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Goldman Forced To Sell Valeant Shares As CEO Stock-Pledged Loan Hit 100% LTV
Back in late 2008, Goldman was faced with a serious problem: as its stock was tumbling, numerous employees found themselves in a hot spot as they had taken out loans pledged by Goldman stock. As the stock cratered, suddenly the loans hit 100% LTV, or above, and as a result they got margin calls. Many scrambled to sell other assets to cover these calls. Of course, the biggest taxpayer-backed bailout followed, Goldman stocks surged, and the rest is history.
7 years later, the story is repeating itself, only this time instead of Goldman executives it was the CEO of Valeant, Michael Pearson, who was in the same tough position.
According to a just issued press release, Valeant's CEO had taken out a $100 million loan pledged with 1.3 million VRX shares to Goldman Sachs. Well, when the stock tumbled below $80 yesterday, the LTV on the loan hit 100% and as a result Goldman had no choice but to sell, showing how pro-cyclical and self-sustaining stock selloffs can be in the current environment in which many executives, assuming their stock would keep rising in perpetuity, took out loans pledged with stock, only to be shocked when said stock plunged.
From the release:
Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) stated today that 1,297,399 shares pledged to Goldman Sachs to secure loans made to chairman and chief executive officer J. Michael Pearson were sold by Goldman Sachs on November 5, 2015. Goldman Sachs held the shares as collateral for loans extended to Pearson.
As disclosed in the company's proxy statement filed on April 22, 2014, the company's board permitted Pearson to pledge approximately two million shares. As of the company's most recent proxy statement, filed April 9, 2015, those shares represent approximately 20.19% of his shares beneficially owned. Pearson pledged those shares to Goldman Sachs as collateral for loans of approximately $100 million that he used for, among other things, financing charitable contributions, including to Duke University, and helping to fund a community swimming pool, purchasing Valeant shares, and meeting certain tax obligations related to the vesting and payment of Valeant compensatory equity awards. Goldman Sachs required repayment of the loans, and has informed the company that it sold the shares it held as collateral in satisfaction of the loans.
After repayment of the loans with the proceeds from the sale by Goldman Sachs, the loan agreements will terminate and there will be no amounts outstanding under those agreements.
"Since joining Valeant, I have not sold any shares provided to me as compensation, and it was not my desire that shares be sold now," Pearson said. "I have complete confidence in Valeant's ability to move forward and continue meeting our commitments to patients, doctors, and shareholders."
In January 2015, Pearson agreed to not receive a base salary and instead be compensated exclusively through cash and stock incentive awards tied to performance.
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No biggie, happens to everyone. I mean, who hasn't borrowed $100M to give to charity?
the fat sweaty d-bag deserved it
Did he declare this 'loan' arrangement prior to the announcment by GS? As soon as this guy 'loaned' his stock out then he should have informed his shareholders that his holding had decreased.
Bet GS sold them as soon as he handed them over anyway.
Not to worry, there is time this year to rip the eyes out of enough muppets to preserve his $10 million bonus.
The guy had 10.6 million shares in 2014 so i don't think he's really hurting too badly if he had to sell some of them to cover a GS pawn shop loan.
It is a form of madness to act as though the economy is growing and the Fed is goosing inflation at will as they used to be able to in order to inflate collateral values.
Layers of loss with bad collateral on top of all the layers of bad collateral from the past. Death.
Like layers of snow precariously piling up before the avalanche finally breaks loose.
I mean charity is such a respectable way to optimize taxes.
Hahahahaha! Wish we never bailed out GS as that implosion would have been an even funnier joke. Payday loans bitches.
Shuffling different kinds of toilet paper to the unsuspecting sheeple.
It only matters if it is used or not.
Coming up next, former Federal Reserve chairman Alan Greenspan to discuss the benefits of 120% LTV advantages
/sarc
But debt is money
slow golf clap for paying back a loan with the collateral given. now just what was that collateral that greece gave again?
Loan-to-Value - LTV Calculator - Bankrate.com
Where in the hell is Beeks?
They have him hanging from the bridge to nowhere, yelling for help.
Gettin' that raw monkey love, if memory serves.
Another bridge loan to complete a 50% margin increase to build the other end.
I think a bunch of naked shorts got even more nekkid.
Yeah the same morons who were paying 5 bucks for 80 puts that expire today. Time is about out and VRX is at 82.50.
Very civilized. This clown clearly never risked having a sheriff's deputy come over armed to the teeth, giving his sorry ass 15 minutes to pack his overnight bag because Goldman now owns everything he has in the world.
Must be nice having connections.
Funny you mentioned that. I have to do the exact thing in Fort Myers, FL on December 1. But the bank doesn't own the property, we do! Thank goodness the gated community HOA is working with us. No fines.
Met with the President of HOA yesterday. He's in eye distance of our home. We have already contacted the Sheriff Department. If they don't leave, it will take one phone call. I have a black guy living in the third bay of garage. She broke her lease terms. This woman is white and has a black brother. Payment isn't the issue, undocumented people sleeping in the garage is. Gated community is a tough act, thankfully no fines.
Liberal scumbags.
Who in the world needs a 100 million dollar loan....to play fantasy football???
he needed the hundred mil to tide him over until bonus time
"Who in the world needs a 100 million dollar loan.."
To buy more Valeant shares on margin, of course.
And VRX is up over 3 this morning, ya think Goldman sold it to their supersecret prop desk?
I wonder if Pearson has a TSLA car....
Nah, he has a Porche polluter.
He enjoys the sound of a sewing machine from the rear.
Winks.
One hell of a way to dump your company stock and not look like an insider selling.
Bear in mind, I'm not "In The Club." I'm not even allowed to clean the bathrooms in The Club. I scurry around under the table and pick up the crumbs, and that actually provides the best living for my family that I can arrange. So I don't know how Club Members are permitted to do things. Show me a little forbearance.
Let me see if I've got this straight. This guy Pearson agrees to be paid only in bonuses and stock, not salary, as CEO of VRX. He then uses his VRX stock awards as collateral for $100,000,000 in loans from GS. When the value of the pledged stock goes below $100,000,000, GS would be "Under Water," in terms millions of US homeowners would recognize. GS never has to be in that position because, well, because they're GS. So they can--indeed must--claim the VRX stock as forfeited, and sell it off to settle the $100,000,000 loan to Pearson.
Pearson doesn't have to pay back the money he borrowed and spent anymore. He still has $400,000,000 worth of VRX stock he received as bonuses, and who knows how much money in whatever currency. He still has his name on the plaques at Duke University, the community swimming pool, etc. He still has the VRX stock he purchased with proceeds from the loans. He got to pay his taxes with the money from the loans.
As I follow the bouncing ball of debt, it went from Pearson, to GS, and now it's gone to whatever sockpuppets camped out under this plummeting machete to make the catch.
Pearson still gets to keep every last penny of value from the $100,000,000. If I default on my loans, I lose my collateral, the IRS taxes me on the amount of the loan forgiven, my credit is destroyed going forward, and people call me "irresponsible," despite the fact that in taking the hammering, I'm as responsible as can be. Hell, the Feds might very well find a way to call that chain of transactions "Fraud," or "Money Laundering," in which case they get to seize every damn thing I own, down to my second pair of boxer-briefs. Of course, I'm not talking about $100,000,000. I'm not even talking about $250,000 in my corner of the world. So that's my problem. If Pearson owes GS $100,000,000 that would be GS's problem, excpet they're GS, so they're allowed to make that the problem of whichever patsies they can conjure up. Which they're allowed to do with total impunity because they're GS.
Is that about the size of it?
You're beginning to understand why we are screaming FRAUD! Myself and other Zerohedge posters take no prisoners. These fucker's deserve a concrete 10x10 cell with a Obama Tranny fucking them up the ass 24/7.
No, I'm being a little disingenuous. I understand all this and I have for a long time. I just like to put it into terms understandable to the average person who has no idea the criminality that pervades the upper reaches of our society.
Seriously, most Americans think Welfare is ruining the economy, not realizing we spend about 8x more on the military. They worry about the National Debt, not realizing that military spending is responsible for all of it. They think Welfare Fraud and Medicare Fraud are bankrupting the country, not realizing that all Medicare fraud is committed by providers, not patients, and almost all Welfare fraud also benefits business interests rather than the guttersnipes themselves. It ain't Grannies getting extra colonoscopies they aren't entitled to. That sixth EBT baby isn't providing the venture capital for a stock repurchase scheme or 100% guaranteed loans from GS that don't have to be paid back. It's irritating as a fiberglass jockstrap, but that kind of dishonesty doesn't even rise to the level of "peanuts" or "chicken feed."
And people still, unfathomably, believe the top insiders are so rich and powerful and deserve to be so because they give us all jobs, like Jesus with the loaves and fishes or some damned thing. People never realize that in Capitalism, there is only one reason anybody hires anybody else; and that's because they'll profit more by hiring the person than they would by not. People think they can get paid the market value of their labor, not realizing that that is completely impossible, or their employer wouldn't make any money. And those are perfectly accepted transactions. That's just how our system works. On top of that, however, these people are allowed to flat out steal, and they don't believe it when you (I) try to tell them.
This kind of fraud is only possible in an economy that has become over-financialized. Finance used to be abbout 5% of the economy, when the economy worked. Now it's well over 40%, and climbing. GS might as well be a Federal Agency, as we have privatized the Treasury to their benefit several times over by now. That's what provides the loose change required to run scams of this nature, and to purchase the regulatory inattention to facilitate such.
I'm not interested in what these fuckers deserve. I've seen enough to know they'll never get that. I'm concerned about what I'm going to have to deal with when this shit blows sky-high. When the music stops and there aren't nearly enough chairs, and well over 40% of the economy (and more, the longer it takes) is just....gone...., it's going to be a rough time in my neighborhood, and I need to plan accordingly.
Excellent analysis.
Very civilized. This clown clearly never risked having a sheriff's deputy come over armed to the teeth, giving his sorry ass 15 minutes to pack his overnight bag because Goldman now owns everything he has in the world.
Must be nice having connections.
There must be tax advantages to this type of deals? Also getting paid in stock as opposed to getting paid in salary is also a from of tax avoidance.
Since he never sold the stock he pays no capital gains on it and he paid no capital gain on the loan of course, not required, so tax avoidance is obviously the point here. I wonder what value was given the stocks when he received them as payment. Probably a lot less than 100,000 million. Seems to be a tax avoidance scheme but we would need to replace a few assumptions with solid facts.
Wait. Is this for real?
I knew I should have gone into banking!!
Ackman will take care of that issue! He doesn't care lossing billions....