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West Palm Beach (HedgeCo.net) – OppenheimerFunds, Inc. and OppenheimerFunds Distributor, Inc. is being investigated by US law firm Hagens Berman Sobol Shapiro for alleged violations of federal securities laws among other things on behalf of investors in the Core Bond Fund.
The "low-risk, conservative bond fund" that invested mainly in high-quality corporate bonds, is alleged to have started acting "like a hedge fund" taking extreme risks including selling risky credit default swaps and other high-risk derivative investments to Wall Street firms.
The Core Bond Fund suffered losses of more than 35% of its value in 2008 and continued to fall another 10% in the first three months of 2009. The Oppenheimer Champion income fund lost more than 80% of the its value, dropping almost $2 billion over the course of 15 months as a result of similar risky investments and deviations from the stated fund investment policy.
Hagens Berman is investigating whether officers and directors of the Core Bond Fund misled investors about the safety of the fund and whether they failed to adequately warn investors when the fund took extreme risks in violation of the Fund’s stated investment policy.
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West Palm Beach (HedgeCo.net) – Recently launched Codiam Fund, which invests in pre-cut colored diamonds, has reported an increase of 9% in the fund’s net asset value over the first three months of trading.
"We launched the fund in difficult market conditions, confident that our experience and expertise would enable us to identify and purchase rare coloured diamonds that would grow in value for our investors, and the increase to our net asset value has proved this to be true," says Codiam managing director Philip Baldwin, who co-founded the business with Mahyar Makhzani.
The fund managers believe the colored diamonds offer a hedge against market and political crises, as they have not decreased in price on a wholesale level in 35 years, consistently outperforming other diamond categories, with their value increasing on average between ten and 15% a year.
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Sarasota Herald-Tribune – When he first invested $100,000 in Arthur G. Nadel’s Viking Fund, David Walters was elated with a 7.77 percent return in just the first three months.
After the Sarasota-based fund delivered a 22 percent profit in 2004, Walters pumped in another $200,000 and watched the hedge fund soar — more than 20 percent in 2005, 14.07 percent in 2006 and 15.17 percent in 2007.
New Yorker – “Death by a thousand cuts.” “Fire-sale liquidation.” “A vortex of selling.” No matter how people described the market collapse that hit a month ago, the message was the same: it felt like there was nowhere to go but down, and it felt like we’d be going there forever. (Given last week’s dip, it still does.)
Beginning on September 29th, the U.S. stock market fell on nine of the next ten trading days, plummeting twenty-six per cent; then, after a short, sharp rally, it lost ten per cent more in less than two days.
Explanations for the crash often focussed on the hysteria and panic that periodically seem to seize investors. But the madness of crowds wasn’t the whole story. In a healthy market, there are countercyclical forces—mechanisms and institutions that go against the general market trend and encourage diversity of thinking—that make it harder for feedback loops and vicious cycles to take hold. Lately, though, many of these institutions and mechanisms have become procyclical: instead of countering trends, they amplify them.
International Herald Tribune – In May, David Einhorn, an outspoken hedge fund manager, took the microphone at a large industry gathering and laid out his case against the investment bank Lehman Brothers.
The firm, he told the crowd, had used "accounting ingenuity" to avoid large write-downs and remained tainted by bad commercial real estate investments. Einhorn stood to profit by convincing people of his view: He had been betting against Lehman’s stock, which stood at around $40 when he spoke, since July 2007.
In the four months that followed, the tactic known as short-selling, in which an investor bets on a decline in a stock price, played a role in hastening a fire sale of Lehman’s shares – an erosion that ultimately helped bring the venerable 158-year old firm to its knees.
At emergency meetings led over the weekend by Timothy Geithner, the president of the Federal Reserve Bank of New York, and Treasury Secretary Henry Paulson Jr., the heads of major financial institutions said they feared short-sellers would now capitalize on the climate of fear surrounding Lehman and target other financial firms. They raised the idea of having the Securities and Exchange Commission reinstate a temporary rule to limit short-selling, according to two people who were briefed on, but did not attend, the meetings.
New York (HedgeCo.Net) – Alan Schwartz may be having second thoughts about his new position at JPMorgan Chase, reports the New York Post. According to the paper, the former Bear Stearns CEO is contemplating JPMorgan’s offer for a non-executive vice chairman position.
It is still unclear as to why. Some believe Schwartz feels uneasy about the fact that over half of Bear’s employees are without a job, while some say that JPMorgan may not be aggressive enough in their pursuit, having Jimmy Lee already on the payroll.
According to a filing with the SEC, JPMorgan asserted that Schwartz, along with other fellow senior officials may eventually come on board with them. This included Bear CFO Sam Molinaro and Controller Jeffrey Farber.
Alan Schwartz was CEO of Bear Stearns for only three months before the fire sale to JPMorgan backed by the Federal Reserve. Prior to its demise, Schwartz ensured weary investors that Bear’s “liquidity cushion” could handle the losses that were rocking them.
Schwartz will supposedly reveal his decision once he sees how the bank performs post buyout. The Bear-JPMorgan deal was finalized on Friday.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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