Money Stuff, by Matt Levine: First Republic- April 27 /4
And:
A defendant in the case, who spoke on condition of anonymity, denies paying bribes—his firm paid Helsinge “consultancy fees”—but says that exchanging information on rival bids and tenders was “the way of doing business” in South America at the time.
Ah, yes, great, great.
But the other part of the Businessweek story is that this story of corruption and bribery — and Morillo’s instant messages allegedly proving it — fell into the hands of David Boies, the famous American lawyer, who saw that Morillo and his clients had stolen billions of dollars from Venezuela and decided to try to get that money for himself:
Excited by the evidence in their possession, various combinations of Boies, [Morillo’s rival Wilmer] Ruperti, Blondie (the private investigator) and [investor Bill] Duker (the moneyman) met over the summer of 2017 in various offices and on Duker’s 230‑foot sailboat, Sybaris, named for an ancient Greek city famous for its excess. …
First they needed to persuade the Maduro administration to let them bring a claim on PDVSA’s behalf. … Ruperti introduced Boies and Duker to Nelson Martinez, Venezuela’s newly installed oil minister, and Reinaldo Muñoz Pedroza, the country’s attorney general. On July 12, 2017, the parties came to an agreement: Blondie, Duker and the lawyers would get 66% of the proceeds, leaving 34% for PDVSA.
So they set up an entity — PDVSA US Litigation Trust — to sue Morillo and his clients in Florida federal court, and to pay any winnings two-thirds to the lawyers and one-third to PDVSA. They sued, and the defendants’ first line of defense was, basically, “look, you say that we stole billions of dollars from PDVSA, but why do you get to sue? You aren’t PDVSA; you’re some weird new trust. If we stole from PDVSA, let PDVSA sue us.”
Back in court in Miami, before the proceedings could turn to the matter of whether Helsinge and its customers had committed any crimes, Boies needed to demonstrate that the trust had standing—the legal right to bring a case. In most lawsuits, an injured party files a complaint and the two sides argue over its merits. Here you had an opaque New York vehicle claiming to represent Venezuela’s state oil company, which itself was controlled by a corrupt dictator subject to sanctions. Beyond that, it was unclear from the preliminary filings who controlled the trust and who stood to benefit. In July 2018 the defendants filed a motion to have the case dismissed on the grounds that the trust was illegitimate.
This defense was helped by the fact that nobody from PDVSA could really come to court to explain that the trust was legitimate, because (1) Venezuela was subject to increasingly strict US sanctions that made it hard for Boies to work with PDVSA and (2) the Venezuelan government didn’t make it particularly easy either:
What followed was a kind of courtroom farce, as Boies Schiller Flexner’s increasingly desperate efforts to demonstrate the trust’s bona fides fell apart under scrutiny. Defense lawyers sought to depose Venezuelan signatories to the litigation agreement among the various parties, but none could be pinned down. One had simply vanished. Another, Martinez, the oil minister, had recently been arrested in Venezuela and charged with corruption. “Jailed? Did I hear jailed?” the judge asked, trying to keep up. When PDVSA’s general counsel did finally commit to going to the US to be deposed, two dozen attorneys booked flights and hotels, only for the witness to pull out at the last minute, apparently under orders from Maduro himself.
The plaintiffs’ position was further undermined by how poorly news of the litigation was going down in South America. As part of the discovery process, Boies Schiller Flexner was ordered to hand over the agreement letter laying out the 66%-34% split. It was pilloried on Venezuelan state television. On April 24, 2018, the National Assembly, home to what remains of the country’s opposition, published a decree describing the trust as “a mechanism to divert the funds and resources” of Venezuela.
Ultimately this defense worked, and the judge dismissed Boies’s lawsuit. I love that a famous US lawyer learned of Swiss companies defrauding a Venezuelan company out of billions of dollars, and his natural first reaction was to go to a US federal court to get it to order those companies to give him the money instead. “If a US lawyer notices anyone stealing any money anywhere in the world, that money belongs to him, and a US court will enforce his rights to it” is not 100% wrong as a description of US law, which explains a lot about the extraterritorial application of US law, the hegemony of the dollar system, and the entrepreneurial American legal culture. But it is not 100% right either, and it did not work out for Boies.
Anyway, elsewhere in euphemisms for bribes, here is the Economist with a helpful collection:
One approach is to talk about something other than money. Some officials, for example, like to keep citizens well abreast of their food and drink preferences. “I really want to drink a Nescafe,” declares an airport security guard six times as he frisks your correspondent in Burkina Faso. In Uganda traffic police find ways to mention their favourite soda. In South Africa such requests are so common that bribes for driving offences are known as “cold drink money”.
I guess if you’re a cop at a traffic stop you can’t really ask for a consultancy fee.
Succession
I have occasionally tried to understand the capital structure, valuation, corporate governance and shareholder base of Waystar Royco, the Roy family’s publicly traded conglomerate on the TV show Succession, but I quickly find myself frustrated by some contradiction that doesn’t make much sense, and then I remind myself that it’s a TV show and nobody cares about the absolute verisimilitude of its corporate bits. (Who is on the Waystar Royco board? Why are there no independent directors? Who cares!) Anyway at FT Alphaville last week Louis Ashworth gave it a go; he got farther than I ever have but he gave up too, and my advice is that it isn’t worth it.
Things happen
SVB’s new owner fights to rebuild brand and stem outflows. Moody’s Downgrades 11 Regional Banks, Including Zions, U.S. Bank, Western Alliance. New Wall Street ‘fear gauge’ to track short-term market swings. The Crypto Detectives Are Cleaning Up. The Impending Fight for Private Equity Buyout Lending. CME plays down rival to LME nickel market. UK Aims to Avoid Repeat of Liz Truss’s Market Mayhem With LDI Reforms. Partner pay at top US law firms hit by dealmaking drought. J&J Consumer-Health IPO Process to Kick Off Key Test for Moribund New-Issue Market. A Schwab Divorce From Bank Could Unlock Value, JPMorgan Says. Gemini’s Plan for Derivatives Exchange Adds to Crypto’s Flight From the US. “The market considers the one-month bill a safe haven. … The three-month is more in the crosshairs.” How Vanuatu allegedly lost its mackerel rights — and fought back. “Afterward we had dinner at Bennigan's; on the menu chalkboard, under Quiche of the Day, Jello [Biafra] scrawled ‘YOU.’”
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[1] This number comes from the company’s first-day declaration (PDF), Document 10 in the bankruptcy docket.
[2] A footnote to this sentence in the declaration cites Money Stuff.
[3] There are also about $1 billion of unsecured bonds outstanding, and talk about nostalgia: They were issued in 2014 to fund a stock buyback, and include about $600 million of *30-year bonds*, due in 2044, with a 5.165% interest rate. They were rated A-/Baa1 when issued. Different times!
[4] Its closest competition is when Hertz Global Holdings Inc. sold stock to meme-stock investors *in bankruptcy*, which was incredible, but (1) the US Securities and Exchange Commission shut that deal down almost as soon as it launched, so it never raised much money and (2) Hertz was trying to reorganize in bankruptcy, not liquidate; it succeeded and the equity actually recovered, so buying (and, thus, selling) the stock was not *that* crazy. To be clear, that is still a possibility here — “Bed Bath & Beyond has pulled off long shot transactions several times in the last six months, so nobody should think Bed Bath & Beyond will not be able to do so again” — and I will feel dumb and amazed if the people who bought Bed Bath stock on Friday at $0.29 end up making a fortune on the trade.
[5] This is a little loose, and there are scenarios where some equity owner might put in more money in a bankruptcy-type situation in order to *keep control of the company*. “An equity owner throws in more money and comes out with zero stake in the company" is … less common.
[6] No, no, it’s still trading; it was at about $0.19 or so at noon today. Really this should say “… and (2) now is even more clearly going to be worthless,” but all hope is not technically lost.
[7] Bloomberg reports: “‘The idea that you can continually support your company even in the face of constant dilution of your investors just isn’t a long-term, viable corporate-finance strategy,’ said James Gellert, CEO of ratings firm Rapid Ratings. ‘Bed Bath & Beyond had a seeming disregard for common equity holders.’”
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