Bid Rigging: Hope for a Great Recovery for Commons
Just saw this on the Y board. Interesting.
12-Nov-10 12:50 am
Bid Rigging: Hope for a Great Recovery for Commons
Susman, Nelson, and Sargent should quickly pursue the following legal theory, if they have not already started, as it can lead to a good recovery for preferred and common shareholders:
Examiner Hochberg's final report improperly dismisses the antitrust bid rigging claim against FDIC and JPM, stating that for bid rigging to work, there should be collusion (an agreement) among all bidders to let one bidder win. The reason is that if even one bidder is not part of the agreement, he can outbid the intended winner, thereby wrecking the plan.
Examiner's Report, p. 247:
"There has been speculation, however, that the lack of bidding interest from parties other than JPMC demonstrates the existence of a broader conspiracy not to purchase WMI. In light of this speculation, the Examiner investigated whether other possible bidders for WMI also may have conspired with JPMC. Indeed, as a matter of alleging a plausible bid-rigging scheme under the antitrust laws, a conspiracy to suppress the bidding on WMI might only be successful if all of the potential bidders reached a common agreement, not just some smaller group."
The usual presence of a conspiracy among all bidders in a bid-rigging scheme is unnecessary in this case.
All that's needed to show that JPM won FDIC's auction of WMB through illegal bid rigging is for all other bidders to have less information available than JPM did regarding WMB's assets and/or liabilities.
The Examiner's report states that other banks weren't interested in a whole bank purchase from FDIC because they were uncertain about JPM's liabilities and mortgage assets. This is the key to the bid rigging claim.
Susman should depose all the other involved banks' executives (CEOs, CFOs) to see what they knew at least about (a) the identification of all WMB assets and liabilities, and (b) the value of those assets and liabilities, and (c) the risk of each class of WMB mortgages.
JPM presumably had good information about (a), (b), and (c) following its intensive due diligence of WMB in preparation for its $8/share offer to WMI. Did JPM or FDIC give all of this information to all other bidding banks? If not, the bidding was unfair and can represent an antitrust violation.
Under Section 4 of the Clayton Act, JPM could be liable for treble damages if it participated in this plan. FDIC will resist the antitrust claim under sovereign immunity and FIRREA. Sovereign immunity by a federal agency can be waived under the Federal Tort Claims Act for tortious acts, like antitrust. Furthermore, FDIC officials cannot avoid criminal prosecution for antitrust violations if they acted outside the scope of their duties, although most federal prosecutors may be reluctant to indict them.
Susman needs to raise this issue by November 16, when answers to JPM's motion for summary judgment are due. He can't wait for trial. A document or witness suggesting that an information differential existed between JPM and other bidding banks would easily defeat the MSJ and could prompt a significant settlement payout to equity.
Note: The TD offer of $30B for WMB's East coast assets is a nonstarter for the bid rigging claim, as TD offered to buy assets only, no liabilities. So it is a waste of time pursuing that TD offer as evidence of anything. Susman need to ask TD's CEO, and all other bidding bank's executives, about specifically what they knew about the identity and value of all WMB assets and liabilities, including tiered risk of assets. The Examiner completely dropped the ball on this.
