Buy Some Furniture, Give the Cat A Name

This is the chart for the performance of Tiffany's common stock over the last six months. As you can see, there was an early peak at $52, then a jagged decline to $36 by early July. It has since risen from that, to the neighborhood of $46, although there was another dramatic-looking dip at the end of August.

That dip may have come about largely because Trian Fund, the investment vehicle of Nelson Peltz, has been selling. Trian still owns a 5.43% stake, whichmakes it Tiffany's biggest stockholder.

Tiffany did better-than-expected in recent quarters. But even that hurts it in Shapira's estimation, because she thinks it did well on the basis of declining commodity prices, and its profit margins are not sustainable.

The relevant Goldman Sachs analyst has downgraded Tiffany from neutral to sell. That analyst is Adrianne Shapira by name. She says, "TIF trades at a 26% premium to an index of department stores, which is approaching one standard deviation above the 3-year average premium of 15%. We believe as [earnings estimate] beats moderate in the near term, peak valuations will be tough to sustain."

There is not especially good reason for me to be discussing Tiffany's right now, but it does give me a chance to quote the famous dialog from a certain classic Audrey Hepburn movie:

Holly: Poor old Cat. Poor slob. Poor slob without a name. The way I look at it, I don’t have the right to give him one. We don’t belong to each other; we just took up by the river one day. I don’t even want to own anything until I can find a place where me and things go together. I’m not sure where that is, but I know what it’s like. It’s like Tiffany’s

Fred: Tiffany’s? You mean the jewelry store?

Holly: That’s right. I’m crazy about Tiffany’s…Calms me down right away. The quietness and the proud look of it. Nothing very bad could ever happen to you at Tiffany’s. If I could find a real-life place that made me feel like Tiffany’s then…then I’d buy some furniture and give the cat a name.

Here's hoping that Tiffany's itself finds that place.

Aleynikov Wins a Round

In July 2009, FBI agents arrested Sergey Aleynikov, who had formerly worked in the high-frequency trading business of Goldman Sachs Group Inc.

High-frequency trading has become a good deal more prominet in pubklic/regulatory controversies in the intervening 14 months.

But for what exactly was Aleynikov arrested? The charges were: theft of trade secrets; transportation of stolen property in interstate commerce; and illegal access to a computer without permission. The arrest came soon after Aleynikov had left Goldman, and started work for Teza Technologies. Allegedly, Aleynikov had copied and encryptred files from a Goldman server, uploaded those files to a website, then later to a portable memory device, so he could share it with his new buddies as Teza.

Why bring this all up now? Because I see that a Manhattan district court judge Denise Cote has just dismissed one of the charges, unauthorized access. Aleynikov's alleged actions took place in his final days of employment at Goldman, when he did still have permission to access the firm's computers, and Cote found that he did not exceed the authorization he had been granted.

Prosecution will continue as to the other counts, but this dismissal does show that these sorts of actions are very difficult -- prosecutors have a tough time prevailing.

Which is as it ought to be.

Amaranth and JPMorgan Chase

I recently read LAST MAN STANDING, Duff McDonald's biography of Jamie Dimon, the Chief Executive of JPMorgan Chase.

It is rather too hagiographic for my taste, but it does use Dimon's POV to give a clear account of some of the recent Wall Street turmoil, and for this I am grateful.

I appreciated the brief of the post-Amaranth litigation in particular, and will quote a bit of that here both for its inherent interest and to give a bit of the flavor of the book.

"In the summer of 2006, Dimon, [and his co-heads of investment banking Steven] Black, and [Bill] Winters made their most audacious play of the year when they snapped up a portfolio of disastrous bets on natural gas prices that had been made by Amaranth Advisors, a $9.2 billion hedge fund that was facing collapse if it couldn't get the underwater trades off its books. On the weekend of September 16, Amaranth was desperately seeking a buyer for the trades. Goldman Sachs offered to do a deal for a portion of the total, but it demanded a $1.85 billion payment to relieve Amaranth of the positions.

"Lacking that much cash, Amaranth turned to JPMorgan Chase, the hedge fund's clearing broker, and asked if the firm might return $2 billion of posted collateral so it could get the deal done. Steve Black and Bill Winters refused. [Then there was a similar back-and-forth involving Citadel]. The answer, in the end, was obvious. JPMorgan Chase and Citadel made a joint bid for the trades. (With JPMorgan Chase in on the deal, the question of releasing collateral somehow disappeared.) The company made about $725 million in profit on the positions, in part by turning around and selling many of those it had just purchased to Citadel....Amaranth later sued JPMorgan Chase for more than $1 billion, accusing the company of abusing its position as the hedge fund's prime broker to put the kibosh on the deals with Goldman and Citadel in favor of its own purchase....

"Dimon, who considers the lawsuit 'silly,' had no pity for the collapsed fund."

Mark Pittman RIP

Mark Pittman died this week (on Wednesday).

Pittman was with Bloomberg News. He was part of a team that won the Loeb Award last year for a five-part series in the financial crisis.

He also did pathbreaking work on Goldman Sachs' interest in the AIG bailout, Hank Paulson's role in creating the subprime mess, and the irresponsibility of the ratings agencies increating the conditions for its spread. In June 2007 he wrote a very detailed and incisive piece about the credit agencies that holds up well even with the benefit of 2 and 1/2 years of hindsight.

Felix Salmon, usually a quite astute guy, criticized Pittman for that story, and now regrets that.

Pittman was an old-school reporter, a native of Kansas City, whose first job was covering police for the Coffeyville Journal in southern Kansas in the early 1980s. Later he was at the Times Herald-Record in Middletown, NY, for twelve years, joining Bloomberg in 1997.

The obits I've seen are not very forthcoming about the cause of death, except that it was heart-related. Regardless: it is a loss.

For more, go here.

Taibbi out on a lonely limb

This summer, Matt Taibbi gained notoriety by a journalistic hatchet job on Goldman Sachs for Rolling Stone, made immortal by the "vampire squid" passage:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

More recently, Taibbi has joined the anti-nakedness crusade. That is, he is now among those who believe that "naked short sales" are a critical problem for the US markets and for the U.S. economy. I have spoken about such views in this blog and elsewhere, and to be concise about it here: I don't share them.

Anyway, Taibbi now does. And pursuant to this new conviction he has posted on his blog a video that he says shows the process in action.

Has the rest of the anti-nakedness crusade hailed this new high-profile recruit? or for that matter this video evidence? No. For the most part they've been silent. Maybe that is wise. Kid Dynamite gives a convincing explanation of what is actually going on in that video, and it isn't what Taibbi thinks. It's just an audit trail entry. If it is anything. There is also a school of thought that suggests it is a fake, and Taibbi is the dupe of some scammer.

Penson, the financial services company who allegedly okayed a "locate" of a massive number of shares without proper basis (i.e. green-lighted an illegal naked short sale) has itself taken the initiative by going to the SEC. Shouldn't Taibbi have done that, given his belief that he has uncovered blatant market manipulation?

It was Penson who went to the SEC to inform the agency of "an apparent hoax and unsupported accusation."

We'll see how it pans out. But it seems to me that it is Taibbi who is way out on a limb here. And I hear wood cracking.

Insider Trading: Three Cases

1. SEC v. Mark Cuban

On Friday, July 17, 2009, Judge Sidney Fitzwater, of the US District Court, Northern District, Texas, in Dallas, ruled in Favor of Mark Cuban, dismissing a lawsuit that the SEC had brought against him. Fitzwater found that the SEC had failed to state a claim on which relief could be grantred.

It did so without prejudice, i.e. the SEC may replead.

The case involved Cuban's knowledge of a forthcoming PIPE -- a private investment in public equity. When all other things are equal, a PIPE will cause a reduction in a stock's price, simply because it increases the supply of that company's stock in the marketplace. Without some corresponding increase in the demand for it, the price should fall.

Cuban was an investor in the company in question but he was not an "insider" to it in the strictest sense -- he was not a board member, officer, etc. On the SEC's theory, he was a fiduciary, and the insider trading was thus a breach of a fiduciary responsibility, i.e. his agreement to keep confidential the information that an issuer's CEO provided to him about a forthcoming PIPE.

But the agreement to keep the information confidential that the SEC alleges does not amount, the court said, to an agreement to refrain from a sale of stock. A sale may hint, to those who learn of it, that the seller has just received some information, but it is hardly a clearcut case of communication. "The complaint asserts no facts that reasonably suggest that the CEO intended to obtaion from Cuban an agreement to refrain from trading on the information as opposed to an agreement merely to keep it confidential," the court said.

2. US v. Ralph Cioffi

Cioffi, who is a criminal defendant in the case arising from the failure of two Bear stearns affiliated hedge funds in 2007, has not been so fortunate as Cuban. His trial judge has rejected his motion to dismiss.

In New York, on Tuesday, July 14, Judge Frederic Block refused to dismiss the criminal case against him that arose because Cioffi transferred a portion of his own holdings out of one of these funds without telling investors. In contrast to Fitzwater, Block has not prepared a written opinion giving us the reasons for this decision. But hsi situation isinherently different from that of Cuban's, and as I've noted here before, I thought the motion to dismiss was a matter of slicing the Oscar Meyer pretty thin.

It is still a rum business -- prosecuting "insider trading," at all. But thinking within the box of the law as now exists, Cioffi's position is much worse than that of Cuban's so the difference results of their motions was to be expected.

3. SEC v. Anthony Perez et al. This is a new one. The SEC has charged 5 individuals with insider trading on the ground that they learned that Liberty Mutual was about to announce a bid for Safeway Corp., and acted naturally, buying Safeway themselves.

There are actually three separate complaints, because this information leaked out at least that many times. In two of the three complaints arising out of the safeway bid, a tippee as well as the tipper are named.

The first-named defendant of one of these three complaints, Perez, acquired this information through his work at Goldman Sachs. His tippee? His brother. Ach! the government is now criminalizing brotherly love!

It is also enabling Goldman conspiracy theories. Personally, I much prefer Cerberus conspiracy theories, but Cerberus seems to have had nothing to do with Safeway.