David Dayen reports in the The Intercept that Boston hedge fund billionaire Seth Klarman is the owner of one of the largest holdings of Puerto Rican debts (read full article below). This has been kept secret until now.
Dayen explains that Puerto Rico “has been mired in a borrowing crisis for years… Many [creditors] scooped up bonds on the cheap, seeking an astronomical payout by forcing the island to pay them back at par (or 100 cents on the dollar). This has led to widespread suffering.”
Klarman is widely known to use his wealth to support Israel causes.
He’s on on the board of advisors and a major donor to the Israel Project, which says it is “dedicated to changing people’s minds about Israel through cutting-edge strategic communications. We don’t attack the media, we become a trusted partner and resource – bringing integrity and facts to the coverage using proven strategies like building relationships, testing messages and giving journalists everything they need to get the story right.” (Donating to this is tax deductible in the U.S., though it’s hard to understand how it benefits the vast majority of American citizens.)
Numerous other Israel lobby organizations also get Klarman’s money; Rightweb reports that he donates to the Washington Institute for Near East Policy (a spinoff of the American Israel Public Affairs Committee), the neoconservative Foundation for Defense of Democracies, the Middle East Media Research Institute, Daniel Pipes’ Middle East Forum, and the David Project, which has opposed the construction of mosques in Boston.
RightWeb notes that Klarman’s family foundation “has also supported a number of controversial Islamic groups, including the American Islamic Forum for Democracy, founded by Zuhdi Jasser, a controversial promoter of surveillance of Muslim communities. Klarman is also a prominent funder of the American Islamic Congress, an organization that the George W. Bush administration helped start.”
According to Right Web, “Some observers have argued that Klarman’s funding reflects a ‘wedging’ strategy, with Klarman calculation being to support ‘Muslim and Arab-oriented front groups that advance pro-Israel interests while undermining the objectives of mainstream Muslim and Arab-American organizations.'”
Klarman cofounded Israel’s newspaper The Times of Israel and donates to the pro-Israel media pressure group CAMERA. He is also chairman of Facing History and Ourselves, which develops classroom programs “to combat anti-Semitism,” which often focuses on Israel. Klarman also helps fund the American Jewish Committee, whose slogan is “Advocating for Israel and the Jewish people.”
Rightweb reports that Klarman’s political giving also supports Israel:
Klarman was mentioned in an April 2015 New York Times piece that examined why Republicans are “more fervently pro-Israel than ever.” The article linked such sentiment to being “partly a result of ideology, but also a product of a surge in donations and campaign spending on their behalf by a small group of wealthy donors.” The piece revealed how Klarman contributed $100,000 to the 2014 Senate campaign of Tom Cotton (R-AR), a stringent hawk who has received strong support from numerous other major “pro-Israel” figures like Paul Singer and Bill Kristol.
Klarman also sometimes donates to Democrats; he backed Hillary Clinton for President.
Below is the Intercept article, which contains much more information about Klarman and about his connection to Puerto Rican debt. Below that is an additional article about how Klarman’s money buys support for Israel.
By David Dayen
FOR YEARS, THE IDENTITY of the owner of one of the largest holdings of Puerto Rican debts has been a mystery.
That mystery has finally been solved, with the help of the The Baupost Group, who unmasked themselves to The Intercept. The Baupost Group, a Boston-based hedge fund managed by billionaire Seth Klarman, owns nearly a billion dollars of Puerto Rican debt, purchased under a shell company subsidiary and hidden from public scrutiny. Baupost acquired the debt through an on-paper Delaware-based corporation named Decagon Holdings LLC, whose beneficial owner had been unknown until now.
“The Baupost Group is a holder of COFINA bonds through the Decagon entities,” said Baupost spokeswoman Diana DeSocio. “Baupost regularly makes investments through subsidiary holding entities.” She added that Klarman, one of the richest hedge fund managers in the world, did not hold any Puerto Rican debt individually.
Though the island, currently recovering from a catastrophic hurricane, has been mired in a borrowing crisis for years, it’s difficult to get precise information about the creditors. Many of them scooped up bonds on the cheap, seeking an astronomical payout by forcing the island to pay them back at par (or 100 cents on the dollar). This has led to widespread suffering, as punishing austerity has been imposed to encourage Puerto Rico to pay back the bondholders in full. (Only now has some of this austerity been lifted in the wake of Hurricane Maria.)
Using shell companies to buy Puerto Rican bonds, then, can shield wealthy investors from public knowledge of their complicity in the misery of millions of U.S. citizens.
Julio Lopez, state director of Make the Road Connecticut and a member of the HedgeClippers coalition, which is organized to challenge the concentrated power of hedge funds, said the revelation of Klarman’s involvement will have political ramifications.
“What’s incredible about this is these people were actually hiding,” said Lopez. “In the case of this person, he’s in Boston which has a large Puerto Rican community … Our work right now will be about activating our community in Boston, letting them know this person has been hiding and making sure we go to his houses and his companies to hold them accountable.”
In July, as part of a court order to comply with bankruptcy procedures, a coalition of holders of “COFINA” bonds, backed by the island’s sales taxes, were required to supply the names of its members. The largest member in terms of bond value was Decagon Holdings, which had ten separate purchasing subsidiaries (Decagon 1-10) holding $911.6 million in COFINA bonds.
But there was no information about Decagon in the court filing, other than a Boston address of 800 Boylston Street. That’s the 52-floor Prudential Tower skyscraper in the Back Bay district. The Intercept sent an associate to the Prudential Tower to find Decagon Holdings’ office, and they were not listed in the directory.
A rather primitive website for a Decagon Holdings LLC turned out to be for a different company. “This is a start up organization and has not gained any ground,” a spokesperson for the wrong Decagon Holdings stated to The Intercept. “You aren’t the first to ask these questions.”
It turns out that there were two Decagon Holdings. One, the startup, was incorporated in Nevada in November 2016. But a second, which includes all ten of the entities used by Baupost, was incorporated in Delaware on August 4, 2015, through an agent called the Corporation Service Company. As usual for Delaware incorporation, almost no information accompanied that registration, including its beneficial owner.
800 Boylston Street in Boston houses a number of investment firms, though none of them had the kind of assets that would plausibly include $911.6 million in Puerto Rican bonds. However, Kevin Connor, director of the Public Accountability Initiative, directed The Intercept to an obscure op-ed written for Fox News’ since-shuttered Latino news site in May 2016. Iván Rivera Reyes, a Puerto Rican lawyer and politician, wrote that “COFINA was a creation of Wall Street financial whizzes Goldman Sachs and counts large billion-dollar hedge funds like GoldenTree Asset Management, Whitebox Advisors and Baupost Group as bondholders.”
But while GoldenTree and Whitebox were known COFINA bondholders, Baupost had never publicly stated that they owned Puerto Rican debt. When Roll Call asked Sean Neary, a spokesman for the coalition of COFINA bondholders, about Baupost’s role, he would only say “They are not part of the steering committee group that is the main driver of the coalition.”
This appeared to be a confirmation, or at least a non-denial, of Baupost’s assets. Neary never responded to a request from the Intercept for comment. But contrary to Neary’s claim, Decagon was apparently active in the coalition, according to reports in Puerto Rican media of them “leading” litigation efforts to get repaid.
Baupost had a connection to 800 Boylston, but not through an investment firm. The law office of Ropes & Gray works out of that building, and one of its partners, Jeffrey R. Katz, has worked with Baupost in the past. This SEC filing about the purchase of shares in a pharmaceutical company lists Katz next to Klarman. It appeared that Baupost used Katz’ address to register the Decagon shell companies.
When Connor, the public accountability advocate, contacted Katz about Decagon and Baupost, he hesitated and tried to get Connor off the phone. “He got really flustered,” Connor said. “He said, ‘You probably think you’re onto something big, but I’m a lawyer and I have clients!’” Katz never returned an Intercept request for comment.
The current spokesman for the COFINA bondholders coalition, Greg Marose, did not confirm Baupost’s involvement, but did say “we have a lot of stakeholders with commercial interests,” which could be read as an excuse for hiding ownership behind a shell corporation. Eventually Baupost itself admitted to controlling the Decagon entities and owning the COFINA bonds.
Klarman, who has been described as the Oracle of Boston, has a history of buying unpopular or distressed assets on the cheap in hopes of a payday. Baupost manages over $30 billion in assets. He is known as the top campaign contributor in New England, and has been a major donor in Republican politics in Massachusetts, including largely secret support for 2016’s Question 2, an ultimately unsuccessful effort to lift a state cap on charter schools. Klarman supported Hillary Clinton in 2016, calling Trump “completely unqualified for the highest office in the land.”
Klarman’s involvement in Puerto Rican debt will surely come as a surprise to activists in Massachusetts and Puerto Rico, who have never mentioned him among the “vultures” who are causing undue pain for the island’s U.S. citizens.
COFINA bondholders have been sparring with holders of Puerto Rico’s general obligation debt over who has the right to be repaid first from a pool of sales tax revenue. Judge Laura Taylor Swain, currently presiding over the bankruptcy-like process in Puerto Rico, suspended COFINA payments in May.
The COFINA group has spent $610,000 lobbying Congress over the past two years. Last week, after an Intercept report about creditor responses — or the utter lack of them — to the disaster in Puerto Rico, COFINA bondholders offered “our heartfelt thoughts and prayers” to those living on the island, and promised that “members of the Coalition will be contributing to the Puerto Rico Chapter of the American Red Cross.”
The amount was not disclosed, nor whether Seth Klarman and the Baupost Group would be contributing.
Update: October 3, 2017:
Politico reporter Marc Caputo adds the context of Klarman’s political giving.
Philip Weiss’s 2011 report on Klarman, Minnow, Frank, Kraft, Wasserman Schultz, etc
Seth Klarman is a big hedge fund manager and philanthropist. He’s never been on the actual Charlie Rose show, but Rose interviews him at an event for Klarman’s organization that fights anti-Semitism, called Facing History.
At the end of the interview, Charlie Rose hugs Klarman. And that hug is the heart of the problem in our liberal media culture.
Seth Klarman seems to be a good liberal. Martha Minow, dean of Harvard Law School [who initiated a program about Israel while she was dean], is on Facing History’s board. Klarman’s wife Beth gives money to Barack Obama, Barbara Boxer, and Barney Frank. The Klarman Family Foundation (with an annual budget of about $40 million) gives tons to hospitals and arts organizations, the ballet, Shakespeare, Big Brother, Planned Parenthood, and NARAL. It has also given money to public television. I bet that Charlie Rose’s show is getting support from Klarman– or that Rose is seeking money from him, and that’s why he’s doing this interview.
But being a liberal philanthropist is just one side of Klarman. He is also an Israel lobbyist who is just as rightwing as Sheldon Adelson, the casino owner who supports the Republican Party.
Klarman gives money to settler groups: the Central Fund of Israel, which pays for settlers’ “security needs” in the occupied West Bank, and Ir David, which is digging up East Jerusalem and displacing Palestinians. He gives $1 million in a year to Birthright, the program to send young American Jews to Israel to fall in love with the Jewish state. He supports the rightwing propaganda organization, the Israel Project (he’s on their board), gives big money to the Friends of the Israeli Defense Forces, and to top it off, Klarman is chairman of the board of the David Project, the group that has targeted Arab and Muslim intellectuals on college campuses.
Klarman epitomizes the foreign-policy crisis of the liberal Establishment: he supports every traditional liberal cause at the same time as he is a rightwinger on Middle East policy. And he’s hardly alone. I’ve written about other big liberal philanthropists who swing right on Israel here.
And Charlie Rose knows this. Just ask him! He is dependent on such sources for funding, and the price of that support is not criticizing Israel. Or keeping that criticism faint.
At Minute 40 or so in the video above, Charlie Rose says “Israel is under siege like it’s never been since 1948” and then flatters Klarman about his commitment to Israel. And Klarman tells Charlie Rose that the rise of criticism of Israel is like the rise of Nazism:
I am scared of this moment in history. When you look at the history of anti-semitism… hatred of Jews has shifted to hatred of the Jewish state… When Israel is singled out like no other country….[it recalls the] slow march of Hitler. [There is a] steady march in the world, from college campuses to the U.N. People would love to dismantle the Jewish state…. When Israel is singled out, when Jews are singled out, it’s absolutely terrifying…
Debbie Wasserman Schultz
When people ask why Debbie Wasserman Schultz, the Democratic National Committee chairwoman, is to the right of Mitt Romney and Rick Perry on aid to Israel, it’s because Klarman is not alone, the Democratic Party relies on rich conservatives like Klarman. It is because the heart of liberal east coast philanthropy–the same people who endow halls at Princeton and Yale-– also are paying for 81 Congress people to go to Israel last summer, more than to any other country.
When people ask why Barney Frank is afraid to come out publicly against settlements until 5000 Jews in his district take such a stand, it is because he gets support from the Seth Klarmans of the word.
When people ask why Barack Obama changed his mind about settlements, the Seth Klarmans of the world are the reason. Obama is mobbed up with the same people that Charlie Rose is mobbed up with, people who back Barney Frank and Martha Minow. Obama is good friends of Martha Minow [daughter of the powerful Newton Minow].
Seth Klarman gives lots of money to educational institutions. His brother teaches at Harvard Law School. And here is Klarman paying for Harvard Law students to go to Israel–with support from New England Patriots owner Robert Kraft, a big funder of Israeli hasbara in the west:
March 19, 2010: A delegation of Harvard Law students is visiting Israel this week as part of a ten-day America-Israel Friendship League (AIFL) educational mission to Israel.
This is the second year AIFL is cooperating with the Harvard Law Jewish Students’ Association and Professor Alan Dershowitz to send future lawyers on a seminar to Israel. The mission was made possible thanks to the generous support of the Combined Jewish Philanthropies and contributions from Mr. Robert Kraft and Mr. Seth Klarman.
Here is Klarman in the Boston Herald, saying that Israel has nothing to do with the unending conflict in the Middle East:
In a recent New York Times [NYT] op-ed, Turkish President Abdullah Gul wrote that, “The plight of the Palestinians has been a root cause of unrest and conflict” in the Middle East. This remark brazenly advanced a dogma that has been decisively discredited by recent events in the Arab world. It is now time to relegate it to the dustbin of history.
And here is Klarman writing that Jews are under siege, and there’s a conspiracy afoot to demolish the Jewish state.
In the West, “Palestinianism” — the notion that an innocent, indigenous people suffers a senseless, cruel oppression by the Jews of Israel (who ought to know better) threatens to become the standard view. It is the basis for an attack by Western radicals on Zionism, Jewish national self-determination, and by extension on Jews everywhere.