Bailout

Paul Singer?s litigation strategies

By Felix Salmon

Paul Singer’s Elliott Associates hedge fund navigated the crisis well, and kept on going strongly through 2009. In 2010, it’s had modestly positive returns: +5.3% in the first half, but just +0.4% in the second quarter.

Nothing too shocking there — unless you’re Paul Singer, learning that Absolute Return + Alpha has got a hold of the information. In which case, you decide to sue:

Elliott, a 33-year-old Fifth Avenue firm, which focuses on distressed debt, said in court papers that publication of the data will “give other market participants a competitive advantage.” …

Elliott filed a petition with the court demanding AR disclose the source of the information, saying it wants to locate, pursue and punish the leaker.

The magazine has said little about the case, beyond stating that it will respond formally on September 2. I’m sure that the magazine will prevail: it clearly can’t disclose its sources, and it equally clearly has no legal obligation to do so.

But the lawsuit is a shot across the magazine’s bows from a billionaire hedge fund manager who has made a very large chunk of his fortune from using aggressive legal strategies. It’s a great way of getting to the holy grail of uncorrelated returns: the chances of winning a court case bear no relation to what the broader market is doing. But it also means that no one wants to be on the receiving end of an Elliott Associates lawsuit: they have the best counsel in the world, and they have bottomless pockets. Even if you win, you’ll be tied up in expensive litigation for an indefinite amount of time.

Weirdly, all of this news is coming out at exactly the same time as Ken Mehlman, the former campaign manager for President George W. Bush in 2004 and chair of the Republican National Committee. Mehlman has been organizing a fundraiser for the American Foundation for Equal Rights — the entity funding the legal challenge against California?s Proposition 8. And the biggest fish that Mehlman has reeled in to support his cause is none other than Paul Singer:

?A lot of different people have come together to make this a success, but the one who has been the most generous and who is hosting it is Paul Singer,? said Mehlman, referring to the wealthy GOP donor and hedge fund executive.

The common thread here is that no matter what Singer does — run hedge funds, bully magazines, work for equal marriage rights — he does it through his lawyers. Indeed, Singer first started managing money in his spare time, while he was working as a lawyer at Donaldson Lufkin & Jenrette Real Estate; he might now be considered the best-paid lawyer in the world.

So if I was the person who leaked Elliott’s returns to AR, I’d definitely be wondering to myself whether my actions were really worth it. No one wants to be hunted down by Singer, who is surely working on many other means of identifying the leaker. The lawsuit is really just a way of announcing, in a very public manner, that leaking quarterly-return numbers is something Elliott will not tolerate. We’ll see next quarter, I guess, whether it has worked. But I suspect that Elliott Associates is no so large — it’s managing roughly $17 billion — that leaks are at this point inevitable. No matter how much Singer hates them.

Full post as published by Macroprudential on August 26, 2010 (boomark / email).