Investment firms are on track for an enormous payday after the Supreme Court of the United States (SCOTUS) struck down President Donald Trump’s signature tariff policy on Friday.
When Trump introduced sweeping tariffs on foreign goods last April, hedge funds and specialist investment firms began to bet on the possibility that the courts might rule that he had violated the law. They did that by purchasing the right to theoretical tariff refunds at cents on the dollar from struggling importers who wanted to swap the possibility of a future refund for an immediate cash payment.
“We were like, [Trump] is capriciously applying the law,” says Thomas Braziel, founder of investment firm 117 Partners, who says he purchased $925,000 worth of tariff refund claims with his own money. “That was the play.”
This trade was brokered by a variety of Wall Street firms. Though only a select few hedge funds engaged in the trade, those that did generally bought tens of millions of dollars worth of claims, says Neil Seiden, president at Asset Enhancement Solutions, one of the brokerages. “They didn’t want to deal with anything small,” says Seiden.
After SCOTUS ruled that it was illegal for Trump to impose tariffs under the International Emergency Economic Powers Act (IEEPA)—the law used to justify the extensive Liberation Day tariffs—traders who bet against him are on track to multiply their stake. Braziel says he stands to make a more than eight-fold return.
However, though SCOTUS ruled that the IEEPA tariffs were illegal, it did not explicitly address whether the government will be required to issue refunds. “That’s the billion-dollar question,” says Seiden. “Everybody is in a state of flux.”
The question of refunds will be kicked back to the lower courts, says Lawrence Friedman, partner at law firm Barnes Richardson. Even then, he says, the administration may choose to challenge any lower court ruling that requires the government to refund tariff payments. “The President does not like district courts making nationwide injunctions,” claims Friedman.
Asked about the possibility of tariff refunds on Friday, Trump said, “I guess it has to get litigated.” The White House did not respond to a further request for comment.
The prevailing uncertainty leaves the investment firms holding refund claims with a dilemma: Should they bank some winnings by flipping the claims to another buyer, or wait out the legal wrangling? “Trump is Trump is Trump, man,” says Braziel. “I’m not sure if you want to be on the other side of him, no matter how good the legal arguments are.”
Ultimately, though, “it’s a much better day than it was yesterday,” says Friedman, for any hedge funds who took up the trade and importers who chose not to sell their refund claims. “I think it’s extremely unlikely that refunds won’t get granted.”
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