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.
CNN Money – Ralph Cioffi and Matthew Tannin, both former hedge fund managers at Bear Stearns, are accused of painting a rosy picture of their portfolios, even though “the defendants believed that the funds were in grave condition and at risk of collapse,” according to the prosecution.
Prosecutors blamed Cioffi and Tannin for causing Bear Stearns investors to lose more than $1 billion, alleging that their fraudulent behavior led to the collapse of their hedge funds and, subsequently, Bear Stearns. They have both pleaded not guilty and are out on bail: $4 million for Cioffi and $1.5 million for Tannin.
The trial is scheduled to begin Oct. 13 in U.S. District Court in Brooklyn, New York. Cioffi and Tannin could each face 20 years if convicted of securities fraud.
Forbes – U.S. prosecutors said on Tuesday that two former Bear Stearns Cos hedge fund managers facing trial on fraud charges are trying to impede the government’s access to documentary evidence.
Lawyers for one of the accused, Ralph Cioffi, described the allegations as ‘false and inflammatory’ as the government asked a judge for a hearing to review Cioffi’s pre-trial release on $4 million bond and travel restrictions.
Daily Telegraph – The funds collapsed as billions of dollars of bets made on mortgage-backed bonds and collateralised debt obligations (CDOs) unravelled, and when the time came to try to sell some of the funds’ sub-prime mortgages, no one wanted to buy them.
At the centre of those funds sat two men – hedge fund manager Ralph Cioffi and Matthew Tannin, the chief operating officer of Bear Stearns Asset Management (BSAM) – who were arrested a year later and charged with several counts of wire and securities fraud, following the loss of $1.4bn of investors’ money.
They face possible 20-year prison sentences, though both have consistently pleaded their innocence. The case against them will be set out at a trial slated to start in October. It centres on emails between the two – and with investors – in which both funds were referred to as "an awesome opportunity", despite allegations that both men knew of the problems within them.
Bloomberg – Former Bear Stearns Cos. hedge fund manager Ralph Cioffi, indicted for an alleged fraud that helped bring down the securities firm, attempted to use his $2 million redemption from a fund he supervised as collateral for a condominium, U.S. prosecutors said.
Cioffi, 53, also ”rarely” heeded compliance trading measures, the government said in a court filing in Brooklyn, New York, federal court. Cioffi and another former Bear Stearns hedge fund manager, Matthew Tannin, 47, were indicted last year for misleading investors about the health of two hedge funds that failed in July 2007, costing investors $1.6 billion. The implosion helped trigger the credit crunch and the eventual sale of Bear Stearns to JPMorgan Chase & Co.
FierceFinance – Not too long ago we were lamenting the trend by top investment banks to move into hedge funds and alternative investments in general. Buying hedge fund firms and launching them internally didn’t work out so well for Citigroup. It also wasn’t a home run for other firms, notably Bear Stearns.
Has JPMorgan Chase found a way to buck the trend? It has announced it will buy the portion of Highbridge that it doesn’t already own, and has shut down its proprietary hedge fund and private equity businesses. As of now, it looks like the Highbridge gambit has paid off-and then some. It remains among the biggest of the hedge fund firms, and has tripled its assets under management since JPMorgan invested in December of 2004, reports TheStreet.com. My sense is that Highbridge is one of the mega fund firms that is really well positioned to steal market share.
West Palm Beach (HedgeCo.net) – Institutional brokerage and hedge fund services company BTIG LLC, announced the further expansion of its Global Fixed Income Group with four new hires.
The Global Fixed Income Group was launched in February of this year by Jon Bass, formerly of UBS, and John Purcell, formerly of Citigroup. The group focuses on sales and trading of credit products, which will cover the full credit spectrum from investment grade to distressed debt.
George Chalhoub has joined BTIG from Deutsche Bank where he ran the high yield proprietary portfolio on the high yield desk. Chalhoub spent 15 years in high yield research at Deutsche Bank, Merrill Lynch and Citigroup.
Mychal Harrison and Todd Sycoff have been hired as high yield traders in New York. Harrison joins BTIG from Barclays where he last traded high yield cash and credit default swaps. He began his career at Goldman Sachs in high yield syndicate before transitioning into high yield trading. Sycoff comes to BTIG from Bear Stearns where he was last on the buy side as the high yield portfolio manager in the asset management division. Prior to that, Sycoff spent 16 years on the trading desks of Bear Stearns and Merrill Lynch as the head high yield trader.
Chris LeVine comes to BTIG from UBS where he was an executive director in the Fixed Income Sales Group focusing on investment grade and high yield credit. He will be in fixed income sales in BTIG’s New York office. Prior to UBS, LeVine worked at MarketAxess, Trading Edge and started his career at Morgan Stanley after Graduating Cornell University.
“We have been focused on expanding the firm’s capabilities in fixed income over the past few months and are excited to have George, Mychal, Todd and Chris join the group,” Jon Bass, Co-Head of Global Fixed Income, said. “Their combined experience will greatly enhance the efforts of our new division.”
“We have been able to attract top talent with deep institutional relationships and respected reputations on the Street that will help us better serve our clients in the fixed income area,” John Purcell, Co-Head of Global Fixed Income, said. “During the coming weeks, we expect to announce additional hires in fixed income as part of our overall plan to grow the group to 60 people globally this year.”
The Global Fixed Income Group was launched in February of this year by Bass, formerly of UBS, and Purcell, formerly of Citigroup, who together bring 50 years of fixed income experience to the BTIG team. The group focuses on sales and trading of credit products, which will cover the full credit spectrum from investment grade to distressed debt.
BTIG serves nearly 1,000 institutional customers and offers services from four divisions: Institutional Trading, Prime Brokerage, Outsource Trading and Direct Market Access. BTIG has offices in New York, San Francisco, Dallas, Boston, Chicago, Los Angeles, Greenwich, Red Bank, Aspen and Orinda. The firm also has affiliates in London, Hong Kong and Sydney.
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Reuters – Large dealers in the $26 trillion credit default swap market are blocking CME Group’s CME.N efforts to clear trades, in a bid to retain their "oligopoly" over the market, hedge fund BlueMountain Capital Management said on Monday.
Central clearing of CDS trades is viewed as imperative to removing risks associated with the potential failure of a large counterparty. Fears of margin losses helped spur a run on Bear Stearns Cos and Lehman Brothers and sparked government calls for mandatory clearing of standardized CDSs.
Straits Times – Hedge fund executives at the conference said Mr Obama’s deal undercut bankruptcy court rules that have long given priority to secured lenders. The White House move and its combative stance with hedge funds may keep some managers on the sidelines or chill investment in some companies.
Mr Gary Kaminsky, former managing director at Neuberger Berman, told conference members that government involvement began last March with the forced sale of Bear Stearns to JPMorgan Chase and has not let up since.
‘You have to assume the government will be involved. You have to assume the free market is not as free as it was in the past and won’t be for the next 20 years,’ Mr Kaminsky said.
New York (HedgeCo.Net) – If Treasury Secretary Timothy Geithner gets his way, hedge funds and private equity firms will be placed under the supervision of the federal government.
“Over the past 18 months, we have faced the most severe global financial crisis in generations,” Geithner said at the House Financial Services Committee hearing on Thursday, adding that “comprehensive reform” is required. “Not modest repairs at the margin, but new rules of the game.”
Geithner supports a mandatory requirement for hedge funds and other large money management firms to register with the Securities and Exchange Commission, an issue that has been at the forefront of political debate recently. Hedge funds would also have to keep the SEC updated on their trades and strategies.
A systemic risk regulator would be imposed that could force these firms to raise capital or halt borrowing. The regulator may also seize hedge funds or other non-bank entities if they felt it was necessary, though it was unclear which agencies would be responsible for handling that task.
“You don’t want to vest in any single institution such broad powers,” he explained.
The Obama administration has been vocal about their desire to regulate the $1 trillion hedge fund industry. After two massive hedge funds within Bear Stearns collapsed in the summer of 2007, eventually leading to the demise of the bank, many members of Congress started supporting regulation with the notion that hedge funds have a direct impact on our economy.
Also backing the argument was the monumental damage caused by credit default swaps and the lack of regulation behind them, as was the case with American International Group.
“The days when a major insurance company could bet the house on credit default swaps with no one watching and no credible backing to protect the company or taxpayers much end,” Geithner added, referring to the AIG debacle.
Under the proposed regulation, the market on which these credit default swaps and other derivatives would be regulated for the first time.
The SEC has tried previously to impose a registration requirement on hedge funds, only to have it overturned by a federal appeals court in 2006.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Houston Chronicle – Treasury Secretary Timothy Geithner will ask Congress to bring large hedge funds, private-equity firms and derivatives markets under federal supervision for the first time as part of a revamp of U.S. financial rules.
The Treasury chief will present his proposed framework at a House Financial Services Committee hearing in Washington today. Under the new so-called rules of the road, the government would get powers to seize and wind down any financial company big enough to destabilize the banking system.
The Obama administration is counting on public anger over the taxpayer-financed rescues of American International Group Inc., Bear Stearns Cos. and other firms to help it win approval for the changes, which could be the most sweeping since the 1930s. Policy makers want to improve the oversight of the financial system now rather than wait until the crisis is over, administration officials said on condition of anonymity.
Am Law Litigation Daily – Remember how Linklaters’ representation of Barclays in a suit against Bear Stearns cost the firm its client relationship with JPMorgan Chase? It now looks like Linklaters sacrificed its JPMorgan work for nothing. Bloomberg is reporting that Barclays has dropped its Bear Stearns suit with prejudice.
In an amended complaint filed in June, Barclays blamed Bear Stearns and two since-indicted Bear hedge funds managers for causing Barclays to lose hundreds of millions of dollars it had invested in a Bear hedge fund with assets linked to subprime mortgages. (The fund imploded in 2007.) Barclay’s dismissal notice did not offer any explanation for why it was ending the suit. Linklaters partner Lawrence Byrne, whose name appears on the dismissal notice, did not immediately return our phone call.
BloombergThe financial wreckage of 2008 has left no part of our country untouched. It exposed the bankruptcy of business models employed by mortgage companies, investment banks, and rating agencies as well as the flaws of innovations such as structured finance and credit default swaps. It also highlighted regulatory gaps and failures at almost every level of oversight.
In 2008 Bear Stearns Cos. and Lehman Brothers Holdings Inc. imploded, Fannie Mae and Freddie Mac were placed into conservatorship, mainstay Wall Street firms like Merrill Lynch & Co. Inc. were forced to merge with other companies, and giant institutions such as American International Group Inc. clung to existence on federal life support.
More painfully, too many Americans face the twin perils of home foreclosure and job loss as frozen credit markets signal an increasingly deep economic slowdown.
