Morgan Stanley CEO James Gorman

In 1987, I began my rookie assignment on the stock sales and trading desk for Morgan Stanley. A few weeks later the stock market crashed, and I learned my first important lesson about the pecking order on the Street. As a newcomer, my senses were on high alert. Across the floor, a trader named Chuck stood with a phone pressed hard against his ear as he barked out ear-piercing commands. Closer by, I found an island of serenity as the carnival of capital plunged into chaos. His name was Lou, and he was a smooth-talking senior salesman with a magnificent collection of suspenders.

Lou held a special role in the ecosystem of our department. He could get Peter Lynch, the legendary manager of Fidelity’s enormous Magellan fund, on the telephone. Morgan’s top brass would always stop by Lou’s desk on a tour around the trading floor. And Lou received the equivalent of a three-bedroom Upper East Side apartment every year by virtue of his guaranteed payout, earned on the commissions generated by his customers, an elite list of the firm’s largest clients.

Chuck, on the other hand, was belligerent and a bully. While he was exposed on a trade, he would holler at his sales team, inches from their faces, until his position was clean and his profit had been booked. Chuck and Lou were a study in contrasts, but they were the yin and yang that made our department work. Lou was envied and Chuck was hated, but we needed them both. They embodied a new and more impetuous breed, and they provided order and purpose for the toil of junior staffers like me. We all wanted to become them.

When the market crashed, everyone knew that Lou and Chuck were going to be okay. Others were less fortunate. Several weeks after the crash, a tall, expressionless guy named Bruce from the human resources department shuffled onto the floor like the Grim Reaper and escorted two young sales staffers into a back conference room to dismiss them. Junior staffers were expendable. I remember that Lou didn’t look up to say goodbye to our terminated colleagues. He was too busy cooing into his telephone for money.

This quarter-century-old flashback hit me as I was reading the news that a notorious hedge fund manager named Dan Loeb has taken a position in the shares of Morgan Stanley. Attracting an activist shareholder is a nuisance, the Wall Street equivalent of a political tracker following your every move, camera in hand.

Morgan Stanley’s shares, which briefly traded below $10 a share after being stung by a nearly $9 billion mortgage trading loss in 2008, popped 8 percent to over $22 on Friday on an earnings report that delivered the first solid evidence of a profit turnaround. But the stock still trades at nearly 20 percent below book value, a crude measure of the net liquidation value of the firm’s assets. Stated another way, the stock market’s present assessment is that this venerable brand—a company that innovated many of the products and strategies that define what it means to be a modern securities firm—has no sustaining franchise value. Morgan Stanley is priced to be worth more dead than alive.

What is most intriguing about Mr. Loeb’s investment foray is that he clearly intends to push for value creation by homing in on a very touchy subject—Wall Street compensation. Mr. Loeb’s premise is simple: the firm’s employees are overpaid.

There was a time when it would have been absurd—heretical, even—for an outside shareholder to challenge the wisdom of the Masters of the Universe who call the shots at Wall Street’s big banks. But that was then. Morgan Stanley’s current chairman and CEO, James Gorman, is neither tone-deaf nor ignorant of history. He must recall how Phil Purcell, the first CEO of the merged Morgan Stanley-Dean Witter, ended up with his head on the chopping block when his autocratic reign ignited an employee and shareholder revolt.

Mr. Gorman, a cerebral Australian who previously managed the retail brokerage business at Merrill Lynch after a stint at the consulting firm McKinsey, has little loyalty to the testosterone-fueled twins named big risk and big pay. He has spoken frequently of the need to reduce compensation costs, and he personally reached out to Mr. Loeb to welcome him aboard as a shareholder. Morgan Stanley also recently announced a double dose of retrenchment: major job cuts that would target higher-earning staffers and a bonus-deferral plan that would extend payouts to high earners over three years. Translated, this means that high-octane types like Chuck are going to get fired while other big producers like Lou will have to stick around and be productive for a number of years before being able to spring for the new apartment. The fashion of the Street is changing again, and Mr. Gorman is emerging as the leading designer.

It appears that Messrs. Loeb and Gorman have both concluded that the way forward is a strategy of addition by subtraction. Shrink the amount of capital and personnel costs tied up supporting trading books and businesses that earn a poor or volatile return and use that money to invest in higher return or more stable businesses. The firm’s recent deal to acquire control of the Morgan Stanley Smith Barney retail brokerage joint venture is one example of this strategy at work. Or, lacking better alternatives, the firm can use the money to buy back stock in the marketplace at a discount from book value, an action that should drive up the share price by increasing the net assets supporting a smaller number of shares that remain outstanding.

The biggest source of flaccid bloat in the current Morgan portfolio was once its most profitable business. But now a fix is needed for FICC, which trades the fixed-income, currency and commodity products that give the division its acronym. This area of the firm is still clogged up with illiquid, multiyear contracts on derivatives, swaps and other complex products that everyone seems to understand only so long as they are appreciating in value. This is also the area that hatched the mortgage trade that nearly sunk the firm back in 2008. But Gorman’s weed-whacker is clearly hard at work: the risk-weighted assets in the business have declined by over $100 billion in a little over a year, and the risk pool will fall much further in the years ahead. On a trading basis, the firm has lowered its value-at-risk from $108 million to $78 million over a comparable period.

The skeptics inside and outside the firm are grumbling about unintended consequences. “You will lose your best people and harm recruiting if you cut comp,” they say. “A diminished market presence in one business affects the trading flows in another,” is another gripe. Then there’s, “Is Morgan Stanley to become a firm without a soul, a place with a culture more akin to an Amazon fulfillment center?”  

Back when I became a partner at Morgan Stanley, there was a process by which new entrants to the firm’s most coveted position were indoctrinated into company culture and traditions. Speeches were usually delivered by retired partners, who were housed offsite in a suite of offices we called Jurassic Park. In Jurassic Park the phones never rang, so these former titans were only too eager to regale the young guns with tales of honor and brilliance that always concluded with the admonition to conduct “first-class business in a first-class way.”

I’m not sure if the culture-carrying exercise was meant to inspire us or to warn us. These events typically dragged on long enough for the newly anointed young guns to begin getting antsy. Wrap it up, we were all thinking, there might be a big deal going down back on the desk. While the business might once have allowed for relationship-building over long lunches, we were a more ravenous breed, scarfing down quick meals while talking into the telephone. To be found eating in the partners’ dining room was a certain career hex. Much better to work on earning a nickname—like The Hammer, a volatile partner who once slammed his telephone so hard onto his desk that he ended up wearing a plaster cast. The markets were rollicking, and Chuck and Lou were rolling. They were the future, and to mimic their behavior was to plan for a long and lucrative career.

The Street is a marketplace, constantly evolving. So perhaps it is no surprise that when I was coming of age in the business, things sped up and lessons were forgotten. It is hard to recall there was a time when a corporate CEO would have to call his investment banker to get a price quote on his own stock, a simple information request that revealed the banker’s privileged information advantage. Today money zips around in a digital world, prices are transparent and profits are measured in real time. This is a good time to rely more on process rather than people in constructing a firm that is built to last.

Mr. Gorman is swinging the pendulum back toward a more sober, less aspirational and more reliable business posture. He appears entirely comfortable that something and someone might be lost in the process. But the firm will survive, its profits will improve and the company’s stock price will trade back up to book value, and beyond.

Morgan Stanley is leading the Wall Street banks into a new era. These still-too-big-to-fail financial giants will become the utility stocks for a new generation, tightly regulated, prized for stability and rewarded for an ability to wring small and predictable gains from a broad portfolio of financial products. Thrill-seeking investors will shun these stocks, and shareholders will stand at the annual meeting to ask when the dividend will be raised. And then, somewhere down the line when things are calm, the pendulum will swing again and a new CEO will decide that the business really needs a little more Chuck in its blood.

Scott Sipprelle is a former managing director of Morgan Stanley. He is also a former hedge fund manager who closed his Copper Arch Capital in 2007, months before the global financial markets collapsed. He is currently a venture capitalist.

As seen in a research note from Bill Gross yesterday.

The Observer was befuddled if ultimately amused when Carson Block, the noted short-seller of Chinese companies, invoked Mannie Fresh in his take down of for-profit education company. ("I got everything in my momma name/But I'm hood rich," Mr. Block quoted, reflecting that New Oriental Education and Technology Group chairman Michael Yu had signed assets over to his mother.")

We were tickled when Third Point's Dan Loeb quoted Tupac to describe his hedge fund's thinking on Greek sovereign debt. " I'm tryin to make a dollar out of fifteen cents," Mr. Loeb wrote, seemingly unaware of the Rap Genius exegesis on the lyric: "A popular phrase in rap music for get-rich schemes (even used as the title of a Master P song), usually illegal, and almost always referring to selling crack cocaine."

So I pulled out my magic lamp that for some reason works only every October 22nd, and rubbed until the Genie appeared in his red and white checkered cloak with a 10-inch diameter Flavor Flav clock hanging ceremoniously around his neck. Being a rather forward, although not disrespectful Genie, he immediately said, “Mr. G, instead of the yield on the 10-year Treasury, perhaps this year you should wish to know who is going to win the Presidential election?” After some thought I replied, “Nah, I need some breaking news, Mr. Genie, something that will make a difference, something that will shock the world, like when does the iPhone 6 come out?” Obama/Romney, Romney/Obama—the most important election of our lifetime? Fact is they’re all the same—bought and paid for with the same money. Ours is a country of the SuperPAC, by the SuperPAC, and for the SuperPAC.

Well, research notes are often discursive affairs, and the billionaire investor Gross basks fully in the tradition, bouncing from a rewritten Pledge of Allegiance ("I pledge allegiance to the flag of/the fragmented state of America/and to the plutocracy for which now it stands..."), money-market accounts, monetary policy and corporate spending, and ends up here:

then portfolio strategies should acknowledge bite-sized future returns and the growing risk that the negative consequences of misguided monetary and fiscal policy might lead to disruptive financial markets at some future point.

And there:

Flavor Flav just made an extraordinary appearance on October 31st. He told me to write that no matter who is elected, you can’t keep the U.S. down for long, and that while Sandy was a monster storm, America is a gigantic positive force whether Red or Blue.

Which, we'd humbly submit, may long stand among proud as the most bizarre hip-hop reference uttered to the investing community.

(H/t Dealbreaker via Daily Intel)

The European Stability Mechanism may guarantee the first 20 to 30 percent of potential losses on new Spanish debt, according to Reuters. The plan would be aimed at saving Spain without depleting Europe's rescue funds.Wall Street has been pricing in a Democratic victory, according to LPL Financial (via Washington Post). Interesting to see if/how that changes after the presidential debate last night.

Ocwen Financial does $750 million mortgage-servicing deal in preparation for ResCap bid.

Time for the members of the French private equity industry to start apartment shopping in London?

Blackstone co-founder Peter G. Peterson .... unmasked!

The Office of the Comptroller of the Currency looks to remake its reputation.

CNBC asks, which California city will go bust next?

The Securities and Exchange Commission urges investors to read carefully all secret documents containing fraud.

Dan Loeb likes Greece, Murphy Oil. Also: Tupac, Boyz II Men.

It's still a good time to buy a private jet.

In North Dakota's oil-rush boom towns, it's hard to tell the "average Joe farmer from the average Joe millionaire."

Mr. Cooperman, child of the Bronx, alumnus of Goldman Sachs, founder of the hedge fund Omega Advisors, voted for John McCain in 2008 but didn't become an impassioned critic of the president until viewing an Obama ad chiding millionaires and billionaires to pay their fair share of taxes.

“The divisive, polarizing tone of your rhetoric is cleaving a widening gulf, at this point as much visceral as philosophical, between the downtrodden and those best positioned to help them,” Mr. Cooperman wrote in a widely circulated letter to the president.

Having gotten that much off of his chest, Mr. Cooperman went on to compare Mr. Obama to Adolf Hitler, first during a conference hosted by CNBC, then in an interview with Ms. Freeland:

“You know, the largest and greatest country in the free world put a forty-seven-year-old guy that never worked a day in his life and made him in charge of the free world,” Cooperman said. “Not totally different from taking Adolf Hitler in Germany and making him in charge of Germany because people were economically dissatisfied. Now, Obama’s not Hitler. I don’t even mean to say anything like that. But it is a question that the dissatisfaction of the populace was so great that they were willing to take a chance on an untested individual.”

Mr. Cooperman wasn't the only one to scratch that itch. Blackstone founder Stephen Schwarzman compared an Obama tax proposal to Hitler's invasion of Poland. Dan Loeb, the founder of Third Point Capital and an erstwhile supporter of the president, compared Mr. Obama to an abusive spouse: “He really loves us and when he beats us, he doesn’t mean it; he just gets a little angry,” Loeb wrote in 2010 in an email to his peers.

Anthony Scaramucci, not one to be left out when it comes to zinging off one-liners, described a meeting in which Mr. Cooperman expressed his sentiments towards Mr. Obama as the “activation” of a “sleeper cell” of hedge-fund managers against Obama, according to Ms. Freeland.

None of this is so hard to understand: Mr. Obama has himself endorsed such intemperate statements as to compare Bain Capital to a vampire. What's less clear is whether anyone actually believes any of this. Mr. Obama, of course, is in a heated political campaign against the private equity firm's founder. Sure the president has called for increased financial regulation; He's also presided, in part, over a massive bailout of U.S. financial firms.

When Mr. Cooperman, meanwhile, takes a conversation with a reporter as an opportunity to mention Mr. Obama and Adolf Hitler in the same breath, it's hard to take him particularly seriously. What we wonder, though, is whether he speaks as a businessman wounded by anti-business rhetoric, or a hedge fund manager campaigning for a former titan of finance?

Her husband, Jeffrey, an executive at hedge fund marauder Dan Loeb’s $9 billion Third Point LLC, had engaged in a pattern of criminal conspiracy, she alleged, committing mail and wire fraud to conceal more than $1 million in assets since he’d first hired a divorce lawyer in 2006. That was just the beginning. Mr. Perry’s entire career, his wife said, “has been marked by repeated criminal activity in his quest to amass his fortune.”

And that’s where the complaint took a tabloid turn. To support her claim, the plaintiff cited Mr. Perry’s status as a defendant in a 2006 lawsuit accusing the hedge funder of participating in a scheme to manipulate the stock of a Canadian company called Fairfax Financial. Ms. Bingham-Perry didn’t stop there. She also noted the involvement of three hedge fund managers—Mr. Loeb, James Chanos and Steven A. Cohen—who were co-defendants in the Fairfax case.

It hardly matters that all four men had been dismissed from the Fairfax lawsuit, or that Ms. Bingham-Perry’s complaint will stand or fall on her charge that Mr. Perry concealed assets. If a judge agrees to hear her case, the plaintiff’s legal team could potentially drag some of the heaviest hitters in the hedge fund world into the discovery process, forcing them to answer questions about events that took place nearly a decade ago.

Mr. Perry’s lawyer says the lawsuit is groundless, a crude play to influence settlement negotiations. But even if the complaint amounts to no more than a shakedown attempt, it’s unlikely to fade quietly.

Pay up, or have your dirty laundry aired in public—that’s the blueprint for most blackmail. But using federal racketeering law to threaten to expose hedge-fund managers’ most closely guarded secrets takes a certain amount of ingenuity. Even if the judge dismisses Ms. Bingham-Perry’s complaint, the suit has placed her among the vanguard of hedge fund wives seeking to establish civil RICO as a go-to weapon in high-finance divorce. And when marriages go south, affluent spouses tend to fling whatever piece of legal crockery is close at hand.

“The rich have more complicated splits because there are more assets to divide,” noted Jill Kargman, whose novel The Ex-Mrs. Hedge Fund chronicled the pre-financial crisis extravagance of Manhattan’s leading financial couples, imagining a world of $675,000 bowls of matzoh ball soup and orgies on private jets.

But it doesn’t take a novelist to imagine juicy tales of high-finance divorce—the real-life cases making headlines in recent years have been plenty salacious.

Last month, for instance, hedge fund manager Daniel Shak sued his ex-wife, the professional poker player Beth Shak, for failing to disclose certain assets during their divorce. To wit: a collection of 1,200 pairs of Christian Louboutins and other designer shoes that Ms. Shak herself values at a cool $1 million. (Mr. Shak withdrew the suit last week.)

In March, Highland Capital Management founder James Dondero argued that he was insolvent according to Texas family law, despite showing income of $36 million on his 2010 tax returns. According topress reports, Mr. Dondero, who through Highland manages $23 billion in assets, wanted to avoid making good on a prenuptial agreement that would have capped his wife’s settlement at a mere $5 million.

And then there was the case of self-proclaimed genius and private equity investor Henry Silverman, who attempted to introduce “scientific” evidence into his divorce proceedings to demonstrate that his $450 million fortune derived from his own innate qualities—and thus were not subject to equitable distribution as marital assets. (A bold effort, but shot down in court.)

“They’re more strategic in divorce because they have to be,” Karen McMahon, a Long Island-based divorce coach, said of her high-net-worth clients.

Such strategies seem to be proliferating of late. For instance, prenups are increasingly being written to include “escalator clauses”—by which a spouse is guaranteed a greater piece of the pie the longer a marriage lasts. Meanwhile, postnups have become de riguer in the hedge fund world. Some hedge funds actually require new partners to sign postnuptial agreements with their spouses as a condition for gaining ownership shares in the firm. The impetus is less about preventing a spouse from winning controlling shares—an outcome generally precluded by partnership agreements—than it is a question of keeping an aggressive lawyer or accountant from slapping an exaggerated valuation on the firm.

“The idea is to keep nosy spouses out of the books,” said Ken Burrows, a lawyer who has written such agreements. It’s hardly a far-fetched concern. Earlier this year, Twin Capital Management founder David Simon sued his wife Linda, alleging that she hacked into his laptop. She said she was looking for evidence of extra-marital affairs; he said she accessed highly confidential financial records.

There’s a certain poetic justice to using civil RICO in hedge fund divorces. The statute—the Racketeer Influenced Criminal Organizations Act—was passed by Congress in 1970 to help prosecutors go after Mafia kingpins who kept their noses clean of day-to-day criminal activity. Forty years later, we’re living in an era defined in part by frustration that the titans who profited in the run-up to the various financial crises have mostly avoided criminal prosecution, and it seems fitting that spouses are using RICO to hit hedgies where the government can’t.

By the mid-1980s, RICO began to find broader applications, and its use in divorce cases dates back at least to 1997. The legal standard is a continuous pattern of criminal activity. In the context of Ms. Bingham-Perry’s complaint, the allegation is that Mr. Perry conspired with a divorce attorney as early as 2006 to wire marital assets to offshore and other secret accounts, then committed mail fraud by using the U.S. Postal Service to file false net-worth statements as part of the divorce proceedings.

Whether the plaintiff’s counsel, Eric Su, who replaced Clifford James yesterday, can convince a judge that the Mr. Perry’s alleged actions support a civil RICO case is no sure thing, as judges are often disinclined towards civil RICO cases. The incentives to roll the dice, however, are significant: Plaintiffs are entitled to three times the damages, plus lawyer’s fees, in civil RICO suits.

“I sometimes like to challenge my students with the question, ‘Is it professional malpractice not to characterize a claim as civil RICO?’” Sara Sun Beale, a law professor at Duke University, told The Observer. “If nothing else, it moves the settlement needle closer to the plaintiffs.”

There’s another temptation, of course: for a spouse who has long played second fiddle to the unceasing demands of a high-profile career (and what financier’sspouse hasn’t?), the chance to drag an ex’s business partners into the courtroom, or at least the press, can seem irresistible—just comeuppance for a workaholic partner.

And in Mr. Perry’s case, the divorce proceedings have threatened to embarrass his colleagues. A little background: In 2006, Toronto-based Fairfax filed suit against an array of parties including Third Point, Mr. Loeb and Mr. Perry, as well as Mr. Cohen’s SAC Capital and Mr. Chanos’ Kynikos Associates—alleging that the hedge funders spread false rumors about Fairfax in an attempt to drive down the share price, and that those hedge funds profited by shorting Fairfax stock.

Most of the plaintiffs in the case had been dismissed by spring of this year on the grounds that they shouldn’t have to stand trial in New Jersey, where Fairfax filed its suit. Ms. Bingham-Perry’s complaint therefore threatens to exhume a matter these guys thought was dead and buried.

Ms. Bingham-Perry isn’t the first hedge fund wife to try to wrangle insider-trading allegations into her divorce settlement. Patient zero might well be Patricia Cohen, who brought a RICO action alleging that her longtime ex—the same Mr. Cohen referenced in Ms. Bingham-Perry’s complaint—hid $5.5 million during in the couple’s 1990 divorce. That charge might have made headlines on its own: by the time Ms. Cohen filed her complaint, her ex-husband had become one of the richest and most influential hedge fund managers in the world.

But like Ms. Bingham-Perry after her, Ms. Cohen gave the public something extra to ogle, peppering her complaint with allegations that Mr. Cohen had engaged in insider trading to accumulate the assets his ex-wife would later say he concealed. That fit with a piece of Wall Street gossip that’s been circulating in recent years: that the government lawyers who’ve led the ongoing crackdown on insider trading have long placed Mr. Cohen at the top of their list.

A judge dismissed the case last year, though that decision is under appeal. Ms. Cohen, meanwhile, has moved onto her third attorney, Chicago-based RICO specialist Howard Foster, who just happens to be listed as a supporting attorney on Ms. Bingham-Cohen’s complaint.

At least Ms. Cohen alleged that her husband’s fast and loose attitude toward securities law had something to do with the assets she says he concealed. Ms. Bingham-Perry’s complaint merely argues that the Fairfax scheme establishes “that Jeffrey has committed or conspired to commute a pattern of racketeering activity in the last decade.”

Once a crook, always a crook, in other words. Another theory, of course, is that Ms. Bingham-Perry is trying to drag the Fairfax case into her divorce to influence the settlement, which, not surprisingly, is the point of view Mr. Perry’s counsel is taking.

“It’s a completely frivolous lawsuit,” attorney Robert Stephen Cohen told The Observer, noting that the RICO action was filed just before a judge awarded Mr. Perry sole custody of the couple’s two children. “It was an attempt to intimidate him. As we speak, papers are being drafted to dismiss the case.”

Neither Mr. James nor Mr. Foster, the plaintiff’s attorneys, responded to email and telephone requests for comment. But at least one part of their client’s case that doesn’t appear to track: “You don’t have an injury until you have a final result,” Jeffrey Grell, a Minneapolis-based lawyer who has litigated civil RICO actions on behalf of plaintiffs and defendants, told The Observer. Which is to say that until a spouse shows damages derived from the concealment of assets, the racketeering law may not apply.

Even if Ms. Bingham-Perry’s case is found to be without merit, however, its effects might be far-reaching. Just as the Cohen matter spawned the Bingham-Perry complaint, more than one lawyer familiar with civil RICO actions predicted the latter case would give rise to a series of copycats.

That's a question Elizabeth Bingham-Perry could answer. The Scarsdale resident filed a civil RICO action against her husband Jeffrey Perry in the U.S. Southern District's Westchester courthouse last week.

Mr. Perry, it so happens, is an executive at Third Point LLC, the hedge fund founded by Dan Loeb.

In the complaint, Ms. Bingham-Perry alleges that Mr. Perry lied on net worth statements submitted by mail in the divorce proceedings, concealing assets in excess of $1 million in offshore and other acounts. That's just the start. Mr. Perry's entire career, his wife alleges, "has been marked by repeated criminal activity in his quest to amass his fortune,” a claim she rests on Mr. Perry's alleged participation in a scheme to drive down the share price of a Canadian company called Fairfax Financial.

Which is a pretty nasty thing to say about your husband of 23 years, and a crude but potentially useful cudgel for hammering out a settlement.

A little background: RICO is the Racketeer Influenced Corrupt Organizations Act, passed by Congress in 1970 to allow the government to prosecute mafia godfathers for crimes committed by their organizations, but written broadly enough to apply to any person who uses an enterprise to engage in a continuous pattern of criminal activity.

"You see it a lot in divorce cases," said Jeffrey Grell, a lawyer at Grell & Feist who teaches a course on civil RICO at the University of Minnesota School of Law and has represented plaintiffs and defendants in civil racketeering charges. "Particularly when there have been efforts by one spouse to fraudulently conceal assets from the other."

Indeed, Ms. Bingham-Perry isn't the first hedge fund wife to play this hand.

In 2009, Patricia Cohen brought a civil RICO suit against SAC Capital founder and longtime ex Steven A. Cohen. A judge dismissed the case in March 2011, though it's currently under appeal.

Coincidentally, attorney Howard W. Foster, who's listed on Ms. Bingham-Perry's complaint as a pro hac vice counsel, also represented Ms. Cohen.

The first half of Ms. Bingham-Perry's complaint is fairly straightforward. She says that Mr. Perry used "U.S. mails and wires to perpetuate frauds and enrich himself in the divorce actions," wiring assets into secret accounts after hiring a divorce lawyer in 2005, then intentionally omitting those assets in documents mailed to Ms. Bingham-Perry and the New York State Supreme Court last year.

Whether the plaintiff's counsel—Clifford James, who once sued the Andy Warhol Foundation on behalf of the Velvet Underground—can convince a judge that the Mr. Perry's alleged actions support a civil RICO case is no sure thing, but there are clear incentives to filing claims like this one: Plaintiffs are entitled to three times the damages, plus lawyer's fees, in civil RICO suits.

“I sometimes like to challenge my students with the question, 'Is it professional malpractice not to characterize a claim as civil RICO?'” Sara Sun Beale, a law professor at Duke University, told The Observer, referring to the outsized damages available. "If nothing else, it moves the settlement needle closer to the plaintiffs."

And yet, it's the second half of her complaint that Ms. Bingham-Perry complaint that made us take note. In addition to Mr. Perry's alleged concealment of marital assets, she says, her hedge funder soon-to-be ex-husband participated in a conspiracy to drive down the share price of Fairfax Financial.

The short story: In 2006, Toronto-based Fairfax filed suit against an array of parties including Third Point, Mr. Loeb and Mr. Perry, alleging that a group of hedge funds—including Mr. Cohen's SAC Capital and James Chanos' Kynikos Associates—spread false rumors about Fairfax in an attempt to drive down the share price, and that those hedge funds profited by shorting Fairfax stock. (Mr. Perry, as well as Mr. Loeb, Mr. Cohen, Mr. Chanos and their respective firms, have all been dismissed from the Fairfax case.)

Ms. Bingham-Perry's suit alleges: "Jeffrey conspired to commit many instances of disseminating false information about Fairfax in order to harm it and enrich himself from 2003-2006."

Now, dear reader, is when you might wonder what in the hell this has to do with divorce.

While that allegation doesn't relate directly to the plaintiff's claim that her husband concealed assets, the complaint argues that the Fairfax scheme establishes "that Jeffrey has committed or conspired to commute a pattern of racketeering activity in the last decade."

Bankster is as bankster does, the argument might go, and what's hiding marital assets offshore to someone who's conspired to bring down an entire company?

At any rate, that's one way to read the complaint, and at face value, not an implausible one. Wall Streeters have been concealing assets from their spouses as long as there's been a such thing as divorce. Another theory, of course, is that Ms. Bingham-Perry is trying to drag the Fairfax case into her divorce to influence the settlement.

Which, not surprisingly, is the point of view Mr. Perry's counsel is taking.

"It's a completely frivolous lawsuit," said attorney Robert Stephen Cohen, noting that the RICO action was filed just before a judge awarded Mr. Perry sole custody of the couple's two minor children. "It was an attempt to intimidate him. As we speak, papers are being drafted to dismiss the case."

Neither Mr. James nor Mr. Foster, the plaintiff's attorneys, responded to email and telephone requests for comment. But there's at least one part of their client's case that doesn't appear to track: "You don’t have a claim until you have a final result," Mr. Grell told The Observer, which is to say that until a spouse shows damages derived from the concealment of assets, the racketeering law may not apply. But the financial part of the Perrys divorce won't be contested for several months. "To have a RICO complaint, you almost have to have a crappy divorce result."

Libor-ated: Barclays CEO Bob Diamond maybe wishing he could take a mulligan on his July 4 appearance before Parliament's Treasury Select Committee. Last week, an email from the British Financial Services Authority to Barclays chiding the bank for pushing the envelop in its dealings with regulators had lawmakers calling Mr. Diamond a liar. Yesterday, it was Jerry del Missier, Mr. Diamond's top lieutenant before resigning earlier this month, who seemed to contradict Mr. Diamond's testimony.

Lax compliance: HSBC did business with Mexican drug cartels, Saudi banks with terrorist ties and Iranians under U.S. sanctions, according to a 335-page report released yesterday by the Senate Permanent Subcommittee on Investigations, as the firm allowed compliance problems to 'fester.' Executives from the lender are scheduled to testify before the committee today.

Future of futures: The Commodity Futures Trading Commission conducted reviews at PFGBest, the Iowa-based futures broker facing allegations that it's missing more than $200 million in client funds, in 2007 and 2008, but failed to uncover the fraud that has landed the firm in liquidation, Bloomberg reports. That's despite the fact that PFG founder Russell R. Wasendorf said that he has been falsifying records for 20 years in a note written before his attempted suicide last week. The National Futures Association—PFG's regulator—is conducting a review of its audit division.

Whiter Europe: Moody's cut ratings on 13 Italian banks after downgrading the country's sovereign debt last week. Is Italy just Spain with better PR?

Chief Yahoo: Former Google executive Marissa Mayer was named CEO at Yahoo yesterday. Ms. Mayer told Forbes that she's pregnant; it sounds like Dan Loeb would have been informed.

Criminal incubators? A professor at University of Chicago's Booth School of Business asks whether MBA programs can do better when it comes to teaching ethics.

Slum lords? U.S. Bank is failing to maintain hundreds of foreclosed properties, according to an enforcement action filed by Los Angeles city officials. Memphis Tennessee, Baltimore and Maryland have previously sued banks over the cots of maintaining foreclosed properties.

Hot property: Private equity firms are competing to buy Dick Clark Productions, The New York Post reports.

YouGov looked at the reputational hits suffered by the two companies, and concluded that...lying on your resume isn't as bad as shtupping an employee nearly half your age. Here's the YouGov BrandIndex:

And a grab from the YouGov report:

Yahoo’s reputation bounced back quickly after the April layoffs and only experienced mild bumpiness in the 11 days then-CEO Thompson was under the gun for his college credentials.

On the other hand, when Best Buy CEO Brian Dunn resigned under the cloud of an “inappropriate relationship” with a female employee—at about the same time as the Yahoo layoffs—the chain’s reputation sunk considerably below Yahoo. Best Buy slowly recovered to Yahoo levels from mid-April to mid-May, only to fall back hard again when founder Richard Schulze stepped down for not handling the Dunn affair to the board’s liking.

Well, none of that feels very surprising, but it's interesting today amid news that Mr. Schulze will put his 20 percent holdings in Best Buy in play. After all, Mr. Thompson's ouster helped settle Mr. Loeb's longstanding beef with Yahoo's board. We can't help but wonder, then, what YouGov's research would look like one month after Mr. Schulze relinquished all or some of his stake.

Blow back: Jamie Dimon went on Meet the Press and said JPMorgan was "dead wrong" to dismiss early stories of the massive position in credit derivatives accumulated by the bank's chief investment office and the trader nicknamed the London whale. “We got very defensive, and people started justifying everything we did,” Dimon said.

Ina Drew, the JPMorgan executive who loves crisis, is expected to resign today after the bank lost more than $2 billion on a credit derivatives trade she oversaw. Achilles Macris, the executive who oversaw the London-based operation that placed the trades, and trader Javier Marin-Artajo, are also on their way out, the Wall Street Journal reports.

It appears the chief investment office's entire London operation could be dismissed.

Cover up: Who knows what would have happened if Yahoo CEO Scott Thompson had come clean about his resume from the start—in the end it was Mr. Thompson's lie about how the gratuitous degree in computer science first appeared that led to the executive's resignation.

Yahoo named Ross B. Levinsohn—its head of global media and the former News Corp. exec who presided over that company's $580 million takeover of MySpace—as interim CEO.

Meanwhile, Third Point Capital, which led the call for Mr. Thompson's resignation, will end its proxy fight after Yahoo agreed to give the hedge fund three seats on its board of directors, including one to Third Point founder Dan Loeb.

Love letter:  Noster Capital, a London-based hedge fund that owns a small stake in Chesapeake Energy, is calling on CEO Aubrey McClendon to step down. Noster cited more than $1 billion in personal loans secured by Mr. McCLendon's stake in Chesapeake wells, the recent disclosure of off-balance sheet liabilities and...the catering in a letter signed by founder Pedro de Noronha.

Activist investor Carl Icahn, meanwhile, is expected to disclose that he has taken a large stake in Chesapeake.

Filing looms: The board of directors for Residential Capital, the mortgage unit at Ally Financial, is on the verge of filing Chapter 11 bankruptcy. Fortress Investment Group is expected to bid $2.4 billion for the majority of ResCap's assets when the long awaited filing goes through, while the Times lists hedge fund Elliot Management as among the Ally investors that oppose an asset sale.

Filing looms, too: LightSquared executives spent the weekend prepping for bankruptcy court, after negotiations with lenders stalled. LightSquared, the wireless venture backed by Phil Falcone's Harbinger Capital, has until 5 p.m. today to reach an agreement with lenders.

Greek re-vote: Alexis Tsipras, the Syriza party leader who would tear up the rescue plan struck with the European Union, is poised to finish first in the next round of Greek elections, raising the specter of a messy eurozone divorce.

Sales call: Avon is considering a $10.7 billion takeover offer from rival Coty, after rebuffing previous advances.

[DON EMMERT/AFP/Getty Images]

The news comes after investor Dan Loeb discovered inaccuracies on the resumes of both Mr. Thompson and Ms. Hart, and published the findings in an efforts to remove Mr. Thompson from the chief executive's office, and to win a proxy battle for four seats on the Yahoo! board.

Lost in the story of Mr. Loeb's broadside, we suppose, is the story of how Ms. Hart, after graduating from Illinois State University with a degree in business administration (not economics and marketing, as Yahoo! SEC filings had indicated), rose through the ranks of Sprint Communications before gaining the chief executive's office at Excite@Home in 2001 and moving on to the top position at International Game Technology, a giant in the world of slot machines and the company that brought you the Aqueduct racino's most famous attraction (pictured above).*

*Most of that according to IGT's investor relations site, which, they may want to update: