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.
West Palm Beach (HedgeCo.net) – The Securities and Exchange Commission yesterday recieved permission to freeze the assets of Mohit A. Khanna, who alledgedly raised as much as $70 million from 300 investors though his fund, MAK 1 Enterprises Group, LLC.
The SEC says he solicited investors in Southern California and several other states, as well as a charitable foundation, through word-of-mouth referrals and a website. The defendant claimed to pool investor funds to invest in commercial paper, foreign currency trading products, and other investments, which the SEC believes to be non-existent. Instead, Khanna misused investor funds to pay for several luxury cars and residential properties, including those now owned by his wife, Sharanjit Khanna of San Diego, Calif., who was also named as a relief defendant.
The complaint alleges Khanna fabricated and gave to an accountant a “screen shot” of MAK 1′s online banking activity purporting to show a balance of over $50 million in its bank account, in reality, the average daily balance in that account never exceeded $197,000.
The SEC seeks preliminary and permanent injunctions, disgorgement, prejudgment interest, and financial penalties against Khanna and MAK 1. Court will hold a hearing on August 31, 2009.
The SEC had help from the FBI, the U.S. Attorney’s Office for the Southern District of California, U.S. Postal Inspection Service, National Futures Association, and the Better Business Bureau – San Diego.
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Stamford Advocate – Debra Ryan, the girlfriend of Samuel Israel, convicted for his role in a $400 million fraud involving the collapse of Stamford-based hedge-fund firm Bayou Group LLC, was sentenced to three years probation for aiding his escape.
Ryan, a decorator who once rented a house on Highland Avenue in Greenwich, also was ordered to be confined at home for four months and not to have any contact with Israel.
Israel, 49, pleaded guilty in March to faking his suicide by abandoning his car on the Bear Mountain bridge with the words "suicide is painless" written on the windshield and fleeing the day he was to begin a 20-year sentence. He pleaded guilty to fraud in 2005 after admitting he hid $400 million in losses at Bayou.
Stamford Advocate – Although it had bipartisan support, a bill requiring hedge funds operating in Connecticut to disclose conflicts of interest to investors died in the House of Representatives Wednesday, the final day of the 2009 legislative session.
"It ‘blew up’ like Amaranth, like Bayou," said state Rep. Ryan Barry, D-Manchester, who co-sponsored the proposal with Sen. Bob Duff, D-Norwalk, co-sponsored the legislation.
Barry was referring to the high-profile collapses of the Stamford-based Bayou Group LLC in 2005 and Greenwich-based Amaranth Advisors LLC in 2006, which inspired him and Duff, as Banks Committee chairmen, to pursue hedge fund regulations.
Bloomberg – Daniel Och had about 35 percent of his $20 billion of hedge-fund assets in cash during the first quarter because he suspects global stock markets will start falling again.
“The world will not just bounce back to where it was,” Och, the 48-year-old chief executive officer of New York-based Och-Ziff Capital Management Group LLC, wrote last month in a letter to investors, referring to the gain of almost 35 percent in the Standard & Poor’s 500 Index since March 9. “We continue to believe that economic recovery will be a long process.”
OZ Master, Och-Ziff’s biggest hedge fund, rose 6.3 percent this year through April after losing 15.5 percent last year. The S&P 500 fell 3.4 percent in the first four months of 2009 after dropping 38 percent in 2008.
West Palm Beach (HedgeCo.net) – Hedge fund adviser, Hennessee Group LLC, announced that the Hennessee Hedge Fund Index advanced +3.84% in April (+5.02% YTD).
“April continued to be a challenging environment for hedge funds, as the market rally was driven by short covering and momentum, rather than changes in fundamentals,” commented Charles Gradante, Co-Founder of Hennessee Group. “While we have seen some improvement in data (most typically that the rate of deterioration is slowing), most funds remain conservatively positioned. Funds are cautious and will wait for fundamentals to improve before significantly expanding their net exposures.”
“Hedge funds underperformed again in April, but have still outperformed year to date. Volatility remains elevated with the S&P 500 experiencing a gain or loss greater than 8% each month this year,” said Lee Hennessee , Managing Principal of Hennessee Group . “Last year hedge funds did a good job of protecting capital, so they don’t need a huge rally to reach a new high water mark. Equity markets would need to double from current levels to reach their previous high.”
Alex Akesson
Editor for HedgeCo.Net Email: alex@hedgeco.net
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North Country Gazette – The brother of the former chief financial officer of the bankrupt hedge fund firm Bayou Group LLC has been sentenced to 21 months in federal prison of his role in concealing a $400 million fraud.
Matthew Marino, brother of Daniel Marino, was also ordered to pay $60 million in restitution.
Prosecutors say that Marino knew about the fraud on the investors in the now-collapsed Bayou Hedge Funds and took steps to conceal it. His brother is serving 20 years for the scheme as is Bayou co-founder Samuel Israel.
Bloomberg - GLG Partners Inc., the hedge-fund firm founded as a unit of Lehman Brothers Holdings Inc., and Och- Ziff Capital Management Group LLC reported lower fourth-quarter profits as their funds posted losses.
GLG’s profit excluding acquisition costs dropped 78 percent to $28.2 million, or 9 cents a share, from $127 million, or 38 cents, a year earlier, the London-based company said in a statement today. That compares with an average estimate of 6 cents a share, according to four analysts surveyed by Bloomberg. Assets fell to $15 billion from $17.3 billion in September and $24.6 billion a year earlier, dragged down by losses.
Bloomberg – Ellington Management Group LLC, the hedge-fund firm focused on mortgage bonds, sued Ameriquest Mortgage Co. and other ACC Capital Holdings units over soured subprime home loans.
Funds run by Old Greenwich, Connecticut-based Ellington saw the value of $354 million of investments in securities backed by the loans “largely lost” following misrepresentations about the debt’s risks, according to a complaint filed Jan. 14 in federal court in New York.
Ellington joins M&T Bank Corp. and HSH Nordbank AG in turning to the courts to recoup losses from bad mortgage bonds. Insurers including PMI Group Inc. and MBIA Inc. have sought to recover or block claims through lawsuits. Ameriquest’s lending failed to meet its own guidelines when it didn’t verify borrowers’ employment, ignored past late payments and misstated whether they lived in properties, according to the complaint.
The defendants’ “liability arises not from increasing default rates associated with a general economic downturn, but from their fraud — from lying to Ellington about the riskiness of the loans,” Ellington said in the complaint.
Defendants in the lawsuit against Ameriquest, parent ACC Capital Holdings and other related companies — once collectively the largest U.S. subprime lender — include businesses bought by Citigroup Inc. in 2007, according to the complaint. The suit didn’t name Citigroup.
New York (HedgeCo.Net) – Although hedge funds finished up 2008 with some of the worst numbers to date, they showed some signs of promise in December. According to the latest research by the Hennessee Group LLC, a New York-based advisor to hedge fund investors, hedge funds advanced .51 percent in December.
Hedge funds finished up the year down 19.15 percent according to the research. Although it was a dismal year for funds as a whole, they still outperformed the S & P, which was down 38.5 percent on the year, the Dow Jones, who dropped almost 34 percent, and the NASDAQ Composite Index, which posted a 40 percent drop on the year.
One challenge for hedge funds in 2008 was the record number of redemption requests brought on by clients. Large hedge funds such as Citadel, Harbinger and Cerberus, along with about 80 others, had to put some form of restrictions on client withdrawals.
“Year-end redemptions were significant, as the average fund returned 15% to 25% of investors’ assets. Combined with negative performance and complete liquidations, the entire hedge fund industry started 2009 at close to 50% of the capital it was at the beginning of 2008,” said Charles Gradante, Co-Founder of the Hennessee Group. “However, this should be a positive for funds as less capital will be chasing the same long/short trades, which should lead to better returns.”
The Hennessee Long/Short Equity Index saw a .31 percent advance in December, while the year to date was down over 18 percent. The Global/Macro Index rose .61 percent in December, although taking an almost 21 percent hit for the year. The Arbitrage/Event Driven Index, which was down 18.5 percent on the year, advanced 1 percent in December.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Bloomberg – Days after a March negotiating session to buy San Francisco’s Citicorp Center building for $370 million, Park Hyeon Joo is in the air on a Korean Air flight bound for Seoul, sipping a glass of red wine. He’s not celebrating.
Park, founder and chairman of Seoul-based Mirae Asset Financial Group, the biggest mutual fund company in South Korea, has just given up on his plan to open a branch of Mirae in Los Angeles despite its large Korean-American community.
He’s seen firsthand the swoon in U.S. markets triggered by the subprime mortgage crisis. Recalling the flight, he says he took out his laptop and spent the next three hours writing a somber memo to his 16,900 employees.
Bloomberg- Mitsubishi Asset Brains Co., an investment advisory firm of the Mitsubishi financial group, plans to start a fund of hedge funds as it seeks to invest in managers that can make money in falling markets.
The company aims to start advising a fund in the next “two- to-three years” with the aim of raising “several tens of billions of yen,” Akihiro Nishi, executive director at the Tokyo-based company’s investment advisory division, said in an interview in Tokyo. The company has hired a hedge fund manager who will start in August, he said.
Mitsubishi Asset Brains aims to tap growing demand for funds of hedge funds since the credit crunch that stemmed from U.S. subprime loan problems prompted investors to seek diversified investments to secure steady returns. The money managed by funds of hedge funds has grown more than 800 percent since 2003, according to Singapore-based research firm Eurekahedge.
New York (HedgeCo.Net) – Although hedge funds finished up 2008 with some of the worst numbers to date, they showed some signs of promise in December. According to the latest research by the Hennessee Group LLC, a New York-based advisor to hedge fund investors, hedge funds advanced .51 percent in December.
They finished up the year down 19.15 percent. Although it was a dismal year for hedge funds as a whole, they still outperformed the S & P, which was down 38.5 percent on the year, the Dow Jones, who dropped almost 34 percent, and the NASDAQ Composite Index, which posted a 40 percent drop on the year.
One challenge for hedge funds in 2008 was the record number of redemption requests brought on by clients. Large hedge funds such as Citadel, Harbinger and Cerberus, along with about 80 others, had to put some form of restrictions on client withdrawals.
“Year-end redemptions were significant, as the average fund returned 15% to 25% of investors’ assets. Combined with negative performance and complete liquidations, the entire hedge fund industry started 2009 at close to 50% of the capital it was at the beginning of 2008,” said Charles Gradante, Co-Founder of the Hennessee Group. “However, this should be a positive for funds as less capital will be chasing the same long/short trades, which should lead to better returns.”
The Hennessee Long/Short Equity Index saw a .31 percent advance in December, while the year to date was down over 18 percent. The Global/Macro Index rose .61 percent in December, although taking an almost 21 percent hit for the year. The Arbitrage/Event Driven Index, which was down 18.5 percent on the year, advanced 1 percent in December.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
