fi-cri fallout

If John Paulson Had Been Nicer to Paolo Pellegrini, This Whole Goldman Thing Might Have Been Avoided (Updated)

John Paulson Photo: Jean Catuffe/GC Images

Paolo Pellegrini was in a dark place when John Paulson hired him in 2004. He’d been fired — twice — divorced twice, and was generally down on his luck. “I was forty-five and had zero net worth,” Pelligrini told WSJ reporter Greg Zuckerman in his book The Greatest Trade Ever. “And from my perspective, I had no prospects.” But he was ambitious and smart, and when Paulson agreed to take a chance on him, he made it worth his while. It was Pellegrini who convinced Paulson of the existence of a housing bubble, and who was instrumental in helping Paulson make the trade that netted him billions and Pellegrini millions. You’d think, after that, they’d be grateful to one another and thrilled to work together again. But no. In fact, Pellegrini seems to have turned against Paulson. In December 2008, he left the firm to start his own hedge fund, and the two reportedly no longer speak. And today, CNBC reported that Pellegrini may have been the one* to tip off the SEC about the unsavory, if not illegal, deal Paulson made with Goldman Sachs that led to securities charges being filed against them. If true, as Business Insider has noted, this would be a “major middle finger to his old boss,” since it subjects Paulson to at the very least, increased scrutiny. Why would Pellegrini throw the man who plucked him from obscurity and made him a multimillionaire under a bus? The thing is, Pellegrini feels that Paulson has never given him enough credit.

Witness this rather poignant scene from The Greatest Trade Ever.

In January 2008, Paulson and Pellegrini visited Harvard University, their alma mater. Pellegrini was excited about the trip and looked forward to explaining to the students how the firm had anticipated the credit crisis. But when they got there and the class settled into their seats, Paulson approached the dais and addressed the group by himself, while Pellegrini watched from the back of the room. Later, Pellegrini helped his boss answer some questions from students, but it stung Pellegrini that he wasn’t invited to address the class. Paulson’s shadow never seemed so huge. “It was humiliating to me,” Pellegrini recalls.

Hell hath no fury like a hedge-fund manager scorned.

Update: In our comments section, Pellegrini notes, “I wasn’t “the” source for the SEC. The SEC had thousands of pages of documentation produced by Paulson & Co. at the SEC’s request and I spent two days in December 2008 answering the SEC staff’s questions about those documents in the presence of Paulson’s attorneys.” A spokesperson for Pellegrini also notes that Paulson & Co was fully aware Pellegrini was being deposed in this matter, and that he was accompanied to his deposition by lawyers for Paulson & Co.

Paulson’s Right Hand Man Paolo Pellegrini Source Of Goldman Sachs Charges [Business Insider]
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Maybe Paulson Should Have Been Nicer to Pellegrini (Updated)