Fat Wallet: Tariffs, Mergers, Brands

Summary

Money Stuff: The Podcast

Episode: Fat Wallet: Tariffs, Mergers, Brands
Date: November 7, 2025
Hosts: Matt Levine & Katie Greifeld

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Episode Overview

This episode of "Money Stuff: The Podcast" dives deep into the intersection of Wall Street, regulatory drama, and, as usual, some good-natured banter. Matt Levine and Katie Greifeld discuss three headline themes: the fate of Trump-era tariffs at the Supreme Court, the high-stakes corporate battle over obesity drug maker Medcera, and the ongoing fallout—and occasional absurdity—of corporate malfeasance, focusing on the First Brands bankruptcy scandal.

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1. Opening Banter & Bad Luck in the City

(01:19 – 03:00)

• Katie shares her rough week dealing with “gross things” in the city: stepping in oatmeal and dog feces.
• Matt empathizes but jokes that moving to the suburbs hasn't shielded him from similar incidents.
• Sets the episode’s informal, wry tone.

Notable Moment:

• Katie, weary: “I'm so upset. I hate this city... I'm just. I'm worn down.” (02:06)

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2. Trump’s Tariffs and the Supreme Court Showdown

(03:06 – 12:03)

Issue at Stake

• The Supreme Court’s oral arguments about the legality of Trump’s universal tariffs on imports, which hinge on the 1977 International Emergency Economic Powers Act (IEEPA).
• Debate centers on whether these tariffs are actually taxes—a power reserved for Congress in the Constitution.

Key Discussion Points

• Legal Arguments:
  • Matt: "Tariffs are taxes because they are. And the U.S. constitution says that only Congress can impose taxes."
    (04:24)
  • Trump’s legal team argues tariffs are not meant to raise revenue, echoing a stance that “the fact that they raise revenue is only incidental.”
    (05:02)
• Skepticism from the Bench:
  • Katie: "It seems like skepticism was the word of the day. I think almost every major—"
    (03:51)
  • Chief Justice John Roberts (quoted by Katie): “The tariffs were, quote, an imposition of taxes on Americans. And that has always been the core power of Congress.”
    (05:49)
  • Justices Gorsuch and Barrett (Trump appointees) also asked skeptical questions.
  • Matt explains Gorsuch’s particular legal interests: “Neil Gorsuch believes in [the non-delegation doctrine] and has tried to find violations of it... that would perhaps exceed the ability of Congress to delegate.”
    (06:35)
• Major Questions & Refunds:
  • John Roberts’ “major questions doctrine” indicates Congress must clearly delegate any large new power—here, the power to impose tariffs.
  • Katie raises the practical question: if tariffs are overturned, would refunds be required?
    • Matt: “Unscrambling the egg is really hard. And I don't know what will happen... I will say that you could imagine the government being like, it would be impossible to pay refunds and that's a reason not to strike this down. And they haven't done that.” (08:41)

Wall Street Angle

• Hedge funds have bought up potential tariff refund claims, speculating on the Supreme Court outcome.
  • Matt: “Some banks have been arranging trades where hedge funds will buy refund claims at 40 cents on the dollar. And if the Supreme Court strikes them down, then they get their money.” (09:17)
  • Katie: “It would be more interesting if the tariffs had been passed on to consumers and then they were like, ultimately a transfer of money from consumers to hedge funds, but instead I think they're just a transfer of money from companies to hedge funds.” (09:52)
• The long-term economic implications if tariffs are struck down: possible impact on deficit and market uncertainty.

---

3. Novo vs. Pfizer: Obesity Drug M&A Drama

(14:00 – 18:58)

The Story

• Medcera, a U.S. biotech company, has developed a promising obesity drug that’s completed mid-stage trials but isn’t on the market yet.
• Pfizer agreed to buy Medcera after its own obesity drug efforts stumbled.
• Novo Nordisk (maker of Ozempic and Wegovy) then swooped in with a higher offer, prompting antitrust concerns because Novo already dominates the sector.

Unique Deal Structure

• Novo proposes paying Medcera's shareholders upfront—even before regulatory approval—by “dividending out” billions immediately, with Novo receiving a clawback right if the deal fails.
  • Matt: “Basically, they're just paying for the company even if they can't end up buying the company, which is wild.” (16:11)
  • Katie: “It's a very bold move by Novo... I will put an asterisk there, that they have ceded market share to Eli Lilly in the US. So they're trying to regain ground.” (16:15 – 16:31)

The Antitrust & “Cynical Take”

• Pfizer alleges Novo is “catch and killing”—deliberately locking up Medcera in hopeful regulatory limbo to block Pfizer’s acquisition and preserve Novo’s market dominance.
  • Matt: “It's very weird to pay for the company upfront, even if you might not get it.” (17:28)
  • Katie: Novo says they're interested because of a specific amylin-targeting drug (a new obesity treatment direction), noting Eli Lilly’s recent promising clinical results. (17:49)
• National champions and government intervention possibilities are also floated, with patriotic overtones.
  • Matt: “Pfizer also has a sort of patriotic argument... Shouldn't an American company end up buying this American obesity drug rather than giving it to the Danish?” (18:28)
  • Katie jokes about potential government interference via a “golden share” or revenue cut. (18:50)

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4. Brands and Bankruptcy: Patrick James & First Brands

(19:49 – 27:49)

The Ridiculous Spending

• Patrick James, CEO and owner of auto parts conglomerate First Brands, faces a bankruptcy suit alleging he looted the company for personal luxuries:
  • “17 exotic cars, lavish homes in Malibu and the Hamptons, six-figure bills for a celebrity chef.”
  • Katie, dryly: “Talk about a fat wallet. So stupid.” (19:56)

Corporate Governance & Fraud Dynamics

• Matt compares this drama to typical bankruptcy proceedings, including the Sam Bankman-Fried/FTX debacle: after bankruptcy, new management scours for fraud, sometimes incentivized to depict previous owners in the worst light.
  • “You have to be a little skeptical. Right. Because they're running the company on behalf of the creditors. Right. And like... he used it as his personal piggy bank... Of course he did because he owned the company. And so he didn't like follow a lot of like formalities and like when he needed money, he just sent himself some money from the company.” (21:33)
  • Katie: “If I own 100% of an auto parts supplier, I can take the money out and buy cars.” (22:05)
• However, real fraud is alleged: invoice factoring abuse, double-pledging.
  • Matt: “They would just change the numbers on the lists to get more money. And that's fraud. If that's true, that's really bad.” (22:45)
  • Katie: “Like, much larger numbers. Adding a digit, maybe two.” (23:46)
  • Matt: “They batched together $2 million worth of invoices... and they changed them to make them $11 million, and then they borrowed $11 million. That's really bad.” (23:51)

Broader Market Impact

• Concerns about due diligence in invoice financing—UBS is liquidating funds exposed to First Brands.
• Matt suggests modern technology could improve vetting (e.g., blockchain): “I will say I got at least two emails that included the word blockchain.” (26:10)
• Katie: “Blockchain does seem like an obvious answer here, but don't put that in there.” (26:37)
• Reflection on the cyclical memory of credit markets:
  • Matt: “The credit market has no memory whatsoever.” (27:47)
  • Katie: “Maybe that'll happen with invoice financing.” (27:49)

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5. Memorable Quotes & Moments

• “Skepticism was the word of the day.” — Katie Greifeld (03:51)
• “If you just went to the Supreme Court, you know, a year ago and asked them, would this be legal? I think they'd all say no... But it's already happened, Right?” — Matt Levine (08:33)
• “I would be interested in a tariff refund hedge fund case.” — Matt Levine (10:52)
• “Basically, they're just paying for the company even if they can't end up buying the company, which is wild.” — Matt Levine (16:11)
• “Shouldn't an American company end up buying this American obesity drug rather than giving it to the Danish?” — Matt Levine (18:28)
• “They batched together $2 million worth of invoices...and changed them to $11 million...” — Matt Levine (23:51)
• “The credit market has no memory whatsoever.” — Matt Levine (27:47)

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6. Timestamps for Major Segments

• Opening banter: gross things in the city – (01:19 – 03:00)
• Trump tariffs & Supreme Court discussion – (03:06 – 12:03)
• Medcera/Pfizer/Novo M&A battle – (14:00 – 18:58)
• First Brands bankruptcy/corporate fraud discussion – (19:49 – 27:49)

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Tone & Style

The episode’s style is witty yet detail-oriented, full of dry humor (“Talk about a fat wallet. So stupid.”), and skepticism about both government and corporate actors. Matt and Katie’s rapport keeps technical details engaging and accessible.

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This summary conveys the episode’s structure, key insights, memorable moments, and the deadpan wit that hallmark "Money Stuff," making it valuable for listeners and non-listeners alike.

Transcript

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[Katie Greifeld]

Having a horrible week. Oh, no, let me tell you about it.

[Matt Levine]

I heard. Okay, you tell me.

[Katie Greifeld]

It gets worse. It gets worse. I was getting on the subway and I was looking at my phone, as one does, and I didn't notice in time that there was a just huge pool of oatmeal on the floor of the subway car.

[Matt Levine]

When you say pool of oatmeal, I'm.

[Katie Greifeld]

90% confident it was oatmeal. I'll tell you why. There was a lid next to it.

[Matt Levine]

Okay. Okay. That's good.

[Katie Greifeld]

So, I don't know, maybe someone vomited and then threw a lid down, but I'm hoping that was oatmeal. Anyway, it splattered up the back of my jeans. That was yesterday.

[Matt Levine]

Yeah. How's today?

[Katie Greifeld]

I was walking with my lunch in my hand and just stepped in dog feces.

[Matt Levine]

Okay.

[Katie Greifeld]

Just.

[Matt Levine]

Okay.

[Katie Greifeld]

I'm so upset. I hate this city. It's horrible here. You have to always be on high alert. And I'm tired of it, man. I'm just. I'm worn down.

[Matt Levine]

Yeah. Since I've moved to the suburbs, I have not necessarily seen a decrease in my incidence of stepping in gross things.

[Katie Greifeld]

Yeah. But I feel like you're part of the dog community.

[Matt Levine]

Yeah, that's true. Right. I bring it on myself.

[Katie Greifeld]

You're kind of asking for It. But I'm not. I'm specifically not in the dog community. I have a cat, and I moved to New Jersey, so I try to avoid disgusting things, and I can't. It all found me this week, and bad luck comes in three. So something hideous is going to happen.

[Matt Levine]

Yeah. You're gonna step on something real bad.

[Katie Greifeld]

Something is going to step on me. I don't know.

[Matt Levine]

Hello, and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Matt Levine]

You know who else is having a bad week?

[Katie Greifeld]

The list goes.

[Matt Levine]

I was going to say Donald Trump, but there's no real reason to think that Donald Trump's tariffs had a bad day Wednesday in the U.S. supreme Court because they're illegal. And every court that has considered them found them illegal. And the Supreme Court has generally been more willing to let Donald Trump do illegal things than other courts are, because the other courts, there's a law, they follow the law. And the Supreme Court is like, yeah, we get to make up the law.

[Katie Greifeld]

Subjective.

[Matt Levine]

They've been a little more generous, it seems like, from the oral argument on Wednesday, it seems like they might have hit their limit on Donald Trump's universal tariffs.

[Katie Greifeld]

Yeah. It's funny, it seems like skepticism was the word of the day. I think almost every major.

[Matt Levine]

Yeah, you can't really tell what they think from the oral argument, so you have to write that they were skeptical.

[Katie Greifeld]

Yeah, yeah. Asked skeptical questions, things along those lines. Yeah. We're talking about the 1977 International Emergency Economic Powers Act, IAAPA, if you will. So Donald Trump says that it's in the interest of national security that he's basically able to levy blanket tariffs around the globe. And that's what's in question right now, defining the limits of this 1970s law.

[Matt Levine]

Yeah, normal people and lawyers and economists believe that tariffs are taxes because they are. And the U.S. constitution says that only Congress can impose taxes. And in ipa, Congress gave the president the power to regulate importation in an emergency, but it doesn't say you can tax them. And it seems to me and many other people and probably five or so justices of the Supreme Court, that that does not give Donald Trump the power to unilaterally impose taxes on the imports of every country in the world. Donald Trump disagrees. And in the Supreme Court argument, his lawyer, the Solicitor General, argued that these are not taxes. They're not designed to raise revenue. And the goal of the tariffs is to make everyone essentially actually said the fact that they raise revenue is only incidental. The tariffs would be most effective if no person ever paid them because there were no imports, I think.

[Katie Greifeld]

Amazing.

[Matt Levine]

Yeah. But no one believes that. Certainly not Donald Trump, who has talked about how much revenue they're raising, and certainly not the Supreme Court. So, you know.

[Katie Greifeld]

Yeah, I feel like it's been pretty nakedly a goal of the tariffs is to raise tariff revenue and try to shrink the budget deficit.

[Matt Levine]

Sure. Because they're a tax.

[Katie Greifeld]

Yeah.

[Matt Levine]

So it's very hard to argue that. And they tried and it doesn't seem like it went that well.

[Katie Greifeld]

Yeah. Again, we don't know what they were thinking. We might get a decision by the end of the year, which is exciting. But I have a quote here from Chief Justice John Roberts saying that the tariffs were, quote, an imposition of taxes on Americans. And that has always been the core power of Congress. That's a direct quote.

[Matt Levine]

And then you also have right up front in the Constitution. The Constitution is like an actual piece of paper you can read. Right. You actually see that it says Congress has the power to divorce tax.

[Katie Greifeld]

I've perused it now and again, a lot of amendments. Anyway, this is right up front. Right up front. And then you had Trump appointed justices as well, Neil Gorsuch and Amy Coney Barrett apparently also asking skeptical questions as well. But again, it's very hard to know.

[Matt Levine]

It's hard to know Neil Gorsuch. I have a certain personal fondness for Neil Gorsuch because.

[Katie Greifeld]

Go on.

[Matt Levine]

I think we talked about this on the podcast, but my wife argued a case in the Supreme Court Court that was a non delegation doctrine case. The non delegation doctrine has been around for a long time. Basically it says that Congress can't just hand over its powers to the executive branch without giving it an intelligible principle. How to regulate that doctrine has been around for a while, but never really worked. For the last hundred years, the Supreme Court has never found a violation of the non delegation doctrine. It's never said Congress delegated too much power here, but Neil Gorsuch believes in it and has tried to find violations of it and has dissented from decisions including the one involving my wife and saying that the non delegation doctrine should have some real power. And it seems here that if Congress intended to delegate the power to unilaterally tax all imports forever to the President, that would be quite a striking delegation that would perhaps exceed the ability of Congress to delegate. So there's natural reason to think that he would impose these tariffs. Similarly, John Roberts invented a thing called the major questions doctrine, which has become a big part of Supreme Court jurisprudence, even though he kind of made it up a few years ago. And in the major questions doctrine, basically, it's like, if Congress is going to give the executive some huge new power, it has to do so clearly. And here AIPA gives the President the power to regulate imports, which is not taxing them. So it doesn't seem like it, does it? Clearly.

[Katie Greifeld]

Yeah.

[Matt Levine]

So, like, if you look at, you know, if you count like three liberal justices are going to say no. One, John Roberts loves his major question doctrine and one, Neil Gorsuch loves his non delegation doctrine, you kind of get to the terrorists being struck down.

[Katie Greifeld]

Yeah. Which is interesting and exciting because the question has also been raised, would reimbursement have to happen? What on earth would that possibly look like?

[Matt Levine]

Right. If you just went to the Supreme Court, you know, a year ago and asked them, would this be legal? I think they'd all say no.

[Katie Greifeld]

Yeah.

[Matt Levine]

But it's already happened, Right?

[Katie Greifeld]

For sure.

[Matt Levine]

It's already raised hundreds of billions of dollars or whatever. And so unscrambling the egg is really hard. And I don't know what will happen. I will say that you could imagine the government being like, it would be impossible to pay refunds and that's a reason not to strike this down. And they haven't done that. They've been like, yeah, we'd pay refunds. It's fine, they'll be fine.

[Katie Greifeld]

Yeah.

[Matt Levine]

I do think the thing that's a little interesting is that if you think about the incidents. Right. Like on the one hand, like, I don't think consumers have paid a lot of these tariffs.

[Katie Greifeld]

Yeah. It seems like so far companies have eaten a lot of the costs.

[Matt Levine]

The pretty strong consensus is that tariffs have not been passed on to consumers nearly as much as economists expected. And I don't know exactly the reason for that. Some of it is just like a good profit environment and some of it is like everyone's a little bit waiting and seeing. And if the tariffs continued forever, they might pass them on, but we'll see what happens. But at the same time, if there are refunds, I don't know who gets the refunds. I think a lot of the importers have sold refund claims to hedge funds. This is a real Wall street trade where some banks have been arranging trades where hedge funds will buy refund claims at $0.40 on the dollar. And if the Supreme Court strikes them down, then they get their money. And if it doesn't, then they lose the 40 cents on the dollar. It would be more interesting if the tariffs had been passed on to consumers and then they were like, ultimately a transfer of money from consumers to hedge funds, but instead I think they're just a transfer of money from companies to hedge funds.

[Katie Greifeld]

Well, Amy Coney Barrett did ask the lawyer for the small businesses that sued basically how the process would work should the tariffs be overturned. His answer was that if they are overturned, then businesses may seek the return of the billions already paid to the US Treasury. So in that scenario.

[Matt Levine]

Yeah, but like the businesses who've sold them.

[Katie Greifeld]

Yeah.

[Matt Levine]

There's some interesting questions about whether the government would stonewall a hedge fund that has bought tariff claims. You know. Yeah, but probably it'd be fine. Probably some hedge funds are going to do well out of this.

[Katie Greifeld]

So the most interesting possibility for this podcast is that these tariffs are overturned.

[Matt Levine]

Well, yes. And then a hedge fund sues the government for a refund, and the government says no, and it goes to the Supreme Court. That's a fun one.

[Katie Greifeld]

That is a fun one.

[Matt Levine]

That's a fun one. I would be interested in a tariff refund hedge fund case.

[Katie Greifeld]

I do want to put some numbers around the tariff revenue so far because I think it's interesting. Apparently it's helped bring the national budget deficit down to $1.78 trillion for the most recent fiscal years. That's a drop of 2% from 2024, which is good news. But you think about the overall trajectory of spends and tax cuts, it's probably not going to really change things that much. But even still.

[Matt Levine]

But also, it's getting reversed. Maybe.

[Katie Greifeld]

Maybe we don't know that.

[Matt Levine]

Right. Again, the government can't argue about this. They can't be like, we need these tariffs to keep the deficit down. I mean, they can. They can say it, but they can't say it in the Supreme Court because to the Supreme Court, they're saying, this isn't a tax. We're not raising revenue. So they can't talk about the revenue.

[Katie Greifeld]

Yeah, well, it kind of reminds me of the situation with Nvidia and AMD chips in terms of the idea was floated that the government would take a cut of Chinese revenues, like revenue that they made in China.

[Matt Levine]

It's like a reverse taf.

[Katie Greifeld]

Yeah, but it's also like, how do you argue that's for national security? That also seems to be just nakedly revenue raising.

[Matt Levine]

It's like you can sell advanced technology to our enemies as long as we get a cut.

[Katie Greifeld]

Yeah, right. Pony up.

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[Katie Greifeld]

What do you want to talk about next?

[Matt Levine]

Met Sarah.

[Katie Greifeld]

I love this story. So much drama in the healthcare M and a space for this very hot, promising obesity startup, Medcera.

[Matt Levine]

Yeah, it's good to have an obesity drug. Yeah, everyone wants it. Yeah.

[Katie Greifeld]

God, I wish I had one.

[Matt Levine]

Yeah. So Medcera is a US Biotech company that has an obesity drug that seems to be promising.

[Katie Greifeld]

Not on the market yet, no, but it did recently complete a mid stage trial.

[Matt Levine]

Yeah, so it's a promising but not yet commercialized obesity drug. And Pfizer, a big US Pharma company that had a notable failure in trials of its obesity drug and it's kind of like adrift without an obesity drug, agreed to buy Metsera in September. And since then Novo Nordisk, which is a giant Danish pharmaceutical company that notably makes Ozempic and Wegovy has come in with a higher bid for Metsera, which first of all is interesting drama. But secondly, because Novo has the leading obesity drugs, there's a huge antitrust problem with it buying Medcera.

[Katie Greifeld]

Yeah.

[Matt Levine]

And Medcera, the board of directors, is choosing between a higher offer from Novo that might not go through or a lower offer from Pfizer that has very little antitrust risk. And Novo got around that problem, or thinks it got around that problem, or probably got around that problem by basically paying the money upfront. So instead of signing a deal and going to get antitrust approval, and when you get antitrust approval, paying the money for the shares, Novo is just going to hand over the money up front. It's going to be dividended out to Metsera shareholders as soon as they sign the deal. And then Novo will get back this debt like claim so that if they get antitrust approval, the deal will close and Novo will end up owning Medcera. And if it doesn't close, then Mitcera can sell itself to someone else and Novo gets the first $6.5 billion of proceeds. But it's a very weird structure.

[Katie Greifeld]

It is super weird. I had to reread it a number of times. And then listening to you describe it, I feel like I need to go back and play it again.

[Matt Levine]

Yeah. Basically, they're just paying for the company even if they can't end up buying.

[Katie Greifeld]

The company, which is wild. It's a very bold move by novo. You mentioned that they have the leading obesity drug. I will put an asterisk there, that they have ceded market share to Eli Lilly in the US So they're trying to regain ground.

[Matt Levine]

Okay. So one possibility is they're trying to regain ground by getting Matsera's awesome new drug.

[Katie Greifeld]

Yeah.

[Matt Levine]

Pfizer has a different theory, which is that they don't care about this drug. They're just trying to catch and kill it. They're trying to prevent Pfizer from getting an obesity drug by doing this deal where they will lock up Metcera in like, trying to get regulatory approvals for two years. And Pfizer says the deal with Novo will never close. They'll never get antitrust approval. But it'll take so long that the actual purpose of this deal is to prevent Pfizer from buying it, to sort of maintain Novo's position. So that's Pfizer's view. They've sued in multiple courts. They kind of lost a round this week. Delaware Chancery Court refused to stop medsara from taking the Novo deal. But there's still Lawsuits kicking around.

[Katie Greifeld]

Yeah, that is a very cynical take. I feel like the fact that it's not Eli Lilly doing this, maybe.

[Matt Levine]

Yeah, it's a cynical take. I mean, it's very weird to pay for the company upfront, even if you might not get it right. And, like, one possibility is that Novo is like, we don't think there's that much antitrust risk. We understand Mitcera is worried about it, so we're going to bear that risk ourselves by paying everything up front. But another possibility is that everyone thinks there's a lot of antitrust risk and they're like, we don't even care if we don't get the company.

[Katie Greifeld]

Yeah. I will say we heard from the CFO of Novo talking about why they wanted this company and their promising drug in particular. And the CFO said that they're particularly interested in Medcera's Amylin targeting drug. If anyone following along at home is really well versed in this stuff, apparently amylin is another potential target in obesity treatment. And just on Thursday, actually, Eli Lilly said that its Amylon targeting helped patients lose up to 20.1% of their body weight over 48 weeks. So I don't know. Pfizer has their take, but Novo seems to have their own.

[Matt Levine]

Right. You can't fully believe the extremely cynical take of Novo spending billions of dollars just to stop Pfizer from getting an obesity drug. That said, Pfizer also has a sort of patriotic argument of, you know, kind of playing to the Trump Justice Department. Shouldn't an American company end up buying this American obesity drug rather than giving it to the Danish?

[Katie Greifeld]

And the government's going to be like, what if we got a golden share? Perhaps something along those lines, Perhaps a cut of revenue.

[Matt Levine]

I'm sighing because, like, this is what's going to happen, isn't it? This is totally what's going to happen.

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[Katie Greifeld]

Speaking of drama, this has nothing to do with obesity.

[Matt Levine]

Well, this is a story about a guy who spent $500,000 on his personal chef.

[Katie Greifeld]

Talk about a fat wallet. So stupid.

[Matt Levine]

Yeah, I was thinking about like. So Sam Bankman Fried had his appeal this week.

[Katie Greifeld]

Oh yeah.

[Matt Levine]

Didn't go well. Oh, I mean we don't know the result, but skeptical, question, skeptical, skepticism. And Sam Bankman Fried has said that all of his problems started when he handed over control of FTX to people who are running it in bankruptcy. Sort of. You file for bankruptcy and like someone else takes over the company.

[Katie Greifeld]

That was the starting point of.

[Matt Levine]

Well, that was in the starting point he was like, I could have recovered before that, but then after they took over the company, like the new CEO has an incentive to throw the old management under the bus and find as many problems as possible. And I was thinking about that because like, so we're going to talk about First Brands, which is a auto parts conglomerate that went bankrupt and this week sued its former CEO and sole shareholder Patrick James for various alleged badness. Basically, like doing a lot of fraud to borrow from various factoring companies and taking all that money and giving it to himself and spending it on 17 exotic cars, lavish homes in Malibu and the Hamptons, six figure bills for a celebrity chef, other stuff like that. And I was thinking about it because it's the same kind of dynamic where you file for bankruptcy. Essentially a bankruptcy firm takes over the company and they're like, you know, let's be as negative as possible about the previous management. And so, you know, they seem to have found a lot of stuff.

[Katie Greifeld]

Yeah.

[Matt Levine]

But you know, you have to be a little, you have to be a little skeptical. Right. Because like they're running the company on behalf of the creditors. Right. And like this is a company that was 100% owned by Patrick James. And so they're like, he used it as his personal piggy bank. He absolutely did. Like, of course he did because he owned the company. And so he didn't like follow a lot of like formalities and like when he needed money, he just sent himself some money from the company. And now they want all that money back to pay to the credit. And so they're like, oh, I did lots of fraud. I guess I believe them. But it's just like it's an interesting dynamic. They have incentives to say he did lots of fraud.

[Katie Greifeld]

If I own 100% of an auto parts supplier, I can take the money out and buy cars.

[Matt Levine]

Well the question is, who's going to object to that? And if there are no other shareholders in the ordinary, course no one's going to object to it. Now if the company goes extremely bankrupt, the creditors are going to object to it. They're going to be like, give me back the money. And they're going to look very carefully to see if you did anything bad. And I do think that they found that he did bad stuff in terms of. I mean, the real allegation here is that most of their borrowing was secured by invoices. So they'd sell auto parts to a car dealership and they'd get an invoice, and they'd borrow against the invoice from a factoring company. They would send over lists of thousands of invoices to borrow the money, and they would just change the numbers on the lists to get more money. And that's fraud. If that's true, that's really bad. And so the creditors have, like, allegedly found a lot of that. But then there's just the other question of if you have a company that borrows money, can you take money out of the company? And it's like, well, it depends on what the credit agreements say. And they make a lot of noise about how he didn't follow a lot of formalities, but they don't say it was forbidden by the credit agreements. I don't know. I don't mean to defend him more. I feel like I'm being.

[Katie Greifeld]

I mean, I feel like someone listening cold could think.

[Matt Levine]

I know, I know.

[Katie Greifeld]

I think that you are.

[Matt Levine]

I know. I just think it's an interesting dynamic that the creditors have every incentive to look for fraud and that they are like, he took money out of this company, which is like, fine, if it's his own company, but it's not his own company because he borrowed a lot of money.

[Katie Greifeld]

Yeah.

[Matt Levine]

That said, I do want to emphasize that the stuff they say about crossing out the numbers on the invoices and writing much larger numbers is really bad fraud.

[Katie Greifeld]

Yeah. Like, much larger numbers. Adding a digit, maybe two.

[Matt Levine]

Yeah, yeah, yeah. There's an example in the complaint of they batched together $2 million worth of invoices, like thousands of invoices that totaled $2 million, and they changed them to make them $11 million, and then they borrowed $11 million. That's really bad.

[Katie Greifeld]

You can't do that. That's super bad. That's flagrant, if you really think about it. I do wonder if anyone in his family was like, patrick, you run an auto parts supplier. How do you have so many houses? How do you have so many cars?

[Matt Levine]

No, it's a big. It's not like a. Yeah, but even still, it's like a multi billion dollar conglomerate of auto parts suppliers.

[Katie Greifeld]

Yeah, that's true. But I don't know what don't you? With the benefit of hindsight, it seems a little sketchy, but he was like, I know he's your dude.

[Matt Levine]

He's reportedly a billionaire. He's not my dude. Have I gotten myself into this?

[Katie Greifeld]

Anyway, he's completely innocent. I do think it's interesting that. I don't know, it feels like every week more news breaks about First Brands and the unraveling here.

[Matt Levine]

Even before it went bankrupt, people were raising concerns about double pledging. And yeah, it makes sense that when their bankruptcy team did a forensic examination, they're like, oh, wow, there's tons of double pledging here.

[Katie Greifeld]

Yeah. You aptly linked to a Wall Street Journal report talking about how now you have a lot more firms perhaps suggesting that we should up our due diligence. There was an interesting report too from the Financial Times today talking about how UBS is going to liquidate its funds with major First Brands exposure. Apparently they have a fund specializing in invoice finance, specifically at o', Connor that is owned by UBS in the process of being sold to Kier Fitzgerald, which is pretty funny just in terms of obviously when this deal was signed in May, things were much different. And now you want to buy an.

[Matt Levine]

Invoice financing hedge fund. No, not so much.

[Katie Greifeld]

Yeah, and they're even liquidating a high grade fund that invested in invoices linked to less risky companies without any First Brands exposure, but also checking it out.

[Matt Levine]

No one's looking to get into invoice financing right this minute. I will say I talked about diligence on this sort of thing where it's literally like you send over an Excel file with thousands of invoices and then they just send you the money and like you can edit that Excel file. I will say I got at least two emails that included the word blockchain.

[Katie Greifeld]

Oh, good.

[Matt Levine]

So, you know, that's like a.

[Katie Greifeld]

We've found a use case.

[Matt Levine]

Whether or not it's blockchain, it does kind of feel like we have the technology to not just take it on faith that this pile of PDFs is real. But not everyone deploys that technology. And there's a lot of trust in the financial system and Sometimes people buy 17 exotic cars on the back of that trust.

[Katie Greifeld]

It's really funny. Blockchain does seem like an obvious answer here, but don't put that in there.

[Matt Levine]

No, we're putting that in there.

[Katie Greifeld]

One more thing.

[Matt Levine]

Katie's a True believer.

[Katie Greifeld]

No. Oh, invoice financing funds. I don't know. You say that now maybe isn't a great time for them. I want to read the story in the next three months about someone coming in and moving aggressively here because. What was that?

[Matt Levine]

Yeah, it's a real business. I feel like people only ever talk about it when someone goes up in a flaming pile of fraud. But it's a real business. Yeah, it's mostly fine.

[Katie Greifeld]

It kind of reminds me of the Credit Suisse blow up. Wasn't it at 1s? What am I trying to remember?

[Matt Levine]

I don't know. But Credit Suisse had that greensoul problem, which was at the invoice financing firm.

[Katie Greifeld]

No, I'm definitely not thinking about that.

[Matt Levine]

Oh, the AT ones in that.

[Katie Greifeld]

Yeah, yeah.

[Matt Levine]

Because Credit Suisse wiped out billions of dollars of AT1s, and for like 20 minutes, people were like, I'll never buy an AT1 again. And then like, the AT1 market came roaring back. Yes. I have to say that the day that was happening, and people were like, I'll never buy an AT1 again. I'm pretty sure I wrote in a column, like, they will definitely buy at 1s next week.

[Katie Greifeld]

And they did.

[Matt Levine]

The credit market has no memory whatsoever.

[Katie Greifeld]

Maybe that'll happen with invoice financing.

[Matt Levine]

Invoice financing. Like, I don't think that, like, invoice financing will be dead, but, like, I think people might do a little bit more due diligence for a while. And that was the Money Stuff Podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on bloomberg.com.

[Katie Greifeld]

And you can find me on Bloomberg TV every day on the close between 3 and 5pm Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodlumberg.net Ask us a question and we might answer it on the air.

[Katie Greifeld]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Matt Levine]

The Money Stuff podcast is produced by Anna Mazarakis and Moses Ondon.

[Katie Greifeld]

Our theme music was composed by Blake Maples.

[Matt Levine]

Amy Keane is our executive producer, and.

[Katie Greifeld]

Sage Bauman is Bloomberg's head of podcasts.

[Matt Levine]

Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.