The tale of hand-bag mogul, turned Azerbaijan oil-speculator, turned felon, Frederic Bourke came to an end in mid-December when the Second Circuit Court of Appeals sustained his conviction on conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”) and other charges.  The next day the trial court denied Bourke’s motion for a new trial and ordered that he surrender himself to Federal Marshals on January 3, 2012 to begin serving a year and a day sentence in the federal penitentiary.

Bourke’s legal problem arose from a far-reaching private investment scheme designed to purchase and privatize the national oil company of Azerbaijan — SOCAR.  Though the focus of much of this case has been on Bourke and the leader of the investment scheme Viktor Kozeny — the so-called “Pirate of Prague” (who has, to date, fended off attempts extradite him from the Bahamas to the United States to face charges) –the case also touched the hedge fund world.  Clayton Lewis, a former partner at the Omega Advisors, Inc. hedge fund, pled guilty to FCPA charges arising from Omega’s investment in the scheme, but has yet to be sentenced as the Government still hopes to use him as a testifying witness against Kozeny if and when he is extradited.  Omega, for its part, avoided criminal prosecution, but did agree to a civil forfeiture of $500,000.

In upholding his conviction, the Court of Appeals found the trial court correctly informed the jury it could find Bourke guilty of conspiring to violate the FCPA if it believed he “consciously avoided” gaining knowledge of the corrupt scheme.  In rendering its decision, the Court emphasized that Bourke knew he was doing business in a country with a reputation for corruption (Azerbaijan) and that Kozeny — who was leading the investment syndicate — had a reputation for corrupt dealings (Kozeny).  This decision only reiterates the importance of conducting anti-corruption due diligence of potential business partners, especially on deals involving countries with a reputation for corruption.

While the scope and details of such due diligence efforts may necessarily vary from deal to deal, the basics can oftentimes be integrated into existing due diligence modules.  In general, due diligence efforts directed at potential partners should be focused on discerning the reputation of the investor and determining whether the potential-partner has any business or family ties with foreign government officials that could present FCPA risks.  This may include asking the potential partner to answer detailed questionnaires, vigorously checking business and credit references, checking the partner against U.S. government and international “blacklists”, and personal interviews between the hedge fund manager and key personnel of the potential partner.

The bottom line take-away from the travails of Frederic Bourke, Clayton Lewis, Omega Advisors and their dealings with the Pirate of Prague, is that the U.S. government expects sophisticated investors to know their partners and recognize the risks of investing in markets with a reputation for corruption.  The U.S. government and the courts have made clear that investors who fail to undertake robust due diligence or who knowingly chose to partner with unsavory advisors risk prosecution under the FCPA.

Miller & Chevalier is recognized as having one of the pre-eminent FCPA and international anti-corruption practices in the United States. For more than 20 years, our team has advised U.S. and non-U.S. businesses in every aspect of anti-corruption and FCPA issues. Since 2006, Miller & Chevalier lawyers have made more than 100 visits to over 35 different countries on five continents, including China, Russia, and several countries each in Africa, Latin America, the Middle East, and South East Asia, in connection with FCPA investigations and compliance assessments.

Tracking changes to statements of historical performance recorded at different points in time between 2007 and 2011, we …nd that historical returns are routinely revised. These revisions are not merely random or corrections of earlier mistakes; they are partly forecastable by fund characteristics. Funds that revise their performance histories signi…cantly and predictably underperform those that have never revised, suggesting that unreliable disclosures constitute a valuable source of information for current and potential investors.

Based on the research they find a tidbit that both investors and managers could find very useful in both determining which Hedge Funds to invest in as well as their own reporting practices:

We find that on average, revising funds significantly underperform non-revising funds, and there is a far greater risk of experiencing a large negative return when investing in a revising fund.

Which brings them to this conclusion:

Our analysis suggests that mandatory, audited disclosures by hedge funds, such as those proposed by the SEC earlier this year, could be bene…cial to investors and not just regulators.

There is a lot more information in the paper and it’s certainly worth a read.

• 5 pm November 4th. Seeking Alpha explans why they would Invest In Groupon Over LinkedIn.
• 4 pm November 4th. GRPN Closes at 26.11 up 30% from it’s opening price.
• 3:16 pm November 4th. Fox Business does a round-up on the Groupon IPO in which it makes the supposition that “The level of demand Groupon’s IPO garners may serve as a good indicator for Wall Street’s current level of interest in new-age Internet companies.” Read full article.
• 2:33 pm November 4th. CNBC Discusses the Groupon IPO in this video
  
  

  Visit msnbc.com for breaking news, world news, and news about the economy

• 2:03 pm November 4th.Investor, CEO and Editor-In-Chief of Business Insider Henry Blodget pens an article called Enjoy The Ride, Groupon Investors, I’m Outta Here!!. Very pessimistic of the entire Groupon Business Model Henry Blodget says “There is NO WAY I would own Groupon’s stock for the next few quarters at this price, given the business transition Groupon is currently undergoing.”
• 1:40 pm November 4th. Hedge Fund Manager and CNBC Regular Doug Kass announces in a tweet that he is “short Groupon today”
• 12:57 pm November 4th. Blogger Paul Kedrosky criticizes Goldman Sachs in a tweet to his followers “Goldman already profitability facilitating other side of GRPN: Lending at high negative rate to short-sellers. Such pirates.” he later clarifies in a tweet and says that he was “amused, not angered”
• 12:01 pm November 4th. Groupon Stock Looks About 65% Too Expensive
• 11:37 am November 4th. Tom Taulli reminds us that there are Tech CEOs Who Actually Like Groupon The group includes Payam Zamani, founder and CEO of Reply!, Dave Scott, CEO and founder of Marketfish, and Scott Sellers, CEO & co-founder of Azul Systems
• 11:26 am November 4th. Huffington Post Groupon IPO: Shares Soar In Public Market Debut The question remains as to how long they will hold these levels.
• 11:23 am November 4th. Groupon CEO: IPO is a “small milestone”
• 11:07 am November 4th. The Daily Beast Groupon’s No Bargain The Internet coupon guys are going public but would-be investors should stay away, because behind the scenes the company is a mess and the stock is risky, says Dan Lyons
• 10:54 am November 4th. GRPN opens at a market cap of about $18 billion. Chart via ZeroHedge
  
  
• 10:48 am November 4th. GRPN Surges 50% on open
• 10:41 am November 4th. NASDAQ annouces that GRPM will begin trading at 10:45
• 10:29 am November 4th. 247 Wall Street weighs in on The Groupon IPO Price Conundrum
• 10:20 am November 4th. Another picture of the Groupon Team at NASDAQ (via @monsieurBowden)
• 10:10 am November 4th. Mutual Fund Blogger at FundMyMutualFund tweets “$GRPN in the end is paid by the business, hence their opinion matters most. Without new repeat customers this model eventually flails.”
• 10:00 am November 4th. Wall Street Journal Blogger Shira Ovide reminds of companies who are now “worth less” than Groupon. These companies include Blackberry-maker Research in Motion, Xerox Corp. or The Gap
• 10:00 am November 4th. Rakesh Agrawal reminds his followers on twitter “Caveat emptor: Remember, Groupon stock not covered by the Groupon Promise. If Groupon stock lets you down, you’re SOL.”
• 9:55 am November 4th.Groupon prepares to IPO at highest valuation since Google
• 9:36 am November 4th. [Pic] Congratulations GRPN! What a big day!
  
• 9:34 am November 4th. [Pic] The Groupon Team gets ready to ring the bell at NASDAQ
  
• 9:01 am November 4th. Business Insider writer Jay Yarow predicts that Groupon Is Already Set To Open With A Monster Spike
• 5:51 am November 4th. ZDNet Blogger Larry Dignan give us the “Numbers to Know” editorial at the top of the piece summarizes the situation as “Groupon’s IPO will be closely watched because it’s largely a total crapshoot“
• 12:34 am November 4th. Bloomberg Reports Groupon Taps Top Silicon Valley Bankers to Defy IPO Skeptics
• 8:35pm November 3rd. MarketWatch gives a grim view of the Groupon IPO: “Moatless, rudderless Groupon now worth $12.7 bln”
• October 31st Kara Swisher of All Things D weighs in on why Groupon added 5M more shares to their IPO Exclusive: Groupon Prices at $20 a Share; More Than 10x Oversubscribed, So It Adds 5M More Shares to illustrate this point, she adds a picture of a cat

  

• October 31st. INSIDE GROUPON: The Truth About The World’s Most Controversial Company“
• October 30th. The Reformed Broker gives us a skeptical look at the Groupon IPO with his “Groupoem“

The most basic of all calculations a hedge fund will want to report to their investors is their Average returns.

Despite the simple nature of this calculation, the difference between the Arithmetic and Geometric averages as well as the difference between the terminology used to refer to these terms, for example Compounded Annual Rate of Return vs. Compound Annual Growth Rate, have lead to confusion as to what number is being displayed.

Read the full article at: Calculating Average Returns – Arithmetic vs. Geometric Average

Trademarks are invaluable assets. They are the primary means through which most companies identify themselves to the public, and the primary means through which the public identifies and distinguishes one company from another. Yet many hedge fund managers do not register their trademarks with either the United States Patent and Trademark Office or the trademark offices of other countries in which they conduct business. By failing to register their trademark rights, hedge fund managers are potentially losing out on some important benefits they would otherwise enjoy and in some cases may even be risking the loss of their trademark rights. Since trademark applications can be filed both before and after a hedge fund has launched, even managers of active funds who have not yet registered their trademarks should give serious consideration to filing a trademark application. Below we briefly discuss what a hedge fund trademark is and the factors fund managers should consider in deciding whether or not to register their hedge fund trademarks.

What is a trademark and why are trademarks important to hedge fund managers?

A trademark is generally a word, phrase, symbol or design, or a combination of words, phrases, symbols or designs, that identifies the source of a product or service and distinguishes the source of that product or service from the source of other products or services. In the case of hedge funds, the fund’s trademark is frequently the same as or comprises a portion of the fund’s name. For example, in the case of a hedge fund where the investment manager is ABC Capital Management, LLC, the general partner is ABC Capital, LLC, and the fund is ABC Partners, LP, the mark ABC may be considered the hedge fund’s trademark, since it is by this portion of the fund’s name that the fund is recognized by the public.

Establishing valid trademark rights is important because owning valid trademark rights entitles the trademark owner to prevent third parties from using the same or a confusingly similar mark for the same or related goods or services to those of the trademark owner. This can prevent the public from being confused between two or more funds with similar names or marks. Although hedge funds are generally precluded from advertising, and relationships with investors are developed primarily through personal connections, confusion can and frequently does arise through external sources. As one court noted in finding trademark infringement where both parties were in the investment business: “High-level investment business is commonly conducted based on trust and personal relationships among individuals. If any investor reads about a [Defendant] investment … and mistakes that transaction for a [Plaintiff] investment of which it was not aware, it may well feel ‘cut out’ of a potential lucrative deal. … [I]ts business relations with [Plaintiff] could be soured.” Morningside Group Ltd. v. Morningside Capital Group, L.L.C., 182 F.3d 133, 140 (2d Cir. 1999).

Click here to read the full story on Hedge Fund Trademarks

Trademark registration can provide fund managers with valuable benefits. If you have any questions about trademark registration, please contact Beth Alter at Seward & Kissel’s Intellectual Property Group at (212) 574-1427 or alter@sewkis.com.

His first article titled “Insider Trading Overview” gives a great summary of what everyone should know about Insider Trading.

In light of the recent focus on insider trading, we are publishing the SEC’s discussion on Insider Trading. The information below contains a broad overview of some of the important aspects which hedge fund managers should understand about the insider trading prohibitions.

In another article Bart goes on to list issues which are increasingly relevant after the Galleon hedge fund failure.

• Insider Trading Overview and Penalties
• Addressing Compliance Inside the Firm
• Dealing with Regulators
• Institutional Standpoint
• Outsourcing and Technology solutions

Both articles are a great read!

SEC Chair, Mary Schapiro, recently pointed out that Reporting and open Books & Records were high on the regulatory priority list:

So we really need reporting. We need registration. We need the ability to examining their books and records, and understand how they’re conducting business. (source)

While there is still debate as to what will be required by hedge funds, the requirements for investment advisors are laid out in Rule 204-2 under the Investment Advisers Act. Based on this, Accounting and Compliance International has put together a comprehensive document of books and records to be maintained by hedge funds. ACI recommends all hedge funds review this document and file it  for future reference.

Many in house hedge fund marketers do not believe they have to be licensed. They are right, if they get paid a salary to raise assets. If however, they get compensated based upon the amount of assets raised (performance), then they too must be FINRA licensed. They are essentially selling a security, an LP investment. In addition, all hedge fund marketers including in house and third party must be licensed in the state in which the investor they are soliciting investors.

The blog entry goes on to discuss the more tricky aspects of finding the correct marketers and ensuring that they are properly supervised and follow all the FINRA regulations regarding marketing hedge funds.

See if you can pass the “How much do you know about hedge fund marketing” test

Read the entire Hedge Fund Marketing article here.

Earlier in the month Alex Thompson wrote an insightful article on Mini Primes and Hedge funds.

In the world of prime brokerage, there are the Goldman’s, the Morgan Stanley’s, and the JP Morgan’s, and then there is everyone else. The big boys of the prime brokerage world offer the best of trading platforms and great customer service, if your hedge fund is big enough for them to turn a profit on your account. Hedge funds under $100 million in assets might have a hard time getting Goldman Sachs on the phone. Even if that fund was able to get into the Goldman customer book, what kind of servicing do you think they could expect?

Alex goes on to answer the following important questions regarding your prime brokerage relationship and specifically when is the right time for your hedge fund to use a mini prime.

• Why Use a Mini Prime
• Benefits of Mini Prime Brokers
• How to Choose a Mini Prime Broker

The conclusion which is drawn is that if you choose to use a mini prime you should either get better pricing or better services. If you don’t get one or preferably both, then keep shopping!

Andrew is founder and co-principal of HedgeCo Networks, a hedge fund research and services firm. At HedgeCo, he provides consulting services to new and existing hedge funds, and oversees a database of over 6,500 hedge funds, including a community of over 35,000 members. Andrew is often sought by major media outlets and industry publications for his expertise on the hedge fund industry. He appears regularly on CNBC and has been quoted in over 200 financial publications.

HFA Member programs are driven by Regional Chapters in Northeast, Midwest and now the Southeast. The Director of the HFA Northeast Chapter is Michael Scanlon, and the Director of the HFA Midwest Chapter is John Peterson.

HFA is also pleased to announce the addition of Anh Huynh as Manager of HFA Government Relations. Anh is based in Washington D.C., and will help expand efforts to educate the public, media and lawmakers to dispel myths and advocate for all industry participants.

To learn more, please contact the Hedge Fund Association.