High court rejects; Trump will be forced to issue tax refunds! Wall Street had "already bet on it", and the Commerce Secretary's son even took part at one point.
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After the U.S. Supreme Court ruled that Trump's tariff policy was illegal, Wall Street hedge funds that had made early bets will reap massive returns.
According to CCTV News, on the 20th local time, the U.S. Supreme Court ruled that the Trump administration's large-scale tariff measures implemented based on the International Emergency Economic Powers Act (IEEPA) lacked clear legal authorization.
WallstreetCN previously mentioned that as early as last October, hedge funds and professional investment institutions began to bet that the Supreme Court might rule Trump's tariffs illegal. They bought theoretical tariff refund rights at very low prices from distressed importers.
Thomas Braziel, founder of investment firm 117 Partners, said he personally spent $925,000 to buy tariff refund claims, and now expects to get more than eight times the return.
Hedge funds participating in similar deals typically bought tens of millions of dollars’ worth of claims. According to Neil Seiden, president of intermediary agency Asset Enhancement Solutions:
They are unwilling to deal with small transactions.
However, though the Supreme Court ruled that IEEPA tariffs were illegal, the majority opinion written by Chief Justice John Roberts did not address the issue of refunds. Asked about possible refunds on Friday, Trump said, "I think that has to be resolved through litigation."
This uncertainty leaves institutions holding refund claims in a dilemma: whether to lock in partial returns by transferring claims, or wait until legal disputes are resolved? Seiden said:
This is a multi-billion dollar question, and everyone is waiting and watching.
Uncertainty remains on refund prospects
WallstreetCN mentioned that despite the Supreme Court ruling, refunds were not addressed, with analysts speculating that the matter might be left to lower courts to handle.
Lawrence Friedman, partner at law firm Barnes Richardson, said that even so, the U.S. government may still choose to challenge any lower court ruling ordering refunds. Friedman said:
Trump doesn’t like district courts issuing nationwide injunctions.
Friedman believes that for hedge funds involved in the trade and importers who choose not to sell their refund claims, "today is much better than yesterday." He stated:
I think the likelihood of not issuing refunds is extremely small.
Thomas Braziel said:
Trump is Trump, and no matter how solid the legal arguments are, I’m not sure you want to be on the opposite side of him.
It is estimated that by fiscal year 2025, net customs revenue from tariff increases will reach $195 billion. Trump himself has always favored tariff revenues, claiming they made America "very wealthy again" and believes that, if the Treasury is forced to refund these funds, it will be a "disaster" for the country.
Even if refunds are approved, the process will not be simple. It is particularly complex for importers who handled filings and tariff payments using commercial express services such as FedEx and United Parcel. U.S. Customs and Border Protection issues refunds only to registered importers, and documentation may be required for each shipment to claim refunds.
Wall Street’s early bets on niche trades
As early as October 25 last year, media cited sources saying that investment banks such as Jefferies and Oppenheimer were actively brokering these special trades.
They matched importers who paid high tariffs with hedge funds looking for investment opportunities, helping importers sell their future theoretical tariff refund claims at discounted prices.
Reportedly, hedge funds bought claims at 20 to 40 cents per $1 of claim rights. According to a source, most trades range from $2 million to $20 million, rarely exceeding $100 million. A prior Oppenheimer presentation stated:
This solution provides the ability to eliminate uncertainty in outcomes and immediately obtain guaranteed payments without waiting for a final court ruling.
Oppenheimer stated in its material that its special assets team has arranged over $1.6 billion worth of similar trades since 2021, revolving around the U.S.-China tariffs predating Trump's latest round.
Notably, Cantor Fitzgerald, the investment bank headed by the son of U.S. Commerce Secretary Lutnick, also considered arranging such trades earlier this year, but according to August media reports, the company halted the business before any deals were executed.
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