A lending unit of the Goldman Sachs Group has filed a lawsuit against the High River Limited Partnership -- an investment vehicle controlled by Carl Icahn -- alleging that High River breached contract by failing to complete a transaction in bank debt.
This lawsuit is the latest bit of shrapnel from the long complicated bankruptcy proceedings over auto-parts maker Delphi Corp. During the pendency of that bankruptcy, banks holding IOUs from Delphi were in the market to make deals, to sell that paper and whatever it might get them via the reorganization for cash.
In principle of course this makes possible some middleman profits. Icahn could have bought the paper from banks desperate to get rid of it, turned around and sold it to Goldman which (on this hypothesis) was taking a longer-term view and was willing to build up its position in Delphi debt.
But Goldman alleges that isn't quite what Icahn did. Instead, he sold them bank debt he didn't own (naked shorting it, so to speak) and then, when the time came for the deal to close, pulled out. Presumably he was hoping that the value of this paper would fall between the time he made the deal and the closing date, so he could buy it for less than Goldman had promised. That didn't happen, so he was faced with the choice of pulling out of the deal, or of buying high to sell low.
That scenario, if true, would certainly seem to be a contractual liability, if not worse. It could be fraud if he led them to believe he was in possession of the instruments.
High River says it has done nothing wrong, and I haven't even seen the complaint. I'm retailing this to you second hand. I do think it may be intriguing to watch this one develop, though.
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