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Tag Archives: David Einhorn

With the voting over (but, in typical fashion, still in the process of being tabulated as I write this, although it may be finally over by the time you read this) for that big promotional award I alluded to in the prologue of this blog, I suppose that technically the purpose behind this blog is likewise over.  I frankly haven’t even bothered checking to see if I was even on the ballot.

Which begs the question, should I even bother anymore?  Even at one entry a week it’s still time I could be directing elsewhere.  And after the big Sam Antar-Dave Patch throwdown in the comments a few weeks back there’s definitely a sense things had kind of a hit a peak.

Besides which, with all the various and bizarre developments both at Overstock and in the stock market in general, the whole anti-free speech crusade (technically called anti-naked shorting) seems to have lost all its momentum as it becomes undeniably clear that we have much, much bigger problems to attend to that have nothing to do with delivery failures.

As such, analyzing a very poorly-written and unfocused hit piece, by someone you’d think would have higher standards, on pretty much everyone who ever ruffled the feathers of one Patrick Byrne in the past five years seems a colossally pointless task.

And above all, I’m not even sure it’s fun anymore.

So, this might just be the end of this journey.  I’ve got the signal flare in hand and am pondering summoning the chopper to airlift me out of this jungle.  I admit I haven’t decided yet but I’m putting it out there in case anyone has anything to say.

And just in case, Sam, thanks so much for the support and promotion which you donated entirely without solicitation.  You know you can never undo what you did, but there’s still plenty of room to do good in this world.


Allied Capital’s headquarters is just a few blocks from the White House.  That’s about the most easily gleanable fact about that company, whose overall workings mystify me as much as they do Mitchell, who kisses off his description of the company by saying it “shares certain financial characteristics with NovaStar”.  Frighteningly, it appears that Mitchell considers that a POSITIVE of sorts.

But judge for yourself.  Allied’s self-description reads, in part:

Allied Capital Corporation (ACC) is a closed-end, non-diversified management investment company that operates as a business development company. The Company’s investment objective is to achieve current income and capital gains. The Company is engaged in private equity business. ACC primarily invests in debt and equity securities of private companies in a variety of industries.

Much as is the case with certain presidents-elect, you can read into that just about anything you care to.  Is it a REIT?  A start-up incubator?  A hedge fund?  It could arguably be any or all of those things and more.  I don’t know and clearly neither does Mitchell, so I guess we’ll just leave that aside and press ahead.

Mitchell opens the section with one of those bizarre stories of the type that is routine for him, involving some financial bigwig, in this case Michael Milkin, aka “The Junk Bond King” as well as the man most strongly hinted to be Patrick Byrne’s infamous Sith Lord, back when Byrne was sticking to the story that the Sith Lord was a single, known individual.  And as per the usual tale, Milkin is portrayed as indulging in comic-book villainry, striding right up to his victims and informing them of exactly what he is doing.

In this case it apparently involves gaining control of Allied via various intermediaries, buying up stock but never having to file an ownership notice with the SEC because the stock is actually in the name of trusted allies.  And while that’s not legal, it’s hard to see what this has to do with the supposed goal of destroying companies through excessive selling, as opposed to excessive buying, as Milken is said to have done.

But anyway, Milken, the tale continues, engaged in very intrusive investigations of Allied, apparently trying really hard to figure out exactly what he’s buying himself.  Then, Mitchell says, suddenly Milken halts his investigation and a few months later short-sellers come out of the woodwork and are all over Allied.

Now, the obvious conclusion here is that Milken found something he didn’t like one bit and shared it, presumably after getting out of the way.  But Mitchell, as ever, has little regard for what the new analysis had to say, dismissing it out of hand as a bunch of “hatchet jobs” and apparently not even listening to his own story about how the company had just undergone a very fine-toothed examination, making the conclusion that something was wrong very plausible, if not outright obvious.

But no, Mitchell seems to just sulk over the sudden disrespect Allied endures from 2004 onwards, effectively mourning that another perfectly good company was being taken down by the dastardly power of the expression of negative opinion.

This story can be charitably chalked up as a bit of bad luck for Mitchell, as, even at the time of Deep Capture’s publication, the bullish and bearish sides on Allied were still basically in a stalemate, with the dividends continuing but the stock basically going nowhere.  But not long after Deep Capture’s publication, things quickly began to fall apart for Allied.

First came a secondary stock offering by Allied in May, which begged the question, why is a company paying such a big dividend if they need to raise money through selling stock?  The market did not receive the offering well, cutting the price nearly in half over the next few months.  Then Allied announced a 17% reduction in workforce.  But again, the dividend remained largely untouched.

Finally, on September 30th, calamity.  Ciena Captial, a unit of Allied, filed for bankruptcy.  Allied, in order to try to stabilize, had to sell off its interest in a company called Norwesco.  Finally, just this past week, Allied reported a gigantic loss for the third quarter of 2008.

And while the dividend was retained for one more quarter, Allied finally confessed that maintenance of it going forward was not a certainty.

Wall Street ceased to be amused, and Allied’s stock, which had hovered at $30 for years, and was still around $20 at the time of the secondary, crumbled to under $3.

One logical conclusion from this is that the short-sellers were vindicated in the end.  Mitchell, however, would very much like you to believe that the incessant drumbeat of negativity became a self-fulfilling prophecy.

Oh, and phantom stock.  Can’t forget the phantom stock; after all, this has to tie in to Mitchell’s alleged theme somehow.  In this case, 3.5 million shares worth, which the SEC for some reason went to all the trouble to calculate for Mitchell and company, yet stopped right there and didn’t act at all curious about.  That’s Mitchell’s story anyway.

As for the shortsellers side of the story, I must beg lack of qualification to discuss any of the details.  Instead I’ll refer the reader to a book published by one of the most prominent shortsellers of Allied, David Einhorn. Even though it was in fact published well before the most recent events, perhaps it might still be worth reading for the retrospective view.

Next week’s section, if I get to it, appears to be a summarization of sorts.  Ciao.

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