Friday, February 05, 2010

The Snookerer and The Snookered

Traffic court where I used live was a real hoot. Everyone guilty of speeding, careless driving, driving without a license or insurance, illegal turns, (or yet worse) was hauled before the magistrate where he or she was presented with the opportunity to plead guilty or contest the charges. Fines were arbitrary, and there was a higly amusing in-between plea of "guilty with an explanation" - one that the accused plying this route hoped would tend the magistrate towards leniency, or more miraculously, dismiss the case altogether. It was a double-edged sword, however, for if one frivolously delayed the natural course of justice, said magistrate would use the arbitrariness of the fines to make the punishment yet more painful. Yours truly had the dubious pleasure of making several appearances, most of which remain vividly in my memory. One of the funniest witnessed was a guy accused of doing 57 in a 35 zone. Magistrate: "How do you plead". Accused: "Errrr...guilty with an explanation, your honor sir". (Magistrate, in robes, sighs, rolls his eyes and awaits the excuse): "Get on with it then.." Accused: "Well errrr ya see I was going down the road to work, and errrr errrr errrr the cops, they's wuz hiding in the bushes down there errrr ummm by the school, so, errrrr like, I couldn't see 'em..." A big grin breaks upon the magistrates face as he slams his open hand down upon the bench. "That's PRECISELY the point, my friend" said the judge before proclaiming: "That's a 250 fine to be paid by Friday or thirty days inside.. next....". Priceless indeed!

And so I read that the hedge funds are suing Porsche (Elliott Associates LP et al v Porsche Automobil Holding SE, case No. 10-0532) in U.S. District Court for the Southern District of New York for their financial ambush of the best and brightest. It seems EVERYONE had the trade on (judging by returns), though NOT everyone is suing. The premise of the case, in the simplest of terms, seems to be that they never would have put on the trade if they'd known either (a) the true extent of Porsche's positions, or, (b) Porsche's intent with respect to VW, and that Porsche was obliged to tip its hand on both accounts. Yet in the filing, they derisorily say everyone knew Porsche was lying - for years - even VW. Ummm, errrr everyone, it seems, except for the professional hedge fund investors. They also accuse Porsche of manipulation because they used multiple counterparties. I would call this smart, given the demise of Bear & Lehman, and prudent even if they had remained in the realm of the living.

Aside from being sore at getting snookered, when funds such as Singer's Elliott in particular are accustomed to doing the fine-print snookering, (most notably in LDC debt), one must wonder why they are pursuing this. It seems obvious Porsche has crossed their t's and dotted their i's. While in some countries, such a case would have obvious merit, in Germany, they appear to have been on-side of the rules as one does not have to disclose one's position in cash-settled options. Moreover, it appears BaFin was informed by the company of actual position accumulations. So it is surprising that Mr Singer, a lawyer by profession, who plays "Gotcha!" for a living (and plays it well), cannot graciously accept that he lost this one and move on. In polite circles this is called being a "sore loser".

Perhaps they are angling for some quick cash - which they believe Porsche might may to avoid management distraction and bad press. Perhaps (more remotely) Mr Singer still has a Gotcha! in his pocket, though this does not seem like a sympathetic atmosphere for an aggressive hedge fund to win the sympathies of a an American jury, even if it went to trial. But egos are unpredictable evidenced by SRMs Jon Wood still chomping on the Northern Rock bit, and big egos, one's accustomed to winning don't like admitting failure where failure was ultimately the result of their own culpability for not heeding the "fuck-you factor" of a determined shareholder, and a restricted float, in a foreign country amidst a way-overcrowded trade. Yes, as I've painfully experienced in traffic court, I feel aggrieved when the speed trap is set on an open road, at the bottom of a hill, with the a tailwind helping the vehicle, but in actual fact I've little recourse. So I eat it. For it is highly doubtful that the nuances of Porsche's intention would have altered the Funds opinion that Porsche could/would never bid with such elevated values so it was easy money, and their civic course of action should be to voice strongly their [apparent[] opinion that market rules and regulations should be tightened in the future - an odd position indeed for such a prominent Libertarian as Mr Singer.