In spring 2008, Lehman Brothers didn't have too many friends on Wall Street.
A prime example, of course, was Greenlight Capital hedge fund manager David Einhorn, who got involved back then in a very public war-of-words with Lehman executives about the health of the now defunct investment firm's balance sheet.
But not all hedge fund managers were predicting or betting on Lehman's demise. In fact, one little-known manager went so far as to send an email to Erin Callan, then Lehman's chief financial officer, offering her a measure of support and blasting Einhorn and other well-known short-sellers.
Over close to 30 years in the business (and) I have never witnessed more disruptive behavior than that displayed over the past year by David Einhorn, wrote Adam Starr, the manager of Gulfside Partners. I think you are right to stop responding to every allegation. These people deserve no more attention than honest and quiet investors.
The May 23, 2008 email from Starr, the manager of Connecticut-based Gulfside Partners, was included in the thousands of new exhibits and emails released to the public on Wednesday by the court-appointed examiner in the Lehman bankruptcy.
The note from Starr sheds more light on just how enraged Lehman executives were by several speeches Einhorn gave in April and May 2008, in which he criticized Lehman's valuation practices. The Einhorn speech touched a nerve with other investors and is widely credited as leading to Callan's ouster from the firm a few months before its collapse.
But the email also reveals that while the financial world was crumbling around them, Lehman executives spent a good deal of their time and energy complaining to the U.S. Securities and Exchange Commission about short-sellers trying to drive the price of the firm's stock.
In fact, the same day Callan received the email from Starr, another Lehman employee forwarded the note to two attorneys with the New York office of the SEC. The subject line of the email to the SEC read: LEH chatter and david einhorn.
In forwarding Starr's email to the SEC, former Lehman General Auditor Beth Rudofker wrote: I phoned you earlier to review and pass on some recent rumor activity and information that is concerning to us.
In June, Rudofker sent another email to lawyers at the SEC, pointing out additional rumors about Lehman that she said continue to be destructive. In her long email to the SEC, she said: We have been able to prevent 3 stories containing these specific rumors that were set to run.
Also included in the documents is a back-and-forth email exchange between Einhorn and Callan, in which Callan accused him of being very disingenuous. Callan said she would not have talked to Einhorn if she knew he was going to make a speech criticizing the firm's finances.
I can only feel that you set me up and you will now cherry pick what you like out of the conversation to your thesis, she wrote in an May 19, 2008 email.
Einhorn defended himself in a lengthy response, saying that Callan knew Greenlight was short the stock when she reached out to talk to him.
You had no reason to expect that our discussion was confidential in any way, Einhorn wrote in response. In fact, you knew that I do not want to be restricted in trading the stock and I did not request any information that you would not provide to any other investor who asked.
A few days later, Einhorn gave another speech blasting the email exchange.
A spokesman for Einhorn declined to comment on Wednesday evening.
For his part, Starr now says, obviously I was wrong about Lehman. But he isn't backing down on his criticism of Einhorn.
I still stand by those words, said Starr, who noted that his fund has $50 million under management. I think that manipulating the market and running a high publicity business is just not appropriate behavior and disruptive to free and open markets.
(Reported by Matthew Goldstein and Steve Eder; Editing by Richard Chang)