The Blacklist Boss: Osman Semerci’s Global CDO Meltdown and Tax Fraud Comeback

In the mid-2000s, a little-known banker named Osman Semerci rocketed from relative obscurity to Global Head of FICC at Merrill Lynch—not through decades of seasoning, but by threatening to walk.

This episode dissects how Semerci’s audacity—and Merrill’s hunger for mortgage profits—fueled an era of breathtaking risk. We follow the arc from boardroom brinkmanship to the multibillion-dollar CDO bets that left the bank teetering as the subprime crisis erupted.

Host Cherise Lloyd peels back the layers of power, posture, and misplaced confidence that turned a career leap into a cautionary tale—and helped push Merrill toward its $50 billion fire-sale to Bank of America.

🔊 Listen for:

• The negotiation that landed Semerci Wall Street’s most coveted seat
• How structured credit profits masked catastrophic exposure
• Why swagger, not spreadsheets, drove one of finance’s biggest miscalculations

Overleveraged, Overconfident brings you the hubris, the hidden memos, and the lessons every ambitious professional should steal—minus the meltdown.

This episode was researched and written by Cherise Lloyd. Some music was created by using UDO. You can find show notes, transcripts, and sources at www.overleveragedoverconfident.com. Follow us on Instagram at Overleveraged Overconfident. Support the show on Patreon and help us keep deep-diving into those spectacular financial fails.. Overleveraged Overconfident is part of Seven Seven Spider, which specializes in deep dive research and financial storytelling. All research uses publicly available sources, so no confidential or regulatory information, just my keen sense of spotting nonsense.

Transcript

Cherise 2: 0:00

Be warned, this episode contains mild profanity and the loss of billions. Just so you know. What I know from a career in finance and as a former certified fraud examiner and a reader of all things financial blowups is this, people don't change, especially when it comes to money. Once you figure it out how to make a buck, you stick with it. You can lose your job, you can lose your license and even lose your freedom, but you'll never lose your appetite for money. Which brings us to Osman, Semerci a man who bridged the Atlantic, and the gap between subprime and tax fraud without ever missing a beat. Whether it's as the global head of fixed income, commodities and currencies at Merrill Lynch, or as the hired hand CEO of a dubious hedge fund. He was looking to be rich as fast as possible and wasn't concerned about the results. He's a man who once strutted the Merrill Lynch trading floor with a clipboard and a blacklist of those that stood in his way. And now sits in a courtroom cooperating with prosecutors over a global scam that stole billions from German taxpayers. He was able to cause the shotgun wedding of Merrill Lynch and Bank of America with sheer incompetence, but with a clear goal. Almost two decades later, he will refer to his firing from that top firm in open court in terms that teenage girls would relate to. for all of those who wanted someone to go to jail for the great financial crisis, it looks like Osman will be, but not for that, and not in the us. Welcome to Over Leveraged Overconfident, the podcast where spectacular risk meets even more spectacular ego. The hedge fund tightens, FinTech darlings and CDO Cowboys who swaggered into risk like they owned the term sheet, only to end up with subpoenas, sell offs, and sob stories. Hi, I'm Cherise Lloyd and I've spent 15 years with a front row seat to financial meltdowns from the Federal Reserve to the optimistic leverage finance field. I've seen smart people do very dumb things with large sums of money.

2:22

Senator Carl Levin exposes how US banks are looting the US Treasury using dividend arbitrage. What I oppose is the misuse of financial transactions. To undermine the tax code, rob the US Treasury and force honest Americans to shoulder the country's tax burden. In a 1000 page report, Senate Levi's findings on dividend tax abuse are published. Now, publicly exposed, the text trick is no longer possible. This comes as a shock to the banks, with the attack on US taxpayers exposed the US market suddenly gets too hot. Specialized teams of tax traders inside the banks are now feverishly looking for alternatives in other countries.

Cherise 2: 2:59

In 2008, one of those people to move to Europe was not really running towards a new market, but rather running away from the US for knee capping one of the biggest investment banks in the United States. Osman was certainly. Interested in avoiding the scrutiny of the US taxpayer and the possible threat of jail time for his role in loading his employer for what was then referred to as toxic assets, which would be one of the triggers for the great financial crisis, all while pulling down millions in bonuses is we're not opening the story, at the beginning, but in the latest chapter of Osman's career, a chapter written in legal transcripts and courtroom cooperation

Anchor 1: 3:43

Called the biggest tax heist ever. Germany's top criminal court has outlawed the controversial trading practice known as com x. The, uh, scheme involved traders claiming rebates on taxes that had never been paid costing taxpayers billions of euros. Germany's Federal Court of Justice has made it clear. Those who get refunds for taxes they never paid are liable to prosecution. Like many of the financial jugglers, two British bankers made a lot of money with these Comex activities. They say they were simply exploiting a tax loophole, which was not necessarily illegal. Now they've lost their case and been sentenced to probation. One of them has been ordered to pay back the 14 million Euros profit He made

Cherise 2: 4:28

in May, 2023, Osman took the stand in Germany. He was in a very high profile trial for tax evasion and then did something rare for a man who built a career on selling. He was telling the truth supposedly. While some images of him in the courtroom are blurred, images seen outside of Germany show an older balding Osman a Londoner of Turkish descent, who by his own storytelling had been a teenage rug merchant who would offer his services as an Istanbul tour guide with oddly all tours ending up in his showroom. His wardrobe has all the customary items to signal the worldly London banker, the big expensive watch, the overly long hair, blue suit white shirt. He made no eye contact, keeping his gaze on the pad, taking notes or scribbling something. Who knows? He certainly isn't looking to the man. To his left, his former best friend, Ari Gebe. It's RI who Osman snitched on to the courts. Now they sit almost shoulder to shoulder. They're the first high profile members of London Finance to be sentenced to jail terms. They, of course, will both appeal in the us. The trick they pulled at the hedge fund duet group was called dividend arbitrage. In Germany, it was called Cum Ex Cum Ex is a complex trading strategy that exploits a loophole in Germany's dividend tax system. Here's how it works, and don't worry, I'll break it down step by step. When a company declares a dividend on its shares, say a dollar per share, it pays it out while withholding taxes say 25 cents, which goes to the German government. Firms outside of Germany who own the stocks can claim a refund of their 25 cents from the German government. This is normal international tax policy to prevent double taxation. Now, here's where it gets tricky. If on the day the dividends were paid, there was some frenzied trading of shares. Then there could be some confusion about who actually owned the stock when the dividend was paid. This may mean that two companies who own the stock on the same day, both received a right for the tax refund and they both request it. The German government pays out 50 cents over 25 cents more than they collected in taxes. To do this with large blocks of shares and borrowed money, you can make a killing at this shell game. The scheme ran for years and ensnared banks, hedge funds and traders across Europe. By the time Germany reformed its tax rules in 2012 to shut it down, the estimated cost to taxpayers was at least 10 billion euros or$11 billion. Today more than 1800 individuals, bankers, lawyers, fund managers, as well as Britain's Barclays, bank of America, Merrill Lynch, Morgan Stanley, BNP, and Nomura are under investigation. Barclays alone has over a hundred bankers named as suspects. What started as supposedly clever tax arbitrage has ended up to be one of the largest financial scandals in Europe's history, financial alchemy, or as the Germans labeled it, fraud punishable by prison sentences in 2008 Osman Join Good friends and former Merrill Lynch colleagues, Ari Gabi, and at a smaller hedge fund called the Duet Group as Chief Executive Officer. He was supposed to create a structured products division. Really, that doesn't seem to be where duets most of their revenues come from. But according to Osmond's testimony, shortly after starting a duet, another former Merrill Lynch banker was looking for a job after leaving us, which was in mid financial crisis, and he had an idea dividend arbitrage, also known as Call Max, which he pitched to Semerci who was intrigued. Whatever he claimed. It would be surprising if Sir Mei had never heard of the scheme before in the 2008 Senate hearings in the US it referenced emails between Merrill Lynch salespeople and traders in Asia and London. Two offices that Osman worked early in his career. An aggressive salesman such as himself would seem to be out for the easy mark keeping his ear to the ground. Osmond and his colleagues at the DUET Group. Weren't the architects of Cum Ex, but they weren't blindly following a trade either. In court, he testified that the firm's partners openly discussed the tax, legal and reputational risk of Cum Ex deals. While regulators weren't taking an interest in the business or even monitoring it, the duet group knew that this could change at any time. But the three men decided to take what they called a business risk and why not the prophets were, in his words, dazzling, especially due to the high leverage used. He later admitted that when the prophets in 2009 blew past all projections, it should have been a red flag, but instead he quote, turned a blind eye. I am sure money blowing in your face can make it hard to see He also told the court a very odd story of his road to becoming the duet, CEO. Apparently after being fired from Merrill Lynch in 2008, a move he described as a complete shock to the court. He said he had received other offers but chose something smaller. I was emotionally fragile back then, so I decided it was better for me to work with Ari and Alan. Turning on Ari. a Swedish Turkish financier. Both A lawn and Osman Cooperated with German prosecutors. He claimed he was Innocent since he had relied on legal opinions and that his life was now in a shambles. Osmond had been one of his best friends, and as he told the press outside the courtroom, it was disappointing to see that. Com X's case seemed to bring out the worst in people. He also added, he was hurt. Since he had helped Osman during a personal and professional crisis after he was fired from the top position at Merrill Lynch. So how did Osmond SIMer once the global head of fixed income at Merrill Lynch, a man who strutted the floors with a clipboard and a blacklist tracking his disagreements end up in a witness stand in Germany. Well, let's start with his rise. Let's rewind.

11:48

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Cherise 2: 12:17

Merrill Lynch started as a brokerage firm in 1914. By the 1960s, it had become a retail powerhouse, catering to the mom and pop investor branded as the thundering herd. It was Wall Street with a main street smile buffalo icon, and all. By the late 1990s, Merrill wanted more than the main street. Under new leadership, the firm acquired a major UK fund manager and expanded its asset management footprint abroad. Charging into the fickle.com era, Merrill had a reputation for chasing high returns and pretending it could do so without losses. It is in this global push that 24-year-old Osmond begins his climb starting in Merrill's Geneva office. A British citizen, Turkish born, multilingual, sharp, relentless. Siri did not come from the Ivy League mold, but he made up for it with hustle, with a bachelor's degree in electrical engineering. He started as a financial consultant and then moved to fixed income sales in London, pedaling bonds and other instruments that paid out on schedule. He was good too. Too good to keep in one place. So Meryll shifted him through top roles in Asia and Europe. He wore suits that made CFOs feel underdressed and had a polish that played well with the C-suite. And at the top of that C-suite was Stan O'Neill. Merrill's, CEO, from 2002 to 2007. He was unlike any of the previous leaders. He wasn't a white Irishman or a well-known broker. He was a black, uncompromising bean counter who became one of the highest paid executives on Wall Street. O'Neill had joined Merrill from General Motors where he had been an assistant treasurer and where his father had also worked on the plant floor. GM had paid for his college and his Harvard business degree. He was smart, but isolated, intolerant of descent and allergic to bad news. O'Neill a cost cutter with a loner streak was infamous for cutting 24,000 jobs golfing alone and refusing to share elevators with employees. He reshaped the once nurturing, easygoing mother Merrill into a tougher performance driven firm that leaned heavily on high risk strategies and less on traditional stock sales. O'Neill's greater appetite for risk had been coupled with a sharp intolerance for failure. He led periodic and often harsh overhauls of top leadership. He showed no hesitation in asserting control just six months into his tenure as CEO. In July of 2003, he pushed out two senior executives, including his own deputy Thomas Patrick, who had played a key role in his rise. O'Neill removed all members of the Merrill's executive management committee Seen as the Eyes and the ears of a CEO with the boots on the ground. Instead, he used an informal group of executives who had no influence inside the firm. O'Neill Saw himself as the man to transform Merrill into a risk taking powerhouse like Goldman Sachs. But unlike Goldman's culture of debate and intellectual combat, O'Neill silenced disagreement, he insisted executives speak only to him, not to each other. He insisted that executives speak only to him, not to each other, declaring any disagreement, too painful to be sustained, and once left an executive to finish breakfast alone. Rather than continued the conversation, risk managers, department heads, and even board members, everyone learned to keep quiet or get sidelined. He was considered ruthless, cold, and aloof, but also an uninspiring cost counter who had a ragtag team of zealots follow his every command. He did nothing to dispel the opinion of others outside the firm as a stiff who needs a drink. However investors saw his eye on the bottom line and pull back from the grandiose streams of his predecessors of global dominance was the only way to save Merrill Lynch. Under his leadership profit margins rose from 17% in 2001 to 28 in 2004, and the stock price doubled. Those who didn't fall in line were swiftly fired, clearing the way for younger and more aggressive team, many of whom believed they had been stifled by the previous bloated layer of executives above them. This mix of inexperience and unchecked aggression combined with O'Neill's hands-off leadership style, where division heads were left entirely responsible for hitting their targets would prove to be a fatal flaw. By 2004, O'Neill had started obsessively tracking the performance of Meryl's competitors. He wasn't just benchmarking, he was fixated. One bank in particular kept catching his eye. Lehman Brothers, in 2006, O'Neill made a bold move. He ousted four senior leaders from Merrill's fixed income division and replaced them with relatively inexperienced rising stars. At the time. Meryl's trading operations were led by Dow Kim, and fixed income was delivering huge results largely. Thanks to Omans Mercy. O'Neill wanted to juice that momentum. He saw an opportunity to outpace Lehman and cement Meryl's dominance. But Kim had a different vision. He wanted someone balanced. An executive with real mortgage experience and strong risk instincts, management disagreed. They wanted someone aggressive, someone who could chase revenue with a high risk tolerance, and that's exactly who they put in charge. When Osman heard of a new role was being created and that he wasn't the top choice, he pulled the classic Wall Street move, give me the job, or I walk with my whole team and boom. At 39, he was now the global head of fixed income currencies and commodities, FICC for short, running it all from New York. A derivative salesman, not a trader, was now in charge of the firm's most powerful division. Osman Moved quickly, but one of the most damaging decisions had already been made. Jeff Tal, one of Meryl's top bond traders and a man who understood the US mortgage market had been fired Osman's request. His team went with him. As the new head Osmond. It turns out had little understanding of US based risk, the very center of the brewing financial crisis. To be clear, Merrill Lynch and Stan O'Neill weren't the only ones who refused to let a little thing like career ending losses get in the way of making serious money. By 2007, wall Street was raking in over$53 billion in take home pay. The financial industry was so high on its own supply, confident in this shiny new juggernaut of American financial engineering, that they decided to export it and they did. Fueled by a flood of Asian savings, rock bottom, US interest rates, and the rise of complex financial modeling. The narrative was simple. Risk had been tamed, maybe even eliminated. Just slice, dice and repackage a heap of loans. Slap on a contract so someone else absorbs the losses if things go south. And, voila, no downside in sight. And if you did see a downside while you were laughed out of the room.

20:58

What do you think gold is saying? Well, you know, first of all, you just described the US market as being bulletproof, and I think gold is telling us that it's about to get shot full of holes here. The housing market is just beginning to unravel. We're seeing the tip of the iceberg here, uh, in, in the mortgage sector, but probably how do you put together all this gloom and doom? What data tells you this, Peter? Well, are, aren't you looking at the, the news reports coming out of the mortgage market aren't, I'm in the middle of it. Yeah, yeah. Aren't you looking at the glu of houses on the market for sale with no buyers and the, and the collapse in the subprime market? Well, I, I wouldn't call it a collapse in the subprime market. There's been some difficulty in the subprime market. Well, it's just starting. I'm also looking at, at housing prices, which I have had an orderly decline. I'll tell you something that makes a lot of sense to me. You, you talk about the collapse of the NASDAQ and that incredible bear market that we had. Those are usually once in a lifetime events, and you're suggesting that in very short order, less than 10 years later, we're gonna have another one. Well, in a different asset class. Sure. In real estate, You're starting to see it in the housing market. You had a lot of people over the past four or five years borrow a lot of money that they can't afford to repay. They were able to keep it together for a while on these artificial teaser rates. But as these rates are starting to reset, you're starting to see what's happening in the housing market. It's gonna throw through to the, the entire economy and consumer credit's gonna dry up, and we're gonna be in a recession and it's gonna be a devastating recession. It's not just gonna be a few quarters of negative growth. It's gonna last for years. Steven jump in here. What do you say he's saying it's a disaster. Well, you know, I really don't see, uh, this economy that he's talking about, why hasn't it happened? Why hasn't the collapse happened? Why hasn't the skeleton, the subprime skeleton come fully out of the closet and scared the living daylights outta everybody? Well, remember it, it takes a while. It takes a while for this stuff to filter through. Look at how long, uh, these hedge funds were able to pretend that these subprime debt secur that they hold. Uh, actually have value or close to par when they're really practically worthless, if not completely. And now that they're not, and now that they're not pretending anymore, nothing's happened, it's the world hasn't ended. So one of these days we're just gonna have to stop predicting that this same old thing is gonna cause the end the world. of those who aren't familiar with you, this has been your prediction for how many decades now? Well, not, not decades, but it's certainly been my, my prediction for the last seven or eight years and I've been dead on, right. You, you have sure. Look what's happened since 2000.

Cherise 2: 22:53

One of the very few people who understood the math behind the models, John Breit, a physicist turned risk manager, had built a quiet network of traders to keep tabs of what was happening on the floor. But when Osmond took over the fixed income division, that flow of information dried up completely, and Breitt was physically removed from the trading floor. Osmond ran the desk like a fiefdom clipboard in hand, stocking the trading floor like a risk hungry hall monitor. Traders called it the blacklist, a never ending, ever growing inventory of people and things. He couldn't stand risk managers. They called him a nightmare. Any story about the department's performance came straight from Osman. There was no second opinion. He once told a friend he had six months to make it work. Maybe he saw the writing on the wall that the market for what he was selling was drawing up, or maybe he knew O'Neill was impatient and only cared about the fast revenue gains. So if there were no real buyers and accounting rules, didn't care about actual cash changing hands, the answer was simple. Crank up the CDO warehouse machine. Let's pause here for a quick detour on how this business actually made money, specifically through CDOs. Collateralized debt obligations. Think of a CDO as a financial lasagna, layers of mortgage backed securities bundled, and then sliced into tranches with different levels of payouts At the center of Merrill's fixed income revenue engine was this. You accumulate 500 million to 1 billion worth of mortgage backed securities, often loaded with subprime loans. And then repackage them into a new product. The CDO slice it up and sell the pieces. The safest pieces AAA rated went to conservative investors like pension funds, the risky pieces. Offered the highest returns, but only if the homeowners kept paying their mortgages. And that's the critical link. If borrowers defaulted the cash flow into the CDO dried up and the riskiest took the hit first. Demand for these tranches were weak, Merrill sometimes held them on their own books, essentially betting that those borrowers would stay current. The irony, many of those loans were already rotting before the ink was dry. Merrill earned lucrative fees from creating the CDOs, structuring them, and selling off the tranches. Thanks to accounting rules, it could book profits upfront even if the securities hadn't sold or never would. Paper gains and real bonuses. Everything to keep feeding the CDO machine. Merrill bought first Franklin a mortgage originator with a reputation for flexible purchase friendly mortgage solutions industry speak for lending to people with shaky credit and few questions asked. Brokers turned out loans with minimal oversight and borrowers defaulted before they made their first payment. One product. Costella. It was built from mortgages to people who either couldn't or wouldn't pay. Merrill booked 5 million in revenue. John Cortal a managing director reportedly said the issuance was crap. And obviously not long after that he was gone. Here's where warehouse facilities come in. Osman's department began Accumulating mortgage securities and having Merrill hold them until enough were collected around 500 million to securitize into a CDO.

26:49

Oman was a man running out of time. By the time Merrill jumped in with both feet, the mortgage market was scraping the bottom of the barrel. Most credit worthy Americans already owned a home, usually more than one, so lenders got creative. Suddenly mortgages were being handed out with no down payments. No income checks or even basic documentation. Osman started buying these securities when only the worst of the worst were left, and as he accumulated them, a troubling percentage of the underlying loans were already in default Before they were even bundled into CDOs, his team were racing to get the deals rated and sold before the whole thing collapsed. It was a game of financial hot potato, and Merrill was left holding the bag. One way to cool off the hot potato was to ensure it for a while, Merrill relied on a IG to provide protection, essentially betting that if the loans defaulted, someone else would eat the loss. By 2006, A IG had seen the writing on the wall they pulled out of the subprime game. Refusing to ensure anything tied to high risk assets without a IG. No serious player with a, without a IG. There was no serious players left willing to backstop Merrill's exposure, but Osmond kept going. Any, any insurance he had secured on the portfolio was soon canceled. It was eating too far into the apartment. It was eating too far into the department's bottom line, and so in 2006 alone, Merrill issued a staggering$44 billion in CDOs and pulled in 700 million in fees, and it did it all without a parachute, they weren't managing risk, they were ignoring it.

Cherise 2: 29:06

Bonuses, which are paid on posted revenue and not actual sales. Followed O'Neill took home 46 million. Dow Kim, 37 million, Osman himself took home 20 million life-changing money in the words of O'Neill. As a result of the extraordinary growth at Merrill. During my tenure as CEO, the board saw fit to increase my compensation each year. Unable to sell the CDOs in the open market. Osman Just allowed them to sit in the warehouses and age in 2007, as the housing market began to crack, subprime lenders began to report large losses. o'Neill brought Osman to present to the board's fixed income annual results for 2006. Merrill had just posted 7.5 billion in profits up from 5 billion the year before, and O'Neill was feeling bulletproof. He had even floated Osman as a possible successor. The presentation was a hit. Profits looked great and when questioned, Oman reported subprime exposure had shrunk from 17.7 billion to 3.5 billion, and he knew when to put on the charm. His presentation was stellar, but there was no mention not one line of the CDOs and how much his department had put into them, but only two months later in July, 2007 after two Bear Stearns hedge funds collapsed under the weight of mortgage losses. Meryl's board reconvened in a different mood. Osman And his deputy were asked to walk through the portfolio again. This time, Osmond did not only mention the CDOs. He had a level of pride in them. They presented that Merrill was the leader of all banks and CDO production in the first half of the year. 34.2 billion. O'Neill was elated to him. It seemed like they had outsmarted the market. Lawrence Tassi, Merrill's operating officer for markets and investment banking, nearly gagged, Osman and his number two went on to claim that the CDO portfolio was hedged. The presentation claim that if the worst happened, which to the men in the room was the events of the summer of 1998 with the Russian debt default and the failure of a hedge fund called Long-Term Capital, the Osman's imaginary credit default swaps would limit the losses to 77 million for the board in O'Neill. This is exactly what they wanted to hear. Tassi called bullshit. After the meeting, he and Osman reportedly got into a screaming match, even one of the firm's top lawyers was shocked and asked why no one seemed to be soiling themselves over. The risk exposure then came the moment the music started to really fade in August, 2007. BNP Paribus one of Europe's largest banks announced it would no longer value several of its mortgage backed investment funds. Rather than mark them down, the bank essentially threw up its hands and said, we don't know what these are worth anymore. That move sent shockwaves through the global credit markets, triggering a liquidity freeze in structured finance. Buyers vanished and suddenly no one wanted to touch the CDOs or mortgage linked assets, not even at fire sale prices. Merrill wasn't just holding toxic paper. It was stuck with it. Tossi went into detective mode quietly building a team to dig into Meryl's books, and what they found was chilling while the rest of the market pulled back. Osmond had doubled down opening 21 warehouse facilities full of CDOs with no end buyer. He had ballooned Merrill's exposure to 35 billion. Most of it junk. Merrill couldn't sell it, so it bought the product itself just to keep the machine going. any default insurance Osmond's group had gotten to offset the firm's losses had been canceled to save the expense and increase the profit. John Breit the risk manager, met with O'Neill to give him a message. Not only did they have a huge exposure, there was no protection to the downside they could and probably would take a huge loss. He unknowingly low-balled it in the single digit billions. Two weeks after telling the board of the losses were capped at 77 million. Merrill's management would inform them. The real number had to be restated to more than 5 billion. It was as though the Earth had opened and threatened to swallow the bank. Whole O'Neill gave orders for the positions to be sold and then promptly went on vacation as you do o'Neill would later say that the magnitude of the problem would crystallize to him during a lonely one man golf game. He returned to New York to find the whole mess still on Meryl's balance sheet. There was no market. If this wasn't enough to spark outrage, what happened next? Did Stan tried to sell Merrill Lynch without board approval? That was unacceptable. Since the potential buyer was Wachovia and no one on the board wanted to move to Charlotte, one board member said, I wouldn't hire Stan to wash windows. What he did to Merrill Lynch was absolutely criminal.

Anchor 1: 35:09

Well, I think, um, he lost a little bit. Uh, Mr lost a little bit of credibility with the board when the, um, you know, from what we've heard, uh, various reports that he reported, uh, met with the board and, and expected a, a certain loss. And then when the results come out, uh, later and there's a wider loss, um, you know, that was kind of played into a little bit of a loss of credibility.

Cherise 2: 35:31

That was an analyst from Standard and Poor, the rating agency. An analyst who needs some media training. By 2007, the losses began to flood the firm. Osman Was fired and escorted outta the building. He reportedly asked a friend to grab 10,000 in cash in an envelope taped under his desk a claim. He would later deny he checked out of the four seasons and flew back to London. Stan O'Neill was fired or resigned or whatever. Really three questions only. Do that over time and patterns emerge as those patterns emerge. Really three questions only. X Goldman Sachs banker John Thain took over as CEO, eventually selling the CDO portfolio. Once valued at 31 billion to a private equity firm, which had at the time valued at 11 billion, but sold for 6.7 billion or 22 cents on the dollar from an origination. The kicker is Merrill had to supply 75% of its financing to make the deal happen. Merrill had lost over$24 billion on the whole scheme, even with several capital raises. The bank could not get ahead of the losses. And when it was floated, during conversations with several bankers at a Federal Reserve Bank of New York's meeting to discuss the issues with Lehman, it was made clear there was little room for Merrill to go forward with the walls closing in. Thain sold Merrill Lynch to Bank of America, which when announced was lost in the noise of another investment bank failing. Bank of America, after agreeing to the merger reconsidered during the due diligence process, they came to find O'Neill and his team had destroyed the balance sheet, and Ken Lewis, the head of Bank of America, had to be bullied into closing the deal. Stan O'Neill would write to a former board member after the merger was announced. My former friend, you should have helped me sell this business when we had a chance. The board member had no recollection of talking privately to O'Neill about selling Merrill. Stan O'Neill is now on almost every top list of 25 people who caused the financial crisis. Osman For his part had better luck, at least for a while. So what do you do after getting fired for blowing a hole in Merrill Lynch's balance sheet, you call an old friend in Geneva, and he had landed softly at Duet Group. A boutique asset manager started by Enri, someone he had known from his early Merrill days. It was supposed to be a quieter gig, less visibility, more control, except duet. Wasn't exactly out of the headlines for long, and that's where Cum Ex creeped in. It started with another ex marial trader pitching the scheme. And before long duet was deep into dividend arbitrage, high leverage, high profit territory, exactly the kind of business Osmond was used to with the reward of bonus checks. He wasn't the Mastermind, but he was in the room. And when the strategy turned suspicious, when the profits suddenly got too good to be true, he didn't ask questions. Now he's testifying, turning over documents, cooperating. And maybe just maybe rewriting the final chapter of a very explosive, cautionary tale from Blacklist Boss to courtroom cooperator. Osman's story Is a case. of Overconfidence weaponized by access. He was convicted and sentenced to three and a half years for aggravated tax evasion. A man whose rise was engineered by risk and whose fall was sealed by ignoring it. And in case you're wondering, yes, there are more of him out there. There always is. And that is a wrap on this episode of Over Leveraged Overconfident. Where the egos are inflated, the trades are risky, and the fallout is always more dramatic than the earnings call. Thank you for listening. If you enjoyed this podcast, please subscribe. Leave us a rating on Apple Podcasts, Spotify, Google, Amazon Music, or wherever you get your podcast. This episode was research and written by me, Cherise Lloyd. The crash of the Titans, greed, hubris, the fall of Merrill Lynch and the near collapse of Bank of America by Greg Farrell was very helpful. And hats off to Peter Sciff for being a canary in a coal mine. some Music was created by using UDO you can find the show notes, transcripts and sources on over leveraged overconfident.com. Follow us on Instagram at over leveraged overconfident. Support the show on Patreon and help us keep deep diving to spectacular financial falls. Speaking of which, if you have a favorite corporate disaster you wanna hear about, reach out to us at Connect at seven seven Spider dot com over leveraged overconfident is part of seven Spider, specializing in deep dive research and financial storytelling. All research used publicly available sources. No confidential or regulatory information. Just my keen sense of spotting nonsense. Until next time, we'll continue tracking the inevitable journey from hoopers to bankruptcy.