UPDATED x 2: Obama admin uses Chicago strong arm tactics on Chrysler holdouts

“The charge is completely untrue,” said White House deputy press secretary Bill Burton, “and there’s obviously no evidence to suggest that this happened in any way.”

Mata Musing: yeah… like they’re so stupid as to leave a trail of evidence of threats? But then, Pellera Weinberg, magically, is no longer in opposition, nor a part of the lawsuit. my my

A quiet story making it’s rounds only thru cyberspace it that of Bankruptcy Attorney, Tom Lauria of White & Case. Mr. Lauria represents the Chrysler holdouts – a group of 20…. er, now 19 after WH strong arm tactics… first lien investor groups who represent teachers credit unions, pensioners, retirement plans and college endowments (to name a few) that are rejecting the government proposal for Chrysler’s restructuring.

This, of course, is the group who Obama publicly berated for their opposition, stating he doesn’t “stand with them”. Instead, he portrays them as those seeking deliberately to sink Chrysler for personal gain.

The White House had offered Chrysler’s lenders a deal to take roughly 33 cents on a dollar to write off the company’s debt. Most took the deal, but a few holdouts said it wasn’t good enough — and their refusal to go along pushed the company into bankruptcy.

So Obama is calling them out. “A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices and they would have to make none,” Obama said.

Some of the hedge funds, Obama said, demanded returns twice as high as other lenders were getting.

“I don’t stand with them,” Obama said. “I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars.”

Mr. Lauria gave a nine minute interview to Frank Beckmann yesterday on News/Talk WJR, where he straightened out some facts that belie a sitting POTUS’ willing and deliberate demonization of privator sector investors – composed actually of those “millions of Americans” who may not own their cars, but invested their future retirement in Chrysler.

In fact, the first lien investors are not being hard nosed. They represent common American workers’ pension funds. They took an investment at a lower yield in exchange for the security of being in first place for payout in the event of a liquidation. Nonetheless, this group of investors did agree to accept 50% of their investments as a concession, instead of the 71% Mr. Lauria says was offered by the Obama admin.

A brief summary of the Obama offer and negotiations via Mr. Lauria?

- First lien holders were willing to accept a 50% discount on their positions, however the 71% demanded by the administration was seen as too much.

- The cash going to Junior claims (creditors below the first liens) will be between $10 and $20 billion, a number which in practice should satisfy a par recovery for the 1st liens if the Absolute Priority Rule was actually withheld.

- Among the creditors are not just vulturous hedge funds but “pensioners, teachers, credit unions, college endowments, retirement plans, and personal retirement accounts.”

But evidently the price to be paid when you oppose what Obama wants is high. Two minutes into the interview with Beckmann, Lauria notes that he has lost one of his clients – Perella Weinberg – after they were directly threatened by the White House for their opposition.

“One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight…That was Perella Weinberg.”

According to Bloomberg, the game of “chicken” between Obama and the first and junior lien holders was fast and furious in the attempts to meet government imposed deadlines.

Obama’s team first offered secured lenders $2 billion for $6.9 billion in loans, then raised the offer to $2.25 billion. In a game of chicken, the holdouts asked for $2.5 billion yesterday, and Obama’s patience ran out. Many dissidents paid from 50 cents to 70 cents on the dollar for their Chrysler loans, so they’re sitting on losses, according to people familiar with the matter.

“They were hoping that everybody else would make sacrifices and they would have to make none,” Obama said. “Some demanded twice the return that other lenders were getting.”

Dan Arbess, a partner at New York-based Perella, didn’t return calls for comment. Uniondale, New York-based Stairway principal John Rijo and Group G Capital Chairman Geoffrey Gwin declined to comment.

New York-based OppenheimerFunds said it rejected the offers because the government “unfairly” asked the fund’s shareholders to make greater sacrifices than were being asked of unsecured creditors.

“Our holdings in secured Chrysler debt are entitled to priority in long-established U.S. bankruptcy law, and we are obligated to our fund shareholders to support agreements that respect these laws,” the company said in an e-mail.

Entitled to priority is exactly right. We are, once again, talking about a sitting POTUS abrogating contractual law – a move that is anti-Constitutional between the separation of powers for Judicial and Executive branches. I brought this up before when it came to contract law and CEOs, however no one wanted to listen since it’s politically vogue to hate those wealthy, heartless executives and their salaries and bonuses.

But now we’re talking teachers, retirees, and educational endowments. People Obama purports to “protect”. Yet here he is, lumping them in with those evil and greedy CEOs by attacking them under their umbrella investment company. He makes no differentiation because his principle remains the same… there is no legal contract he considers sacred when it comes to moving along his agenda.

Mr. Lauria points this out in his Beckmann interview about 7′20″ into the audio.

… the right to contract, and the right to property are sacrosanct in this country. Everybody understands that when you make a deal, it’s supposed to be honored, and if it’s not honored, you’re supposed to be able to get protection in court. And what is happening here, through the force of the United States government – and that’s what’s disturbing about this. I mean private parties have contract disputes all the time. But for the United States government to step in – the Executive office of the United States government who, under the Constitution, is charged with enforcing the laws, to step in and – in effect – try to break the laws…. I think we should all be concerned about that. That is a Constitutional issue.

As Lauria points out, you now have the Executive Branch coming in to the Judicial Branch when the judicial system is meant to stand independent to interpret the law … even in the face of intense pressure to do otherwise.

Were not the intrigue of separation of powers, all in the name of “millions of Americans” not fascinating enough, the plot thickens. Financial blogger, Zero Hedge has added another layer of fuel to the fire on this overt display of Chicago thuggery, as P-W is also the advisory firm for asset disposal of failed FDIC banking institutions.

What is very odd is that Perella Weinberg could possibly have veered away from the administration’s path in the first place: Zero Hedge readers know that P-W is the very firm advising the rapidly sinking FDIC “on transactions and strategies to stabilize the banking system, and also on the proper way to dispose failed institutions and how to handle delinquent securities assumed from banks, as well as the creation of the aggregator bank.”

This leads to the conclusion that this was really the work of one Dan Arbess, who runs the recently acquired by P-W, Xerion Capital, but nonetheless does not explain the lack of strategic integration at this most critical of advisors to Sheila Bair [Mata add: 19th Chairman of the Federal Deposit Insurance Corporation (FDIC)], and by implication the U.S. administration. How it is possible that one’s core advisor would go against its client, even if offset by a Chinese Wall, is likely the big story here, and speaks volumes about the chaos behind the scenes currently occurring with regard to Wall Street’s sentiment for the ruling administration.

Another six degrees of separation is with Dan Arbess, who got his professional start at White & Case – the very firm of which Tom Lauria is a member – as a first year associate before he rose to being one of the firm’s partners in 1992.

Zero Hedge mentioned they had been contemplating filing FOIA inquiries to Ms. Bair and the FDIC, asking for full disclosure for Perella Weinberg compensation for the shuttering of bank after bank. In light of capitulation to Obama INRE their first lien status on Chrysler, it may be even more appropriate now.

A final thought from Mr. Lauria:

“The President is trying to abrogate contractual rights; if he will attack that contractual right, what right will he not attack?”

And a more chilling realization may be, just how far with this administration go to abrogate that, and any future rights? At this point Mr. Lauria doesn’t know if the White House will seek to directly strong arm his remaining clientele. As he said, he may wake up and find he no longer has a case because they all backed down from Chicago thuggery pressure.

And if they can do that to powerful financial institutions, what can they do to you and I?

UPDATE 2: Zero Hedge has posted P-W’s list of secured investors plus Lauria’s filed brief on behalf of his remaining clients.