One of the men who made money predicting the financial crisis is now in position to earn big through the prosecutions against the banks responsible for dealing securities tied to toxic home loans.
Baupost Group manager Seth Klarman first cashed in after betting against the housing bubble and now his fund is the lead plaintiff in a private suit against EMC, the former Bear Stearns mortgage unit also the target of the New York AG’s lawsuit against JPMorgan Chase, according to CNN Money’s Stephen Gandel.
…if things go Klarman’s way, Baupost alone could end up collecting about $310 million from JPMorgan, with a big assist from the government.
Klarman’s suit is one of the many so-called put-back cases bedeviling the banks right now, in which investors who bought mortgage bonds in the year or so leading up the credit crisis, when loan officers were basically handing out mortgages like candy on Halloween, are demanding their money back.
The Boston Hedge Fund manager could end up collecting $310 million from JPM, which bought Bear Stearns and EMC in 2009. New York AG Eric Schneiderman has superior subpoena power than Baupost has in the private suit, but the evidence Schneiderman unearths could go a long way to help Klarman cash in.
Klarman has returned his investors nearly 20% a year for the past two decades and his out-of-print investment book sells for $1,700 on Amazon.
What’s more interesting is that Klarman didn’t even get burned in the financial crisis but made money betting against faulty mortgages. His case stems from his purchasing of $160 million worth of mortgage bonds in 2009, when they were selling for $0.40 on the dollar.
“Klarman put himself and his investors in a position, even though he predicted better than most Wall Street’s house of cards, that they, like other investors were lied to.”
The saga only bolsters Klarman’s rep for being one step ahead of the country’s major financial institutions.
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