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A Look At The Lawsuit Against Michael Lewis, In Which We Find That Brad Pitt Has Bought The Movie Right To "The Big Short"

Tyler Durden's picture




 

Earlier today, some hilarious news hit the tape after it was made public that disgraced CDO trader Wing Chau has decided to go nuclear and sue Michael Lewis and Steve Eisman due to their all too honest representation of the Harding Advisory asset manager, in Lewis' book "The Big Short" (not spared from the lawsuit was even book publisher W.W. Norton). "Michael Lewis was sued by Wing Chau, president and principal of Harding Advisory LLC, who accused the writer of defaming him in his 2010 book. The book "depicts Mr. Chau as someone who ignored his professional responsibilities, made misrepresentations to investors, charged money for work that was not performed, had no stake in the CDOs he managed, was incompetent or reckless in carrying out his responsibilities, and violated his fiduciary duties by putting the interests of 'Wall Street bond trading desks' above those of his investors." It appears that Chau missed at least one additional defendant: Jody Shenn of Bloomberg, who in 2010 wrote a scathing article titled "How Wing Chau Helped Neo Default in Merrill CDOs Under SEC View" which provided just as damning and just as accurate a portrait of the (allegedly) pathologically greedy manager who presided at the "center of an epidemic of conflicts of interest." And while we present the key highlights from Shenn's piece which is a must read for anyone interested in what will surely be a recurring drama in the coming months (the Michael Lewis op-ed repartees will be worth the price of admission alone), what appears to have forced Chau to take this career ending step (sorry Wing, no more AUM for you) is that he is about to hit the silver screen. In the full lawsuit we read that "Brad Pitt's production company, Plan B Entertainment Inc., has bought the movie rights and is working with Paramount Pictures Corporation to produce [The Big Short] film." Well isn't that special...

Here are some of the choicest quotes by Jody Shenn from his May 2010 article:

In early 2007, with subprime-mortgage defaults soaring, Wing F. Chau teamed with Merrill Lynch & Co. to create a $300 million pool of assets that shared a name with the main character in The Matrix movies who discovers reality isn’t what it seems.

Neo CDO Ltd. was a complex construction. More than 40 percent of its holdings were slices of collateralized debt obligations sold by Merrill, according to Moody’s Investors Service and Bloomberg data. Many of those were CDOs made up of other CDOs backed by bonds linked to home loans. About one-sixth of Neo was invested in junk-rated debt.

Eight months after the deal closed, Neo defaulted, wiping out most of its investors. It was one of seven transactions that Chau, 43, hatched with Merrill and Citigroup Inc. in 2007 as banks raced to offload mortgage assets, helping to make his firm, Harding Advisory LLC, the biggest manager of CDOs tied to risky mortgages and related derivatives issued that year.

Managers such as Chau were at the center of a financial machine that pumped out more than $200 billion of mortgage- linked CDOs in the months before the subprime crisis spread. They picked the securities that went into CDOs and held themselves out as independent agents. Now potential conflicts of interest and questions about what banks disclosed have drawn regulators’ attention.

Interactions across the industry among bankers, asset managers, ratings firms and lawyers contributed to what Lang Gibson, head of CDO research at Merrill until early 2008, called a “Ponzi scheme” of CDOs buying other CDOs.

“It was the most incestuous market around,” Gibson said.

...

Chau said that more than 80 firms, including BlackRock Inc., TCW Group Inc. and Fidelity Investments, managed CDOs created in 2007 and that “the number and the prominence of the firms participating in the CDO industry” shows there wasn’t a consensus that the housing market was in trouble.

...

Chau, who told colleagues that he grew up in Rhode Island where his family owned a restaurant, started his career as a junior analyst at Prudential Securities and then at Salomon Brothers, where he wrote reports on the bonds spawned during a boom in subprime lending in the 1990s. He also has a master’s degree in finance from Babson College in Wellesley, Massachusetts.

He joined New York Life Insurance Co. as a portfolio manager in 1999 overseeing asset-backed securities and commercial mortgage bonds, and helped create the company’s first CDO filled with asset-backed debt, according to CDO prospectuses. He later worked as a securities trader at French bank Societe Generale and Tokyo-based Nomura Holdings Inc.

In 2004, Chau moved to New York-based Maxim Group, where he started a CDO unit. While there, he helped create four CDOs underwritten by Merrill, including the $485 million Lexington Capital Funding Ltd. in October 2005, his first tied to low- rated securities.

...

Chau stood to make money for awhile even if the CDOs he managed didn’t return principal to investors. His fees ranged from at least 0.09 percentage point of assets a year for CDOs filled with high-rated bonds to at least 0.17 percentage point for those with lower-rated debt, according to prospectuses

At a dinner at a securitization conference in Las Vegas in January 2007, the same month the Neo marketing document was dated, Chau met with Steven Eisman, who ran a hedge fund at Frontpoint Partners LLC that was betting against subprime loans.

Chau thanked Eisman, saying he would have less to buy if people weren’t shorting the market, according to two people familiar with the conversation. The comment, a reference to Harding’s investment in derivatives as well as bonds, helped convince Eisman that the companies taking on subprime risk were relying on conflicted CDO managers serving mainly as fronts for banks, the people said.

The bottom line.

About $6 billion of Harding’s CDOs have been liquidated, cutting off
management fees, according to RBS data. An additional $7.4 billion also
have experienced events of default, ending Harding’s fees in certain
deals. Harding was managing $4.1 billion of assets as of April 15,
according to the firm’s SEC registration.

And on to important things: such as the release date of the Brad Pitt production of "The Big Short"...

Full filing against Michael Lewis:

 

h/t MM

 

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Mon, 02/28/2011 - 21:32 | 1005635 bob_dabolina
bob_dabolina's picture

Brad Pitt hearts zerohedge.

Mon, 02/28/2011 - 21:37 | 1005643 Pants McPants
Pants McPants's picture

While I think it's great that Brad Pitt wants to tell this story, the most explosive documentaries can only be found on the Interwebs.

That said, I hope Mr. Pitt shocks the world with this story.

Mon, 02/28/2011 - 21:48 | 1005671 New_Meat
New_Meat's picture

pants-I'm pukin' laugher

Mon, 02/28/2011 - 22:04 | 1005695 SilverRhino
SilverRhino's picture

>>That said, I hope Mr. Pitt shocks the world with this story.

A nice dialectic movie would be to get Fight Club meets Inside Job.

Fight Club II: 

Project Mayhem wasn't enough.

Mon, 02/28/2011 - 21:47 | 1005644 Mercury
Mercury's picture

Brad Pitt's production company, Plan B Entertainment Inc., has bought the movie rights and is working with Paramount Pictures Corporation to produce [The Big Short] film.

Jesus, Brad Bitt is getting Tyler Durden envy (or maybe Angelina is) now that the character he played has become bigger in cyber afterlife than he ever was on screen.

I sooo hope Alec Baldwin plays Barney Frank.

Mon, 02/28/2011 - 22:00 | 1005690 Common_Cents22
Common_Cents22's picture

Alec Baldwin? no way.

 

There is only one person, and one only that can play Bawney Fwank.

 

Elmer Fudd.(gepacker)

Tue, 03/01/2011 - 00:33 | 1006053 Agent P
Agent P's picture

I don't care who plays Barney Frank, just as long as Wing Chau is played by Bang Dae Ho.

Mon, 02/28/2011 - 21:39 | 1005647 Temporalist
Temporalist's picture

Just found this:

Morgan Stanley Hacked in China-Based Attacks That Hit Google

"Morgan Stanley experienced a “very sensitive” break-in to its network by the same China-based hackers who attacked Google Inc.’s computers more than a year ago, according to leaked e-mails from a cyber-security company working for the bank."

http://www.bloomberg.com/news/2011-02-28/morgan-stanley-network-hacked-i...

Mon, 02/28/2011 - 21:39 | 1005653 I am a Man I am...
I am a Man I am Forty's picture

Yo Chau!  Stop digging.

Mon, 02/28/2011 - 21:42 | 1005654 booboo
booboo's picture

discovery will be fun, the plaintiff will have to "wing" it

Mon, 02/28/2011 - 21:45 | 1005666 djsmps
djsmps's picture

I hate to say this and you can scorn me. I just couldn't get into the Big Short. On the other hand, I could read Liars Poker for the fourth time.

Mon, 02/28/2011 - 21:54 | 1005677 Blano
Blano's picture

No scorn needed.  It's probably one of those all or nothing books with people.  Me personally, once I started, I could hardly put it down.

Mon, 02/28/2011 - 21:56 | 1005682 agrotera
agrotera's picture

moi aussi!!!

Tue, 03/01/2011 - 09:22 | 1006605 Thomas
Thomas's picture

I loved it.

Mon, 02/28/2011 - 22:06 | 1005693 Mercury
Mercury's picture

I think Brad Pitt would be smart to treat the movie rights to this book as a trade and not an investment.  Finance drama just doesn't translate very well onto the silver screen.  Wall St. may have spawned a whole generation of Gordon Gecko imitators but I don't think the movie was a smashing success at the time (and I have always been a bit underwhelmed by it frankly).

Trading Places, on the other hand, is fantastic as a comedy and the finance drama there is more of a plot device than the central focus of the movie.  Steve Martin once said that when he was starting out, comedians were all about Vietnam and Watergate and race relations.  He figured that eventually people were going to get tired of that political stuff and when they did, he was going to be there...and he was going to be silly.

With the very big caveat that there just might not be an afterwards this time around, I think something similar is going to be required to turn the financial shenanigans of the naughty oughties into box office gold.

Mon, 02/28/2011 - 22:19 | 1005733 Yes_Questions
Yes_Questions's picture

Glengarry Glenn Ross was used to spawn better sales people.  I know some who had to watch it as part of their orientation for a new job.

 

How about mandatory viewing of The Road?

 

 

 

 

 

Mon, 02/28/2011 - 22:22 | 1005741 blunderdog
blunderdog's picture

You just nailed it.  Do The Big Short as a black comedy.  Like Dr. Strangelove.

Box office gold.

Mon, 02/28/2011 - 22:58 | 1005818 disabledvet
disabledvet's picture

i agree that "money as evil" is a tough sell because "we already know that."  black comedy can be good--but satire can be self-defeating.  "it's not serious because it's not serious."  I like Shakespeare's "Hamlet" of course since "the play's the thing wherein' i catch the conscience of the King."  Of course "you need real talent" to pull that one off.  In other words "it's a crime in real time" and "i have something to say about that."  To the King himself tho?  As he "sit's on his throne"?  "Take me to your leader" Brad Pitt because "are you really willing to die for what you believe in"?  There was one great director who did that--his name was Orsen Welles and the movie was Citizen Kane.  Good luck!

Tue, 03/01/2011 - 01:02 | 1006125 blunderdog
blunderdog's picture

Money's not evil.  LOVE OF MONEY is evil.

And Citizen Kane was a pretty lousy story.  Just incredibly brilliant cinematography.

The Trial was Welles' best flick.

Mon, 02/28/2011 - 21:56 | 1005681 agrotera
agrotera's picture

Truth is a defense.

Mon, 02/28/2011 - 22:00 | 1005686 Catullus
Catullus's picture

Plan B needs to produce World War Z before The Big Short. 

Mon, 02/28/2011 - 22:02 | 1005691 sodbuster
sodbuster's picture

"depicts Mr. Chau as someone who ignored his professional responsibilities, made misrepresentations to investors, charged money for work that was not performed, had no stake in the CDOs he managed, was incompetent or reckless in carrying out his responsibilities, and violated his fiduciary duties by putting the interests of 'Wall Street bond trading desks' above those of his investors."

Shit man! That's a heck of a good resume! I'll bet Goldman Sucks got their eye on him! That's the kind of people they look for!!!

Mon, 02/28/2011 - 22:25 | 1005748 UninterestedObserver
UninterestedObserver's picture

I bet their offer letter is already on his desk

Tue, 03/01/2011 - 02:27 | 1006250 sushi
sushi's picture

Former Chinese restaurant financier looses trillions in meltdown and is hired by Jewish cabal to do God's work!

Given that plotline this will be one swell movie.

I just hope they give it a happy ending.

Mon, 02/28/2011 - 22:06 | 1005699 ewmayer
ewmayer's picture

Everybody say 'wow' tonight,
Everybody Wing Chau tonight...

Danny DeVito's probably feverishly working on a screenplay for "Get Big Shorty."

Mon, 02/28/2011 - 22:10 | 1005706 SamThomas
SamThomas's picture

If Chau loses, does he go to jail?

Mon, 02/28/2011 - 23:04 | 1005840 X. Kurt OSis
X. Kurt OSis's picture

The country is broke. No one goes to jail anymore.

They'll sentence him to twenty years of reading reams of mortgage documents for the wind down at Fannie Mae, for a modest salary and benefits.

Mon, 02/28/2011 - 22:55 | 1005817 Huck T
Huck T's picture

"American business is not a monster, but an expression of God-given impulse to create, and the savior and guardian of our happiness."

- W.G. Harding

Mon, 02/28/2011 - 23:05 | 1005841 Snidley Whipsnae
Snidley Whipsnae's picture

"The book "depicts Mr. Chau as someone who ignored his professional responsibilities, made misrepresentations to investors, charged money for work that was not performed, had no stake in the CDOs he managed, was incompetent or reckless in carrying out his responsibilities, and violated his fiduciary duties by putting the interests of 'Wall Street bond trading desks' above those of his investors."

Is that it? I mean, is that the prosecutions best shot? ... Hank Paulson would put Chau in the shade ... No contest ... Paulson had the nads to waltz into CONgress with a couple of sheets of bs scribbled on note pad paper and convince the uber clowns that the world would stop turning if they didn't cough up $800 Billion in a day or two. Compared to Paulson, Chau is a Boy Scout. 

Paulson also told the US Gov that he would not take the job as Treas Sec unless his earnings at GS and future earnings were tax free. No one has ever gotten a total pass on income taxes to my knowledge.

Mon, 02/28/2011 - 23:16 | 1005866 QQQBall
QQQBall's picture

Yeah, at first I thought he was talking about Ben Ali.

Mon, 02/28/2011 - 23:23 | 1005889 flrzero
flrzero's picture

Wing Chau is a "citizen" of New Jersey. That's too funny.

Mon, 02/28/2011 - 23:25 | 1005896 Scottj88
Scottj88's picture

http://thehardrightedge.com/ronpaulsummit/

End the Federal Reserve, it is the cause of all this nonsense!!!!

Ron Paul 2012

Tue, 03/01/2011 - 00:01 | 1005981 NOTW777
NOTW777's picture

that is not a "complaint" its a movie script

Tue, 03/01/2011 - 03:24 | 1006298 lolmaster
lolmaster's picture

the passage on Wing Chau was one of the highlights of the book. def a rabbit hole moment

Tue, 03/01/2011 - 06:39 | 1006390 TexDenim
TexDenim's picture

Should be worth an extra 100,000 hardcopy sales of the book! You just can't buy publicity like this. Lewis must be laughing all the way to the bank. Good for him. The book was excellent.

Tue, 03/01/2011 - 06:49 | 1006393 TheEternalTriangle
TheEternalTriangle's picture

"His fees ranged from at least 0.09 percentage point of assets a year for CDOs filled with high-rated bonds to at least 0.17 percentage point for those with lower-rated debt, according to prospectuses."

That's what always got me. He was making more money peddling shitty wares than good ones and didn't have enough skin in the game for him to care if they ultimately blew up.

In business you should always try to analyse the incentives the other party has. One glance at those should tell you to be careful.

Tue, 03/01/2011 - 08:53 | 1006521 Miss Expectations
Miss Expectations's picture

It will be interesting to see what Brad does with this project.

A friend of mine went to high school with Brad.  She was into acting and very involved with the high school plays.  They spent 4 years trying to talk Brad into trying out.  He said he wasn't interested...yet, he would sit in the back of the auditorium and watch all the rehearsals.  My friend lost touch with Brad when she moved to New York.  She did see him again...when she went to see Thelma and Louise.

I can only guess that our very own Tyler got tired of watching rehearsals, too.

Tue, 03/01/2011 - 09:28 | 1006612 WallStreetClass...
WallStreetClassAction.com's picture

SUE THEM BACK!!!!

There is way to organize and hold the banksters accountabl­­­e. The grass roots efforts already taking hold.
At http://www­.wallstree­tclassacti­on.com we organize a class action against the banks, the ratings agencies and other financial institutio­­­­ns involved in staging the colossal securitiza­­­­tion fraud and subsequent­­­­ly crashing the economy and resulting in over $5 Trillion in asset losses in the US alone. Wall Street monopolist­­­­ic monstrosit­­­­ies have destroyed the fabric of our society and broke our laws, making a mockery of fiscal prudence, ethics and justice. Even our very government is controlled and manipulate­­­­d by this highly illegal banctel, where bank executive officers "retire" or transition into various government regulatory and controller­­­­ship positions, futher aiding and abetting the ongoing fraud. And when the overlevera­­­­ges casino style betting and back-hedgi­­­­ng finally tipples over and out of control, the losses are effectivel­­­­y socialized­­­­, while the injured parties are thrown out on the street. This is way worse of a "socialism­­­­" than a most convoluded and abused government wellfare program would be. It's an unsult to injury, and uninhibite­­­­d and open contempt for our laws. It is clear as day that the government will not prosecute the crooks, but we the people will. United we stand.
WallStreet­­­­ClassAc­t­i­o­n.co­m

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