April 21, 2007

My Shares, Which On Monday I Bought ...

THE NEW YORK TIMES TODAY has published the fascinating cautionary tale of Mr David Hayden, an Internet entrepreneur who struck it rich back in the 1990s -- only to see his wealth disappear in the market crash a few years later. Unfortunately for Mr Hayden, he had funded a lavish lifestyle through borrowing against the holdings in his company, and when the shares crashed, he found himself upside down on his loan to the tune of, oh, $24 million or so.


Understandably, Mr Hayden's creditor -- Robertson Stephens, the investment bankers -- are not happy about this. They want their money and have gone after Mr Hayden to get it. Yet for reasons I can't fathom, Mr Hayden delayed the inevitable. Instead, Mr Hayden has been engaged in a four-year fight over the matter. Here's the gist of the story from the NYT:

And as with many entrepreneurs, Mr. Hayden never claimed expertise in the arcana of margin calls, puts, hedges and collars that are the engine of the investment banking world.

While he went about the business of building companies, Mr. Hayden trusted the people who inhabit that world of high finance to take care of him. He paid advisers and lawyers to scour such deals, and put his faith in the investment bankers that would make him rich. And they did.

But his wild ride unraveled, and now he is assigning blame to those same bankers, who in turn have gone after him for all he’s worth — and more.

OK, a few questions on this. First off, why in the name of God do people think others will take better care of their money than they will? I don't mean that in a rate-of-return kind of way, but rather an attention-and-feeding type of way. After all, there's only one person who cares most about you, and that is you. Nobody else will brave the same risks and earn the same rewards as you do with your money. As much as people don't want to deal with that, it has to be addressed.

Of course, there's another side to this coin. According to the NYT, Mr Hayden has charged "that Robertson Stephens mismanaged his money and shirked its fiduciary duty by not informing him properly of ways he could have protected himself." So not only did the firm mismanage his wealth, Mr Hayden is charging, it also didn't tell him not to be a dumbass about things.

It's worth noting that an arbitrator has sided fully with Robertson Stephens in the matter, and awarded the bank $23 million and change. That aside, though, what really gets me is this.

According to Mr Hayden's story in the Times, he used Robertson Stephens to manage his wealth and take the second company he founded public -- even though, according to Mr Hayden's account, the investment bank backed out of the IPO for his first company! It then took one of his competitors public!

What the hell was that all about? I mean, I don't know about you, but if I was going public with a company I had busted my ass to build, and my investment bankers backed out at the last minute, I would have vowed eternal revenge so fierce it would have impressed James Clavell. I certainly would not have gone back and done business with them again, particularly if they were going to profit handsomely as a result, and I would have sooner eaten my hat than give the bastards a penny of my own money. Yet this man walked back into the lion's den carrying a sack of raw meat!

Posted by Benjamin Kepple at April 21, 2007 03:31 PM | TrackBack
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