CM Management Is Somewhat CulpableIt would be too far a criticism to say that CM has been fraudulent, but one can argue that they were misleading.
When CM's stock was rocked in August people were concerned about rumours of massive exposure to mortgages and CDOs. This bruhaha caused CM to first issue a statement that it was "significantly below the amount discussed in the press (which was $2.1B)".
They then reported $1.7B of net exposure. Does that qualify as "significantly below". Not in my books. From that vague statement a typical person would assume that it is likely no more than half.
In the same statement they were a bit belligerent in pre-announcing strong earnings. That statemetn caused the stock to rally back above $100. I made money buying the stock at $88 and selling it at $97.
But the most important part of the equation was that I didn't know about the other $9.3B! The so-called hedge portion. If I did I never would have went long the stock (the fact I made money is not the point, what about simple long-term buyers at that time).
CM arrogantly argues that they were hedged and that it is nothing that shareholders should worry about. Well, let shareholders and analysts decide for themselves. Only as the mortgage market further deterioriated and screams from analysts for the copany to disclosed its total exposure that they came clean.
That knowledge drove the stock down ultimately drop $25 off stock price. It was such a bomb that management has little excuse to say that it wasn't an "issue" just a couple of months earlier.
They are culpable because they probably knew the $9.3B was an issue, but chose not to disclose it for fear that people will over-react. It is also part of their arrogance that they see no risk in that portfolio - even to today as they have refused to take any writedowns at all.
Although it isn't a "slam dunk" I certainly believe management misled by not disclosing (as I'm sure the stock would never have rebonded back to $100 if the $9.3B was disclosed earlier) and are being arrogant to hold the fort on writedowns and making "assurances". The most outrageous is their defence on the quality of the $3.5B portion insured by ACA (a company whose stock has been destroyed and now has market cap of $20 million).
Below $70 here we come. And new CEO likely.