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.
KWCH.com – A prominent New York law firm is expected to seek bankruptcy protection.
That’s according to a receiver appointed to run the firm — which has been scandalized by charges that its founder was behind a massive fraud.
The receiver also predicted that the founder — Marc Dreier — will soon seek bankruptcy protection as well.
Dreier was jailed last week after being charged in a criminal complaint and by the Securities and Exchange Commission in the alleged sale of fraudulent promissory notes.
He’s accused of an elaborate charade aimed at convincing three hedge funds that the investments were real.
Prosecutors have estimated total loses could top $380 million.
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.
Law.com – As Marc S. Dreier was being arrested for attempting to defraud hedge funds of more than $100 million, some of the 10 affiliates of Dreier LLP were peeling off and others were trying to hold the firm together even as money for insurance and some operating expenses is frozen.
Declarations filed Monday by the Securities and Exchange Commission in connection with a civil case it brought against Dreier also indicated that some firm attorneys were concerned that escrow accounts, which Dreier controlled, had been depleted.
One named partner of an affiliated firm, Vincent Pitta of Pitta & Dreier, stated in a declaration that the firm could not meet its expenses. The reason, Pitta said, was that he and Dreier were the sole signatories to the firm’s operating account, and Pitta had only limited authority to approve spending.
Forbes – A group of Dillard’s Inc. investors is asking the family that controls most shares in the department store chain for corporate records containing information on family and business relationships and perks given to directors or executives of the department store chain.
The request was detailed in a filing with the Securities and Exchange Commission and comes as softening consumer spending has many retailers, including Dillard’s, posting weak sales ahead of the crucial holiday season.
istockAnalyst.com – Mutual funds and hedge funds are very similar. An investor puts $10,000 into a mutual fund or hedge fund, and the manager uses that $10,000—along with the rest of the fund’s capital—to buy and sell securities.
Though often shrouded in mystery, hedge funds are pretty easy to understand. A mutual fund has to register with the Securities and Exchange Commission; a hedge fund does not. Why? Hedge funds are exempt from registration because they generally operate under one of two exemptions provided by the Investment Company Act of 1940:
Section 3(c)(1): Hedge funds are exempt from registration if they have "not more than one hundred" investors, all of which are accredited investors; or,
eBrandz – In a move expected to fuel speculation over Yahoo Inc.’s search for a new chief executive — Corporate raider and billionaire investor Carl Icahn augmented his stake in Yahoo, has bought up close to 7 million additional shares of the Internet Company over three days this week, paying around $67 million, according to regulatory filings.
Icahn, a billionaire hedge-fund manager who now holds a seat on Yahoo’s board, acquired 6.77 million additional shares of Yahoo stock during November 24-26 for 67 million dollars, now owns 75.6 million of the company’s shares, or a 5.4 percent stake valued at around $870 million based on Yahoo’s closing share price on Friday, according to the documents filed with the Securities and Exchange Commission and dated Wednesday.
The company’s stock moved up 93 cents, or nearly 9%, to $11.51 in the shortened trading session after Icahn, a Yahoo board member who has been pushing a strategy shift or a sale to Microsoft Corp., said he had bought about 6.8 million shares.
EasyBourse.com – Global securities regulators have formed three task forces targeting short selling, hedge funds and unregulated financial trading, in an effort to take "urgent action" to coordinate responses to current market turmoil, Securities and Exchange Commission Chairman Christopher Cox announced Monday.
The newly formed short-selling task force, chaired by the Securities and Futures Commission of Hong Kong, will work to eliminate different approaches to "naked" short sales, including delivery requirements and disclosure of short positions, while minimizing any harm to legitimate securities lending, hedging and other transactions. Read Complete Article
Vineland Daily Journal – So Mark Cuban — internet billionaire, Dallas Mavericks owner, blogging geyser — is in the soup for alleged insider training, the feds claiming he saved himself $750,000.
That’s chump change. It wouldn’t even pay his NBA fines. But the folks down at the Securities and Exchange Commission can be a little touchy.
The upside to all this, though, is we could well be treated to another episode of one of the more entertaining grudge matches in the public domain.
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
Because of the recent market turmoil, many hedge-fund investors have questions regarding what regulations are applicable to hedge funds, and how to withdraw their money from their hedge-fund investments if they want out. Indeed, hedge funds often present many different barriers to withdrawal, and there are essentially no regulatory prohibitions on these barriers.
Perhaps the best way to understand the regulations that apply to hedge funds is to compare them with mutual funds. Mutual funds are investment companies that are required by law to register with the U.S. Securities and Exchange Commission (SEC) and, therefore, are subject to stringent regulatory oversight. Virtually every aspect of a mutual fund’s structure and operation is subject to regulation under four federal laws, including the Securities Act of 1933, the Investment Company Act of 1940, the Securities Exchange Act of 1934 and the Investment Advisers Act. The Investment Company Act regulates the structure and operation of mutual funds and forces funds to safeguard their portfolio securities.
New York (HedgeCo.Net) – CSX is finding themselves in the middle of another battle, this time with a shareholder who is suing the railroad company along with hedge funds TCI and 3G Capital Partners.
Shareholder Deborah Donoghue is seeking the recovery of “short swing” profits from sales conducted by the two hedge funds between August and September 2007. She is hoping to recover profits from the sale of shares by the funds, before they announced their plan to launch a proxy battle and shake up the Board of Directors.
Donoghue is claiming that TCI and 3G sold 2 million shares of CSX stock and within six months, bought a large amount of shares and derivatives equal to shares of CSX common stock at lower prices.
“Such profits are recoverable on behalf of CSX by plaintiff as a shareholder of CSX, the latter having failed or refused to act in its own right and for its own benefit,” stated the complaint.
Donoghue isn’t the only one who believes the hedge funds didn’t act in good faith. CSX has been in a battle with the two funds ever since they exerted their controlling stakes to take over four board seats on the Jacksonville, Florida based company after a drawn out proxy battle.
CSX had argued that the funds “secretly coordinated” their fight to gain the seats on the board while failing to disclose their full stake in the company. The judge eventually ruled with the hedge funds, allowing them to vote their shares at the company’s annual meeting in June.
Hedge funds are not required to report to the Securities and Exchange Commission, thus these “short-swing” profits were not publicized.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Bloomberg – The U.S. Securities and Exchange Commission extended a rule forcing hedge funds to tell the agency about short-sale positions amid concerns investors bet against companies after spreading false rumors they will fail.
Investment managers who oversee more than $100 million must to disclose to the SEC the stocks they’ve bet will fall in price until Aug. 1, the agency said in a statement on its Web site today. Those positions won’t be made public, the SEC said.
The SEC said it’s concerned “about the possible unnecessary or artificial price movements” in stocks “that may be based on unfounded rumors and may be exacerbated by short selling.”
The SEC is investigating hedge funds and cracking down on short-selling after lawmakers questioned whether traders spread misinformation and used abusive tactics to attack companies. The collapse of Bear Stearns Cos. in March and Lehman Brothers Holdings Inc.’s September bankruptcy fueled concerns that investors were manipulating financial markets.
