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Tuesday, June 18, 2024 | Back issues
Courthouse News Service Courthouse News Service

Bestseller ‘The Big Short’|Called Defamatory

MANHATTAN (CN) - A money manager claims author Michael Lewis defamed him in the bestseller, "The Big Short: Inside the Doomsday Machine," an account of the global financial crisis that has been optioned for a film by Brad Pitt's production company.

In his federal complaint, Wing Chau says Lewis and his publisher, W.W. Norton, portrayed him as creating a "ship of doom" through investments in risky mortgage-backed securities, and as directly responsible for bringing down the world's economy through greed, avarice and sheer incompetence.

Chau claims that the defamatory statements in the book, which spent six weeks at No. 1 on The New York Times' bestsellers list his ability to work in his profession has been severely diminished.

"Others in the financial services industry with whom he does business have told him repeatedly that 'The Big Short' is a substantial liability to him and a reason investors would be unlikely to invest in ventures in which he is associated," the complaint states.

"He has had to explain the book and deny its allegations about him to people in the financial services industry with whom he has done business or tried to do business. He has lost business opportunities as a result of the defendant's false and defamatory statements."

Chau and his company, Harding Advisory, also sued Steven Eisman, a high-profile hedge fund manager Chau calls the principal source of statements that portrayed him in a bad light.

In the 28-page complaint, Chau describes Lewis, who has written more than a dozen books, including "Liar's Poker: Rising Through the Wreckage on Wall Street," as a stock market dilettante who worked briefly in the financial industry 20 years ago and lacks a basic understanding of its complexity.

Among the things Lewis doesn't understand, Chau said, are how mortgage-based securities, or collateralized debt obligations, were created, packaged and managed.

"That ignorance manifested itself in the false and defamatory statements Lewis made about Mr. Chau and Harding," the complaint states.

"Eisman has a well-known reputation for being offensive," the complaint states. "'Even on Wall Street people think he's rude and obnoxious and aggressive,' according to his wife, who met him while he worked on Wall Street."

While Chau makes no bones about trading mortgage-backed securities, he says he did so in good faith and with the aid of "a highly credentialed and experienced team."

Central to Chau's complaint is chapter 6 in the book, an account of a dinner he had with Eisman and other participants in the mortgage-backed securities industry at The Venetian in Las Vegas.

According to the complaint, the book describes the conversation and scene with false and gratuitous swipes at Chau's professional experience and appearance, claiming that he "spent most of his career working sleepy jobs at sleepy insurance companies," and that he "was short with a Wall Street belly - not the bleacher bum's boiler but the discreet, necessary pouch of a squirrel just before winter."

The book proceeds to describe Chau as a guy who "controlled roughly $15 billion, invested in nothing but CDOs backed by the triple-B tranche of a mortgage bond or, as Eisman put it, 'the equivalent of three levels of dog shit lower than the original bonds.'"

The complaint continues: "Lewis calls Mr. Chau 'a man who made it possible for tens of thousands of actual human beings to be handed money they could never afford to repay.' According to Lewis, "All by himself, Chau generated vast demand for the riskiest slices of subprime mortgage bonds, for which there had previously been essentially no demand."

The book then provides a scathing account of Chau and his firm's work, saying, "the CDO manager, in practice, didn't do anything much, which is why all sorts of unlikely people suddenly hoped to become one," according to the complaint.

Chau says the book describes the typical CDO management firm as "'Two guys and a Bloomberg terminal in New Jersey,'" adding, "'The less mentally alert the two guys, and the fewer questions they asked about the triple-B-rated subprime bonds they were absorbing in their CDOs, the more likely they were to be patronized by the big Wall Street firms.'"

Still citing the book, Chau adds: "'The whole point of the CDO was to launder a lot of subprime mortgage market risk that the firms had been unable to place straightforwardly. The last thing wanted was a CDO manager who asked lots of tough questions.'"

Chau seeks compensatory and punitive damages for defamation.

He is represented by Steven Molo with Molo Lamken.

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