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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.
International Herald Tribune - Hedge funds have suffered a shakeout in 2008. The average hedge fund fell almost 20 percent, according to Hedge Fund Research. No fund has yet required a bailout. But many won’t be around in the new year, and those that have survived are battered and bruised. Hedge fund managers must accept that the industry won’t be quite the same again.
Here are six changes they need to prepare for:
Liquidity is the new watchword. Like investment banks, hedge funds didn’t think much about the structure of their financing during the boom times. But a flood of redemption requests in late 2008, just as they were struggling with illiquid markets and scarce credit, caught them out. Many hedge funds annoyed their investors by blocking withdrawals. In the future, funds that invest in illiquid assets will need to lock in their investors longer. And those wishing to give investors regular access to their money will have to focus on liquid markets.
Forbes - The investment banks and global hedge funds that are the usual buyers of debt and equity in struggling Asian companies have largely fled the market, leaving the distressed asset space to home-grown investors.
Local players with the cash — and the stomach — to remain in the hunt for cheap assets find themselves with the luxuries of time, choice and pricing power.
"We’re just taking our time and doing our homework, because a lot of the traditional buyers are not in the market," said Chris Gradel, managing partner at Hong Kong-based Pacific Alliance Group, which runs $1.6 billion in hedge funds.
New York Times - Hedge funds have suffered a shakeout in 2008. The average hedge fund fell almost 20 percent, according to Hedge Fund Research. No fund has yet required a bailout. But many won’t be around in the new year, and those that have survived are battered and bruised. Hedge fund managers must accept that the industry won’t be quite the same again. Here are six changes they need to prepare for:
Liquidity is the new watchword. Like investment banks, hedge funds didn’t think much about the structure of their financing during the boom times. But a flood of redemption requests in late 2008, just as they were struggling with illiquid markets and scarce credit, caught them out. Many hedge funds annoyed their investors by blocking withdrawals. In the future, funds that invest in illiquid assets will need to lock in their investors for longer. And those wishing to give investors regular access to their money will have to focus on liquid markets.
Fees will face greater scrutiny. The archetypal hedge fund charges 2 percent of assets and skims off 20 percent of investment gains, the longstanding “2-and-20” structure. But some funds have had to offer breaks on fees lately to persuade investors not to take their money out. Investors will be more selective and are likely to put downward pressure on fees. All the same, it is probably too soon to sound a Last Post bugle call for 2 and 20.
Washington Post - New evidence has emerged in an insider-trading investigation that the Securities and Exchange Commission closed two years ago without filing charges, raising questions on Capitol Hill about the government’s oversight of what was once one of the nation’s most prominent hedge funds.
According to documents, the hedge fund — Pequot Capital Management — secretly began to pay $2.1 million to a key witness in the case last spring, just three months after several senators called on the SEC to reopen its investigation.
Top Republicans on the Senate Finance and Judiciary committees asked Pequot’s chairman this week to provide records related to the payments. The FBI is also looking into the matter, according to people familiar with the case.
New York (HedgeCo.Net) - Dallas Mavericks owner and billionaire investor Mark Cuban has been accused of insider trading by the SEC after allegedly using private information that helped him avoid over $750,000 in losses tied to stocks.
Search engine company Mamma.com supposedly invited Cuban to participate in its offering, but made Cuban swear he would keep the information private. The lawsuit filed in Dallas claims that Cuban was well aware that his 6 percent stake in the company would be sold below the current market price after learning some inside information. Cuban allegedly took that information and got rid of all of his shares.
"As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential. Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares," Deputy Director of the SEC’s Division of Enforcement Scott W. Friestad said. "It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market."
In Cuban’s popular blog, blogmaverick.com, the outspoken investor wrote, ““I am disappointed that the Commission chose to bring this case based upon its Enforcement staff’s win-at-any-cost ambitions. The staff’s process was result-oriented, facts be damned. The government’s claims are false and they will be proven to be so.”
Cuban has an estimated net worth of close to $3 billion. In addition to owning the Mavericks, he serves as the Chairman of HDNet, an HDTV cable network.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) - New York hedge fund Peconic Partners was sued yesterday for firing an employee who reportedly was running his mouth about some shady insider trading activities.
The suit, filed by former Chief Compliance Officer Joseph Sullivan in New York State Supreme Court, accuses CEO William Harnisch of wrongfully firing him.
According to the 30-page complaint, Sullivan said he was let go after voicing reservations regarding Harnisch’s trading activity involving fertilizer company Potash Corp., whose stock plummeted last month.
Sullivan alleged that Harnisch got rid of his 600,000 shares, selling them for $130 a share. He then sold a chunk of his client’s shares for around $90 each. This may have helped to drive the price down of Potash, which is now trading at around $82.
The Securities and Exchange Commission has also been contacted by Sullivan’s legal team to alert them of the possible insider trading activities.
Peconic Partners was founded in 2004 and has approximately $1.5 billion under management.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) - SEC officials did not botch an investigation into alleged insider trading by hedge fund Pequot Capital Management, at least according to the SEC.
Brenda P. Murray, an administrative law judge for the Securities and Exchange Commission, concluded that no disciplinary action should be taken against two of the officials originally accused.
The 15-page report compiled by Murray goes against the original findings of both the SEC’s Inspector General H. David Kotz and Senate investigators who were put on the case.
Last month, Kotz compiled his own report and recommended the agency take disciplinary action against Director of Enforcement Linda Thomsen, Assistant Director of Enforcement Mark Kreitman and Robert Hanson, Supervisor of SEC lawyer Gary Aguirre.
Kotz said he found evidence that “raised serious questions about the impartiality and fairness” of the SEC investigation. He went on to say how the SEC treated the hedge fund differently than other investigations and perhaps gave them special treatment.
Murray’s findings were in stark opposition with Kotz’s, clearing both Thomsen and Hanson from any wrongdoing.
“We were surprised and disappointed by the administrative judge’s decisions,” said Kotz. “We also have serious concerns about the process utilized in arriving at these decisions.”
Other concerns that have come to the table draw on the fact that Murray was acting outside of her jurisdiction, along with the fact that there might be a conflict of interest considering she is in fact employed by the SEC.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) - A former UBS AG executive has been sentenced to 6-1/2 years in prison after pleading guilty to selling private information about the bank’s stock recommendations. Mitchel Guttenberg, a former manager in UBS’ equity research department, was accused by the prosecution of running the most pervasive insider trading rings since the 1980’s.
“From the moment he joined the investment review committee he planned to give that information to others to use illegally,” Judge Deborah Batts of U.S. District Court in Manhattan said yesterday.
Guttenberg didn’t try to deny the allegations and instead plead guilty to two counts of conspiracy and four counts of securities fraud. He admitted that on numerous occasions he tipped off two traders about analyst stock recommendations along with dispersing information about UBS analysts’ upgrades and downgrades that were used to net more than $17.5 million over hundreds of transactions.
Guttenberg was one of a dozen people charged with orchestrating the insider trading ring. Other employees came from such companies as Morgan Stanley, Bank of America and Bear Stearns. His sentence includes three years of supervision following his incarceration at a minimum security prison in New Jersey.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) - The infamous collapse of the two $1.8 billion Bear Stearns hedge funds that many believe helped spark the credit crisis is still being investigated, and now other banks and individuals are being probed in the process.
According to those familiar with the matter, prosecutors are now looking at the offering memorandum of the funds, a set of documents usually constructed by the legal team that list strategies and other pertinent information, along with investigating the individuals who prepared them.
Ralph Cioffi and Matthew Tannin, both hedge fund managers for the now defunct funds, have had criminal charges filed against them in federal court. The two men allegedly defrauded investors in the hedge funds by neglecting to communicate the sharp losses they were experiencing due to their exposure to mortgage backed securities and hefty amounts of leverage. Cioffi was also charged with insider trading.
Investors who experienced losses in the fund have a number of cases against Bear Stearns. Barclays Bank PLC also filed a suit last year after losing approximately $400 million in the funds.
The High Grade Structured Credit Strategies Fund and the High Grade Structured Credit Strategies Enhanced Leverage Fund collapsed last summer amidst the subprime mortgage fallout. The funds had sought liquidation in the Cayman Islands, possibly hoping to shield some assets from creditors. That request was denied in U.S. Court.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Wealth Bulletin - The UK’s financial regulator has hired Australian Andrew Crain to head up the team that oversees the roughly 40 largest hedge fund managers that operate in the UK. Crain, a former regulator in his home country, assumes his new job later this month.
The team he will run sits within the wholesale investment division of the Financial Services Authority, the UK’s equivalent of the US Securities and Exchange Commission.
The appointment comes as the UK regulator is stepping up efforts to discourage unsavoury behaviour, including insider trading and other market abuses by hedge funds and others.
Those efforts have included measures that are widely unpopular among fund managers, including a rapidly introduced rule requiring disclosure of short positions — or bets that a stock will fall — in certain circumstances.
New York (HedgeCo.Net) - Eight people were arrested yesterday in London on suspicions of insider trading.
The city of London police and about 40 Financial Services Authority officials targeted workers at UBS and JPMorgan Cazenove, in what they are calling “a major ongoing investigation into insider dealing rings.”
It is believed that the suspected individuals shared price-sensitive information contained at the bank’s printing facilities that had not yet been made available to the public.
Ironically, Malcolm Calvert was indicted last week, also from Cazenove who allegedly used inside info to purchase huge stakes in companies that were rumored to be potential targets for takeovers from 2003-2005. It is unknown as to whether or not the two instances are related.
Names have not been released, but the FSA did confirm to the Financial Times that one of the men arrested was a junior member of UBS’s support staff in London. He is currently suspended while the investigation unfolds.
As for the others, the FSA has only confirmed that they are men between the ages of 27 and 48. No word yet on how much money the individuals are thought to have gained through the insider deals.
This marks the third insider trading case filed by the FSA this year. The City of London police were asked to get involved, as the FSA does not have the authority to arrest.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com