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November 18, 2009
Stanford receiver seeks millions from financier's former employees
More than 300 former employees of R. Allen Stanford — including some who worked in Austin — benefited substantially from their relationship with the disgraced financier, according to the court-appointed receiver in charge of recovering money for investors who were victims of Stanford’s alleged $7 billion Ponzi scheme.
Now the receiver is seeking the return of bonuses those employees made selling certificates of deposits for Stanford.
The former employees were incentivized “with big commissions and other compensation relating to the sale of CDs,” receiver Ralph Janvey said in a court filing earlier this month.
“When Stanford paid CD proceeds to former Stanford employees, he did no more than take money out of investors’ pockets and put it into the hands of the former Stanford employees,” according to the suit. “For the more than 20,000 investors who have thus far received little or nothing from their investment in Stanford CDs, money recovered from wherever it resides today is likely the only money they will ever receive in restitution.”
Those proceeds, the receiver charged, were in form of loans, quarterly bonuses and other compensation paid to brokers. He estimates that, at minimum, the proceeds totaled more than $217 million.
Some former Stanford employees who worked in Austin are named in the filing.
Among them are Patrick Cruickshank, who made $2.9 million; Ray Deragon, who made $1.15 million; Nigel Bowman, who made $922,000; Shawn Morgan, who made $425,000; and Carol McCann, who made more than $441,000, according to the receiver’s complaint.
Michael Stanley, a Houston attorney who is representing Deragon, McCann and Morgan, said that none of his clients have been charged with a crime and said they had no inclination of any wrongdoing.
The receiver, Stanley said, is being “very aggressive” in his attempt to reclaim former employees’ bonus money.
“There’s no difference in saying the utility company should pay back the light bills or the landlord should pay back the rent, because in some way it can be traced to investors’ funds,” he said. “We don’t think that’s a legitimate legal claim.”
Bradley Foster, a Dallas attorney representing Cruickshank and Bowman, also didn’t return a call for comment.
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June 24, 2009
New Mexico teachers group sues Austin Capital Management
A lawsuit by a New Mexico state teachers union alleges that Austin Capital Management Ltd. ignored several “red flags” that should have prevented the firm from investing money with fund that in turn invested it with confessed swindler Bernie Madoff.
Jones, Snead, Wertheim & Wentworth said in press release that the National Education Association of New Mexico is suing Austin Capital on behalf of the New Mexico Educational Retirement Board and the State Investment Council.
The plaintiffs are seeking to recover about $25 million they said they lost because of Austin Capital’s investments in the funds tied to Madoff, who is in jail after admitting to running a $65 billion Ponzi scheme.
“We wanted our general counsel to bring this lawsuit to do whatever we can to insure the integrity of the teacher and public school retirement system,” NEA-NM President Sharon Morgan said in a statement.
No one was immediately available for comment at Austin Capital Management or KeyCorp, its parent company.
The press release said that, unknown to its clients, “Austin Capital had invested approximately 7.5 percent of its money in Madoff-managed investments and allegedly failed to perform an investigation into the associated risk, a process known as due diligence.”
Some other union pension funds also have sued Austin Capital on similar grounds, saying the firm should have known that the money was going into Madoff-related funds.
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December 16, 2008
Austin investment firm caught up in Madoff scandal
An Austin investment firm was caught in the Bernie Madoff investment scandal, and the Massachusetts public employee pension fund could be out $12 million as a result, according to Pensions & Investments magazine.
This past summer, the Massachusetts Pension Reserves Investment Management allocated $170 million to Austin Capital Management, a hedge fund of funds, executive director Michael Travaglini told the publication.
Austin Capital invested some of the money with Madoff.
It’s not clear how much the $39.6 billion fund will recover as authorities unravel Madoff’s investment scheme, he told Pensions & Investments.
A spokesman said Austin Capital Management is preparing a statement, but it might not be released until Wednesday.
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October 3, 2008
UT professors debate the bailout and 'Animal House' crisis management
When asked Friday for his take on the federal bailout plan, University of Texas finance professor Sheridan Titman went to the definitive source for crisis management advice: “Animal House.”
In the movie, the fraternity brothers of Delta Tau Chi find themselves faced with expulsion and up against the wall.
“I think that this situation absolutely requires a really futile and stupid gesture be done on somebody’s part,” says Otter.
“We’re just the guys to do it,” Bluto replies.
It’s only fitting, Titman said, that Bluto becomes a senator at the end of the movie.
Friday morning, Titman and five other UT professors discussed the credit market meltdown and its threat to the economy. None professed a lot of joy over the $700 billion bailout bill the U.S. House would pass within an hour after their discussion ended.
Titman sounded the least supportive. Private actions, such as Lehman Brothers’ bankruptcy and Wells Fargo’s announcement Friday that it wanted to buy Wachovia without government help, were progressing in a relatively orderly fashion. The need for even a short-term bailout was debatable.
The rest of the panel disagreed, at least to the extent that some sort of quick governmental action was vital to kick-start the frozen credit markets.
“Doing something is better than nothing,” said Keith Brown, a finance professor. “But we could be doing something better still.”
What “something better” might be could fuel a debate for years. Several of the professors suggested that the government take equity in the companies getting help, both to inject capital in the banks without removing assets, but also to get something back for the taxpayers.
To be fair, the assets the government plans to acquire could rise in value.
But to get any benefit from that debate, one has to understand how we got here in the first place. It started with residential real estate, the collapse of housing prices and the resulting rise in mortgage defaults.
Those loans had been bundled up, pieces of the bundle were sliced off and sold to investors - often investment banks. As defaults rose, those slices became toxic, losing value.
It’s at a point now where nobody wants to buy them. And with a frozen market, nobody can say with any certainty how much they’re worth. (Uncertainty in the market is like sand in a gas tank - either way, there’s not much movement going on.)
The housing boom only helped spread things, and the bundling and sale of mortgage loans and all kinds of other debts greased the skids, Brown said. By taking the risk off the hands of the people making the loans, the system encouraged more and more loans - often subprime mortgages.
Given that investment banks were ready to scoop up all those loans - “like wolverines on speed,” as finance professor Stephen Magee put it - mortgage brokers couldn’t sell enough.
And now, roughly 20 percent of subprime mortgages are delinquent, noted finance professor Jay Hartzell. That toxic debt is eating away at balance sheets, and no one but the government will touch it.
Buyers of these loans essentially made a bet, Hartzell said: “What are the odds the whole country does poorly at once?” The laughter from the audience answered that question.
“They felt they had conquered risk,” Magee said. “The only problem is it only works when the sun shines. … When the whole system goes down,” none of the hedging practices help.
So the government steps in, hopefully to get markets moving again. But it’s a short- term fix, the panel warned. There are some fundamental issues yet to be corrected for the long term, too.
The most troubling question at the moment seems to be this: How, exactly, do we assess risk? In the case of the toxic debt that put the credit market in limbo, how do we assess their value?
That could be the one side benefit of the government’s bailout, said Michael Brandl, senior lecturer in finance. Buying those debts could free the credit markets and eventually thaw out the deep freeze on those bundled-and-sliced mortgage loans.
Get that moving, and you get more money moving around the entire system. After all, if it doesn’t start moving again, then there’s a more serious problem for the economy.
Consider the example Titman provided, after talking with an unnamed energy company. This company had agreed to a $2.5 billion loan from a collection of banks, led by J.P. Morgan. The deal called for J.P. Morgan to cover money lost if some banks reneged on their part of the deal.
But what if J.P. Morgan decides it won’t cover the other banks’ portions? Now the energy company doesn’t have a long-term agreement for $2.5 billion. Maybe it just cuts back; maybe it goes to a hedge fund but has to borrow at a higher interest rate.
Either way, Titman said, that company’s operations are constricted, as is its potential for growth. For employees, the question becomes one of layoffs, wage freezes, benefit cuts etc.
So nobody wins, right?
Well, this is Wall Street - someone always wins. The companies and people holding cash right now are in the catbird seat, several professors said. With values on all kinds of securities and investments tanking, there’s value to be had.
Just make sure you’re not trying to catch a falling knife. A lot of people have bloody fingers at the moment.
By most accounts, the $700 billion federal package is a short term fix. While quick intervention appears to be a vital step, the stickier question is what changes can improve the market structure for the long haul.
“Be careful of the short term and long term tradeoffs,” Brandl said in his closing remarks.
In an interview after the panel, Titman, Magee and finance professor Laura Starks agreed that more regulation was all but inevitable. (And they agreed that an Obama presidency probably would mean more regulation than a McCain administration.)
But the question remains: Was this a failure of market regulation or a failure of amarket that is fundamentally sound but whose innovation drifted off into what Brown called “dragon risk” - that risk of the unknown, taken from the dragons drawn on the edges of medieval maps.
“There was a huge amount of risky debt,” Titman said, “and a real problem with how it was being packaged and valued.”
But the process itself wasn’t necessarily a bad thing, he said. It went too far, of course, or at least progressed in an unsustainable manner.
But a lot of that dragon risk comes with the advent of new, innovative financial products, Starks said. And when investors drift beyond the edges of the known world, sometimes the dragons attack them.
It’s happened before, and it’ll happen again. But that doesn’t mean everyone has to like it when it does.
“Whether we need new regulation or not, it’s going to happen,” Starks said. “I think politically it has to.”
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July 22, 2008
Guaranty says it raised $600 million
Austin’s Guaranty Financial Group Inc. said Tuesday it has completed a private stock placement that bolstered its finances.
The private placement, together with a previous deal in May, raised about $600 million for the savings bank holding company that was spun out of Temple-Inland Inc. late last year.
The money is coming from companies affiliated with Dallas billionaire Robert Rowling (pictured right) and Carl Icahn, who agitated for the Temple-Inland breakup.
Guaranty’s stock has dropped dramatically in recent months due to concerns about its base of assets.
Guaranty disclosed in June that if faced problems with its holdings in mortgage-backed securities, which have been a trouble spot in many banks. It disclosed that about 30 percent of its assets were in the form of mortgage-backed securities and that the fair value of those securities at the end of March was $1.1 billion below their face value.
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July 7, 2008
IndyMac slashes workforce, keeps Austin mortgage center
IndyMac Bancorp will stop making most new loans and cut its workforce by more than half to confront a deepening capital crisis.
The bank, based in Pasadena, Calif, said it would keep open its mortgage servicing operations in Austin and Kalamazoo, Mich., which together employ 1,100 people.
The company said curtailing new loans is the best way to maintain sufficient liquidity.
IndyMac opened is Austin operations last year, leasing 100,000 square feet at Freescale’s North Austin campus.
At the time, the company said it planned to hire 300 people and could expand to 600 or more within a few years.
But IndyMac — the country’s second largest independent mortgage lender — has been hit hard by the mortgage crisis. It has lost almost $900 million in the past three quarters and its stock price has plunged by 98 percent in the past year.
In a letter Monday to shareholders, CEO Michael Perry said the bank does not expect to be able to raise new capital until the national housing and mortgage markets stabilize.
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February 27, 2008
Hicks' 'blank-check' company IPO on hold
The initial public offering of Capstar Acquisition Corp., the latest venture from media entrepreneur R. Steven Hicks, is “on hold” for three months, Hicks said today.
Capstar is a special-purpose acquisition company, also called a blank-check company, which raises money from investors with the intent of later buying a business.
Hicks cited poor market conditions for the delay, which is surprising considering that blank-check companies have dominated the IPO market so far this year.
Capstar last year filed for an IPO to raise $186 million. The IPO won’t be withdrawn, Hicks said, just delayed.
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January 22, 2008
Tell us about how you're dealing with the economy and stock market
How are you and your family reacting to a slowing economy and sinking stock market?
- We’re tightening our belts and cutting back on day to day spending.
- We’re putting off major purchases.
- We’re changing our investments to try to increase returns.
- We’re looking for stocks to buy, because we think there are opportunities.
- Other
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December 22, 2006
Austin company sold to Charles Schwab
A news release from Nationwide Financial Services
Nationwide Financial Services, Inc. (NYSE:NFS) today announced an agreement to sell The 401(k) Company, Inc. to The Charles Schwab Corporation (NASDAQ:SCHW) for $115 million in cash, subject to a post-closing adjustment.
The 401(k) Company, based in Austin, Texas, provides defined contribution plan administrative and record-keeping services to employers in the large-case market. As of Sept. 30, 2006, The 401(k) Company administered assets totaling approximately $21.7 billion for 100 companies with 400,000 participants.
The transaction has been approved by each company’s board of directors and is expected to close by the end of the first quarter of 2007. The proceeds of the sale will be used for general corporate purposes.
“This transaction will enable our private-sector business to focus on our core markets, which are small and micro 401(k) plans,” said Mark R. Thresher, president and chief operating officer of Nationwide Financial, which is based in Columbus, Ohio. “By sharpening our focus, not only will we better serve this market, but we also will be able to more effectively deploy capital through reinvestment in core businesses.”
“We believe this transaction is a good fit for The 401(k) Company customers and will enable The 401(k) Company to continue Nationwide Financial’s tradition of providing high-quality retirement plan services,” Thresher added. “We’re also pleased to work with a company that is committed to making this transition as seamless as possible to affected associates and clients.”
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