There are investment companies on track for a huge payout after the Supreme Court of the United States (SCOTUS) on Friday overturned President Donald Trump’s signature tariff policy.
When Trump introduced drastic tariffs on foreign goods in April, hedge funds and specialist investment firms began betting on the possibility that courts would find that he had violated the law. They did this by purchasing the right to theoretical duty drawbacks at cents on the dollar from struggling importers who wanted to trade the possibility of a future drawback for an immediate cash payment.
“We were like [Trump] capriciously applies the law,” says Thomas Braziel, founder of the investment firm 117 Partners, who claims to have purchased duty drawback claims worth $925,000 with his own money. “It was art.”
This trade was brokered by many Wall Street firms. Although only a select few hedge funds engaged in this trade, those that did generally bought tens of millions of dollars in receivables, says Neil Seiden, president of Asset Enhancement Solutions, one of the brokerages. “They didn’t want to deal with anything small,” Seiden says.
After SCOTUS ruled that Trump’s imposition of tariffs under the International Emergency Economic Powers Act (IEEPA) – the law used to justify high Emancipation Day tariffs – is unlawful – traders who bet against him are on track to increase their stakes. Braziel claims it can achieve more than eightfold returns.
However, while SCOTUS ruled that the IEEPA tariffs were illegal, it did not clearly specify whether the government would be required to repay the funds. “It’s a billion-dollar question,” Seiden says. “Everyone is constantly on the move.”
The refund issue will be pushed back to lower courts, says Lawrence Friedman, a partner at the law firm Barnes Richardson. Even then, he said, the administration could decide to challenge any lower court ruling that requires the government to refund customs duties. “The president doesn’t like district courts issuing nationwide injunctions,” Friedman says.
Trump was asked on Friday about the possibility of tariff refunds he said“I think the matter should be taken to court.” The White House did not respond to a subsequent request for comment.
The prevailing uncertainty puts investment companies applying for refunds in a dilemma: should they use part of the winnings by transferring the receivables to another buyer or wait out the legal dispute? “Trump is Trump is Trump, man,” Braziel says. “I’m not sure you want to be on the other side of it, no matter how good the legal arguments are.”
Ultimately, though, “it’s a much better day than yesterday,” Friedman says, referring to the hedge funds that have taken on the industry and the importers who have chosen not to sell their refund claims. “I believe it is very unlikely that refunds will not be issued.”