The next time we’re called degenerate gamblers won’t be the first time. But usually the people calling us that don’t realize that we actually are thinking about things like expected value. They just don’t understand that we sometimes are willing to throw an unduly large amount at a small edge.
But at least we’re only betting when we have an edge. Credit Suisse and a customer flipped a coin for $3.75 million.
How it happened, after the jump.
Remember, we love a good coin-flip story as much as the next guy, but this one takes the cake. Credit Suisse was negotiating the transaction fee on a $375 million loan to one Timothy L. Blixseth, who was borrowing the money against a high-end golf/skiing community he was developing in Montana. Credit Suisse wanted 3%, Blixseth would only pay 2%.
For those who don’t know, the EV of a (fair) coin flip is 1.0. Half the time you win and double your bet, half the time you lose your whole bet, and there’s no leakage (to a vig or whatever). So why bother playing? In that situation, normal people just split the difference to eliminate the volatility. Credit Suisse and Blixseth were apparently actual degenerates – they just wanted the action, not the angle.
So how do we know about this coinflip and why are we writing about it? Because we were reading an opinion in the bankruptcy matter of In Re Yellowstone Mountain Club LLC (Dist. Mont. Case No. 08-61570-11). Most other law blogs will probably write about it because it raises some thorny issues of equitable subordination of a non-interested party, but we’re not most other law blogs.
Investment banks making multi-million dollar bets is fun, but we need a BigLaw angle. And we’ve got it.
Credit Suisse was represented at trial (we have no idea who represented them on the deal, and the judge wasn’t happy with whichever firm it was) by Skadden partners Mark Chehi (Haverford BA ‘80, Chicago JD ‘90) and Robert Saunders (Dartmouth AB ‘87, Virginia JD ‘91) of the Wilmington office, George Zimmerman (Brooklyn BA ‘75, NYU JD ‘79) and Evan Levy (SUNY Albany BA ‘91, Union MBA ‘95, Albany JD ‘95) from New York, and Edward Meehan (BC BA ‘77, Northeastern MA ‘79, Georgetown JD ‘84) from Washington. Holland & Hart partner Shane Coleman (Montana St. BS ‘95, Montana JD ‘98) was local counsel (he’s out of Billings).
By the way, Blixseth won and saved himself $3.75 million (it’s on page 9 of the embedded opinion – which was posted on Scribd by DealBook, which wrote about the merits if you’re into that kind of thing).
Yellowstone Mountain Club Interim Order
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WOW good sleuthing – and this is hilarious "Credit Suisse and Blixseth were apparently actual degenerates – they just wanted the action, not the angle"
Poor CS; when you're running bad, it just won't stop sometimes.