Hiring the former CEO and then shorting the shares.
In a somewhat surprising decision, Spain’s High Court said on Friday that it would investigate allegations against two former executives of renewable-energy giant Abengoa, which days earlier had filed for preliminary bankruptcy protection. Some of the creditors had filed claims against former Chairman Felipe Benjumea and former CEO Manuel Sanchez Ortega. In Snchez Ortega’s case, they alleged that he’d shared insider information with his new employer, the world’s biggest investment fund, BlackRock, that then massively profited from this information.
The Big Short
Snchez Ortega resigned from Seville-based Abengoa in May this year, walking away with a tidy severance package, a sweet deal for the man who helped sow the seeds of the company’s demise. At the time it was already common knowledge that Abengoa was having financial difficulties; what was not common knowledge was just how serious those difficulties were.
No one had a better idea of the true state of Abengoa’s finances than Snchez Ortega. Within weeks of leaving the company, allegedly due to heart problems, Sanchez Ortega joined BlackRock as head of strategic development as well as head of the firm’s Latin American infrastructure group. Apparently his role is wholly unrelated to funds trading Abengoa’s securities; it’s pure happenstance that just over a month after Sanchez Ortega’s appointment, BlackRock placed a not insignificant short position – more than 1% of its working capital – against the Spanish firm.
Since that time the company’s short position has waxed and waned while Abengoa’s share price has collapsed 80%. In other words, BlackRock has made untold millions from Abengoa’s fall. What’s more, as one of the world’s most influential market movers, BlackRock’s big short position helped accelerate the Spanish firm’s decline.
This post was published at Wolf Street on December 21, 2015.
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