A staggering $100 million was earned by hedge fund Claren Road Asset Management Public from the NJ tobacco bond bailout, according to public interest watchdog Pro Publica.  According to Pro Publica, the hedge fund investors involved have made more money than the state’s taxpayer on the 1990 tobacco settlement.

The 1998 tobacco settlement money from the tobacco industry was intended to reimburse state governments for the past and future costs of smoking.  But many states including New Jersey sold the bonds at a deep discount to get immediate cash.  Claren and other investors bought the bonds in 2011, and then sold them back to the state, with the state paying a premium over market pricing and pledging to pay bondholders almost $400 million in tobacco revenues.

With the improved bond value due to the State’s pledge, Claren and other investors bought the bonds back at a higher price, and flipped the improved bond on the open market for an additional profit. In addition to Claren’s profiting, Barclays Capital made $4.5 million in fees for recommending the refinancing.

Learn more about the New Jersey tobacco bond bailout in the December 30, 2104 Pro Publica story.