A man who made billions in the financial crisis, but is now "trapped" in an island nation.

Is a "winner" in the investment world also a "long-term winner" in the real world?

For some people, the answer is yes.

For example, Soros, Robertson, Dalio, Buffett...

But for some people, the answer is bitter.

For example, John Paulson.

During the subprime crisis, he and his company made at least $15 billion (over 100 billion RMB) in profits.

He became the world's most profitable fund manager for a time.

However, his luck turned, his performance collapsed, and he gradually closed his investment business.

But he didn't give up. He got involved in the real world again and did business with a "tycoon" from a Caribbean island, trying to make a comeback.

Finally, Paulson was sued by his business partner, and this time the trouble was even greater...

Accused of fraud

Recently, billionaire Paulson received a lawsuit.

His business partner of ten years, Ghaffar, sued Paulson for fraud, with a claim amount of up to $50 million.

Public opinion was in an uproar for a while.

According to the lawsuit information leaked from the market, the plaintiff Ghaffar claimed that in 2022, he invested $17 million in a car company called F40 under Paulson's control. These investments were originally intended to be converted into a 50% equity stake in the future.

At the same time, according to the "original plan," Ghaffar was supposed to serve as the CEO of this car company and also receive an additional 10% of the company's shares in the future.

According to Ghaffar, on August 18th of this year, Paulson sent him an email revoking all his positions in the aforementioned car company.

As a result, the two sides completely fell out. (Ghaffar on the left, Paulson on the right in the picture below)

Encountering an investment "dilemma"

It is said that after seeing the dismissal email mentioned above, Ghaffar immediately requested Paulson to provide the "Convertible Notes" document, which contains Paulson's "commitment" clause.

The convertible notes mentioned by Ghaffar are a common debt financing tool used by startups. According to the agreed conditions, investors holding convertible notes have the right to convert the notes into shares at the appropriate time.

This creates an investment situation where investors can "attack or defend."

Buffett has also made many similar investments in the past.

According to Ghaffar, he is the "scapegoat" holding the convertible notes, and his convertible notes were "trapped" by the car company controlled by Paulson.

Therefore, Ghaffar formally sued Paulson on multiple grounds, including securities fraud, breach of contract, fraud, damages, and violations of Puerto Rico's Uniform Securities Act.

Paulson, on the other hand, was very firm, directly pointing out that Ghaffar's lawsuit was an "unfounded attempt to divert attention" and intended to distract attention from Ghaffar's misconduct. He also stated his intention to counter-sue Ghaffar.

"Grudges" Began in 2009

Why did Paulson have a grudge with this partner?

It all started in 2009.

That year, as the financial crisis was coming to an end, Paulson gained great fame in the international capital circle. Banco Popular, a bank in the Caribbean island of Puerto Rico, invited Paulson for a business visit to discuss the possibility of becoming a major shareholder in the bank.

During this business trip, Paulson also discovered another opportunity: a financially troubled beach resort on the northeast end of the island. If he could generously invest, not only could he help revive the resort, but he could also make a lot of money.

Isn't this similar to the contrarian strategy of shorting mortgage-backed securities?

Confident Paulson, after several rounds of negotiations, officially invested in the resort and inexplicably invited the other protagonist of this article, Garcia, as his business partner.

Meeting a "Talented Individual"

At that time, Paulson was the world's top fund manager, while Garcia was just a wealthy man from an island. At first glance, it was clear who was more capable.

However, Garcia was far from being an ordinary person.

Garcia was not a native of Puerto Rico; on the contrary, he was born in Karachi, Pakistan, and attended the University of Virginia in the United States, majoring in economics and finance.

His career began at a real estate company, where he participated in various non-traditional asset projects, including exotic hotel projects, the redevelopment of major train hubs, and leveraged loans.

Clearly, he was a person with a wide range of abilities.

Afterwards, Garcia caught the attention of financial giants such as Goldman Sachs, UBS, and Merrill Lynch with a $5.5 billion loan project involving residential apartments in New York City. He then moved to UBS.

During the 2008 financial crisis, he worked in the stabilizing fund of the Swiss National Bank within UBS, managing "problematic transactions" with a total value of $60 billion.

Because of his background, Garcia and Paulson formed a "connection" in their careers.

Both were evenly matched, with Garcia excelling in project operations and Paulson having strong financial resources.

"Partnership" Becomes a Major Taxpayer

In 2013, when the Puerto Rican government was on the verge of bankruptcy and facing natural disasters such as epidemics and hurricanes, the two of them jointly operated a diversified investment group in Puerto Rico called "Paulson Puerto Rico."

This company, which requires rolling the tongue to pronounce its name in Spanish, also embarked on a crazy expansion in Puerto Rico.

After ten years of development, this group has expanded into various sectors in the local area, including real estate, travel, hotels, restaurants, bars, casinos, interior design, golf clubs, shopping malls, car retail, and asset management. And most of these industries were acquired.

In March 2023, the group also announced on its official social media account that it had made significant direct investments of over $300 million in the local economy. The company's total revenue directly and indirectly accounts for about 2% of the country's GDP, while also creating over 3,200 long-term stable jobs with a total annual salary of over $130 million."

Public information also states that the group operated by Gafar and Paulson ranks among the top ten taxpayers in the country, playing a significant role in the local economy.

Due to the "glamorous" operation of this group, Gafar settled in Puerto Rico. He once said, "I married a Puerto Rican girl, our daughter was born here, and I have become a U.S. citizen here. Except for not being fluent in Spanish, I have fully integrated into Puerto Rico!"

"Two Dragons" in a "Nest"

On one hand, Gafar became a local tycoon. The folk legend about how he skillfully used a BMW to "open up" the local business channels spread like wildfire.

On the other hand, the continuous investment from the "big financier" Paulson didn't seem to bring in much money, and he finally turned to look at the business.

Now, these two giant dragons are entangled in the same pool, and their relationship quickly becomes tense.

It is worth noting that for investors in the Americas, Puerto Rico not only has a pleasant environment but also attractive tax incentives. According to Puerto Rico's relevant tax incentive policies, qualified companies can enjoy a corporate tax rate of only 4%. In recent years, this has attracted many new wealthy individuals in the cryptocurrency field.

Paulson's Involvement in "Major Incidents"

As a top investor, Paulson has been involved in several incidents.

In 2010, Goldman Sachs was accused by the U.S. Securities and Exchange Commission of fraudulent practices in the sale of subprime mortgage business, and Paulson's hedge fund played a "subtle role" in it.

This stemmed from 2007 when Goldman Sachs packaged and marketed a synthetic collateralized debt obligation (CDO) that was tied to subprime residential mortgage-backed securities. However, Goldman Sachs did not disclose key information about this complex product to investors. Paulson's hedge fund collaborated with Goldman Sachs in secret and profited from it through short selling, resulting in investors' losses of $1 billion.

Another lawsuit involving Paulson may be more familiar to Chinese investors.

In 2011, Paulson's hedge fund invested in Canadian listed company Canfor Corporation, with a stake of 14% in the company's equity. However, this company was soon exposed as a "Ponzi scheme".

After a short-selling institution released a report on Canfor Corporation's financial fraud, the company's stock price plummeted, causing Paulson's fund to suffer hundreds of millions of dollars in paper losses.

This incident greatly embarrassed Paulson, and he gradually closed down his hedge fund business, transforming his investment institution into a family office, and made large-scale investments in Puerto Rico. These efforts have finally earned him a "lawsuit" worth a whopping $50 million.