One of President Barack Obama’s major fundraisers made his fortune profiting on the demise of a variety of industries and has ties to the prostitute who brought down former New York governor Eliot Spitzer.
James S. Chanos is the founder and managing partner of Kynikos Associates, a hedge fund based in New York that specializes in short-selling stocks. For the 2012 cycle, Chanos has given $5,000 to Obama and $30,800 to the Democratic National Committee. He has also committed to bundling between $200,000 and $500,000 for the Obama campaign.
Chanos has been an active Democratic donor in the last few election cycles. He has contributed $223,800 to political candidates and organizations since 2007, according to a database maintained by the Center for Responsive Politics. Of those contributions, almost $214,000 went to Democratic candidates and committees.
Kynikos manages a $6 billion fund, making it the largest investment fund in the world devoted exclusively to "shorting." In September 2011, the Globe and Mail described Chanos as "the most renowned, or, if you prefer, notorious, short seller on Wall Street."
"Short selling" refers to a complex strategy by which investors target failing stocks and industries in order to profit from their demise.
Chanos’ personal life has also landed him both in court and in the New York tabloids, beginning with his 2006 divorce. His former wife, Amy Chanos, later filed malpractice and negligence complaints against her own divorce attorneys, alleging that one of her lawyers was a social friend of her ex-husband’s attorney’s law partner. She also claimed that her ex-husband’s net worth was considerably greater than she knew, based on her lawyers’ advisements. A New York state judge dismissed Amy Chanos’ complaints in April 2011.
After his divorce, Chanos’ private life became more visible. Chanos claimed in 2008 that he met Ashley Dupré, the prostitute involved in the Eliot Spitzer sex scandal, at a nightclub several years earlier. Chanos frequently invited her to parties, though he denied introducing her to Spitzer. Dupré, who called Chanos "Uncle Jim," worked as Chanos’ house sitter. The billionaire hedge fund manager does not deny the tabloid accusations against him. According to the Globe and Mail: "‘I’m a divorced single man’ is all that Chanos will say about his after-hours activities, albeit with a bit of a smile." Of Dupré, Chanos said, "She is one of many young ladies I have spent time with around town."
Chanos has had a remarkable financial winning streak. According to a 2001 Washington Post report, Chanos made a large bet short-selling Enron stock before its collapse. He also shorted Tyco’s stock as the company’s accounting scandal broke, telling the New York Times in January 2002 that Tyco could profit from minimizing the value of its tangible assets.
Several years later, during the recession in 2008, Chanos made money shorting homebuilder stocks before identifying student loan companies as an opportunity to short. In October 2008, amid reports that Kynikos had placed student loan companies high on its target list, Chanos said the industry, "has much in common with the sub-prime mortgage industry. Things do not look very bright."
Chanos talked about shorting health care companies, then reversed course as federal health care spending under Obama seemed about to rise in late 2009. With the passage of Obamacare, healthcare stocks took off, while private student loan originators were decimated.
Chanos is currently shorting mining and construction companies that ship raw goods to China, and is also betting against the shares of some Chinese banks. He identifies Chinese housing, mining, and banking as the next big short selling opportunity for his fund. In December 2011, he said that China’s housing bubble should warrant that nation greater scrutiny from the rating agencies Moody’s and Standard and Poor’s.
Chanos did make one bad bet, however. He was a major financial supporter of Eliot Spitzer’s political career. In 2003, he attended a Manhattan fundraiser, hosted by tennis legend John McEnroe, which raised $2 million for then-Attorney General Spitzer’s campaign committee. In 2008, Chanos contributed the maximum $10,000 to Spitzer’s 2010 re-election campaign fund.
Chanos was a member of Gov. Andrew Cuomo’s budget transition team in 2010, alongside American Express CEO Kenneth Chenault and New York State AFL-CIO president Dennis Hughes.