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.
New York (HedgeCo.Net) – Alan Schwartz, former Bear Stearns CEO, has decided to leave JPMorgan and pursue other ventures.
“With most of the work on the merger integration behind us, Alan will be moving on from the firm at the end of August to pursue other interests,” said JPMorgan CEO Jamie Dimon in a memo distributed internally.
Schwartz, 58, is expected to finish out the month of August at JPMorgan. The New York Post reported last month that Schwartz was presented several offers including one from private equity firm Kohlberg Kravis Roberts & Co. and others from hedge funds.
“Despite the extremely difficult circumstances that brought our firms together, Alan has been a terrific and constructive partner through the process,” Dimon added in the memo.
Schwartz took the leading role at Bear Stearns, replacing James Cayne. He was in office only three months before the shocking Federal Reserve-backed buyout that put 14,000 of his employees out of a job. Some suspected he was reluctant to align himself with JPMorgan after such a large number of his staff was laid off. Schwartz defended his company’s implosion, blaming the event on false market rumors of a liquidity crunch.
"I am very proud to have been a part of Bear Stearns,” Schwartz stated in the memo. "It was a special place I know many of us will miss.”
While an insider did confirm Schwartz’s exit plan, there is no word yet on what his severance will entail.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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New York (HedgeCo.Net) – Credit rating agency Moody’s said on Tuesday that it would probe deeper into why its staff incorrectly rated approximately $1 billion of complex debt securities.
While it was thought to be a computer error that caused the discrepancies in ratings, an external investigation by Sullivan & Cromwell revealed that some members of a key ratings committee violated certain codes of conduct while dealing with constant proportion debt obligations, or CPDOs. An expose produced by the Financial Times originally shed light on the errors.
“I am deeply disappointed by the conduct that occurred in this incident,” said Moody’s CEO and Chairman Raymond McDaniel. “The integrity of our rating process is core to Moody’s values and is essential to the market.”
CPDOs were awarded the highest "Triple A rating" when they first appeared in 2006. It then came to be known that they were actually associated with risky instruments. Moody’s insists that the error was not intentional. Some investors who snatched up CPDOs lost over half of their capital.
Following the subprime fallout last summer, Moody’s, Fitch and Standard & Poor’s have downgraded hundreds of billions worth of debt, creating substantial losses for investors and causing the implosion of several hedge funds.
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
New York (HedgeCo.Net) – The two managers behind Bear Stearns’ infamous failed hedge funds have surrendered to face charges, in what will be the first criminal lawsuit stemming from the subprime mortgage fallout.
Ralph Cioffi, 52, and Matthew Tannin, 46, are part of an indictment resulting from a yearlong federal securities fraud investigation, according to a law enforcement official who spoke to The Associated Press.
Although Tannin’s lawyer is quick to pronounce his innocence, the two men are accused of misleading investors about market conditions and the risks associated with the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund and the High-Grade Structured Credit Strategies Master Fund.
Using heavy leverage, the funds invested in subprime-mortgage backed securities that started to plummet in value amidst the record number of foreclosures. The managers are accused of hiding performance information as the fund started to lose value rapidly, even citing it as “positive” at specific low points.
After a $1.6 billion failed rescue attempt by Bear Stearns, the funds were shut down in June 2007, leaving investors with nothing more than an apology.
This isn’t the first time Cioffi and Tannin have been hit with allegations. After the implosion of the funds, Barclays Bank, backed by other investors sued Bear Stearns, claiming they were misled about the funds as well.
Susan Brune, Tannin’s lawyer states, "He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."
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
CNNMoney.com – It’s time to say goodbye to Old Lane, the hedge fund management company bought by Citigroup last July.
Citi paid a very dear $800 million to snag the fund and its founder Vikram Pandit, who now runs the entire bank, but the fund’s investors got very little out of the deal. One wonders whether Old Lane was doomed from the moment it was bought, and whether death is the fate of funds that become part of Wall Street conglomerates like Citi (C, Fortune 500), Goldman Sachs (GS, Fortune 500) and UBS (UBS) – the mega-banks that have rolled up merchant bankers, trading floors, and personal wealth management groups.
True, the hedge fund had problems independent of Citi, generating a modest 6.5% in its first year and falling about 6% amid last August’s credit turmoil. It continued to lag other multi-strategy funds thanks to bad credit bets. But problems at Old Lane are the latest in a string of blowups at banks that operate hedge funds. UBS shuttered its Dillon Read Capital Management last May due to big credit losses; and those problems gave markets a warning shot of the credit crisis to come.
The implosion of two highly leveraged credit hedge funds last June was the beginning of the end for Bear Stearns. And Goldman Sachs’ flagship Global Alpha fund began 2007 with $10 billion and ended the year with about $4 billion. Each of these debacles has had its own special flavor, but they all show how hedge funds can lose their mojo when they live within a big, bureaucratic institution.
New York (HedgeCo.Net) – Troubles keep arising for Bear Stearns, even after its demise and the resulting takeover by JPMorgan Chase. It seems investors are still targeting Bear after the implosion of their two failed hedge funds last year that kicked off the subprime mortgage crisis.
Federal prosecutors, along with the SEC, may bring criminal charges against Ralph Cioffi and Matthew Tannin, who ran the High-Grade Structured Credit Strategies Enhanced Leverage Master Fund and the High-Grade Structured Credit Strategies Master Fund.
The two funds at one point managed upwards of $20 billion, with a majority of their assets invested in subprime-mortgage backed securities. As homeowners started defaulted on their mortgages at record rates, these securities plummeted in value, and creditors started to demand more collateral.
Even an influx of $1.6 billion by Bear Stearns could not save the funds, and assets were subsequently frozen. Both funds eventually filed for bankruptcy with only a small portion remaining of investor’s money.
A failed request at a Cayman Islands liquidation sealed the deal for Bear, who no longer could shield the fund’s assets from investors.
The question arises of whether or not Bear Stearns overstated their securities values to shareholders. At times, the two managers were quoted as reporting the performance of the funds as “positive,” when in reality, it was down as much as 38%.
According to the Wall Street Journal, securities fraud charges may be filed against the two men by next week.
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
Reuters- Bear Stearns Cos plans to turn over documents to securities regulators showing that financial giants like Goldman Sachs Group, Citadel Investment Group and Paulson & Co cut their exposure to the securities firm before its collapse, the Wall Street Journal reported on Wednesday.
The Securities and Exchange Commission (SEC), as part of an inquiry into events surrounding the implosion of Bear Stearns in March, has sought and will examine these trading records, people familiar with the matter told the newspaper.
The SEC is expected to use the data to determine whether any trading activity was improperly coordinated, constituted manipulation or otherwise contributed to Bear Stearns’ collapse, the report said.
