Author Topic: Fooling Some of the People Most of the Time  (Read 1497 times)

hodedofome

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Fooling Some of the People Most of the Time
« on: July 17, 2015, 08:15:39 PM »
This is the story of hedge fund manager David Einhorn and his multi year fight with Allied Capital to expose fraud at the company. Allied Capital was a publicly traded investment company that made loans and investments in usually poor companies (think junk bonds). Einhorn realized many of their companies were worthless yet Allied kept their value at cost on the books, inflating Allied's book value and thus share price. Allied would then sell more shares of itself to keep itself afloat (cause the companies they invested in sure weren't performing).

Then he found many fraudulent loans an Allied Subsidiary was making, and these loans were backed by government agencies. Stuff like originating a loan backed by the govt to a company that just used the money to pay off another loan, and then never paid the govt loan.

Einhorn spent years trying to get the press to do their own investigation, and shared his findings with many govt agencies but nobody ever did anything about it. Allied had a big govt lobby and played very dirty, and this is what Buffett has warned about in the past as well. He says it's tough to go after criminals because they will retaliate in the dirtiest ways, as their life depends on it.

Ultimately, it took the financial crisis to bring down the company and it was then sold to Ares capital in 2010. To this day nobody has been prosecuted.

It's a great story and a fun book to take on vacation.