BDC - I read Einhorn's book that you recommended. Very good recommendation. The level of blind acceptance of company propaganda by retail investors and lack of effort by professional portfolio managers is astounding. Especially the latter. The facts of ALD's accounting misstatements were there, the work was done and easily available. Lazy lazy lazy!
At any rate. page 153: on march 25,2003:
"...subpoena from the SEC... related to Farmer Mac, MBIA, Allied Capital. and ACAS. ACAS was one of ALD's competitors, which we had not shorted or criticized. In fact, we owned it in 1998-1999. It had the same business model as ALD, so some believed that our criticisms applied to it as well. In fact, most of our criticisms had nothing to do with the business model. I don't believe that there is anything inherently wrong with BDCs. Greenlight's criticisms are specific to ALD, its accounting and corporate behavior."
For myself, I got out of ALD in 2002, and moved to ACAS. I got nailed with ACAS in 2008, but I sold sooner than most, and moved my ACAS $$ to beaten up pref shares which went 2x or 3x since then. So I got my money back, but rode a different horse to do it.
I saw that ARCC weathered 2008 pretty fairly, and they bought ALD in 2010 (but not all of ALD's assets). I own a bit of ARCC now. My remaining issue with ARCC is that they now have as CFO, the same person who was CFO at ALD -- Penni Roll. According to Einhorn, she was in it deep at ALD. She allowed and contributed to the bad "accounting and corporate behavior" that Einhorn documented. She was behind the the bogus accounting and valuations, made false statements, and published a white paper with faulty accounting arguments justifying that ALD did not have to follow SEC rules for BDC accounting. How in the hell did she end up on her feet? Sure someone can change their spots, but a CFO should have the backbone to stand up to an unethical CEO. That is a CFO's job. This doesn't necessarily blacklist ARCC for me, but their choice of a CFO is astounding. |
