots, the cozying up to said despots that further undermined its global reputation, the spiraling inflation that punished its citizens as access to dollars became scarcer and scarcer – Stiglitz was there every step of the way, cheering for Cristina in the international media. And now that she’s gone and someone more responsible is trying to clean up the mess that he helped make, Stiglitz is still there, jeering from the sidelines, and pointing the finger of blame somewhere else.
Another month, another new low for Kyle Bass, the favorite hedge-funder of Argentine autocrats.
First, a quick recap. Bass, who founded his Dallas-based fund, Hayman Capital Management, in 2006, made his fortune – and international headlines – by correctly predicting the 2008 subprime mortgage crisis. For a while there, he was a superstar. He was M. Night Shayamalan in 2001, coming out of nowhere to get nominated for both his script and direction of The Sixth Sense. Observers jumped to the conclusion that Bass was some kind of genius who could do no wrong.
But time went on.
And time has not been kind to Kyle Bass.
The magic touch – if he ever had it – is long gone. Just as Shayamalan has made bad movie after bad movie, Bass has made bad call after bad call.
And he’s done it in full view of the market-following public. The guy seems never to turn down an invitation to go on TV and pontificate – proffering so-called “analysis” that invariably serves his own bottom line.
In addition to making bad calls, he’s made unsavory alliances. While pretty much everyone else in the business thinks that the economically illiterate Argentinian despot Cristina Fernández de Kirchner is the worst thing that ever happened to her country’s economy, Bass can’t stop singing the woman’s praises. Last year, her country defaulted on its sovereign debt for the second time in thirteen years – an action at once indefensible and irrational. But, as we’ve seen, Bass defended it and rationalized it anyway, sounding so outrageously out of touch with reality that, as the New York Post put it, he sounded more like Argentina’s leftist economy minister Axel Kicillof than a U.S. hedge-fund manager.
If Bass came off like one of the hyper-socialist Kirchner’s lackeys and minions, that should be no surprise – because he is one of her lackeys and minions. The BBC has said he has a good relationship with her. That’s putting it mildly: Bass has consistently championed her preposterously irresponsible economic policies and has delicately ignored the cartoonish degree to which she and her breathtakingly amoral cronies have ripped off their own people.
And he’s gone even further than that: when New York Judge Thomas Griesa ruled that Argentina couldn’t just shell out to creditors who’d agreed to settle for reduced amounts, but also had to pay creditors – including Paul Singer of Elliott Management – who insisted on full payment, Bass took Kirchner’s side, calling Singer & co. “immoral” for, as he put it, “holding poor countries as hostages” and “holding up 42 million people from progress.” As we’ve said before, what’s really holding up progress in Argentina are Kirchner and her staggeringly incompetent and corrupt flunkies, whose economic illiteracy and limitless avarice have sent poverty levels sky high in a once affluent nation.
The question is: why? Why is Bass such a Buenos Aires bootlicker? Why is his nose a bright salmon pink from rubbing it up against the walls of the Casa Rosada? What kinds of secret, unscrupulous deals does he have – or want to have – with the you-scratch-my-back-I’ll-scratch-yours Kirchner dynasty?
Bass’s shady ties with Kirchner and her crew aren’t his only ethical lapse since his fifteen minutes of glory. This is, for example, the guy who, in order to make good on his investment in General Motors, went on TV to try to shift the blame for fatalities caused by non-deploying airbags and faulty power steering in GM cars – problems that the auto giant knew about and failed to act on – onto the dead victims themselves, charging (disgustingly) that they’d either been drunk or failed to wear seatbelts.
Then there’s his business ties to the late Chris (American Sniper) Kyle, whose widow, Taya, is now embroiled in a messy lawsuit with one of Bass’s subordinates at Hayman, whom she’s accused of all kinds of unethical behavior. (Imagine!)
And this is also, note well, the guy who, as we’ve reported, came up a year or so ago with a ploy so vile that both houses of Congress are now working overtime – on a bipartisan basis – to close up the loophole that makes it possible.
The scheme is as simple as it is loathsome: Bass – in collusion with one Erich Spangenberg, known as “the world’s most notorious patent troll” – picks out certain pharmaceutical firms, short-sells their stocks, then challenges one or more of their patents via a front organization, the Coalition for Affordable Drugs, that he set up precisely for this purpose. The inevitable result: the stocks go down, Bass rakes in a few million quick simoleons, and the pharma companies’ prices go up while their motive to fund medical research goes down – thus causing palpable harm to the millions of people who depend on those firms’ products to ameliorate their suffering, relieve their symptoms, or prolong (or even save) their lives.
But why care about the sick and infirm when you’re in a position to turn a buck?
When Bass first got called on this sleazy dodge, he insisted he was doing it for a noble reason: bust patents and competition will drive drug prices down. On close examination, his explanation didn’t really make sense – and it didn’t fool anybody. “There’s nothing in this man’s history,” pointed out James C. Greenwood, a pharma industry leader, “to suggest he has any interest in lowering health-care costs.” Scott McKeown, an intellectual-property expert, dismissed Bass’s claim that he’s actually trying to help patients. Bass, he said, was “simply hoping to spook financial markets to his benefit.” Nobody disagrees.
So transparent was his pretense of altruism, in fact, that Bass has dropped it and switched to another defense. In a response to a filing against him by Celgene, the pharma firm that’s been his biggest target, Bass acknowledged he was motivated by a lust for profit – but quickly added that pharmaceutical companies, too, are driven by financial self-interest. So what, he asked, is the difference?
Well, some people do see a difference, and they’re out to stop him. As we’ve noted, a government agency, the Patent Trial and Appeals Board (PTAB), is considering sanctioning Bass for abusing the system with his patent challenges. Also – get this – Celgene has charged Bass and Spangenberg with extortion. Spangenberg, apparently, sent Celgene drafts of patent-challenging petitions, saying, accordingto Bloomberg News, that “he’d file them unless given cash.”
Some observers might wonder why Bass, who for fifteen minutes there was the Wunderkind of the hedge-fund industry, would be engaged in such grubby hijinks. Why would a guy who’s flown so high and cashed in so handsomely sink so low in order to further line his already well-stuffed pockets? An August 13 article in Barron’s helps clear up that question. We already knew that Bass had lost his fabled magic touch. But it turns out things are even worse than we imagined.
Jim McTague tells the story: “Bass has had a dismal time of it recently….Suddenly, the former luminary can’t seem to get anything right.” While it’s hard “to know exactly how Bass’ funds are doing because he keeps his fund’s actual performance metrics close to the vest,” news reports say he “lost somewhere around 30% in 2014, the mirror opposite of the industry’s best-performing hedge fund managers.”
Thirty percent! No further questions, Your Honor.
McTague quotes a recent article in which Bass himself admitted to having had “a tough year.” “It’s nice to win all of the time,” Bass said. “When you are not winning and everyone else is, it makes life difficult.”
No wonder he’s pulling this chintzy pharma con and sucking up to Cristina Fernández de Kirchner, that despotic queen of the pampas!
According to McTague, Bass’s two current preoccupations are oil (everyone else to the contrary, he’s counting on prices to rise within a year) and Argentina (where, in McTague’s words, Bass continues to be “bullish where others are heading for the exits”).
Bass, reports McTague, refuses to talk about his and Spangenberg’s tacky patent ruse. Meanwhile, the latest news from Capitol Hill is that bills triggered by Bass’s activities have easily cleared both the House and Senate Judiciary Committees, with legislators hoping that by the end of this month a law will be on the books that “cut[s] the legs from under this particular Bass strategy.”
Once that happens, what’s on deck for Bass? What squalid swamp will he wade into next? What sordid small-time con will he cook up? We don’t hold his stock-picking powers in particularly high regard – not anymore, at least – but we’re bubbling over with confidence that this shameless bottom-feeder has a cornucopia of uniquely unethical make-a-buck stratagems left in him.
And, of course, if all else fails, he’ll always have Buenos Aires.
UPDATE, August 27: Only hours after this post went up, the Patent Trial and Appeal Board denied Bass’s first two patent challenges. The PTAB’s decision “sets a worrying precedent for Bass,” wrote Business Insider, which also noted this very illuminating response by Bass: “It should be axiomatic that people do not undertake socially valuable activity for free.” In Bass’s world, it’s all about the money.
Since inaugurating this website, we’ve tried to keep up with the always interesting activities of Cristina Kirchner’s favorite hedge-fund manager, Dallas’s own Kyle Bass – who’s routinely praised her corrupt, incompetent Marxist regime and slammed his fellow hedgies for expecting her to pay the money she owes them. We’ve seen him defend General Motors’s cover-up of a faulty-airbag case by blaming the passengers who lost their lives as a result of the defect.
Most recently, we looked at his newest money-making scheme. Taking advantage of a new process called “inter partes review” (IPR), he challenges drug companies’ patents via a newly formed front group called the Coalition for Affordable Drugs – and, at the same time, short-sells those companies’ stocks. It’s a sure-fire gimmick: the minute a patent challenge becomes public, the firm’s stock price plummets and Bass pockets a few million dollars. Meanwhile, of course, every new patent challenge further weakens the motivation of pharmaceutical firms to invest in product development – and thus places at risk the welfare (and perhaps even the lives) of heaven knows how many sick people who are in desperate need of miracle drugs.
Bass, who’s constantly trumpeting his own moral superiority to (for example) the “vulture” hedge funds that actually expect Argentina to pay its debts, claims that this slimy pharma hustle of his was prompted by the most ethical of motives: he wants to break up monopolies on certain medicines and thus bring down prices. But the pharmaceutical industry isn’t buying it: as James C. Greenwood, head of the BIO trade association put it, “There’s nothing in this man’s history to suggest he has any interest in lowering health-care costs.” Another observer, intellectual-property expert Scott McKeown, calls Bass a “patent troll.”
Bass, McKeown recently wrote, “is certainly not embarking on this multi-million dollar venture to help Medicare patients. Instead, he is simply hoping to spook financial markets to his benefit.”
At least some folks on Capitol Hill agree, and are doing their best to stop Bass in his tracks. On June 10 came the news that the House Judiciary Committee, in response to Bass’s activities, was “considering revisions to a pending bill” that would “require any party seeking an inter partes review…of an existing patent to certify that it does not have any financial interest in a drop in the patent owner’s securities.” On June 22, it was reported that the Patent Trial and Appeals Board (PTAB) had agreed to consider a motion by Celgene, one of the pharma firms targeted by Bass, to sanction the Coalition for Affordable Drugs for abusing the IPR process. And on June 26, the Wall Street Journal added a scintillating new detail:
…according to Celgene, Bass had committed extortion, threatening to challenge Celgene’s patents unless the firm paid him off.
Oh, well. We already knew how chummy Bass is with Cristina Kirchner and her crooked crew. Why should we expect his behavior to be any less morally reprehensible than theirs?
Yesterday we took a brief introductory look at ethically challenged hedge funder Daniel Och, who’s had more than his share of brushes with the law, both foreign and domestic. Some of the many legal actions against Och have been triggered by his transactions with iniquitous regimes – transactions that even his profit-hungry employees, investors, and shareholders found distasteful. Let’s start with Zimbabwe’s gangster president, Robert Mugabe. In 2008, while U.S. authorities, in the name of human rights, were striving to isolate Mugabe financially from the rest of the world, Och’s firm, Och-Ziff Capital Management, and a handful of equally venal confederates gave the dictator $100 million for platinum-mining rights. Shortly afterwards, Och provided 75% of the funding, or $150 million, for a Zimbabwean mining enterprise. The U.S. Treasury Department sanctioned one of Och-Ziff’s accomplices in these operations, while both the Department of Justice and Securities and Exchange Commission investigated Och-Ziff.
Several sources indicate that the money Och stuffed in Mugabe’s pockets enabled the despot, whose government had been bankrupt, to steal the 2008 Zimbabwean election – because he was able to use the cash “to buy votes and unleash a campaign of brutal repression in an election in which he [had previously] faced almost certain defeat.” One commentator described the deal this way: Och “raised $100M for Mugabe’s weapons and torture-chambers in exchange for a sweetheart deal on the country’s platinum mines.” Another source calls it “surprising that Och-Ziff was willing to finance the Zimbabwean loan despite the likelihood that Mugabe, whom Western governments opposed implacably, would use it to fuel repression.” People who know Och, however, weren’t surprised.
Then there’s Muammar Qaddafi, the late, unlamented leader of Libya, from whose sovereign-wealth fund Och accepted a $300 million investment – a breach of U.S. anti-bribery laws. Last December, it was reportedthat U.S. investigators were probing Och’s Libya deals, with a focus on “a multimillion-dollar payment…they believe was funneled in part to a friend of Col. Moammar Gadhafi’s son.”
Och has also been deeply involved with the not-so-democratic Democratic Republic of the Congo (DRC), investing in a mining scheme to the tune of some $234 million – a violation of the Foreign Corrupt Practices Act that brought subpoenas from both the SEC and the Department of Justice. Also, in collaboration with a shady offshore firm, Och-Ziff made a secret loan to Guinea that a former Guinean minister described as “a bribe” – which might put it, too, at odds with the Foreign Corrupt Practices Act. As of last August, Och-Ziff was under investigation for its deals with both Zimbabwe and the DRC, including allegations that it had deliberately and illegally tried to cover its dirty tracks. Indeed, it was reported in August that because of Och’s foreign-corruption issues, class-action lawyers were “circling…Och-Ziff Capital Management Group like a posse of Indian braves whooping around a wagon.”
Lately, we’ve taken a look or two at Kyle Bass, who, as we discovered, is, among other things, awfully chummy with the swindling thugs who run Argentina. But when it comes to making sweetheart deals with slimy heads of state, he’s got nothing on fellow New York hedge funder Daniel Och, the CEO and Chairman of Och-Ziff Capital Management Group. For the story of Och’s career is, to a remarkable extent, an account of intimate, mutually profitable, and utterly unconscionable transactions with some of the most brutal tyrants of our time.
First, a brief introduction: Och (who’s been described as “one of the few men for whom the description steely-eyed is truly apt”) is a native New Jerseyan who, after graduating from the Wharton School, spent eleven years at Goldman Sachs. In 1994, with a $100 million cash infusion from the heirs to the Ziff publishing fortune, he founded Och-Ziff. By 2013, he was #17 on Forbes’s list of the year’s 25 top-earning hedge funders, with a $400 million take. In addition to his principal residence, an apartment at 15 Central Park West in Manhattan – the “world’s richest address” – he owns a $20.3 million, 12,000-square-foot mansion in Aspen, Colorado, that boasts 7 bedrooms and 9.5 baths.
Och has had more than his share of controversy. In 2011, Och-Ziff was sued by an ex-employee who claimed he was owed $7.9 million in pay and stock. Last year, a group of Och-Ziff shareholders sued the firm for issuing “false and/or misleading statements and/or fail[ing] to disclose material adverse facts” about its activities. According to the New York Observer, when Lehman Brothers went down the drain, its lawyers suspected Och of short-selling their company “into the dirt.” Indeed, court papers filed in 2010 charged that Och-Ziff had spread rumors “that helped bring down Lehman Brothers.” As the Wall Street Journalreported, Och-Ziff “likely disseminated and/or was the recipient” of a story “that Lehman had spun off debt to two Lehman-controlled hedge funds to reduce [its] leverage” – a lie that was allegedly propagated “by unscrupulous market participants looking to profit” from shorting Lehman stock.
But what about those transactions with tyrants? Tune in tomorrow.
A few weeks ago, we brought you the story of Kyle Bass, the best friend an Argentine autocrat could have.
Ever since he struck it rich on the subprime mortgage crisis, the mainstream media have paid plenty of attention to the moves and prognostications of the Dallas-based hedge-funder. In fact, you might even say that Bass has encouraged this attention, seemingly never saying no to an opportunity to appear on TV and share “analysis” that somehow always lines up with his own financial self-interest.
Take, for instance, the time he went on CNBC and called Argentina’s holdout creditors “immoral” for “holding up 42 million people from progress.” Never mind that what’s really holding up progress for the citizens of Argentina are the corrupt Kirchner caudillos, who’ve imposed disastrous economic policies on the country while simultaneously attempting to rob it blind.
No, Bass decided to ignore President Cristina Fernández de Kirchner’s wholesale corruption and ideological insanity. Instead, he chose to kiss up to the Kirchner regime by slandering her preferred bogeymen, the holdout hedge funds. Could it be that Bass, who has extensive investments in Argentina, was trying to curry favor with the Kirchners, who are notorious about giving sweetheart deals to hedge funds that help them do their dirty work? Could it be, indeed, that Bass already benefitted from such deals? Stay tuned.
In the meantime, let’s return to that word “immoral.” It’s an interesting word choice for Bass, given his own preferred investments. In another of his more infamous TV appearances, Bass was asked a question about General Motors. Once again, Bass, a major GM stockholder, provided “analysis” that lined up perfectly with his own financial self-interest. GM had been charged with creating a “culture of cover-up” by masking a defect that disabled airbags in certain models, causing passenger deaths. How did Bass defend GM? Easy – by blaming the victims:
BASS: Of those 13 deaths that happened, 12 of them either weren’t wearing their seatbelt or were under the influence of alcohol. And so, again, we don’t know what caused each of these deaths, and each of them I think has a multi-variable equation that goes into what happened. But I think that it’s really important to understand the narrative being told in the press versus, kind of, the factual narrative that yes, all deaths are tragedies, and human beings seem to think that tragedies could be prevented, or even greater tragedies. But in this case, I don’t think that the narrative is being told, because there is no upside for the press to tell the narrative to drive with your seat belt on and be sober.
How very moral of Bass, all this concern about the “narratives” surrounding these deaths. In any event, interviewer David Faber’s response left Bass stammering and quickly trying to change the subject:
FABER: That’s absolutely true, but others would say, you know, just because people may have been driving under the influence or not wearing their seat belt doesn’t mean they should be getting in a car where the airbags don’t work and the power steering doesn’t work.
BASS: Exactly…exactly. So the public policy issue is a much larger one.
Nice try, Kyle. Actually, the issue was not “much larger” but very simple and straightforward: GM was aware of safety concerns but failed to act on them. And Bass’s effort to obfuscate and trivialize that issue for financial gain raises serious moral questions.
Bass’s latest investment strategy is of equally dubious morality: exploiting a new process called “inter partes review” to challenge pharmaceutical companies’ patents. As a pharma-industry newsletter noted recently, Bass spins his new stratagem as “noble” – he wants to take on pharma monopolies, spur competition, and thus lower drug prices. “A small minority of drug companies,” maintained Bass’s fund, Hayman Capital Management, in a recent statement, “are abusing the patent system to sustain invalid patents that contain no meaningful innovations but serve to maintain their anti-competitive, high-price monopoly to the detriment of Americans suffering from illness.”
In short, Bass, who created something called the Coalition for Affordable Drugs for the express purpose of carrying out his patent challenges, would have you believe that he’s acting in the interest of those Americans. But the truth is a little more complicated – and quite a bit darker – than that.
The first product Bass tried to wrench away from its manufacturer was Ampyra, which helps multiple sclerosis patients walk. The active ingredient in the drug, wrote Tracy Staton at Fierce Pharma, is an “old molecule” that was originally used as a bird poison; Acorda Therapeutics “did the work to make it useful in humans.” Unsurprisingly, after Bass filed papers officially challenging the patent, Acorda’s stock price dropped – and guess who made a tidy profit? Bass, who’d sold Acorda short in expectation of this highly predictable result.
Bass’s cynical new money-making scheme, of course, raises the question: with somebody like him hammering away at other people’s patents in an attempt to rake in a few quick, easy millions – and thus driving down the profits of pharma shareholders – what will happen to the motivation of drug companies to develop medicines that transform the lives of people suffering from grave illnesses?
Bass’s next move after Ampyra made this question even more urgent. His target this time was Imbruvica, one of the latest generation of cancer-fighting drugs, produced by Johnson & Johnson and Pharmacyclics. Unlike Ampyra, Imbruvica was a brand-new drug, having received FDA approval as recently as 2013. It’s considered a “breakthrough” therapy and has been called “[t]he drug that may make chemo a thing of the past.” Bass challenged a patent for Imbruvica that was granted just last year – for treating mantle-cell lymphoma – and that expires in 2031. After he filed his petition taking on the patent, the price of Pharmacyclics stock went down – and Bass, once again, enjoyed a nice payday.
On April 1, he struck again. He filed challenges against patents for not one but two drugs – Lialda, a treatment for ulcerative colitis, and Gattex, a medication for short bowel syndrome, both produced by Shire. Before the month was over, Bass had taken shots at several additional patents: for Thalomid, a leprosy drug; for Revlimid, an anemia medication; for Tecfidera, which has been called a “blockbuster multiple-sclerosis drug”; for Fumaderm, used to treat psoriasis; and for Xyrem, a narcolepsy treatment.
James C. Greenwood, the chief executive of BIO, a trade association representing “biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States,” has denounced all these moves by Bass. When Congress instituted the inter partes review system in 2012, charges Greenwood, it didn’t mean for it “to be utilized by those attempting to profit from the confusion the current system creates. Such efforts not only damage the value of companies working on cures – but hurts those sick and suffering patients and their families who are eager for cures.” Apropos of Bass’s claim that he’s doing all this to help patients, moreover, Greenwood has pointed out that “[t]here’s nothing in this man’s history to suggest he has any interest in lowering health-care costs.”
Indeed, there’s nothing in Bass’s history – his grandstanding about morality notwithstanding – to suggest that this friend of corrupt autocrats is about anything more than turning a profit.