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.
Minneapolis Star Tribune – A Prominent Manhattan lawyer has pleaded guilty to defrauding hedge funds of more than $400 million.
Fifty-eight-year-old Marc Dreier on Monday pleaded guilty to conspiracy to commit securities and wire fraud, securities fraud, wire fraud and money laundering. The charges carry a potential prison term of 30 years to life in prison.
North Country Gazette – A former registered broker with the National Association of Securities Dealers has been charged in a criminal information with conspiracy, securities fraud and wire fraud stemming from his participation with attorney Marc Dreier in the sale of fictitious promissory notes to various hedge funds.
Kosta Kovachev, 57, is charged with one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, and one count of wire fraud. The Government also seeks to forfeit the funds Kovachev received from Dreier as payment for his fraudulent activities.
New York (HedgeCo.Net) – A former Florida hedge fund manager is being held without bail in a West Palm Beach prison after prosecutors convinced the judge he is a flight risk.
Attorneys for Won-Sok Lee were seeking a continuance for his arraignment on Friday so that he could find a local lawyer.
Lee and his company, The KL Group, were accused of swindling over $200 million out of investors through their hedge funds back in 2006. He was arrested in February after trying to board a plane from Seoul to Argentina after spending three years on the run.
Lee and his brothers, who are currently serving lengthy prison terms, ran hedge funds out of locations in Florida and Nevada from 2000 to 2005.
Lee is facing dozens of charges, including conspiracy, money laundering, and mail and wire fraud. His next hearing is scheduled for April 17.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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BusinessWeek – A prominent Manhattan lawyer accused of peddling $700 million in phony securities to hedge funds will likely forgo a trial and change his plea to guilty, his attorney told a judge Thursday.
The defense announcement came at a hearing at which Marc Dreier pleaded not guilty to a revised indictment accusing him of money laundering in addition to previous charges of securities fraud, wire fraud and conspiracy to commit those crimes.
Guardian.co.uk – Hedge funds and banks are expected to bear the brunt of derivative losses estimated at $15bn (£9.4bn) linked to the collapse of Iceland’s three major banks – Landsbanki, Glitnir and Kaupthing – which failed in rapid succession last month.
The complex unwinding of trades linked to debt issued by the banks began yesterday with a settlement auction to determine the payout price on credit default swap (CDS) contracts – insurance taken out against the risk of debts going bad – for Landsbanki.
Payouts on all three banks are expected to be some of the largest ever seen in the $54.6tn CDS market – greater than those relating to Lehman Brothers, whose collapse triggered the meltdown of the global financial system.
The high settlement prices for Icelandic bank CDSs will be a blow to hedge funds, banks and other derivative traders who insured the debt.
Reuters – Leveraged loan prices fell on Wednesday as hedge funds facing redemptions and forced to cover short equity positions sold loans, traders told Reuters Loan Pricing Corp.
Leveraged loans have declined over the past week amid a rout in global markets that has led to the bankruptcy of Lehman Brothers and a $700 billion U.S. government plan to bail out the financial sector.
The loan credit default swap index, the Markit LCDX10, traded around 93.70-to-93.90 cents on the dollar on Wednesday, down about a point from Tuesday’s close. It hit a low of 93.60-to-93.80 cents on the dollar earlier in the day.
TXU Corp’s leveraged buyout loan was among several that traded down. Its term loan B2 fell to 86.75-to-87.25 cents on the dollar from 87-to-87.5 cents on the dollar on Tuesday afternoon.
Bloomberg – Credit-default swap dealers reduced the volume of outstanding contracts for the first time amid efforts to reduce risks in a market used to hedge against bond losses and speculate on corporate creditworthiness.
The volume of outstanding trades fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since ISDA started surveying traders in 2001.
“This decrease primarily reflects the industry’s efforts to reduce risk by tearing up economically offsetting transactions and demonstrates the industry’s ongoing commitment to reduce risk and enhance operational efficiency,” ISDA Chief Executive Officer Robert Pickel said in the statement. “We expect to see more effects of this over time.”
Hedge Funds Review Magazine – Greenwich Associates conducted a study of 146 institutions in North America and Europe to determine how fears of counterparty risk were affecting institutional investment and trading strategies.
The study revealed that 37% of participating institutions have over $50 billion in assets under management. A further 18% have more than $100 billion.
Survey respondents were divided between 32 hedge funds, 114 banks and traditional long-only investors, with the majority domiciled in the US (70%) and 30% in Canada and Europe.
Among US institutions, 85% sees credit default swap (CDS) counterparty risk as a serious threat to global markets. Institutions in Europe are slightly more sanguine; with just over 55% describing CDS counterparty risk as a significant danger.
Over 905 of hedge funds, however, said they see counterparty risk relative to credit default swaps as posing a significant threat to global markets.
