Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Bloomberg – Paulson & Co., the hedge fund run by billionaire John Paulson, made at least 295 million pounds ($420 million) since September by short selling Royal Bank of Scotland Group Plc.
Paulson held a short position of 0.87 percent in Edinburgh- based RBS on Sept. 19, according to regulatory filings. The shares traded at 213.5 pence at the time, and Paulson’s disclosure indicates he borrowed and sold almost 144 million RBS shares with plans to buy them back at a lower price. He reduced his short position to less than 0.25 percent, or about 98.6 million shares, as of Jan. 23, according to a filing yesterday.
Sify – Bernard Madoff, the long time Wall Street executive accused of cheating investors worldwide out of $50 billion, scrambled to find relatives or friends to guarantee his bond on Tuesday and keep him of jail.
In Massachusetts, where the disgraced investor long cultivated a loyal group of wealthy individuals, the state’s chief securities regulator subpoenaed Bernard L. Madoff Investment Securities and Cohmad Securities Corp, a firm that marketed Madoff investment products.
The two firms must hand over the names and addresses of all local residents who let Madoff invest their money by December 29. They must also deliver notes, emails, meeting agendas related to investments made since 2000, William Galvin, the state’s Secretary of the Commonwealth, said on Tuesday.
In New York, Madoff, who was arrested last week, has not yet fully met the conditions of his $10 million bond, according to court papers. He must find three co-signers to guarantee the bond.
Reuters – Three European banks on Sunday announced a total of about $3.8 billion in exposure to an investment fund run by Bernard Madoff, the U.S. investor accused of running a $50 billion "Ponzi" scheme.
The largest banks of both Spain and France, Santander and BNP Paribas, and Swiss private bank Reichmuth & Co became the latest parties to detail possible losses over investments made with Madoff, who was arrested in New York on Thursday in the alleged fraud.
Santander put its client exposure at over 2.33 billion euros ($3.09 billion). BNP Paribas said it could face a potential loss of 350 million euro from exposure to Madoff-linked investments. And Swiss private bank Reichmuth & Co said it had about 385 million Swiss francs at stake, around $325 million.
Ananova - Royal Bank of Scotland says it is facing a potential loss of £400m after a Wall Street banker was charged with a massive alleged fraud.
US prosecutors say Bernard Madoff has confessed to defrauding investors of $50bn (£33bn) in a giant pyramid scheme that collapsed in the global financial crisis.
RBS, in which the British government now has a majority stake, says it has exposure through investments in hedge funds that invested with Mr Madoff.
It is one of a number of banks that face big losses in the suspected fraud.
Santander, the Spanish bank that owns Abbey and Alliance and Leicester, said it had more than 2.3bn euros (£2.08bn) worth of exposure.
Bloomberg – Ritchie Capital Management and Thane Ritchie, the hedge fund manager’s principal, were sued by Barclays Bank Plc over accusations they concealed more than $150 million in investments made in the collapsed Petters Group Worldwide LLC and affiliates.
Now bankrupt, Petters Group, based in Minnetonka, Minnesota, was raided in September by FBI agents acting on information that the company may have cheated at least 20 investors. Principal Tom Petters, accused of leading a $2 billion fraud, is being held without bail in a Minnesota jail.
“Thane Ritchie made the decision to invest significant sums” from two of his firm’s hedge funds with Petters, at a time when those funds “were supposed to be winding down,” Barclays said in a complaint filed Nov. 18 in Illinois state court in Chicago.
Pioneer Press – Tom Petters, who spent two decades building the Petters Group Worldwide into a far-flung empire with $2 billion in sales and 3,200 employees, resigned Monday amid a federal investigation into allegations of fraud at one of his companies.
The move came days after federal authorities raided company offices, homes and vehicles of people connected to the business as they searched for evidence of an alleged scam dating back to the mid-1990s at Petters Co. Inc., a unit of Petters Group.
"Events of the last few days have made it impossible for me to continue as the leader of these companies," Petters said in a statement released to employees. "My first concern is that these companies continue to go forward and that you as employees feel secure about working here," he said.
Petters no longer would be involved in day-to-day operations of Petters Group or its independent operating companies such as Polaroid or Sun Country Airlines, the statement said.
Forbes – A federal judge in Florida ruled Wednesday that the head of two hedge funds deceived investors about the funds’ holdings. Elsewhere, federal regulators accused a California investment adviser of making tainted recommendations to clients.
In the Florida case, U.S. District Judge Kenneth Marra ruled that Michael Lauer, the head of Connecticut-based hedge funds Lancer Management Group and Lancer Management Group II, engaged in a fraud that cost investors about $500 million, according to the Securities and Exchange Commission.
Marra granted the SEC’s request for summary judgment against Lauer, finding that he overstated the hedge funds’ values from 1999 to 2002, manipulated the prices of seven securities that were an important part of the portfolios, and deceived investors about the funds’ holdings by providing them with fake financial statements.
New York (HedgeCo.Net) – Paul Eustace, former head of Philadelphia Alternative Asset Management Company, has been ordered to pay back nearly $300 thanks to his fraudulent ways.
According to a statement by the Commodity Futures Trading Commission, the Canadian resident was able to swindle clients by constructing false account statements and exaggerating the fund’s portfolio worth.
Prosecutors alleged that Eustace was able to hide losses from his clientele while the fund experienced trouble from October 2002 to May 2005, when the fund collapsed. He has been indicted on two criminal counts of commodities fraud.
Philadelphia Alternative Asset Management was a commodity fund that was peddled as a hedge fund. Eustace was able to raise about $230 million, despite the fact that his company never traded options or futures on the investor’s behalf.
The Philadelphia-based law firm of Stradley, Ronon, Stevens & Young will act as the collector and has already recovered $96 million. In addition to returning the money to investors, Eustace has also been ordered to cough up $12 million in civil penalities.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Among the 300 investor comments filed over the past month with the Securities and Exchange Commission about naked short selling, most voiced opposition to the abusive version of it.
Adding to the cry against naked short selling is a new proposal that the SEC is slated to release this week protecting publicly traded companies from abusive naked short selling.
What’s more, South Dakota voters will decide in November whether to approve an initiative that the state’s securities director says would ban all short selling. The group sponsoring that action promises to get similar initiatives on ballots in 18 other states if the SEC doesn’t put more restrictions on short sales.
The hedge fund industry is fighting restrictions on naked short selling, in which securities are sold short without borrowing the stock first. Abusive naked short selling is being blamed for depressing stock prices in financial services stocks as well as stock prices for other companies.
Boston Globe – A federal judge barred Samuel Israel, the convicted founder of hedge fund firm Bayou Group LLC, from entering a plea to bail jumping, saying his addiction to methadone may have impaired his judgment.
A US judge cited Bayou Group founder Samuel Israel’s methadone addiction and his ability to understand the proceedings.
Israel, who sought to plead guilty yesterday in US District Court in White Plains, N.Y., told US District Judge Kenneth Karas that his ability to understand the proceedings was "60 to 70 percent."
Prosecutors said the 49-year-old faked suicide and fled the day he was to begin a 20-year sentence for his conviction in a $400 million fraud.
"I have to be satisfied that you’re competent," Karas said, rejecting the plea to one count of failure to appear. "The fact that there is some doubt about that makes it imprudent to go forward today."
International Herald Tribune- Samuel Israel 3rd bilked his investors out of $250 million, but they are hoping to recoup some of their money from one of Wall Street’s deepest pockets: Goldman Sachs.
Bayou’s creditors were taking aim at Goldman even before Israel, the former manager of the Bayou Group hedge fund firm, surrendered to the authorities on July 2. His faked suicide on a Hudson River bridge 40 miles north of Manhattan and subsequent disappearance on the day he was to start a prison term had set off an international manhunt.
Bayou’s unsecured creditors committee sued Goldman in late May, claiming the investment bank had failed to detect Israel’s fraud, one of the biggest ever in the hedge fund industry, and to investigate signs that something was amiss at Bayou.
For six years, Goldman acted as the so-called prime broker for Bayou, clearing trades, taking custody of securities and providing reports on the fund firm’s investments. The claim seeks $20 million.
Montreal Gazette- IndyMac Bank is under investigation by the FBI for possible fraud involving home loans made to risky borrowers, the Associated Press reported yesterday, citing an unnamed law enforcement official.
The report said it was not immediately clear how long the FBI’s probe of the bank has been ongoing but the probe is focused on the company and not individuals who ran the thrift institution.
U.S. banking regulators seized mortgage lender IndyMac Friday after withdrawals by panicked depositors led to the third-largest banking failure in U.S. history.
