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Bloomberg – The Galleon Group insider-trading investigation may sap investor confidence in the hedge-fund industry, already under scrutiny after Bernard Madoff’s Ponzi scheme, said Michael Coleman, chairman of the Singapore chapter of the Alternative Investment Management Association.
“It’s obviously not good news for the hedge-fund industry from the top level, but it seems to be a very specific case,” Coleman said in an interview on Bloomberg Television today.
Galleon founder Raj Rajaratnam was arrested in New York on Oct. 16 for alleged insider trading, charges which he denies. The U.S. government is reviewing regulation of the financial industry, including a plan that would create an agency for monitoring consumer financial products and bring hedge and private-equity funds under federal scrutiny.
Bloomberg – Geneva’s funds of hedge funds saw client inflows for the first time in 11 months in August, halting a slump that accelerated after losses related to Bernard Madoff’s Ponzi scheme.
Net inflows were $30 million, after withdrawals of $2 billion in July, according to data compiled for Bloomberg News by Singapore-based Eurekahedge Pte. Total assets in Geneva-based funds of hedge funds climbed almost 1 percent to $14.3 billion, after slumping 74 percent during the previous 19 months.
News Inferno – One hedge fund has agreed to reimburse its investors who were swindled in the historic Ponzi scheme orchestrated by the disgraced, now jailed, financier, Bernard Madoff. The hedge fund—Fairfield Greenwich Advisors—apparently moved money to Madoff, said Boston.com, and will now reimburse its Massachusetts investors for some $8 million to cover losses. The agreement was reached Wednesday with Secretary of State William F. Galvin, said Boston.com,
Galvin, said Fairfield Greenwich, did not conduct the “rigorous” due diligence of Madoff it told its investors in Massachusetts it had, reported Boston.com. Galvin hopes that this agreement “will become a template for other resolutions’’ in the massive Ponzi scandal, quoted Boston.com.
Sentinel and Enterprise – After Bernard Madoff’s Ponzi scheme collapsed, having bilked charities, hedge funds and retirees of as much as $65 billion, the temptation is to say: “We’ve learned our lesson. That will never happen again.”
Barring an overhaul of the Securities and Exchange Commission — with tougher regulations, more resources and aggressive, skeptical, better-trained regulators — it could happen again. And, as the markets recover, it may even be happening now.
Disturbing evidence of this came in a summary of a longer report yet to come by SEC’s Inspector General H. David Kotz on how Madoff got away with a scam for 16 years despite repeated warnings to the agency, including a complete blueprint to the scheme by a rival investor.
Bloomberg – Hedge funds in Edinburgh say they escaped any direct losses from Bernard Madoff’s Ponzi scheme. That doesn’t mean they’re not living with his legacy.
Clients are demanding more disclosure, quicker access to their money and individual, rather than pooled, accounts after Madoff hurt the loosely regulated business, according to managers in the Scottish capital.
New York — The U.S. Court of Appeals for the Second Circuit has affirmed a district court’s decision that dismissed a securities fraud case against New York-based hedge fund investment adviser Hennessee Group LLC. In the 36-page opinion issued July 14, 2009, the Second Circuit upheld in its entirety the August 2007 ruling by Judge Colleen McMahon of the U.S. District Court for the Southern District of New York that dismissed claims of breach of contract and securities fraud in South Cherry Street, LLC. v. Hennessee Group. All of South Cherry’s arguments on the appeal were found to be without merit.
The claims were in connection with Hennessee’s investment advice regarding Bayou Management’s hedge funds that were uncovered as part of a large Ponzi scheme, for which Bayou’s principals were found guilty of securities fraud in 2005.
“We are delighted with the Second Circuit’s decision that finds all claims of breach of contract and securities fraud against Hennessee are without merit. Bayou’s Ponzi scheme caused many unfortunate events, but the Court’s decision establishes that Hennessee was not a participant on any level,” said Bennett Falk, Hennessee’s trial counsel and a partner in the securities litigation and regulatory practice group in the Florida office of Bressler, Amery and Ross, P.C.
Reuters – Hedge fund Citadel Investment Group claims it is owed $470.5 million on derivatives contracts it held with Lehman Brothers, according to a claim filed in a New York bankruptcy court last week.
Citadel, which manages around $12 billion in assets, claims it is owed the money in its Citadel Equity Fund. The filing said the claim was at least partly based on a guarantee, but did not give details.
Newsday – Bernard Madoff’s top lieutenant in his Ponzi scheme is scheduled to plead guilty Tuesday to federal charges in what many legal observers believe is a cooperation deal that could lead to trouble for some major hedge fund operators.
Frank DiPascali Jr., 52, of Bridgewater, N.J., had been a key Madoff aide, working in a closely guarded office on the 17th floor of Manhattan’s Lipstick Building, where the Ponzi scheme operated. It was DiPascali, investigators and defense attorneys said, who dealt with the numerous hedge funds and was involved in mailing myriad false account statements sent to thousands of defrauded clients.
Pittsburgh Post-Gazette – The family of a Cambria County manufacturer has filed a lawsuit claiming that a New York hedge-fund manager illegally took $750,000 from its trust fund.
The lawsuit, filed by the family of Frank Calandra Jr., was moved to federal court yesterday. It names as defendants Signature Bank Corp. and Cushner & Garvey LLP.
The man the family accuses of taking its money, Edward T. Stein, is not a named defendant.
Mr. Stein was charged with securities fraud in federal court in Manhattan in April. According to the Securities and Exchange Commission, Mr. Stein operated a Ponzi scheme involving some $55 million collected from investors.
Bloomberg – Genevabanks, which began investing client money in funds of hedge funds during the 1960s, are struggling to rebuild the business after market losses and Bernard Madoff’s Ponzi scheme cut assets by 72 percent.
The assets of funds of funds managed from Geneva slumped to $15 billion in May from $54.2 billion at the end of 2007, according to data compiled by Singapore-based Eurekahedge Pte. Almost 25 percent of the 227 funds operating in the city at the end of last year shut in the first five months of 2009 and only six opened, less than a fifth of the 2008 number.
Bloomberg – Geneva banks, which began investing client money in funds of hedge funds during the 1960s, are struggling to rebuild the business after market losses and Bernard Madoff’s Ponzi scheme cut assets by 72 percent.
The assets of funds of funds managed from Geneva slumped to $15 billion in May from $54.2 billion at the end of 2007, according to data compiled by Singapore-based Eurekahedge Pte. Almost 25 percent of the 227 funds operating in the city at the end of last year shut in the first five months of 2009 and only six opened, less than a fifth of the 2008 number.
Bloomberg – Let’s say you hand a million dollars or more to an investment advisory firm that boasts a sterling reputation, grand results and a promise to thoroughly investigate hedge funds before recommending them.
For all the claims of super due diligence, this fine firm sinks your money into what turns out to be a Ponzi scheme.
Now your money is gone and the hedge fund founder who lost it is serving 20 more than years. Federal regulators belatedly find that your adviser didn’t actually do that much due diligence.
The Bayou Group hedge fund it put you into hadn’t had an independent audit almost since its beginning when an initial auditor noticed consistent losses and was let go, according to the Securities and Exchange Commission.
