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.
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.
Reuters – U.S. securities regulators missed “numerous” red flags that may have led to Bernard Madoff’s $65 billion Ponzi scheme and never did a “thorough and competent” probe despite complaints dating to 1992, a federal watchdog has concluded.
The U.S. Securities and Exchange Commission’s inspector general said in a blistering report that despite five probes and having caught Madoff in “lies and misrepresentations,” the SEC failed to follow up on inconsistencies.
“Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme,” Inspector General David Kotz wrote.
Reuters – Shares in Korea Beral soared more than 11 percent after a unit controlled by activist investor Carl Icahn raised its stake in the car parts maker, fanning speculation about a possible unsolicited takeover bid.
F-M International Ltd, which belongs to auto parts maker Federal-Mogul, told South Korean regulators in a disclosure on Monday that it had raised its stake in Korea Beral to 29.20 percent as of Aug 25 from 28.69 percent.
Bloomberg – Pequot Capital Management Inc., once the world’s biggest hedge-fund manager, was cited in at least 44 private reports from exchange watchdogs in the past four years alerting U.S. regulators to potential insider trading, market manipulation or other misconduct, government documents show.
Trades linked to Google Inc., Cox Communications Inc., International Securities Holdings Inc., Premcor Inc. and dozens of other companies prompted surveillance units policing U.S. exchanges to make the referrals to the Securities and Exchange Commission, according to agency records obtained by Bloomberg News. Thirty-six reports flagged possible insider trading. Four indicated possible manipulation and four were labeled “other.”
The Ledger – Federal regulators announced an agreement with Maurice R. Greenberg on Thursday to settle accusations that he oversaw an accounting fraud at the American International Group.
But Mr. Greenberg did not go quietly.
Shortly after the announcement from the Securities and Exchange Commission, Mr. Greenberg issued a defiant statement saying he had ”no responsibility” for the fraud at A.I.G., which he ran for about four decades ending in 2005.
Under the settlement, Mr. Greenberg agreed to pay just $15 million in penalties and disgorgement for overseeing fraudulent transactions at A.I.G.
The Daily Advertiser – John Hyland’s funds control billions of dollars that flow in and out of energy markets, making him one of the biggest oil speculators in the world and also one of the biggest potential targets for federal regulators.
The 50-year-old Californian has been asked to appear before the Commodity Futures Trading Commission on Wednesday, where he will say that he isn’t the boogie man everyone’s looking for.
Milwaukee Journal Sentinel – Five years after regulators forced the sale of Strong Funds to Wells Fargo and Co. at the height of a national mutual fund scandal, investors in 24 former Strong Funds are moving closer to receiving their share of a $154 million settlement.
A proposal for doling out the money was developed by an independent consultant and has been published on the Securities and Exchange Commission Web site.
The proposal, which awaits SEC approval, would give priority to reimbursing investors in 24 Strong funds whose losses were related to ”frequent trading.” Frequent traders often aim to take advantage of differences between the share price of a fund and the actual value of the securities it holds – a maneuver that can harm the interests of long-term shareholders.
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.
Alibaba News Channel – European companies emerging from the credit crisis should start looking over their shoulders: activist investors are set to return from hibernation, working more closely than ever with institutions to effect change.
The activists, who favour methods such as changing balance sheet structures, ousting chairmen or selling off non-core units, had little to do during the crisis when buyers were scarce and there was little appetite for transformatory change. But now they are set to gain from a political will to drive large institutional investors towards more active investment and away from a mentality of simply selling stocks they don’t like, while a purge of more leveraged, short-termist funds has cleared the ground for activists to tap a wealth of new opportunities.
"Pushed and shoved by the regulators, mainstream institutions are beginning to countenance interaction with activist investors," said a senior figure at one activist firm.
Bloomberg – The two main regulators of U.S. financial markets should merge, the chief executive of America’s largest options exchange says in remarks to be delivered to a congressional panel on Friday.
William Brodsky, CEO of the Chicago Board Options Exchange (CBOE), says in a written statement that there is a "compelling need for the merger" of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
Chicago Tribune – Illinois hedge-fund manager Gregory Bell, who was charged with wire fraud for his role in an alleged Ponzi scheme, was granted $1.5 million bail and required to wear an electronic monitor, a federal judge in Minnesota ruled Wednesday.
Bell, founder of Lancelot Investment Management LLC, was accused Friday by U.S. prosecutors and regulators of feeding client assets to the alleged scheme run by businessman Thomas Petters. Magistrate Judge Jeffrey Keyes, citing Bell’s cooperation with authorities, ordered Bell to put up interest in his home in Highland Park to satisfy the bail.
Bloomberg – Crude oil was little changed near $60 a barrel in New York amid concerns the global recovery has yet to take root, postponing a rebound in demand for fuel.
Hedge-fund managers and other large speculators reduced their net-long position in New York in the week ended July 7, according to the latest data from regulators. Stocks dropped from Dubai to Taipei and Treasuries rose on speculation that government rescue measures have not taken effect.
“Bearish sentiment in the market is persisting,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “It’s weak, so a move to $58.30 is possible, but we should consolidate around there.”
