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.
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 – Bank of America Corp. Chief Executive Officer Kenneth Lewis faces more queries about his purchase of Merrill Lynch & Co. after a federal judge refused to approve a $33 million settlement of a lawsuit over bonuses.
The bank agreed on Aug. 3 to settle U.S. claims the bank misled investors while buying Merrill. Yesterday, U.S. District Judge Jed Rakoff in New York said the amount isn’t appropriate if the bank lied about billions of dollars in payments. Rakoff asked for more filings by Aug. 24 and said he won’t rule on the accord before Sept. 9.
The Daily Advertiser – John Hyland’s funds control billions of dollars that flow in and out of energy markets, making him one of the biggest oil speculators in the world and also one of the biggest potential targets for federal regulators.
The 50-year-old Californian has been asked to appear before the Commodity Futures Trading Commission on Wednesday, where he will say that he isn’t the boogie man everyone’s looking for.
Bloomberg – John Meriwether, who roiled global markets when Long-Term Capital Management LP collapsed in 1998, plans to shut his current hedge fund, according to a person familiar with the matter.
JWM Partners LLC is closing its main Relative Value Opportunity II fund after losing 44 percent from September 2007 to February 2009. Meriwether, credited with generating billions of dollars of revenue at the former Salomon Brothers in the 1980s through so-called relative value trades, returned an average of 1.46 percent a year with his new fund since opening in 1999, compared with 2.4 percent for the Credit Suisse/Tremont Hedge Fixed-Income Arbitrage Index.
Reuters India – Hedge funds, private equity firms and other investors are scrambling to meet a looming deadline to report their offshore income, as U.S. tax collectors boost efforts to track foreign holdings.
The reports will give authorities a glimpse into just how much money U.S. citizens have tucked away in investment accounts overseas, believed to be in the tens of billions of dollars.
U.S. taxpayers have long been required to file "Report of Foreign Bank and Financial Account" forms with the government when they have holdings of more than $10,000 in foreign banks.
Bloomberg – Buyout firms and hedge funds, “Read my lips: You’re going to have regulation.”
So says Poul Nyrup Rasmussen, the Socialist Party president who conducted a two-year campaign for the first European Union regulations governing so-called alternative investors. Hedge funds and private-equity firms, which manage 2 trillion euros ($2.8 trillion) in the region, are in line for some of the world’s strictest rules, and potentially billions of dollars of compliance costs, under an EU measure proposed in April.
Denver Post – J. Ezra Merkin, a hedge-fund manager who invested billions of dollars of clients’ money with swindler Bernard Madoff, has agreed to relinquish control of his funds to court-appointed trustees.
The attorney general’s office had requested the move in connection with its civil fraud lawsuit accusing Merkin of convincing clients he was managing their money when he was actually funneling $2.4 billion to Madoff’s Ponzi scheme.
The deal, which is expected to be approved by a judge Thursday, is not a settlement in the case, the attorney general’s office said.
Atlantic Online – For all the talk these last few years about the risks to investors of "secretive, unregulated" hedge funds, they certainly haven’t turned out to be the big problem, have they? Thousands of hedge funds lost, in the aggregate, hundreds of billions of dollars last year, and hundreds have shut down. But nobody in government is calling for a hedge fund bailout because hedge funds losses, however painful to investors, don’t create systemic risks to the nation’s financial apparatus. As it turns out, it was the big regulated entities, the banks and investment banks, that were the problem, not the unregulated hedge funds.
Gainesville Sun – As Bernard L. Madoff waits in jail to be sentenced, legal problems are accumulating for some of the hedge fund managers who helped him raise billions of dollars from around the world for what he now admits was a vast Ponzi scheme.
Massachusetts regulators have sued the Fairfield Greenwich Group, one of the earliest of these so-called feeder fund managers, for fraud, saying it had repeatedly misled investors about how diligently it checked out Mr. Madoff’s operations over the years.
FOXNews – MR. LENO: Tell people what happened. I know people have been over it, just –
MR. OBAMA: Well, look, here’s what happened. You’ve got a company, AIG, which used to be just a regular, old insurance company. Then they insured a whole bunch of stuff and they were very profitable and it was a good, solid company.
Then they decided — some smart person decided, let’s put a hedge fund on top of the insurance company and let’s sell these derivative products to banks all around the world — which are basically guarantees or insurance policies on all these sub-prime mortgages.
And this smart person said, you know, none of these things are going to go bust; this sub-prime thing, it’s a great deal, you can make a lot of profit. So they sold a whole bunch of them — billions and billions of dollars. And what happened is, is that when people started going bust on sub-prime mortgages you had $30 worth of debt on every dollar worth of mortgage — and the whole house of cards just started falling down.
Wall Street Journal – Some of the billions of dollars that the U.S. government paid to bail out American International Group Inc. stand to benefit hedge funds that bet on a falling housing market, according to people familiar with the matter and documents reviewed by The Wall Street Journal.
The documents show how Wall Street banks were middlemen in trades with hedge funds and AIG that left the giant insurer holding the bag on billions of dollars of assets tied to souring mortgages. AIG has put in escrow some money for at least one major bank, Deutsche Bank AG, whose hedge-fund clients made bets against the housing market, according to a person familiar with the matter. The money will be released to the bank if mortgage defaults rise above a certain level.
In essence, while the U.S. government is busy trying to prop up the housing market — by trying to limit foreclosures, among other things — it is simultaneously putting up cash that could be used to pay off investors who bet housing prices would tumble and many mortgage holders would default.
It’s unclear how much government money might eventually flow to hedge-fund investors. Overall, the government has committed up to $173.3 billion to bail out AIG. Of that amount, AIG’s housing-related bets have cost U.S. taxpayers some $52 billion.
Guardian Unlimited – Andres Piedrahita, a London-based fundraiser for Bernie Madoff’s fraudulent empire, is among high society figures facing increasing pressure to explain how they missed warning signs around the disgraced hedge fund manager.
Piedrahita, who has homes in Belgravia, New York and Majorca, channelled billions of dollars from Europe into Madoff funds through so-called feeder fund Fairfield Greenwich, where he is a partner. Fairfield has emerged as the largest loser from the Madoff scandal, with potential losses of $7.5bn – more than half its assets under management. The company, founded and controlled by Piedrahita’s father-in-law Walter Noel, is based in New York but investors from Europe are believed to have provided 68% of managed assets.
