February 08, 2007

Presidential Ties to Hedge Funds

-- Pushpa Sathish, Staff Writer

If you remember him as I do, it would be for the stellar role he played in handling the disastrous consequences of that fateful day in September, 2001 when a terrorist outfit wreaked havoc on the United States. Now, Rudy W. Guiliani is making news for an altogether different reason.

The former mayor of New York City is in the limelight as he contemplates running for president next year – especially because of the large contributions that are pouring from hedge funds to his campaign fund. T. Boone Pickens and Paul Tudor Jones II stand out in the list of contributors – they run the hedge funds BP Capital Management and Tudor Investment Corporation respectively and were named by Alpha Magazine as the second and fifth highest earners among hedge fund managers.

Besides these inflows, there have been others from the employees of BP Capital Management and Elliot Associates – the latter, a hedge fund managed by Paul E. Singer, a staunch supporter of Giuliani.

Hedge Funds’ Cup of Woes Overflows

-- Pushpa Sathish, Staff Writer

January has not been a good month for a few hedge funds. Red Kite lost more than 20 percent on bad bets on copper – the fund is now trying to deal with the investors who are knocking down its doors in an attempt to redeem their investments. The two-year old fund which had a strong showing last year is pinning its hopes on the 45-day notice that investors are supposed to provide before they pull their money out. The lock-out period was increased from 15 to 45 – perhaps in lieu of what was in store at the fund?

Meanwhile, across the ocean in the United Kingdom, things are not too good at the offices of SemperMacro. The hedge fund, beset by a cascade of troubles including a 16 percent loss last year and a subsequent withdrawal of funds by investors, is in the process of cutting back on its staff. SemperMacro, which was set up by a former Goldman Sachs employee and a former BBC chairman, plunged to $500 million from $1.5 billion after an investor redemption in December 2006.

Make Sure you Share Share-Purchase Information

-- Pushpa Sathish, Staff Writer

Buying the majority of shares in a company, hiding the fact from the SEC, not informing your investors about the beneficial interest due to them, being involved in a securities fraud – these are misdemeanors that will get you into heaps of trouble, a fact that John H. Whittier will attest to.

The former head of the now defunct hedge fund Wood River Capital Management LLC was indicted on the charges of cheating investors to the tune of $88 million in Oct 2005. He’s being accused of securities fraud and failure to disclose beneficial interest in a publicly traded security - of 5 percent in one and 10 percent in two others.

Whittier, who purchased 80 percent of wireless communications company EndWave Corp., failed to disclose ownership of the same – which is why he is being charged with attempting to con investors in the hedge funds Wood River Partners LP and Wood Rivers Partners Offshore Ltd.

His arraignment is scheduled for Feb 8.

February 02, 2007

No Freedom From Fraud For Hedge Funds

-- Pushpa Sathish, Staff Writer

Hedge fund executives fund plane trips and expensive cars using investors’ money – this is the sort of headline that gives the entire hedge fund industry a negative tinge; this is why the U.S Securities and Exchange Commission (SEC) is stepping up its efforts to infuse some transparency in the operations of these secretive agencies; and this is why hedge funds are not the average investor’s cup of tea.

Bret Grebow and Robert Massimi, former trader and manager of the now defunct fund HMC International, played around with investors’ money as if it was their own, literally. While one used funds from new investors to meet redemptions and pay out non-existent profits to other investors, the other went a step further – he impressed his friends by flying them out to Houston on a Learjet for a Super Bowl game and also treated himself to a brand new Lamborghini, all with money fished out from investors’ pockets.

Grebow learned too late that’s there no free ride, especially not in a Learjet or a Lamborghini; he has to cough up not only a $120,000 civil penalty, but also $3 million that he stole. Massimi also faces the same civil penalty, but he gets off lighter than his partner-in-crime; he owes investors only $1.3 million. Considering the amount raised to fund this fraud - $12.9 million from 80 investors – this punishment seems a bit tame.

The former traders, who have been banned from working for investment advisors, settled the charges without admitting that they stole the money or used it fraudulently.

January 24, 2007

Unlikely Hedge Fund Managers

-- Pushpa Sathish, Staff Writer

It’s akin to law-enforcers setting up their own crime shops – with all the fuss that the U.S. Securities and Exchange Commission has been making recently about bringing hedge funds under their eagle eye, you’d expect that a former chairman would be the last person to float one of his own. But that’s exactly what’s happened – Richard Breeden, erstwhile chairman of the SEC, has crossed over and set up a $500 million hedge fund registered in the Cayman Islands.

Another surprise startup emerged from the shadows of the Clinton administration – news of former Secretary of State Madeleine Albright’s hedge fund raised more than an eyebrow or two. The Albright Capital Management fund, which will focus on emerging markets, has been built with $329 million from Dutch pension unit PGGM.

I’m curious - Will the former SEC chairman toe the line with current SEC rules relating to hedge funds, or, now that he’s on the other side, will he flout them?

Hedge Funds Face Opposition

-- Pushpa Sathish, Staff Writer

Hedge funds Centaurus Capital and Paulson find other Dutch voices being raised against them for forcing Stork NV to break up. Minor shareholder Robeco and pension firm ABP (though not a shareholder) are up in arms against the funds’ strong-arm tactics to push Stork to sell all except its aerospace and defense divisions. The two hedge funds jointly own a 31.4 percent stake in Stork, a figure that they apparently feel is enough to demand the dismissal of the supervisory board and curbs on its rights to take decisions on acquisitions and divestments higher than 100 million euros. Forbes reports:

ABP's Eugene Rebers said dismissing the supervisory board would be 'premature' and not in the interest of Stork. He added, “As yet Centaurus and Paulson have provided insufficient proof that their proposed strategy is indeed the best. If they wish to adopt a different strategy at all costs for reasons of their own then they should take the royal road to achieving this by making a public bid for all shares.”

January 07, 2007

Phony Hedge Funds Do Not Pay

-- By Pushpa Sathish, Staff Writer

Setting up a fake hedge fund, passing yourself off as the heir to Turkish business magnates, flaunting your largesse with a $1.25 million endowment to the New York University, using investors’ money to fund the gift, using the publicity generated to attract new investors, and finally being arrested while attempting to pass spurious checks at three banks in an effort to pay off furious investors – this sums up the infamous fame of the then 20-year-old Hakan Yalincak.

The founder of the Daedalus Relative Value Fund, who was released after cooling his heels in the slammer for twenty months, is still not home free; he faces a trial on February 14. He had to pay $1.1 million in cash bonds and promissory notes for his short freedom, during which he will live under house arrest, with a guard and wearing an electronic monitor. Yalincak and his family members also had to surrender their Turkish passports to ensure that he wouldn’t leave the country under the cover of darkness.

More arrests are due, said Yalincak, who is apparently co-operating with federal investigators to bring the other crooks to book. And if one were to believe Bernard Grossberg, Yalincak’s lawyer, the lad had nothing at all to do with the whole scam, and was just a mere tool used by the real masterminds.

Goodbye Amaranth, Hello Continuum?

-- By Pushpa Sathish, Staff Writer

It sure looks like that Nick Maounis is not one to take things lying down! So who’s he, and why is he newsworthy? Because he’s the founder of that hedge fund that made the most headlines in 2006, Amaranth Advisors LLC. According to his attorney David Boies, Maounis and a few former colleagues are toying with the idea of floating a new company that will either offer wealth management services for investors or consultation services for other funds.

But first things first – the closure of Amaranth is the issue at hand now. The hedge fund is in the process of settling its affairs and finding suitable work opportunities for its erstwhile employees. In case you’re interested though, watch out for the appearance of funds named Continuum or Segue – they’re the ones that will involve Maounis and his team!

January 06, 2007

Renting and Commissioning Trouble

-- By Pushpa Sathish, Staff Writer

Is it a case of you scratch my back and I’ll scratch yours? That’s what William Gavin, Massachusetts Secretary of State is attempting to find out. European bank UBS AG finds itself plumb in the middle of this controversy. The financial institution rents office space to hedge funds in Boston, and also provides them with staff, consultants and other perks including coffee machines.

All above board, you say? Not so, according to Massachusetts officials. They are probing allegations that the hedge funds leasing space are in return providing the bank with trading business at higher commissions than normal. With the final bill being footed by the hedge funds’ clients, the question remains – do they know why they are incurring the higher costs?

Galvin says that hedge funds may be in violation of soft dollar rules – soft dollars are generally not reported in accounting books, and are added to brokerage fees. If hedge funds are in deed using trading commissions to pay for office space, they are transgressing the rules, since it’s against the law to pay rent using soft dollars.

Though the use of soft dollars by wealth management institutions is controlled by the Securities Exchange Act of 1934, hedge funds are not bound by the Investment Company Act of 1940, and so, do not have their trade commissions monitored too closely, according to Tamar Frankel, a professor of corporate law at Boston University.

Regulation problems at the root here? Sure looks that way!

December 19, 2006

Amaranth to Goldman Sachs

-- By Pushpa Sathish, Staff Writer

Amaranth may have bitten the dust after biting off more than it could chew in bad energy calls, but its staff is still being sought after by some of the biggest names in the hedge fund industry. Recent reports claim that Goldman Sachs has roped in 17 of the former hedge fund’s traders to help the company expand its investments in debt markets.

While no formal announcement has been made by Goldman Sachs, sources said that the 14 credit specialists hired from New York and the 3 from Singapore had already started work in New York. Following Amaranth’s collapse, the fund’s top management had offered to help its staff find suitable alternative employment opportunities even while asking rivals to put a hold on recruiting its staff while it gained some control and consolidated its assets to pay back investors. 

Goldman Sachs, the world’s largest securities firm, manages the $10 billion Global Alpha Fund that uses computer-driven models to make investment decisions. It fell 11.6 percent in November after wrong bets that the dollar would rise, equities in Japan would rise, and that stocks in Asia and the US would fall.

November 26, 2006

Citadel Loses Global Stocks Head – Or More?

-- By Pushpa Sathish, Staff Writer

It’s official - the Citadel Investment Group has lost its head of global stocks. Anand Parekh’s resignation, which was first reported in The New York Times, was confirmed by Bryan Locke, a spokesman for the hedge fund manager. The $12 billion worth fund has been in the news lately for the losses it reportedly suffered. Parekh’s resignation only added fuel to flames of speculation, but Locke categorically denied that the fund had suffered any losses.

According to trusted sources, both the multi-strategy funds that Citadel manages have done well this ear, returning 20 percent to investors. But the rumors of losses seem to have had far-reaching consequences – stocks in Tokyo slipped and played a part in the decline in energy, treasury, and currency markets on November 24.

November 18, 2006

Funds of Hedge Funds Feel the Amaranth Effect

It looks like Amaranth’s downfall is having a domino effect on all other players in the hedge fund industry. The latest to be affected is the fund of fund market – the International Organization of Securities Commissions (IOSCO) is contemplating revamping the guidelines for this sector.

The rules currently being followed are three years old, having been laid down in 2003; the Amaranth disaster has forced IOSCO to take a closer look at how funds of hedge funds operate, according to Hubert Reynier, chairperson of an investment management committee for IOSCO. Reynier added that this move was initiated by the large number of retail investors in funds of hedge funds in some countries.

A fund of hedge funds invests in more than one hedge fund to provide greater diversification for its clients’ portfolios.

November 16, 2006

Did Amaranth Pull Down Max Re?

-- By Pushpa Sathish, Staff Writer

Speculation is rife in the hedge fund industry that Max Re Capital suffered significant losses in the third quarter of 2006 because of its investments in Amaranth Advisors. Close on the heels of Amaranth’s announcement that it had lost $6 billion on bad energy bets, the reinsurance firm said that it expected to lose $35 million because of trading losses in certain hedge fund investments.

While Max Re didn’t elaborate, scandal lovers are putting two and two together. It remains to be seen if they are left with four or five, since the company disclosed no details other than the fact that it was cutting back on the amount it had earmarked for its alternative investment portfolio. Earlier, the Bermuda-based insurance outfit invested between 20 to 40 percent of the premiums it received on hedge funds; it has decided now to set aside only 15 to 20 percent of assets for this purpose.

November 11, 2006

Hedge Funds Show Charitable Side

-- By Pushpa Sathish, Staff Writer

You wouldn’t normally say hedge funds and charity in the same breath, but Hedge Funds Care Canada is set to wipe out that discrimination. The charity organization based in Canada is a motley collection of hedge fund managers who are donating their time and raising money to prevent child abuse and provide support for victims.

The organization is a poorer cousin of its affiliate in the Big Apple, Hedge Funds Care Inc.; the New York outfit has raised almost $19 million since its inception in 1998 while its Canadian counterpart is struggling with only $137,000 in assets as of December 31,2005. Given the fact that Hedge Fund Care Canada was born only in 2004, the low figure is understandable, but for hedge fund managers to put up such a poor performance is definitely not.

The slow start can be attributed to the receivership of the Norshield Financial Group, whose founder John Xanthoudakis played a large part in the establishment of the charity. The Ontario Securities Commission forced the company into supervised bankruptcy a few months after Hedge Funds Care was set up. Xanthoudakis raised $240,000 (Canadian) through a ball in the fall of 2004.

The first financial report filed by the charity with the Canada Revenue Agency states that $500,000 (Canadian) was raised in 2005. With the Canadian hedge fund industry at an estimated worth of $30 billion, greater contributions are expected in the future, according to Hedge Funds Care Canada’s president, Corey Goldman of Marhedge, a publication that tracks the industry.

November 08, 2006

Chelsea Joins Avenue Capital

-- By Pushpa Sathish, Staff Writer

Chelsea Clinton has made the transition from a consultants company to a hedge fund – the daughter of former President Bill Clinton (and a future one too?) left McKinsey & Co. to enter the portals of the Avenue Capital Group, a fund which invests in distressed securities.

The New York-based, $12 billion fund is tight-lipped about the role she will play in its affairs. Avenue’s founder, Marc Lasry, is an established contributor to numerous campaigns of the Democratic Party, including those for Hilary Clinton, Al Gore, Bill Bradley and John Kerry.

Avenue Capital was in the news recently when investment bank Morgan Stanley purchased a small stake in the fund.

October 29, 2006

Hedge Fund Honcho Fined

-- By Pushpa Sathish, Staff Writer

The chairman and CEO of the hedge fund James River Capital Corporation has earned the ire of the securities regulators for his alleged illicit activities during trading in variable annuities. The National Association of Securities Dealers has fined Paul Saunders, a broker, a record $2.25 million and also suspended him from working as a broker for 60 days. The Chicago Tribune reports:

Saunders neither admitted nor denied the NASD's allegations. The NASD said the $2.25 million penalty was the largest fine it has ever imposed on an individual for alleged improper market timing, frequent "in-and-out" trading. That total includes restitution of some $750,000 in illicit profits that Saunders allegedly personally made.

October 21, 2006

Hedge Funds’ Assets Rise

-- By Pushpa Sathish, Staff Writer

With all the money pouring into the hedge fund industry, the total value of assets under management rose to $1.34 trillion, according to a recent report from Hedge Fund Research Inc. (HFR). The Chicago-based firm said that more than 50 percent of the money was invested in relative value arbitrage, equity hedge, and event-driven strategies. The amount of money flooding the coffers of hedge funds does not seem to reflect on the performance of the funds though, said HFR president Joshua Rosenberg. Though the Q3 performance was not up to the standard, the strong investment showed that investors were probably considering the long term scenario, he added. Business Week reports:

On average, hedge funds returned just over 1 percent in the third quarter, putting performance this year through the end of September at 7.1 percent. The best hedge fund performers were convertible arbitrage strategies, up 2.74 percent in the third quarter and emerging markets strategies, up 2.6 percent in the period.

Former Treasury Secretary to Manage Hedge Fund

-- By Pushpa Sathish, Staff Writer

US Treasury secretary, president of Harvard University, managing director of hedge fund D.E. Shaw & Co. – the designations of Lawrence Summers make quite an impressive portfolio. Summers was treasury secretary during Clinton’s tenure in the White House. He resigned from his high-profile post at Harvard in February after a not-so-easy five-year term. D.E. Shaw manages around $25 billion of investor assets. Reuters Today reports:

D.E. Shaw, a multi-strategy hedge fund which specializes in mathematics-based “quantitative” strategies, didn't elaborate on Summers' new role at the firm, except to say he will help “identify and critically evaluate new investment opportunities throughout the world's capital markets.”

October 15, 2006

Demand to Subpoena Amaranth Trade Records

-- By Pushpa Sathish, Staff Writer

Amaranth’s troubles continue…The hedge fund which lost more than $6 billion in bad bets on the energy market, is being accused of controlling more than half the monthly demand of natural gas in the United States. The Industrial Energy Consumers of America, comprising members such as the U.S. Steel Corporation, the International Paper Company, and the Dow Chemical Company, has asked the Federal Energy Regulatory Commission to subpoena the hedge fund’s trading records.

The group of industrial consumers alleges in reports that Amaranth Advisors LLC controlled 1 trillion cubic feet of natural gas – 54 percent of usage in the US each month. It remains to be seen whether the energy regulatory body will issue the subpoena or not.

Stockbrokers Accused of Fraud

-- By Pushpa Sathish, Staff Writer

Minimizing the risks of hedge funds, fraud to the tune of $2 million – these are activities that have put two Philadelphia stockbrokers on the wrong side of the law. The U.S. Attorney’s Office in Philadelphia filed an indictment against Anthony P. Postiglione Jr. and William J. Lennon accusing them of 18 counts of mail frauds and one of securities fraud.

The two financial consultants, who had jointly launched the Fountainhead Fund LP five years ago, are being charged with providing investors with false and misleading account statements after the hedge fund lost money in the first quarter of its existence. The fund wound up operations after a month in business, and its investors ended up losing $1.98 million. Postiglione is also being charged with obstruction of justice for purposely falsifying a document in 2004.

Ahold Breakup On Hold

-- By Pushpa Sathish, Staff Writer

The move to force Dutch retailer Ahold to break up its operations has still not reached a conclusion. Earlier this year, hedge funds Centaurus Capital and Paulson were pushing Ahold to sell its activities in the United States and focus on the European front, which they felt was more profitable.

Both funds, which jointly hold 6.4 percent of the retail business, have decided not to take any further action until a planned review of assets is complete. Ahold is planning to complete its review of underperforming assets this autumn.

Meanwhile, Stork NV is trying to take legal action against Centaurus and Paulson over their decision to push Ahold to breakup, saying that the funds were in violation of stock market disclosure regulations. The hedge funds, which own 33 percent of Stork, is in the bad books of the firm for forcing it to sell its non-aerospace divisions within a year and keep the aerospace unit as an independent listed firm.

Ahold is watching the proceedings of this operation very closely.

October 08, 2006

Milestones of the Hedge Fund Industry

Do you invest in ‘Hedge Funds’? If ‘yes’ are you aware of its history? Who started the concept of ‘Hedge Funds’ and what was the motive behind it? When the first hedge fund established? Read further to know a few facts regarding hedge funds.

With the intention of reducing the dependency in the stock market and to enjoy the advantage of holding long term stocks by selling short term stocks frequently, Alfred.W.Jones started the first hedge fund in 1949.

Looking at the profits that this hedge fund made by the mid 1960s, innumerous helge funds cropped up into the US market. But due to market conditions, many hedge funds toppled by the late 1960s and during the wake of 1970s

However, a few survived the hard times of the 1970s. As on date, the consequence of investing in hedge funds is highly uncertain in the US market due to inexplicable increase in the interest rates there.

Read more on "Hedge Funds Slowing Down?" in one of our previous post to know the trend of Hedge Funds in the current market.

Amaranth to Downsize HR

The meltdown is taking its toll on the employees of Amaranth Advisors LLC. The hedge fund which lost as much as $6 billion in the course of a week on bad bets on natural gas, will sack 60 percent of its human resources this week. According to the firm’s CEO Charlie Winkler, at least 250 of its 420 strong work force will get their walking papers.

But its not all bad news for Amaranth’s employees; they have ample opportunities at other funds. The recruitment process has already begun, but Amaranth’s managing director for human resources, Stanley Friedman, is asking rivals to hold off offering them jobs until the fund is able to gain a modicum of control and sell $3 billion of its assets to pay back investors.

Amaranth is offering to find alternative employment for those who are laid off; the company is looking at options in more than 50 financial firms. Meanwhile, the Connecticut Department of Labor has stated that Amaranth has not filed a notice under the Worker Adjustment and Retraining Act as required 60 days prior to a lay off of more than 100 employees of a company.

More on the Pequot Scandal

Flash back to a few months ago when Pequot Capital Management made news as part of an SEC investigation for alleged insider trading. Morgan Stanley’s CEO John Mack was in the thick of things as the most likely person to have tipped Pequot to the multi-million dollar merger between General Electric Corp. and Heller Financial Inc.

The news today is that the U.S. Securities and Exchange Commission has decided not to take action against Pequot, its employees or John Mack. Is this the end of the Pequot saga or is there more to come?

Hedge Funds Slowing Down?

Is it a contraction in the hedge fund industry or is nature just taking its course? This year has seen a slump in the number of new funds launched - a marked contrast to the spectacular growth of the past few years. Has the industry seen the peak of the normal distribution and the future set to slide down the curve?

The numbers speak for themselves – according to Hedge Fund Research, only 549 new funds were started during the first six months of this year when compared to the 1,211 during the same period in 2005. This year’s growth is reminiscent of the patterns in 2002 and 2003.

It doesn’t help that Amaranth Advisors is dominating the news these days after losing $6 billion in the span of one week. So will the industry revive during the latter half of 2006? We’ll just have to wait and watch!

October 04, 2006

Ex-Counsel of Greenberg joins Bryan Cave

Former Counsel of Greenberg Traurig, Nir Yarden has joined Bryan Cave at their New York office a week back.With a B.A, M.B.A and J.D degrees, he had associated himself with Lehman Brothers for sometime followed by Greenberg Traurig.

As per the reports from hedgeweek, the Chairman of Bryan Cave articulates that the firm has plans of creating a popular and stable hedge fund across the nation. He also emphasized that Bryan Cave would be further expanding its financial services and judicial consultations with this milestone of Nir Yarden joining Bryan Cave.

Read my previous post “Ex-Deputy General Counsel of Dow and Jones Company joins Curtis” to know what’s happening at Curtis.

Ex-Deputy General Counsel of Dow and Jones Company joins Curtis

David Moran, the Ex-Vice-President and Counsel of Dow and Jones company has joined Curtis office at Connecticut.

With his AB, cum laude, in Classics from Virginia School and Harvard, he gained experience as an attorney in New York and then as an associate in a number of corporate offices like Patterson, Belknap, Webb and Tyler followed by Dow and Jones company.

Click here to know the details of the portfolio held by David Moran

September 30, 2006

Pirate in a Sea of Troubles

When it rains, it pours! And what a downpour Pirate Capital’s having. Close on the heels of the Connecticut-based hedge fund losing half its investment team comes the bad news that it is being investigated by the U.S. Securities and Exchange Commission (SEC) on suspicion of failing to alert the commission when it was selling stock.

In an attempt to recoup losses, founder and portfolio manager Thomas Hudson stated in a letter that the fund would not accept new investors and would rather concentrate on delivering returns than on garnering more money.

The activist fund has not a stellar year with its main fund, the Jolly Roger up by only 3.3 percent and its activist fund up 2.86 percent – both figures well below the norm for activist funds, according to Hedge Fund Research in Chicago.

Fund Managers Sitting Not So Pretty

The fat bonuses that line their pockets will soon become a thing of the past if hedge fund managers are unable to bring about a change in the fortunes of the funds they are responsible for. The headmen in the immediate line of fire are those at Peloton Partners and Vega.

Peloton is down 0.18 percent for the year after losing 1.64 percent in September. The fund has been adversely affected by the irregular handling of accounts by the founder’s wife’s secretary and by the exodus of various senior staff members. Peloton made waves when it debuted with an initial investment of $1 billion a year ago.

The manager at Vega stands to lose more as the fear of demands for redemptions from investors looms large after all its funds registered a significant drop in performance. Vega Select lost 8.24 percent this month while the $348 million Vega Diversified dropped by 6.54 percent. Industry gossip has it that the losses were incurred after a series of bad bets on bond prices and the Japanese yen. Vega lost half of its $13 billion assets in 2005 to lose its position as the largest hedge fund in Europe.

Hedge fund managers routinely appropriate 20 to 30 percent of the profits under the guise of performance fees.

Amaranth to Shut Down

Investors in Amaranth Advisors LLC are not going to get any of their funds back right now following the hedge fund’s decision to suspend redemptions in a bid to sell its remaining assets as it plans to shut down operations. The Connecticut-based hedge fund manager hit the headlines recently for its injudicious decisions in the natural gas industry.

In what has been termed the biggest hedge fund meltdown, the company has lost more than $6.5 billion of its $9.5 billion assets. Redemption requests that were scheduled for the end of September and October will not take place, which means that investors cannot withdraw money for the next month.

A letter from Nicholas Maounis stated that redemptions were suspended so that liquidity could be  generated in an orderly fashion for investors.

September 14, 2006

Hedge Fund Broker Indicted

A hedge fund broker has been indicted for helping clients in trading mutual fund shares after hours. According to a statement from the New York Attorney General's office, James Wilson, a stockbroker from New York-based Trautman Wasserman & Co., Inc., was charged with crimes related to late trades he placed on behalf of the firm's hedge fund clients in the past few years. The charges include a scheme to defraud in the first degree, falsifying business records in the first degree and securities fraud in violation of New York State's Martin Act.

Read my previous post titled "Possibility of Hedge Fund Invasion Ruled Out" to know about the rumors of hedge fund invasion.

September 08, 2006

CEO Swaps Hedge Fund for Charity

Stanley Fink, the chief executive of the world's biggest listed hedge fund, Man Group has decided to step down from his job to focus on private philanthropy. After becoming the boss of Man Group in 2000, he has seen the group's funds grow from $4.7 billion to $54 billion. According to Man's annual report, Mr. Fink earned about £6 million in the entire year. Mr. Fink will stay as a non-executive deputy chairperson, with finance director Peter Clarke taking the top job. Read my previous post titled "Key Hedge Funds Strategies" to know more about hedge fund strategies.

August 28, 2006

Clarium Capital Hedge Fund Sued

It seems that hedge fund and controversy have become synonymous. We have been regularly updating you about the fraud cases involving hedge fund operations. Recently, I had written a post titled "Former Mayor Convicted in Hedge Fund Fraud" in this regard. Today, I came to know about another such case. An investor in Clarium Capital Management filed a suit, saying that it was defrauded out of returns for nearly a decade. Clarium Capital Management is a hedge fund headed by PayPal founder Peter Thiel. The lawsuit was filed in the US Court for the Northern District of California. It was filed by Cyprus-based Amisil Holdings Ltd. that seeks recovery of up to $18 million.

August 26, 2006

NFL Seeks Dismissal of Suit

It looks like “taking responsibility for one’s actions” has gone out the window and is no longer in vogue. Passing the buck to the National Football League (NFL) and its union, six current and former players are demanding that the association reimburse them for losses up to $20 million incurred in a hedge fund fraud. The players argue that the union endorsed the services of the investment firm managed by Kirk Wright, International Management Associates.

The erstwhile hedge fund manager is now facing federal fraud charges and a lawsuit filed against him by the U.S. Securities and Exchange Commission (SEC). Meanwhile, the NFL and its union are seeking dismissal of the lawsuit filed against the association by the NFL players on the grounds that the players are responsible for their own financial decisions. Chicago Sports Tribune reports:

Lawyers for the NFL wrote that the players' collective bargaining agreement "established that players shall bear all responsibility for their personal finances." They also said that the agreement requires arbitration, not litigation, of disputes such as the ones raised in the lawsuit.

August 22, 2006

Celebrities in Hedge Fund Row

Several stars barring Sylvester Stallone found themselves trapped in hedge fund collapses. He is among lucky investors who walked away unscathed. In 1997, the actor invested $2.5 million in a private investment partnership called Lipper Convertibles. Four years later, he cashed out. His fellow actor John Cusack and former New York City Mayor Ed Koch also registered huge profits. However, they are all being sued to give money back.

The entire matter has snowballed into a major controversy. According to their lawyers, Lipper never made all that money. In the recently filed lawsuits, the trustee, Richard Williamson charged the investors who made big money. He wants them to return more than $100 million, including $1.3 million plus interest from Mr. Stallone alone. Stallone and Cusack denied the charges and said that they did not harm fellow investors.

If you want to protect your hedge funds against market risk, read my previous post titled "Hedge Funds Offer Protection against Market Risk".

August 18, 2006

Hedge Funds Push for Retailer Breakup

Two hedge funds that own a 6.4 percent stake in the Dutch food retail company Ahold are pushing for the breakup of the retailer. Paulson & Co. Inc. and Centaurus Capital are looking to reconstruct Ahold after dismantling and disposing of its U.S. assets. Their focus is on the European market; the funds claim that this move could raise the market value of the retailer from the current 11 billion euros to 14 billion euros.

John Paulson, director and founder of Paulson & Co., said in an interview with Reuters that there were companies interested in buying out the U.S. operations of Ahold. The two hedge funds are hoping to thrash out the issue with shareholders and management.

Paulson claims that retail business in the U.S. is significantly different from what it is in Europe, which is why Ahold should concentrate on its Dutch unit which generates the most profits. But the retailer will have to forego at least two-thirds of its sales if it were to cease operations on U.S. soil. Of its sales total 10.5 billion euros, 7.6 billion is generated from sales outside Europe.

In this situation, does Paulson’s and Centaurus’ bid make sense? The hedge funds have retained the legal services of ING Corporate Finance for the entire operation.

Hedge Fund Closes Shop

The IFL Continuum Fund is just three months old, and it’s already being put to sleep. Its owner Robert Merton, a Nobel Prize winner for economics, shut down operations since returns were not forthcoming. The fund which focused on credit securities, was the latest launched by Integrated Finance Ltd. It had collected $30 million since its inception in March earlier this year. Bloomberg reports:

Integrated Finance primarily advises clients on pension issues and corporate strategies, such as mergers and acquisitions. The company has an $80 million emerging-market hedge fund run by Jose Luis Daza that started in October 2005.

August 12, 2006

Hedge fund Alleges Impropriety in Mercury Deal

The controversy over the Mercury deal intensified further after Hewlett Packard expressed its inability to start its $4.5 billion tender offer for Mercury Interactive Corp. Hewlett's decision has been attributed to the allegations of impropriety surfaced about the entire deal. Recently, hedge fund Okumus Capital has asked a New York judge to order release of names of customers who bought 2.4 million shares of Mercury from Okumus.

Okumus alleged that some of the buyers might have been tipped off about HP's $4.5 billion acquisition of Mercury Interactive Corp., which is an IT management software and services company. Okumus also claims that it lost $27 million by selling its Mercury shares.

August 11, 2006

Insider Trading Alleged

Okumus capital, a hedge fund worth $800 million, has asked a New York state court to order Goldman Sachs and Jeffries to reveal names of their customers who, between them, bought 2.4 million shares of Mercury Interactive. The fund claims that the buyers were tipped off about an impending take-over bid for Mercury Interactive by Hewlett-Packard (HP), and as a result, the stocks were sold at a much lower price than they would have been worth if the purchase announcement had been made public. Mercury Interactive provides software testing services.

Okumus does not accuse Goldman Sachs or Jeffries of any wrongdoing, according to the case filed in the court. But the claim remains that the hedge fund lost $27 million by unwittingly selling the shares before the acquisition news was common knowledge.

While Goldman Sachs is named in the case as the main adviser to Mercury Interactive, HP’s adviser Merrill Lynch is not mentioned at all. Jeffries is not listed as adviser to either company in the transaction. 

Poker Faces and Stock Picks

When you’re a founder of a billion dollar hedge fund, you can afford to take your chances at the World Series of Poker, as David Einhorn did. The founder of the Greenlight Capital LLC hedge fund, which is worth $3 billion, finished 18th in the tournament and ended up winning $659,730.

Einhorn, who launched his equity hedge fund in 1996 and has registered an annual average return of 29 percent since then, announced that his winnings in the “No Limit Texas Hold’em” tournament would go to the kitty of the the Michael J. Fox Foundation for Parkinson's Research.

The stock guru took fifth place in the same event last year, a pretty good effort for an amateur poker player. But then, good stock pickers make excellent poker players, according to Einhorn. Both activities require patience, the ability to identify favorable opportunities, manage risk, and take advantage of beneficial risk-reward bets, he adds. The games rich people play!!

August 07, 2006

Former Mayor Convicted in Hedge Fund Fraud

In a recent post, titled " Hedge Fund Consultant Charged with Data Theft", I had mentioned about a hedge fund fraud case. Another such case has cropped up in which the former Loveland Mayor Lee Skierkiewicz has been indicted by a Hamilton County grand jury. It was alleged that he stole $157,400 from 13 clients in a hedge fund called Prima Partners. Skierkiewicz could face 25 years in jail if convicted on 10 counts of theft and two counts of agravated theft. It is really shocking that despite the arrests and indictments, people are not taking cue from it and often indulge in such frauds.

August 04, 2006

Is it the End of The Road for MotherRock?

Poor performance is leading to the closure of MotherRock Energy Master Fund, the hedge fund that invests in gas futures. The fund had a terrible year as New York gas prices fell by 66 percent from an all-time high in December. The fund, which had customer funds worth $400 earlier this year,  registered heavy losses in July, but a specific date has not yet been set for the closure. MotherRock returned 20 percent to its investors in net fees last year, but sustained a loss of 23 percent during the first six months of 2006. Bloomberg reports:

“The volatility in these markets is very large,” said Craig Pirrong, director of energy markets at the University of Houston's Global Energy Management Institute. “That means the prospects for large profits are there, but the prospects for large losses are there too.”

August 03, 2006

Ex-Mayor Indicted for Hedge Fund Fraud

Lee Skierkiewicz has been indicted on 12 counts by a Hamilton County grand jury which alleges the former mayor of Loveland was involved in a $157, 400 theft from 13 clients of the Prima Partners hedge fund. Skierkiewicz, using his position as investment manager at Robert W. Baird & Co., induced 13 of his clients to invest in the hedge fund that he started in October 2000, after leaving R.W. Baird. The ex-mayor could be cooling his heels in the slammer for 25 years if convicted on 10 counts of theft and two counts of aggravated theft. Biz Journals reports:

A press release from Hamilton County Prosecutor Joe Deters indicates Hamilton County's Sheriff opened an investigation after investors complained that Skierkiewicz was unable to provide accurate statements concerning the gain or loss of their investments.

July 29, 2006

Do Dirty Words Drive Down Share Value?

It’s a war of words and it’s getting downright dirty. The battle is heating up between the Canadian insurance firm Fairfax Financial Holdings Ltd. and the hedge fund SAC Capital Management LLC.
Fairfax has filed a lawsuit that alleges that SAC, together with other hedge funds, a research analyst, and a few hedge fund operatives, tried to muddy the personal and professional lives of Fairfax’s CEO Prem Watsa, in an attempt to reduce the company’s share value and gain huge profits in the process.

The rumors spread according to the lawsuit include:

  • An RCMP raid on Fairfax offices.
  • News that Watsa had fled the country after transferring his assets to his wife.
  • A letter sent to Watsa’s pastor comparing Watsa and a conman who scammed the Catholic Church. The letter paralleled Watsa’s management of Fairfax and his handling of his church’s funds to the fraudster’s money-laundering scheme.

This is not the first time that hedge funds have been accused of such lowdown tactics. Don’t the US Securities and Exchange Commission (SEC) regulations seem a good idea now?

July 27, 2006

Hedge Fund Consultant Charged with Data Theft

It is really strange that cases of hedge fund frauds have significantly increased in the past few weeks despite the so-called regulations enforced by the government. Every week, we are getting the news of scams and frauds involving hedge fund businesses. This is definitely a matter of concern for the investors and financers. Ira Chilowitz, a former consultant to Morgan Stanely was arrested and charged with stealing and electronic list of hedge funds that are clients of S3 Partners, a hedge fund advisory firm. Ira has been charged with conspiracy and unauthorized computer access. It may be just another fraud for the readers. However, the gravity of the situation needs to be understood. We must find out the solutions to prevent such incidents from occurring again.

July 25, 2006

Morgan Stanley Executive Under SEC Scanner

Now it’s the turn of the chief executive of securities firm Morgan Stanley to come under the scrutiny of the US Securities and Exchange Commission (SEC). John Mack’s alleged involvement in the insider trading scandal concerning hedge fund Pequot Capital Management is being probed by the regulatory body.

Mack, who was earlier the CEO and then the chairman of Credit Suisse First Boston, was identified by Gary Aguirre, former attorney of the SEC who was in charge of the investigation against Pequot as the tipster in the scandal. Aguirre alleged that Mack had access to inside information by virtue of his position at Credit Suisse, which was hired as advisor on a potential merger.

He also claimed he was removed from the investigation and fired because he tried to subpoena Mack, a major fundraiser for President Bush. The SEC is now looking to interview Mack, a process that should have been carried out a year ago, according to the Government Accountability Project, the organization representing Aguirre in his federal lawsuit seeking SEC records related to the probe.
It’s just an interview, not a subpoena, say sources, and there’s no word on when it will happen.

July 23, 2006

The Not So Sharpe Ratio

Investors are finding errors and discrepancies in the Sharpe ratio that hedge funds use to project their performance levels. The ratio is a measure of risk-adjusted return and calculates the difference between returns and a risk-free interest rate (generally the yield on US Treasury bills divided by the volatility or range of possible returns).

Nassim Nicholas Taleb, a hedge fund investor and a professor in the sciences of uncertainty at the University of Massachusetts Amherst, has propounded a set of arguments against the effectiveness of the Sharpe ratio:

  • Its volatility part is not a good measure of risk.
  • It assumes that economics and finance are solid sciences that permit the usage of statistical tools like the law of averages and the normal distribution in order to model returns.
  • It cannot be applied to socioeconomic variables like stock market returns where large or small losses and gains have a significant impact on the industry, unlike in a normal distribution where most results fall within a small range on either side of the mean, and a large anomaly or exception will not change the average unless it continues to dominate the sample even when the sample size increases.

Taleb’s conclusion is that the ratio is “like a horoscope – a bogus theory on which most people rely.”

July 21, 2006

Manager’s Assets Go Under Hammer

I guess it takes the most hard-hearted of crooks to scam their own mothers, but that is what Kirk Wayne Wright has done. Not only did the hedge fund manager defraud a number of pro NFL players, he also took his flesh-and-blood for a ride.

The long arm of the law caught up with him finally, and Wright was indicted last month in a federal court on 21 counts of mail fraud and three counts of securities fraud. More than 500 investors fell into his net, netting him over $185 million.

But, as we know, crime never pays. So the erstwhile manager’s assets are going under the hammer later this month according to a ruling from the U.S. Bankruptcy Court. Lining up the auction block will be a six-bedroom lake house in Cobb County, a swanky condo in Atlanta, an office building, a baby grand piano, and a list of automobiles including an Aston Martin, a Bentley, and a vintage 1967 BMW.

Some lifestyle this!

Hedge Fund Fraud Case Takes a New Turn

A hedge fund manager who disappeared with millions of dollars belonging to 500 investors now has 24 additional counts in his federal fraud case. The hedge fund manager Kirk Wright and his company were accused of collecting between $115 million and $185 million from 500 investors since 1997. They misled them through false documents and statements. Kirk now faces 21 counts of mail fraud and three counts of securities fraud. He will also face a federal lawsuit from the Security and Exchange Commission (SEC). Just a few days ago, his bail plea was denied by a judge.

According to Hedgeco.Net -

When several investors demanded to see brokerage account statements from hedge funds in October, Wright produced statements he said were from online brokerage Ameritrade, showing over $166.6 million in assets spread across five hedge funds. To date, authorities and creditors have located less than $200,000.

July 16, 2006

Mother Helped Son in Hedge Fund Scam

A mortgage broker in Greenwich admitted that she helped her son in recruiting investors in a multimillion-dollar hedge fund scam. The lady, Ayferafet Yalincak, 51, pleaded guilty to conspiracy to commit wire fraud. Her 22-year old son, Hakan also admitted guilt in the bank fraud and wire fraud. While the mother could face a five-year jail term, the son could get a jail sentence of up to 50 years. The lady attended meetings with investors and allowed her son to present her as a member of a wealthy Turkish family. Both the mother-son duo convinced the investors that they were going to invest millions in the hedge fund. According to the prosecutors, the scheme cost investors millions of dollars.

Chron reports that -

The fund did not exist, and prosecutors said investor money was used to buy a Porsche, a Tiffany diamond and other jewelry. The Pound Ridge, N.Y., family also gave $1.25 million as a down payment on a $21 million donation to NYU.

July 11, 2006

Have Hedge Funds Recovered?

The jury’s still out on this one – has the fluctuating hedge fund industry steadied itself in July after two months of haphazard performances, or are the high correlation levels between diverse strategies, reduced financial liquidity and high bullish trend still taking their toll on fund performance?

According to the Financial Times, heavy broad selling and de-leveraging by many hedge funds based in the US and the UK has brought down most strategies.  Isaac Souede, chief executive of Permal Asset Management, a $US20 billion-plus fund of hedge funds, blames the rise in the interest rates for the money moving away from the markets. The Australian News reports:

Some industry participants said that the past two months bore the hallmarks of the US stock market crash in 1987 - specifically, the heavy use of index-related products that made seemingly uncorrelated assets move in lock-step as big investors unwound positions.

FSA Seeks Ban on Hedge Fund Ex-Director

The Financial Services Authority (FSA) is still gunning for Philippe Jabre. The former director of the GLG Partners LP hedge fund is under investigation for alleged insider trading, and has already been fined 750,000 pounds by the UK markets regulator on account of this misdemeanor.

The FSA is not satisfied though; it is baying for Jabre’s blood by asking the Financial Services & Markets Tribunal that is trying the case to ban the perpetrator from trading on the country’s financial markets.

The regulator has accused Jabre of using information gleaned from a salesman at the Goldman Sachs Group to trade on a sale of Sumitomo Mitsui Financial Group Plc securities. While Jabre asserts that he misunderstood the salesman’s information, his fund GLG Partners has been fined for its part in the deal. However, Goldman Sachs has got off scot-free.

Jabre and his lawyer, Charles Flint, are contesting the FSA’s demand besides refusing to pay the fine. Flint maintains that the tribunal does not have the power to ban Jabre, and that the FSA does not have the jurisdiction to prosecute him as the shares were traded in Tokyo, not London. The last argument, if it holds water, will open up a Pandora’s box with traders using inside information on companies that are listed in London being legally allowed to trade on the New York Stock Exchange (NYSE), which has secondary listings of nearly 40 companies that are listed on the London Exchange.

Flint also states that the Regulatory Decisions Committee, a board of the FSA that decides penalties, has already overturned an FSA appeal to impose a fine of 1 million pounds on Jabre and ban him from the markets.

Jabre is one of the UK’s richest individuals with assets valued at over 200 million pounds to his name.

July 05, 2006

Hedge Fund Attacks African Platinum Boss

North Sands, an American hedge fund has launched an attack on the Chairman of African Platinum, a leading mining company. Recently, it has called an emergency meeting to remove the Platinum Chairman, Charles Hansard. North Sands has built up a 10% stake in African Platinum in the recent weeks in an attempt to have a major say in important decisions. According to North Sands, Mr. Hansard does not have the industry credentials and relevant experience to maximize shareholder value. It is important to note that Hansard has the credit of bringing in the broker JP Morgan Cazenove, which increased the credibility of the company. However, in the past three months, the shares have taken a downward turn, thus generating resentment among employees and partners against Hansard.

According to Times Online -

Previously, Hansard was appointed to the board of US-listed Apex Silver by its biggest shareholders, veteran hedge-fund managers George Soros and Lewis Bacon of Moore Capital. Hansard is still on the board of Bacon’s flagship fund, Moore Global.

June 30, 2006

Fraud Case Reported with Hedge Fund Trader

In recent months, there have been several instances of fraud cases related to hedge fund. On Friday, hedge fund trader Bret Grebow was arrested for operating a fake scheme, called as "Ponzi Scheme". The fake scheme robbed investors of $5.8 million. Grebow and another co-manager allegedly used new investor funds to pay distributions and redemptions to existing investors in the HMC International LLC fund of Montvale, New Jersey. According to Manhattan Disrict Attorney, the fund gained no substantial returns since Grebow and his aide established the fund five years ago.

According to Chron -

No trading took place in the fund's main brokerage account since March 2003, Garcia said. The Securities and Exchange Commission brought similar civil charges in December against Grebow, a 30-year-old resident of New Rochelle, N.Y., as well as HMC manager Robert Massimi.

Hedge Fund Managers Sitting Pretty

It doesn’t take a genius to figure out that hedge fund managers are among the topmost earners in the world today. But just how much do the cream of the crop make?

Well, according to the Fifth Annual List of Top Hedge Fund Earners released by Institutional Investors’ Alpha Magazine, prizes for leading the list go to James Simons of Renaissance Technologies who took home a whopping $1.5 billion in 2005. His Medallion Fund earned a 30 percent return of $5.3 billion under his management. Close on his heels is BP Capital Commodity Fund’s with a pay packet of $1.4 billion. Other high earners include George Soros with $840 million, Steven A. Cohen of S.A.C. Advisors with $550 million, and Eddie Lampert with $425 million. 

Managers make so much money because they normally charge investors 2 percent of the assets under management and 20 percent of performance gains. But if your hedge fund is large enough, your performance does not matter; you can still go home with a significantly large pay packet, as demonstrated by Bruce Kovner of Caxton Yet. The fund has posted nothing but single digit returns over the past three years, but Kovner still earns $400 million annually. That’s the life!

SEC Probes Use of Independent Analysts

The relationship between hedge funds and independent analysts is under scrutiny by the Securities Exchange Commission (SEC) and the Department of Justice after two companies lodged complaints against hedge funds for selling shares that they did not own, in the hope of buying them back at lower prices. Online discount store Overstock has sought legal action against Rocker Partners, while Canadian pharma company Biovail has railed against the Connecticut-based fund SAC. Both companies claim the funds paid research company Gradient Analytics to propagate false rumors on the declining values of their stock. Even as SAC, Gradient, and Rocker Partners deny any instance of foul play, the issue is under investigation by a Senate Judiciary Committee. MSNBC reports:

The allegations about independent researchers have centered on short sellers. Companies targeted by short sellers often complain that their share prices are pushed down by aggressive shorting. The allegations about fraudulent reports by analysts lend a new dimension to the conflict.

SEC to Probe Side Letters

The issue of “side letters,” the practice of favoring certain investors over others, is rearing its ugly head in the world of hedge funds. Following allegations that most hedge funds indulge in the exercise, the US Securities and Exchange Commission (SEC) is contemplating punitive action against the perpetrators. While side letters are not totally illegal, hedge funds are duty-bound to be fair to all their investors, said Marco Masotti, a partner at the law firm Paul, Weiss. MSNBC reports:

Side letters might give an investor exclusive information about the fund's portfolio, a fee reduction, or more flexible redemption terms. In the UK, the Financial Services Association recently warned hedge funds about the use of side letters, saying if they were used at all, they should be disclosed to all investors.

Major Hedge Funds Corner Energy Market

Bleak futures are driving hedge funds to buy and sell crude oil, in order to show some figures of profit to their investors. With energy being the most sought-after commodity, hedge funds are scrambling to get their fingers deep in the money-spinning oil wells. But the going is not as smooth as oil, with major players like Goldman Sachs and Morgan Stanley cornering a large part of the market. A key deciding factor in oil trading is the ability of hedge funds to have the necessary storage space, especially in the physical crude markets.

Newcomers are not too welcome, going by the attempts of the hedge fund MotherRock LP to sell crude to Taiwan’s state oil firm, Chinese Petroleum Corporation (CPC) that fell short of expectations. Inside information from CPC alleges that the company was not in favor of the deal because of the fund's relative inexperience in oil sales. This, in spite of the fact that MotherRock is among the top five market makers in terms of volume traded, on the NYMEX natural gas market. NYMEX is the world’s largest energy futures market.

Meanwhile, the industry bigwigs are consolidating their positions through various acquisitions. Goldman Sachs’ private equity arm and Kelso & Co. jointly bought out Coffeyville Resources LLC, a refiner based in Kansas City last year. Morgan Stanley, besides reaching an agreement to acquire TransMontaigne Inc., an organization that markets oil products, is also in talks to buy The Heidmar Group, which ships oil and refined products across the world.

June 25, 2006

Goldman Consortium Raises Offer

The race to acquire Associated British Ports Holdings PLC heated up with one of the bidders, the Goldman Sachs Group, increasing its offer to $5.1 billion, in an attempt to discourage its opposition led by Macquarie Bank Ltd., Australia.  The takeover bid for the port operator by the two rival consortiums has pushed the share prices of AB Ports to $16.73, an increase of 4.3 percent. The Goldman Consortium, which comprises Borealis Infrastructure Management Inc., part of Canada's Ontario Municipal Employees Retirement System, and Singapore government fund GIC Special Investments, had earlier tendered $15.44 per share, an offer equaled by the Macquarie consortium, which includes Canada Pension Plan Investment Board and the Australian investment and advisory-management firm Industry Funds Management. Business Week reports:

Port operators have become attractive takeover targets of late due to their stable income streams, large property portfolios and buoyant shipping markets on the back of growth in Chinese trade flows. Analysts added that Goldman is under pressure to complete the deal after a string of failed bids for British companies including airports operator BAA PLC, broadcaster ITV and pub company Mitchells & Butlers.

June 24, 2006

Japanese Fund Manager Indicted

Japanese hedge fund manager Yoshiaki Murakami was indicted on charges of insider trading in a deal that involved a takeover bid by Internet firm Livedoor. The former trade bureaucrat was arrested earlier this month. Murakami came clean with the fact that he had inside knowledge of the takeover plan, but said that he heard it accidentally, and had no intention of profiting from the information. But the Japanese media has widely reported that his claims of innocence are not be believed, and that he instigated the takeover to push up the share values of the target firm. Reuters reports:

Murakami's fall from grace has sent ripples through Japanese markets and policy-making circles. Bank of Japan Governor Toshihiko Fukui has faced criticism after it was revealed that he invested 10 million yen (47,000 pounds) in Murakami's fund years ago.

June 23, 2006

Goldman Sachs Group Largest Hedge Fund

Institutional Investor’s Alpha Magazine has ranked Goldman Sachs Group at the top of the list of the world’s largest hedge funds. The company moved up two places to claim the top spot, pushing aside Farallon Capital Management and Bridgewater Associates in the process. Goldman Sachs’ assets registered increases of more than 85 percent over the past two years to reach the $21 billion mark. The others in the upper echelon are Bridgewater Associates with $20.9 billion, D.E. Shaw Group with $19.9 billion, Farallon with $16.4 billion, and ESL Investments with $15.5 billion. The ranking is based on assets managed till the end of 2005. IHT reports:

Hedge fund firms had not crossed the $21 billion threshold since mid-1998, when Tiger Management and the Soros Fund Management peaked at about $22 billion. The 100 biggest hedge funds oversaw $720 billion at the end of 2005, an increase of 27 percent from a year earlier.

June 16, 2006

Hedge Fund Executive Gains Much

Man Group, which holds the distinction of being the world’s largest hedge fund company, has augmented its chief executive’s annual compensation by 57 percent, raising his total annual income to £6 million. Stanley Fink, who holds 4.3 million in shares and performance-linked options of the Group, received a record £3.8 million increase for the year ended March 31. Man Group registered record earnings of $1.01 billion, with its net income rising by 14 percent. IHT reports:

Fink, who took over as chief executive in 2000, transformed Man Group from a commodities trader to a hedge- fund manager. The company was founded by James Man more than 200 years ago as a sugar broker. It now has operations in the United States, France, Singapore and Britain.

Hedge Fund Loses Assets

A hedge fund that specializes in Russian stocks has lost at least a quarter of its assets after its founder was prevented from entering Russia. Hermitage Capital Management said its assets had fallen from $3.2 billion in April to $2.4 billion in June, with investors and clients withdrawing funds concerned over the Russian government’s refusal to allow its founder, William Browder, to enter the country. Russian officials have used the law that allows them to block people who might threaten “the security of the state, public order or public health”, to bar Browder’s entry. IHT reports:

William Browder, a US-born British citizen, has said that his active role in campaigning for minority shareholder rights at Russian companies might be the reason for denial of his visa application.

June 15, 2006

Fernwood may Discontinue Hedge Fund Program

According to unconfirmed sources, Fernwood Art Investments has discontinued its art hedge fund program for wealthy investors. The news gathered momentum with telephone calls going unanswered in its offices across Boston, Miami and New York City. The offices are empty of staff. It has been reported that there was a bust-up among the company's principal directors. Analysts believe that Fernwood and some other art investment companies could not read the market properly. The wealthy investors could not see the difference between investing in art and collecting, which made them suffer in the end. Maine Antique Digest has published an article on the Same Topic.

The apparent disappearance of Fernwood has left the field to just one remaining art investment company, the London-based Fine Art Fund, which currently operates one fund and expects to launch two more this month.

Mirant Drops Purchase Bid

The pressure applied on power generator Mirant Corporation by hedge fund firm Pirate Capital LLC has borne fruit. Mirant has agreed to drop its bid to buy peer company NRG Energy Incorporated. Officials from Pirate and Mirant will meet next week to discuss issues regarding improvement of shareholder value at Mirant. Pirate holds a stake in Mirant.

June 13, 2006

Hedge Fund to Attempt Takeover?

Activist hedge fund Private Capital LLC is baying for the blood of energy company Mirant. The hedge fund, which has a 1.6 percent stake in Mirant, has said that it will attempt a takeover of the board if Mirant does not publicly announce plans to sell itself by June 14. Mirant had earlier made an unsuccessful bid for contemporary NRG Energy, which declined Mirant’s offer citing its share appreciation as a reason not to sell. Market Watch reports:

Pirate will try to call a special shareholder meeting to gain control of the company's board, the fund said. "If successful, our nominees would then constitute a majority of the board of directors," Pirate manager Thomas Hudson wrote in a letter to the board that was filed with the Securities and Exchange Commission on Monday.

June 08, 2006

New York University Student Indicted in $7 Million Hedge Fund Scam

In yet another case of hedge fund scam, a former New York University student pleaded guilty to bank and wire fraud. He admitted of forging documents by using his student ID to pose as the heir to a billionaire Turkish family. He used this trick to convince investors into pouring millions into a non-existent hedge fund. The guy Hakan Yalincak, 22 entered into Greenwich High Finance and brokered deals with a Kuwaiti financier using the forged documents. According to hedge fund analysts, Yalincak's fund was not a legitimate investment and investors lost more than $7 million in this fraud. Ironically, Yalincak donated $1.25 million to New York University.

The donation to New York University was used to reassure worried investors that Yalincak's fund was a real one and it could be trusted. It is strange that his family was also involved in the scam. The Kuwaiti businessman told the FBI that Yalincak's mother claimed to be part of one of the world's rich families. The money shown by Yalincak in his account belonged to the investors. Chron has published an article on the Same Topic.

May 24, 2006

Small hedge fund players might be in trouble...

There's lot of speculation going around. It began with Man Group, the world's largest quoted hedge fund manager revealing that some of its futures fund made substantial losses this month. This has sparked the fear that smaller hedge funds might be suffering even greater losses.

The volatility in the equity markets seem to be finally taking its toll. Many hedge funds are also likely to be hit by the recent strengthening of the dollar even as the commodity prices tumbled.

Why should we be concerned of a failing hedge fund? Because it is one sure shot recipe of creating panic in the market. As the hedge fund will be forced to sell stock into an already falling market which will further pull it down. But then nobody has much of a choice, since if they don't do it, they would end up breaching their financial obligations.

For further details...read

May 23, 2006

Indictment in Hedge Fund Case

With the growth of hedge fund operations in the investment market, more scandals are being unearthed. In a shocking incident, three people from Colorado Springs have been arrested in connection with an alleged hedge fund scheme fraud case. It is said that they have defrauded about 350 people out of a total of $7.5 million. The arrested persons were Hamilton Alan Bird, David Edward Newton and Douglas Alan Scott. A state grand jury indicted them on May 12 in El Paso County District court.

More Information on the Scandal: Read Here

In 2002, Bird, who was the director of XL Capital Partners Inc., formed Vision Fund as a limited partnership to operate a hedge fund, according to the indictment.

April 13, 2006

Short changed on short selling - watchout!

Hedge funds are planning a class action lawsuit against brokers who they feel short changed them in short selling operations. That's a real irony because we often hear of complaints about how hedge funds spread negative stories about companies to bring down their share prices - something that is absolutely necessary for hedge funds to make money out of short selling. Now it is the hedge funds who seem to be on the receiving end. The problem is: hedge funds say that several brokers despite being paid to borrow stocks to cover their, that is, the hedge funds', short sales did not do so forcing the hedge funds to go 'naked' in their short sales. This has often led to market distortions leaving the hedge funds out of pocket. While details are still not available as to who will be sued and by whom - just watch out on this front - a storm is brewing and big names such as Goldman Sachs and Morgan Stanley are likely to face the heat.

Well, in my view a strong enough legal action can create quite a flutter in the market and most importantly it can lead to what investors don't like at all - a high degree of uncertainty ! Be warned and watchout!

Read more: US hedge funds set to sue in short-selling row

March 26, 2006

Hedge Fund Failure Leads To Property Dealer Losing Millions

The collapse of PlusFunds, a hedge fund management firm, has led to Mark  Kavanagh, a  property developer, who owned 6.11 per cent of the firm, losing millions as well. Kavanagh had invested invested close to €2.5m in the company. 
Times Online reports:

A New York court agreed last week to the sale of PlusFunds, which was valued last year at more than $200m (€166m), for just $5m. Assets under management had dwindled from $2.5 billion to $1 billion in the first two months of this year.

March 09, 2006

Are Hedge Funds Going Down?

The skeptics, who have been on a look out for a bubble to break, were too keen on the housing market last year. However with some signs of lackluster performance from the capital market they have apparently turned their focus towards it. The key here is that the shady show did not come from segments such as stocks, bonds, oil, all of which closed the year on a positive note.

The problem child apparently was the hedge funds sector - the segment with over US $1.1 trillion in assets under management, which has witness growth literally doubling the industry size since 2000.

It was observed that by December 2005, the steam was venting out of the roaring hedge funds sector. The net money flows into hedge funds, which are investment pools available mainly to institutional and wealthy individual investors, were down 44% in the third quarter from a year earlier.  And further they almost stagnated during the fourth quarter of the year.

With the flows drying up, there was a likewise effect on many hedge funds. According to reports by Chicago's Hedge Fund Research in December 2005, that through September 30 2005, a record number of hedge funds (484 funds),  more than 6% of the total hedge funds segment, had been forced to shut down in 2005.

Although the figures for the fourth quarter are yet unavailable, reports are that they are worse than that of the third quarter. Many industry experts or you could say skeptics are gunning that this stage is potentially one of "recession for hedge funds". Many believe that the exact scenario in the hedge funds space could be worse than what the data indicates, as the numbers are clearly based on un-audited results, which are reported to industry groups.

March 06, 2006

Hedge Funds: Risky Business

The recent trend witnessed in the investment pattern of hedge funds investors is that they are not ready to bet all their fortune on one single hedge funds manager. This was outlined by Donald Putnam, chief executive of the investment bank Grail Partners, while he was speaking to a room full of fund of funds managers. Iht reports:

While few agree with Putnam's prediction of extinction, a recent flurry of deals in funds of funds shows that the business is rapidly changing. Since June, institutions have bought, at high prices, nine funds of funds, compared with eight such deals from 2000 to 2005, according to one major investment bank's data.

February 24, 2006

Investors in Norshield funds see dismal returns

Most investors look at hedge funds to reduce risk and diversify their portfolio. At times, decisions go wrong, as was the case with the hedge funds managed by the Norshield Financial Group.

According to recent reports, it has been indicated that investors who had invested money in the hedge funds managed by the group would get back a maximum of 10 cents for every dollar that was invested. In the worst-case scenario, it could also be possible that investors get no more than 3 cents per dollar. And at the same time, they would get this money only after a wait of close to three years.

A number of parties have been held responsible for the situation. This list includes senior management, regulators, auditors and financial advisers. Globeandmail.com reports:

Montreal-based Norshield, considered Canada's first hedge fund, was founded in the early 1980s by John Xanthoudakis. It once boasted more than $1-billion in total assets.

February 20, 2006

PXRE Crisis Could Affect Big Hedge Funds

Leading hedge funds, including D.E. Shaw & Co., Eton Park Capital Management and Och-Ziff Capital Management, might get affected by PXRE Group's period of crisis. These three hedge funds were the leading investors in the re-insurer at the end of 2005, owning more than 22% of the company's shares, according Thomson Financial data. Marketwatch report:

PXRE shares lost two-thirds of their value on Friday after the reinsurer almost doubled its loss estimate from last year's record hurricane season and lost key financial-strength and credit ratings from A.M. Best, an influential industry-rating agency. The company also said it hired Lazard to explore strategic alternatives.

February 16, 2006

Hedge Funds: Misconception Galore

One of the most popular misconceptions about hedge funds is that all of these funds are volatile. The misconception connects that they all use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities, and gold, while using a too much of leverage. However, a close study in to the fledging sector brings to front the general level, wherein fewer than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don’t use derivatives at all, and many use no leverage.

People also are wary of, as much as they are attracted, to the aggressive growth strategies of the hedge funds. Investments in equities are expected to experience acceleration in growth of earnings per share. In general high P/E ratios, low or no dividends; often smaller and micro-cap stocks, are expected to experience rapid growth.

February 14, 2006

Hedge funds Could Clog Vardy Deal

Reports are rife that PENDRAGON’s GBP506 million bid for rival car dealer Reg Vardy could be obstructed and slowed down by a number of hedge funds and proprietary trading desks that have acquired a big stake in the group. Timesonline reports:

Despite having triumphed in a two-way fight for Reg Vardy with a 900p-a-share offer — outbidding rival Lookers — it could turn out to be a pyrrhic victory for Trevor Finn, the chief executive of Pendragon. Finn now controls more than 50% of the shares in Pendragon. However, with a combined holding of nearly 25% the hedge funds and traders could still frustrate his plans to merge the two businesses.

January 30, 2006

Hedge Funds Acquire Stake in Alitalia

In spite of the strikes and rumors of bankruptcy regarding Alitalia, two investors have reportedly purchased big stakes in the carrier. This seems to be the trend as some hedge fund sources say it is part of the strategy to buy airlines seen as cheap in a bull market. Walter Capital Management and Newton Investment Management acquired a 12.4 percent stake in the Italy's biggest airline. Newton is reportedly a long-term investor and bought the stock in a recent issue as it is positive on the company's outlook. Reuters reports:

"Hedge funds bought when Alitalia staff went on strike and they bought BA in the summer when there were strikes (at airline caterer Gate Gourmet)," a hedge fund manager said. "Strikes are about working conditions and money and airline unions in most recent cases have lost ... That's generally good for the health of a airline."  The airline's 1 billion euro (690 million pound) rights issue late last year, coordinated by Deutsche Bank, did worry investors, given that it was more than the carrier's 800 million euros market capitalisation at that time, but not enough to sell the shares.

January 16, 2006

Hedge Funds Drive Activist Bandwagon

During the last year – that is 2005- hedge funds and deep-pocketed individual investors have been urging management at many leading companies to buy back shares, increase dividends or take other steps to improve shareholder value. Even pressure tactics are being applied to force management to such ends. NYTime reports:

But while shareholder activism may be on the rise, it is still relatively rare among the 8,000-odd mutual funds in the United States. With $8.5 trillion in assets, mutual funds are a huge force in the market. Yet fund managers and industry experts say the funds are a meek presence in the boardroom because of cultural and structural factors.

January 12, 2006

Godden parts ways with Hedge Funds Research

According to recent reports, John Godden, Managing Director, Hedge Fund Researchs European asset management arm, has left the company. It is unclear who would take over, with reports suggesting that Swiss business chief Marc Denogent might step in.

It was an amicable split and it is likely that Godden would resurface at some point. Godden was set to share a platform at the National association of Pension Funds annual investment conference in Edinburgh alongside NAPFs Geoff Lindey, FSAs Dan Waters and Watson Wyatts Nick Watts in March, when this decision was taken.

One article I came across on this subject which provides a good overview is here.

January 11, 2006

SEC intends taking action against Perry Capital

The Securities and Exchange Commission has notified Perry Capital, a large hedge fund company, that it intends to take action against the firm. The commission has accused the firm of violating disclosure rules when it used an unusual trading technique last year to try to influence a takeover battle.

Perrys has received a Wells notice that describes the SECs complaint. Before a case is brought, Perry has the right to argue its case to the agency.

The case stems from a complex hedging technique that Perry used to buy a voting stake in a company without holding the same economic interest in the company. SEC has alleged that Perry used a complex hedging technique to try to influence the outcome of a takeover battle for King Pharmaceuticals, a generic drug maker, waged by a larger rival, Mylan laboratories. The firm appeared tohave set up a sophisticated swap trade with Bear Stearns and Goldman Sachs so that it controlled about 10 per cent of Mylan's votes with limited or no exposure to fluctuations in Mylan's share price. The New York Times reports:

The maneuver made Perry the largest, if indirect, shareholder of Mylan, and could have helped ensure that Mylan would receive enough shareholder votes to approve the deal for King at a time when the next biggest shareholder of Mylan, Carl C Icahn, was trying to block the merger. If the deal had been completed, Perry stood to make more than $28 million, based on figures in an SEC filing.

January 06, 2006

Concerns over Hedge Funds Sustainability

Although there is a halo around the hugely popular and loosely regulated investment strategy called the hedge funds, industry skeptics give a warning signal and urge to tread with caution. The pertinent question that everyone seems to be asking nowadays is that are hedge funds the next big thing in mass investing? Will it actually break the barrier of being the investment vehicle of the super rich and go fully retail? And if so, will hedge funds suffer the same fate as the last big thing in mass investing — mutual funds?

This is one big concern that has emerged from all corners of the industry. Back in the 1990s, the mutual-fund industry doubled – with millions of new investors pumping in money in expectation of excellent performance. However, as of today, according to the Investment Company Institute, there are about 8,000 United States mutual funds, with about US $ 8.5 trillion in assets. Yet it is being reported that majority of the mutual funds under-perform vis-à-vis the market indices. Thus in spite of all the good will and expectation, there is the undercurrent of uncertainty for hedge funds.

December 27, 2005

Hedge Funds: Rumors Hint Slowdown

If the rumors and market speculations are to believed, the hedge funds industry asset growth is showing early signs of slowdown. The market speculations point towards a couple of reasons for the alleged slowdown. The first reason hinted was the fact that the equity markets have done well during the last couple of years, well at least better than the preceding years. The positive image of the equity market, which is pulling at the investor sentiments reportedly, caused a slack in hedge fund investment. Thus equities are reportedly back to being the favorable asset class for growth.

The second reason apparently is that the relative value strategy section of the industry suffered some tough months in the middle of the year. This was mainly related to General Motors in the US. Further, as numerous hedge funds reported poor returns or even closed and returned their money during that time period. These reasons resulted in a kind of bottleneck in terms of fund inflow into the hedge funds sector during that time. Moreover, industry source highlight that the next year is not likely to witness very high levels of fund inflows- no way near the levels witnessed over the last couple of years.

Hedge Fund Muscle out Wyevale’s Top Brass

A hedge fund has reportedly succeeded in throwing out the chairman and two non-executive directors of Britain's leading garden centre company after an eight-month power battle. However, it is also being reported that the hedge fund failed to install its favored candidate as the chairman. Guardian reports:

Laxey Partners, which owns a 28.6% share in Wyevale Garden Centres, gained the support of the hedge fund group Millennium Partners to push through a motion removing David Williams, chairman, and the non-executives Andrew Lewis-Pratt and Dianne Thompson, chief executive of Camelot, with immediate effect.

December 19, 2005

A Beginner’s Guide to Hedge Funds

Hedge funds are one of the most awed investment strategies to the common retail investors. Traditionally reserved only for ultra-rich investors, the often hidden investment strategy of hedge funds is still a mystery. To understand the intricacies of hedge funds, we first need to understand what hedge funds are. In simple words, hedge funds are an aggressively managed portfolio of investments, which use advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets. The aim is to generate high returns.

To draw up an understanding from a structural perspective, hedge funds are usually established as private investment partnerships, which are open to a limited number of investors and further require a very large initial amount of investment. On a general note, hedge fund investments are not liquid, not at least in the short run of up to a year. As most hedge funds require a minimum lock-in period of one year. One more interesting fact about the hedge funds is that they are organized as private partnerships and often located offshore. This is done primarily to save on taxes and to work around regulatory issues.

December 18, 2005

Hedge Funds Dragged Down at Investor Conference

It is being reported in the trade circles that Hedge funds are performing badly and charging far more. The issue was brought into the limelight by numerous speakers at a recent investor conference sponsored by one of the leading groups. Nysun reports:

The topics du jour in hedge fund land were: higher fees, longer lockups, more lenient high water marks, "sidepockets" that are being used to put aside losses, a growing gap between winners and losers, a slowdown in the money going into funds-of-funds, more "activist" managers, increasing use of "gates" to limit withdrawals and a drop in the use of soft dollars. Few bode well for investors' returns.

December 15, 2005

Hedge Funds Push for Longer Lock-ins

An emerging trend in the hedge fund industry is the requirements of increased lock-in period. Nowadays, hedge fund investors are required, in some cases, to lock-in their money for longer duration of up to five years. This new strategy is perhaps to match the longer duration of investments in areas such as private equity. Traditionally, hedge funds have been known to impose much shorter lock-in period than this. The usual tie-up period was anywhere between three months to one year.

Hedge fund detractors opine that such a move towards a longer lock in period would turn people away from hedge funds. However, the counter argument to this is if investors want that sort of liquidity they can choose to purchase shares of hedge fund firms listed on the stock exchange. Even the investment pattern of many hedge funds has changed, with funds increasingly investing in less liquid investments such as credit and emerging markets, to boost returns, which are in-part softened by low volatility on traditional stock and bond markets in Europe and the United States.

Hedge Fund Managers Focus on ComLinks Intelligence Network

Leading hedge funds are increasingly worried about the risk to their international investments from the politically unstable times in Washington. Thus, Hedge Fund Managers are reportedly taking notice of the fusion of newsroom and intelligence center in the ComLinks Intelligence Network www.ComLinks.com created to provide Hedge Fund, media and corporate subscribers with news and analysis of political intentions in Washington, DC. googlesyndication.com reports:

Energy, telecoms and healthcare have been the focus during the pilot phase of this project for funds in New York and Beijing. In rapidly changing industries such as energy, telecommunications, broadcasting and pharmaceuticals one rule change, or one amendment to legislation can make, or destroy a company if not challenged, or alternatives found.

December 09, 2005

Hedge Fund Failure – A real concern

Even as high strung investor community pours in billions of dollars into hedge funds, there are eminent risks that could have a far reaching impact than acknowledged. Wealthy investors in expectation of huge returns bet big on loosely regulated hedge fund strategies.

However, some financial experts and analysts opine that, in the event of a surprise market tremor, such funds could potential shake up the financial markets. Although, hedge funds usually cater to large institutions and the super-wealthy investors, a shake up of the hedge funds market could have ramification on the banking system as well as on the retail investors owning to the sheer magnitude of the hedge fund investments.

The very fact that regulations are relatively easy on hedge fund investment pools, further adds to the fear of a spiral down. Unlike mutual funds, hedge funds can potentially bet on everything from real estate to energy futures. In order to garner the sky-rocketing returns that investors expect from hedge funds, fund managers usually engage in risky strategies, such as loading up on debt and engaging in unlimited short-selling (betting that an asset will fall rather than rise in value).

Such risky strategies might bring about amazing returns, but a failure leads to heavy losses too. The risks of hedge funds were highlighted back in 1998, when the Long-Term Capital Management fund collapsed. In spite of being driven by two Nobel-Prize-winning economists and some of the smartest Wall Street experts, Long-Term Capital Management fund made enormous bet on bonds that lost. And in order to prevent a financial chaos, a coalition of Wall Street banks had to come to the rescue of the fund.

Although, the severity of the consequence in case of Long-Term Capital Management brought about a sense of caution into the industry – the number of hedge funds is growing at an alarming rate.

Hedge Funds could magnify impact of an upset

According to Hennessee Group, a hedge fund adviser, the number of funds floating in the global market has more than doubled, and assets have grown to over a trillion dollars from as little as US$200 billion. Heavy investments have found their way into the hedge funds arena, driven away by a weak stock market and low interest rates. Investors have banked on the hedge fund bandwagon to achieve higher returns.

With such a colossal size, these funds have the potential to magnifying the impact of any significant event. Any unforeseen event could derail the hedge fund sector. These events could even include a terrorist attack, default by a large borrower, or a sudden shift in interest-rate policy by the Federal department. The reason for the panic undercurrent is that any bad news could lead to investors seeking the exit route. In a hasty market, hedge funds would only stand to loose – thus magnifying any significant upset.

December 01, 2005

Hedge Funds Keep Making News

Off late, hedge funds have been in the news headlines following a string of mishaps. Long-Term Capital Management, a hedge fund whose principals included two Nobel Prize-winning economists, almost collapsed in 1998; and recently, Bayou Group, a $450 million Connecticut-based hedge fund, closed down following a fraud that led to disappearance of most of the fund’s money. Nytimes reports:

Hedge funds have traditionally been only for wealthy, sophisticated investors so regulators have not monitored them as they have stocks or mutual funds, although they are starting to do so.

November 10, 2005

Refco comes under the hammer, Man Financial bids for acquisition

According to a declaration made to the London Stock Exchange, Man Financial, the brokerage arm of the Britain-based hedge fund company Man Group, has made a bid to acquire a part of the brokerage firm Refco, which has declared itself bankrupt following charges of fraud against its CEO Phillip Bennett.

According to a report published by Today Online, Bennet was also charged with withholding information of debts amounting to at least $430 million. Man Financial has placed a bid to acquire parts of Refco that are being auctioned according to the US bankruptcy procedure. Prior to its closure, Refco was the largest independent futures intermediary in the US.       

October 17, 2005

Another Hedge Fund Manager sent behind bars

Hedge Funds scandals just does not seem to end, here is a case of misappropriation of funds by then sole manager of ETJ hedge fund, Mr. Edward Thomas Jung. He was also a controlling General Partner of ETJ Partners Ltd., a broker-dealer, where he used to trade stock options on the Chicago Board Options Exchange. The Securities and Exchange Commission (SEC) filed a civil complaint against Mr. Jung and his firm, ETJ Partners, in June 2001, for false representation of performance to prospective investors and the misappropriation of current investors' assets between 1994 and 1998. Mr. Jung has been fined $21 million in restitution charges and will face prison sentence of more than nine years, for luring 55 investors with false trading performance reports. Mr. Jung has been barred from from associating with any broker or dealer or investment adviser, and SEC has revoked the registration of its ETJ Partners' in March this year. Lipper HedgeWorld Reports:

ETJ's offering was the Strategic Income Fund LLC, and it had 55 investors, who lost more than US$21 million. Prosecutors say that investors were lulled into a false sense of security through misleading trading performance reports.

Hedge Funds operations stalled due to Refco’s illness

Refco’s current instability could spell dooms day for the hedge funds in executing trades through the trade futures giant. A substantial portion of revenues of Refco are earned through the trade execution of securities and commodities are executed through Refco Capital. The news of the halt Refco Securities – group’s bread winning business, was leaked out from Refco's clearing bank, Depositary Trust Company, which stated that it is winding down its business. Following on the embattled group has begun winding down Refco Securities, a regulated brokerage which accounts for more than half of the group's gross revenues. In order to safeguard its interests, they have sent its CEO, Mr. Phillip Bennett, on paid vacation to search for audit trails, and frozen customer accounts for 15 days in another US subsidiary, Refco Capital Markets. Refco Securities is being closely monitored by the Securities and Exchange Commission (SEC) and the Financial Services Authority (FSA) for the company’s actions. Former SEC Chairman, Mr. Arthur Levitt will act as an adviser to help stabilise Refco, while, Goldman Sachs will assist on the rescue mission on an advisory basis. Black Enterprise.com Reports:

Refco Securities is regulated by US financial watchdog the Securities and Exchange Commission. It said today that the unit could not withdraw equity capital for 20 days. The aim is to try to protect money held by Refco from leaking out to any company investors or employees.

Loans recklessly disbursed by large banks to hedge funds

There seems to be a bubble build-up in the lending made by banks to hedge funds. As per some conservative estimates, a small group of big banks including JP Morgan Chase, Deutsche Bank, UBS and Credit Suisse have over $500bn at risk in hedge funds where the amount has been recklessly invested. It is believed that this has been borrowed by funds keen to "leverage" their investments, raising concerns over the level of lending, from the US Securities and Exchange Commission (SEC) and the Financial Services Authority (FSA) in London. Such lending’s by banks have garnered interest since, there are hedge funds going bust every month, Bayou to Wood River. Even Refco, a futures trader may soon file for bankruptcy, for funneling of funds by its CEO into his holding banks. The situation seems dreary for the hedge funds and banks, which may have to face tighter norms and regulations in the future. Independent Online Reports:

It has calculated that a small group of big banks have over $500bn at risk in hedge funds. These are believed to include JP Morgan Chase, Deutsche Bank, UBS and Credit Suisse. These companies refute suggestions that the exposure could be a problem. "All of our lending is secured," said a spokeswoman for a leading European bank.

October 16, 2005

Another hedge fund convicted by the SEC for improper investments

A hedge fund scandal has rocked the hedge fund industry, the new hedge fund to be convicted by the Securities and Exchange Commission (SEC) for false promises and its defrauding investors. The SEC announced the civil lawsuit against Mr. John Whittier, a former media and telecommunications analyst for investment firm Donaldson, Lufkin & Jenrette, and now the current hedge fund manager of Wood River Partners LP and Wood River Partners Offshore Ltd., based in San Francisco and Ketchum, Idaho. The court has appointed a receiver for the two funds seeking unspecified civil fines and restitution from Mr. Whittier and the funds. This episode has been a latest in the series of enforcement actions by the SEC in recent months against largely regulated hedge funds. The SEC has accused the company on its non-appointment of a genuine auditor to track the investments, and no such audit trails have been found. The most shocking aspect in this scandal was that the fund had invested about 65 per cent of its portfolio in a company by the name Endwave Corp., to acquire 45 per cent stake in it. The fund had invested in Endwave from 2002 through 2004 where the company’s stock had spiraled down from high of $55 in July, this to the recent low of $12.69 Oct 13, this year. The Mercury News Reports:

The Wood River funds were founded by Whittier, a former media and telecommunications analyst for investment firm Donaldson, Lufkin & Jenrette. The SEC said in its suit that from February 2003 to the present, investors put tens of millions of dollars in the funds based on promises of a broad diversity of investments and strict oversight by an auditor. But Whittier had no audits done and invested heavily in the stock of one small company, Endwave Corp., the agency alleged.

October 13, 2005

FSA pulls up Hedge Funds for their role in insider information through a loan syndicate

The Financial Services Authority (FSA) the UK equivalent of SEC stated that it is reviewing to develop a link between hedge funds' ability to manage price-sensitive information and to keep this behind so-called Chinese walls. The onus of responsibility has been handled to Mr. Tom Huertas head of wholesale bank regulation. The exercise was launched by the FSA in June to focus on the dangers of insider trading and market manipulation. The FSA determined one area - the price-sensitive information obtained by hedge funds from the buying of non-public bank loans, and use of any such information illegally to trade public securities such as bonds and shares. The FSA wanted to check the link between non-public information in connection with a loan syndicate for personal gains. However, the FSA discovered that hedge funds had obtained price-sensitive information from MyTravel and Jarvis, when both companies had flirted with bankruptcy without signing confidentiality agreements, which eventually prompted lenders to sell their loans to traders and hedge funds. Reuters Reports:

But to get that information and continue to trade in public share and bond markets they must have "Chinese walls" separating their public and loan traders. The suspicion among some market participants is that some hedge funds are physically too small to achieve this, sometimes operating out of a single room.

Hedge Funds accused for their role in shady PIPE transactions

Hedge funds are known to make their investments through various strategies to derive phenomenal returns which beat traditional market returns, and at times land up into trouble. This time the Hedge funds are ensnared by the Securities and Exchange Commission (SEC) for manipulative trading in the market for private stock placements by small companies. There are two Hedge Funds who have been issued a so-called Wells Notice by the SEC for their alleged role in the $14 billion-a-year market for private investments in public equity (PIPE). The SEC generated interested some 2 years back in PIPE dealings, however, the action gathered momentum when the SEC, in conjunction with the NASD, began a broad inquiry into the PIPEs market some 18 months back. The two regulators issued subpoenas and requests for documents to 20 brokerages houses as well as 10 hedge funds which are big PIPE investors in the past couple of years. However it may not be the first time that any hedge funds would have been convicted in any PIPE wrongdoings to date. The previous accused hedge funds are - HBK Investments role in PFSweb (Nasdaq: PFSW); former hedge fund manager Ms. Hilary Shane’s and Friedman Billings Ramsey’s (NYSE:  FBR) role in Compudyne (Nasdaq: CDCY); Knight Capital’s Deephaven asset management group over series of PIPE transactions from June 1999 through March 2004. TheStreet.com Reports:

This summer, Knight Capital (NITE:Nasdaq) disclosed that its Deephaven asset management group could face potential regulatory action over its trading in a series of PIPE deals from June 1999 through March 2004. Refco (RFX:NYSE) , meanwhile, has set aside $5 million to cover the cost of settling allegations that some of its brokers acted improperly in arranging trades for an investor in a PIPE transaction.

Philadelphia-based hedge funds wreck global havoc

Hedge funds are famously shrouded in secrecy and offshore tax havens to shelter their investments from public scrutiny. However, whenever any of the funds go bust the theory of regulating the funds creates a major furor. A recent blow-up of the troubled Philadelphia Alternative Asset Management Co., LLC has created international legal tangles. The U.S. District Judge Mr. John Padova appointed Mr. C. Clark Hodgson Jr., a partner in the law firm Stradley Ronon Stevens & Young, LLP this summer to manage the company's assets while the U.S. Commodity Futures Trading Commission investigated $179 million in estimated losses from the funds. A court-appointed receiver in Philadelphia is battling British investors; Cayman Island lawyers; and banks from France, Switzerland and the Netherlands over the left over corpus of $275 million which is invested since 2004 in three hedge funds run by the company from its former offices in King of Prussia and Toronto. And these paramount issues were not enough, the bankers and lenders in Europe gave the legal battle a new turn, by deviating the legal process to the Cayman Islandjurisdiction and appointing a new court appointed legal counsel. It is yet to be seen the outcome of this battle, but sure seems one to be watched out for. Philly.com Reports:

The European custodians were supported in their Cayman petition by two hedge-fund managers that had invested in Philadelphia Alternative Asset Management Co., MB Absolute Return Fund Ltd., which has an office in New York, and Britain-based Fortune Funds Ltd. MB has since dropped out of the proceeding. But in an affidavit supporting the Cayman petition, Fortune managing director Simon Hopkins detailed his concerns about the Philadelphia receiver.

New terror flag raised bar in London

There is a different terror situation which organizations in London which they are getting scared of. Though, this time its not the human bombs or the terrorists which rock the city, they are the infamous, hedge funds. They have been wrecking havoc in the financial world and have become the new terror raiders in the corporate world. This new industry has been racking up trade volumes on the London Stock exchange and now 40% of the share trades on the exchange. They are the new corporate raiders now. The hedge funds are now trying to make hostile bids for Marks & Spencer by backing Mr. Philip Green. Mr. Paul Myners, the Marks & Spencer chairman is now trying to put up a strong defense against the outsiders, when the company’s own board of directors changed tactics and sold of its financial services arm to HSBC to return £2.3 billion of cash to shareholders. The cash rich hedge funds rule the roost now; they are the new pirates of the millennium after the private equity buyout firms ruled in the 1980’s -90’s. Sunday Herald Online Reports:

Public markets such as the London Stock Exchange (LSE) should be as transparent a place as possible in which to do business. To ensure this, listed companies report their various ventures and dealings, and institutional funds do the same with their major holdings and transactions. The idea is that this gives investors enough information to make fairly educated decisions.

Massachusetts-based hedge fund manager held for insider trading

The Securities and Exchange Commission charged a Massachusetts-based Global Time Capital Management, LLC, hedge fund manager – Mr. Michael Tom. He and three other defendants has been accused of his role insider trading and gaining around $750,000 on the Citizens Financial Group, Inc. publicly undisclosed information of its acquisition of its acquisition of Cleveland-based Charter One Financial Inc. in 2004. Mr. Tom incidentally was a former employee of Citizens Bank. As per the reports, Ms. Shengnan Wang, then an employee of Citizens Financial passed on the information about Citizens’ performing its final due diligence for the acquisition of Charter One to her husband, Mr. Hai Liu and Mr. Tom. And, since Ms. Wang and her husband had invested approximately $60,000, in GTC Growth Fund run by Mr. Tom, to make undue returns. Mr. Tom purchased Charter One call options in his name and in a joint account held with his wife and in accounts managed for his wife and in-laws. On public disclosure Charter One’s stock rose more than 22 per cent after the deal was announced. By this time they had made their gains and sleeping tight, till the regulators knocked on their door. Boston.com Reports:

Michael Tom also traded Charter One securities before Citizens' announcement in a joint account he held with his wife and in accounts he managed for his wife and in-laws, regulators said. According to the complaint, Michael Tom's trading in Charter One securities resulted in total profit of $743,505.

October 01, 2005

UK-based Man Group accused of having a hand in the collapse of Philadelphia Management

There are stains marked on Man Group’s, subsidiary Man Financial, London’s top Hedge Fund. Man which is managed by the CEO, Mr. Stanley Fink, a well-known personality has agreed to co-operate in any investigation. Man Financial has been accused by the Pennsylvania court for wrong dealing and a party to the collapse of Philadelphia Alternative Asset Management Company in June this year. The fund was managed by Mr. Paul Eustace, a well known icon in the hedge funds industry and had raised about $300m from international investors last year. Man Financial is accused by the receiver to the collapsed fund, Mr. Clark Hodgson of helping Mr. Eustace bloat his true investment performance through a secret account through UBS in Cayman Islands to hide losses. Mr. Thomas Gilmartin, a senior vice-president at Man Financial in New York, however named in the documents as Mr. Eustace's chief point of contact. It is to be seen the alleged role of Man Financial in the transaction, if they are charged it could give a strong blow to the reputation of Man Group. Guardian Unlimited Reports:

Documents filed in a Pennsylvania court this week accuse Man, the company that sponsors the Booker literary prize, of allowing losses of $175m (£100m) to be hidden from investors in a third-party hedge fund. The mechanism is claimed to be a secret and unauthorised account in the Cayman Islands known as the "50 account".

Read More: City firm faces £100m rogue trader action

The absconding Bayou Group founder may serve prison for 20 years

The incidents of the Stamford, Connecticut-based hedge fund, the Bayou Group had all the ingredients of a Hollywood Drama. The plot thickened with every aspect of the human-side – greed, lies, deceit, and finally confession. The conspiracy of the absconding Mr. Samuel Israel III, founder of the Bayou Group from the investors with their money was unraveled when he was convicted by Magistrate Judge Mr. George Yanthis of the U.S. District Court in White Plains. Along with him was Mr. Daniel Marino, the company's CFO who fake suicide note was discovered by the police from his apartment some time back. The two men are charged under three counts of felony for duping investors under: investor adviser fraud, mail fraud and conspiracy to commit fraud. The mail fraud the most serious of them carries a possible 20-year prison sentence, fines and restitution, for stating profits for years when the fund was never in black for the entire duration. The convicts had inflated their earnings and booked profits of $43 million when the incurred losses to the tune of $49 million in 2003, and took $29 million in commissions that year. And to top its all they also set-up a phony New York City accounting firm in 1999 called Richmond-Fairfield Associates for cooking up audit reports. This drama is turning sour for the founder and the CFO, after taking their investors for a ride. The Journal News.com Reports:

Ross Albert, a former federal prosecutor and now a securities lawyer in Atlanta, said it's near certain that Israel and Marino, will spend time in prison. "Generally the way people implicated in these types of frauds avoid prison, if at all, is by providing information on higher-ups," he said. "But as we've seen with Enron and WorldCom, that usually just gets you a discount (a shorter sentence), not a get out of jail free card."

Read More: Bayou officers plead guilty, face prison

September 24, 2005

Pilkington seem to be a takeover target, run by hedge funds

Numerous events have been seen shaping in the industry which is bustling with activities. There are rumors floating around Pilkington, Britain's biggest glassmaker where it lost about 6% of its value with more than 34 million shares changing hand in a single day. It is believed that it was the handiwork of Harry Hedge Funds. It is also believed that the stupendous rise in the share price of Pilkington from 108p to 152 ½p from its low this year may have come to full stop. But the story behind it still shows a different picture, this volatility in the stock price is due to the rumor of being a take over target for an asking price of £2 billion. This has been double the bid price which was about two years back. Pilkington has been a target since the company is facing increased competition and rising costs. Although it seams uncertain when the stock price would be streamlined, but surely there is a lot of action one can expect at this counter for a couple of months. Black Enterprise.com Reports:

Pilkington has been buoyed by talk of a Pounds 2 billion bid. The group is probably one of the stock market's longest-running bid targets, having been tipped by City speculators every year for the past decade. The company's value has doubled in the past two years.

Read More: Hedge Funds in Frame As Pilks is Hit By Big Sell-Off

Scandals in the industry may deter investors

The year has been a bad time for the Hedge Funds since 1998 after the infamous blowout of the Connecticut-based Long Term Capital Management. The industry this year has seen two scandal and money laundering incidents. First the industry saw the KL Financial, a $200 million, West Palm Beach, Florida-based hedge fund which went bust. And, the Korean-origin principals fled the country after the SEC allegedly sued them in March this year for lying about their funds' returns and issuing bogus reports to its investors. The second mega event was that of Bayou Management, LLC which had all the ingredients of a Hollywood block buster scandalous film. There were reports about the funds’ CFO being terrorized by Bayou's founder, Mr. Samuel Israel III, and presumably shot, but was alive for a statement, Mr. Israel was rumored to be absconding, the returns were made an eye-candy for its investors. And, finally federal prosecutors filed a suit alleging that Bayou's managers raised $300 million between 1998 and 2005 from its investors by lying to them about the fund's returns and other issues. It is yet to be seen how much of these issues would have an impact on the investor’s perception of industry. But no body is complaining money keeps pouring in the hedge funds industry’s coffers. CNN Money Reports:

Meanwhile, several funds have come under the scrutiny of federal regulators this year for allegedly defrauding investors. Two principals of KL Financial, a $200 million, West Palm Beach, Fla., hedge fund, fled the country after the SEC sued them in March for lying about their funds' returns and issuing bogus reports to investors.

Read More: All eyes on hedge funds

September 17, 2005

Bayou puts the reputation of the industry at stake

Another cautious outlook issued on one off incident of the scandal involving Mr. Samuel Israel III of Bayou Management LLC, Connecticut-based hedge fund, which guzzled investors money. Although the fund mentioned that it had $440 million on paper. But with Mr. Israel now absconding, the Connecticut State Attorney General seized at least $101 million which was linked to Bayou from its bank accounts in Wachovia Bank. However, experts state that this is a stray incident and should take precautions before making any investment in them. But the fact cannot be denied from that these funds shake up the management of the organizations the grease their operations to make them work at peak performance. But it cannot be ignored that these funds at times acquire unnecessary risks of using leverage i.e. adopting higher debt to equity ratios. Although one bad apple cannot be typecasted as the entire basket, hedge funds on the basis their ills of their adoption of techniques cannot be outcasted. However caution and alertness should be a prime principle of investing. AZCentral.com Reports:

Hedge funds also represent a financial equivalent of cutting-edge technology. They've attracted some of the top talent in the field, competing to bring out the next-generation creative product, in this case making the financial markets more efficient. While some hedge funds undoubtedly wreck companies by short-selling and other tactics, at least a few funds allow for a longer time horizon and the patience to build companies.

Read More: Beware: Dangers lurk in hedge funds

Hedge Funds want to join the rain dance with the Peacock

After lending £800 million to the US tycoon Mr. Malcolm Glazer for his increasing his stake from being a minority share holder of Manchester United to its controversial takeover. Och-Ziff Capital along with a consortium of six specialist funds in assistance with investment bank Goldman Sachs, the new target sought is Peacock, a UK based enterprise. The consortium has offered £400 million to take the company from public to private. The hedge funds are replicating the US prevalent trend of taking companies from public to private in the UK. However their involvement in British takeovers has thus far been restricted to providing debt in such cases. The times are getting tougher for the hedge funds to churn out returns as in the past and therefore have to be on the constant lookout for new avenues to drive up results. Thisismoney.co.uk Reports:

Investment bankers, however, are predicting that more public-to-private deals in the UK could be hedge fund-backed, simply because more deals are being done that way in the US. It is thought many hedge funds are also looking increasingly to find other ways of using the cash piles they have built up to sustain the high returns promised to their investors.

Read More: Peacock approach a first for hedge funds

Hedge Funds provide haven for the rich and the fraudulent?

Greed is what keeps a man alive. The more he has the more he wants. And he also understands the principal, Higher the Risk, Higher the Return. So in order to materialize such returns the logical step, one can take is to invest ones earnings in Hedge Funds. Hedge funds deliver phenomenal returns by applying unconventional techniques, such as short-selling, or betting on falling markets to investing across sectors and geographies. Therefore Hedge Funds seam to be rational investment avenue for the wealthy to multiply their returns. And it has been studied that it has also become a shop floor for the rich and the fraudulent. As per the study undertaken by Securities and Exchange Commission (SEC), atleast 51 cases have been reported charging hedge fund advisers who have defrauded investors to the tune of more than $1 billion.  However it cannot be denied the role Hedge Funds have played in generating value for the investor, and there are few spoilt eggs in the basket who wants to spoil the entire basket. Courier Post Online Reports:

A growing number of frauds involve hedge funds, which are largely unregulated and traditionally serve institutions and wealthy investors, according to The Associated Press. Hedge funds profit by using unconventional techniques, such as short-selling, or betting on falling markets to make a profit during market downturns.

Read More: INDUSTRY TRENDS: Hedge funds draw the rich, fraudulent

September 05, 2005

Jurys Doyle is a hot target for a takeover

There is a lot of buzz being generated at Jurys Doyle’s counter on account of speculative activities. Since the story around Jurys Doyle’s is that the hotel chain is up for grabs. But experts say that the buying activity is spurred by the short-term investors who would realize there returns when a takeover offer is made in the near future. Mr. Sean Dunne a leading shareholder reduced his stake from 18.23 per cent to 14.9 per cent at around 17.90 euro per share. But quickly built up his holding on the announcement by the Takeover Panel and increased his stake again by approximately 3.3 million shares, or 5.2 per cent at around 17.96 euro per share. Another developer Mr. Liam Carroll increased his stake to 7.4 per cent in the company by buying approximately 440,000 shares. The Hedge Funds now own around 20 per cent in Jurys Doyle. Business World Reports:

Firstly developer Sean Dunne sold 2.1m shares at 17.90 euro each, reducing his stake from 18.23pc to 14.9pc and following a ruling from the Takeover Panel that he had built up his holding too quickly. Market sources say he then returned to the market to purchase 3.3m shares, or 5.2pc of Jurys, mostly at 17.96 euro. Such purchases would take his stake to around 20pc of the company.

Read More: Hedge funds hold up to 20pc of Jurys

September 03, 2005

Bayou funds investors may find some of their dues back

Investors of the now defunct Connecticut-based Bayou Management hedge funds heaved a slight sigh of relief when they realized that they can expect some of their own money back. The Arizona’s Attorney General's office disclosed that in May this year, it seized $101 million in funds, which seemed to have been deposited into a Wachovia bank account controlled by Majestic Capital Management. Mr. Karl Johnson, a principal at Majestic, has filed a claim on the money, indicating in court papers that the money came from the now absconding Bayou founder Mr. Sam Israel III. Assistant Attorney General Ms. Cameron Holmes told Bloomberg News that a representative of Wachovia bank in Arizona being suspicious of a series of unusual transactions notified state authorities. The notification stated that the funds were transferred between accounts in Germany, Hong Kong, London and the USA, and therefore Arizona seized these funds. The $440 million Bayou fund has given a deadline to its investors that it would return their money by August 15 this year, after and announcement in its newsletter that the fund was not in the pink of its health, in July this year. However, when the deadline passed there were some angry investors knocked on the doors just to realize the vanishing act of Mr. Israel. Although, the customers have to be cautious about the fact that there would be more hands claiming the booty than which is actually found. USAToday Reports:

"This appears to be a good step," says Ron Geffner, a former Securities and Exchange Commission lawyer, now at Sadis & Goldberg, who represents an investor. "It would be premature to celebrate before investors are able to identify the total sum of assets."

Read More: Money seized from Bayou Management hedge funds

Bayou Hedge Fund accused of fraud by investors

After a good amount of harassment and inconvenience, one investor has now filed a formal lawsuit against the Bayou Hedge Fund. Earlier it was reported that the investors had been seeking a response from the hedge fund about withdrawal of funds. The fund had reportedly been functioning quite well and was also delivering appropriate returns. The Fund Manager and founder Samuel Israel III was reputed as a person who believed in staying in constant touch with his investors. His personal problems of a bad marriage and divorce has apparently led to the downfall of the fund.

Add to this there were reports that the fund has been siphoning off money to an overseas account. Recently $101 million were discovered in a bank in Arizona which reportedly belongs to Israel. Samuel Israel III is now being accused of fraud after the formal lawsuit. More investors are contemplating the same. Hedgeco.net reports:

“The investor has reportedly invested $1.5 million in Bayou, and complains that after promises were made by Bayou, about returning such assets, the firm has failed to deliver on such promise.”

Read More: Investor Sues Bayou Hedge Fund’s founder

August 28, 2005

United Airlines seeks the support of Hedge Funds and Private Equity Funds to stay afloat

United Airlines U.S. No. 2 airline has been through Chapter 11 protection for more than three years. The top four lenders have been quite reluctant on extending their financing to the cash strapped airline on account of rising fuel costs and the conflict between the labor and the management. United had even hinted that it would receive $2 billion in financing when it emerges from bankruptcy. The current loan term expires on September 1, which is 10th such grace period granted by the creditors. United had finalized its business plan in July this year and would file its reorganization plan in early September. However creditors can respond to its acceptance until early January next year. So to save its skin United Airlines is exploring wider avenues to seek financing from relatively new and unconventional players like in this market like the hedge funds or private equity firms as an effort to emerge out of bankruptcy. These players have bail out distressed airlines out of bankruptcy, like Cerberus Capital Management LP took a stake in Air Canada to help the company emerge from bankruptcy., whereas, Texas Pacific Group had bought a stake in America West in 1994 when that carrier was in Chapter 11 and helped it emerge from bankruptcy. Chicago Business Reports:

Private-equity firms and hedge funds are increasingly attractive options for United as rising fuel costs and labor turbulence heighten traditional lenders’ wariness of extending large loans to airlines, the source says. Obtaining equity financing would likely be cheaper for United, and tapping such funds wouldn’t add to the airline’s already heavy debt burden. However, the firms would demand an ownership stake, giving them a say in the carrier’s operations.

Read More: United eyeing hedge funds, private equity

Bayou Fund bites the dust

Bayou Group, a Stamford, Connecticut-based hedge fund has shut shop and is presumed to be absconding. Bayou, founded by Mr. Samuel Israel III, ran four hedge funds Bayou Superfund LLC, Bayou No Leverage Fund LLC, Bayou Affiliates Fund LLC and Bayou Accredited Fund LLC. Mr. Israel was a short-term stock trader and claimed to have garnered a return of approximately 200 per cent a month. He earned a commission of an estimated 1 per cent to 3 per cent a month on the dealings. The adopted a strategy whereby he would be wagering approximately 50 per cent of the portfolio on falling stocks and the remaining on shares he expected to rise, the presentation said. The U.S. Securities and Exchange Commission, Connecticut Department of Banking, and the state regulators are on a look out for any possible wrongdoing. However here have been various reports about the absence of Mr. Israel, the funds newsletter mentions that it has not invested since June due to rising stock prices and may start afresh in July, while articles do mention about a disruption in his personal life and wanted a break. Although the Fund released a statement on August 11 promised to refund investors money, but Mr. Israel has vanished since then. Newsday.com Reports:

"This potential fraud, now under active investigation by the state and other authorities, may indicate the need for stronger oversight and active regulation of the hedge fund industry," Richard Blumenthal, Connecticut attorney general, said in a statement. The SEC has initiated its own inquiry, said a person familiar with the matter.

Read More: Blue news for Bayou

Commerzbank becomes a target of Hedge Funds

Germany’s corporate kingdom have been attacked and seams to been brought at its knees by the new-age corporate raiders-the Hedge Funds. The latest victim has been the Commerzbank AG, Germany’s third largest bank which has witnessed quite some activity at the counter of late. Toscafund and Lansdowne Partners, London-based hedge funds seam to be making aggressive moves into Commerzbank’s counter. Although, the company states they are among a number of hedge funds and mainstream investors to have acquired stakes of up to 2 per cent and does not even disclose them as investors in the company. However this is not the first time it has had to encounter such an issue, Commerzbank territory in 2001 had been infringed upon, by a hedge fund called Cobra a privately-owned corporate raider who had made attempts to engineer the banks sale. Hedge funds have laid their bets to be acquired by European banks like BNP-Paribas, Royal Bank of Scotland or some Spanish banks. After, the rumored deal of the acquisition of HVB, the Germany’s second largest bank by Italy's UniCredito. Of late the hedge funds have been making aggressive inroads in the German Stock Exchange Deutsche Börse's and DaimlerChrysler, the carmaker. MSN Money Reports:

Since announcing solid second-quarter results on August 3, Commerzbank's popularity with investors has surged, with up to 20m shares – four times the normal volume – changing hands on several days. The shares have been the best performer of all 30 stocks on the Dax blue-chip index this month.

Read More: Hedge funds build up Commerzbank stakes

Hedge Funds tend to loose its sheen but touch the $1 trillion mark

The term Hedge Fund resounds of a type on investment supposedly for the rich and the wealthy and giving them phenomenal return on their investments. But scenario has changed, now the minimum amount required to invest in a hedge fund has been reduced to just $25,000, or less investments in shares that invests in multiple hedge funds. As per Hedge Fund Research Inc., there existed about 600 hedge funds with and estimated $38 billion in assets in 1990 and has seen a phenomenal to around 8,000 hedge funds, with more than $1 trillion in assets. But the investment in hedge funds has dropped sharply from $24.6 billion in net new assets in to $11.6 billion in the second quarter this year. The returns are also a lackluster and are way of the mark. But his has not dejected investors and newer financial institutions like pension and endowment funds have been the part of the current hedge fund investment spree. Virginia Retirement System has invested approximately $1.6 billion accounting for nearly 4 per cent of its assets; Baltimore City Fire & Police Employees Retirement System has put an estimated $80 million into hedge funds last year, while the City of Baltimore Employee Retirement System has invested around $55 million representing nearly 5 percent of its assets. But there are new players like Maryland State Retirement and Pension System who do not prefer to take the risk considering the uncertainty involved by investing in them, since the 1998 horror stories of Long Term Capital Management’s collapse do not die soon.SFGate.com

Spencer acknowledged that the Baltimore pension is getting into hedge funds at a time when returns are flat. The average hedge fund is up about 4.1 percent so far this year, according to Hedge Fund Research, far below the 15- year average of around 15 percent. "We are hoping that it can't get worse," Spencer said of recent hedge fund performance.

Read More: Hedge funds' returns falling Main St. investors moving in may be disappointed

August 27, 2005

Hedge Funds attack the monolith Germany

Mercedes’ parent DaimlerChrysler may be the new victim to fall pray to the Hedge Funds in Germany, after the funds grabbed approximately 20 per cent, buying a major chunk of about 35m shares sell-off by Deutsche Bank since late July this year. The Anglo-Saxon hedge funds are giving a tough time to DaimlerChrysler’s new incoming Chief Executive Officer, Mr. Dieter Zetsche. The funds have strong plans to shut down Mercedes’ tiny 600cc Smart car venture, which has racked up losses an estimated €3,300 per car. The Smart car venture was initiated in 1998, two-door and four-door model which has had cumulated losses of approximately €3.3billion till date. Although DaimlerChrysler does not seam to be subdued by the funds and might only go for a partial closure of the Smart car venture by phasing out the Dutch four-door and just retain the two-door model. Germany has seen a major shake up in its various household names in the recent past. Toscafund and Lansdowne, funds based in London have strengthened its stronghold on Commerzbank AG. U.S.based hedge fund Atticus and U.K.based TCI created a furor in Germany's financial circles when they led a shareholders revolt and led to and inquiry by Germany's stock watchdog BaFin when it toppled over Germany’s Stock Exchange, Deutsche Bourse’s Chief, Mr. Werner Seifert. Germany’ organizations have to be more proactive in its operations or they would be reduced to dust, since they hedge funds are always on the prowl. Business.Telegraph Reports:

The share price has slumped by half over five years as the Chrysler division bled funds, but may now be undervalued given the sales value of the constituent parts - including its 30pc stake in EADS, the aerospace parent of Airbus. Chrysler has been nursed back to health by Mr Zetsche.

Read More: 'Locust' fund managers pile pressure on Mercedes

August 26, 2005

Beverly Enterprises seams to be drawing interest from Hedge Funds

The battle heated up for grabbing Beverly Enterprises Inc., based in Fort Smith, Arkansas, the second-largest U.S. operator of nursing homes. The new bid offered is $1.64 billion per share amounting to $12.90 a share from hedge funds Formation Capital, Franklin Mutual Advisers, Northbrook NBV and Appaloosa Management. North American Senior Care, Inc. had previously offered $12.80 per share for and aggregate of $1.63 billion and assumption of $224 million debt for Beverly. Beverly Enterprises ranks behind the Ohio-based Toledowith 345 nursing homes, 64 hospice and home care-centers, and 18 assisted-living units. The four hedge funds intent breaking-up the company, although, North American has agreed to keep the company and its management intact. Experts claim that the company can derive a better value in parts than as a whole. Startribune.com Reports:

The hedge funds' bid escalates a battle over Beverly that Appaloosa and its partners started in January with a $1.4 billion offer. Legg Mason analyst Jerry Doctrow suggested in a note Friday that the company's "value could be maximized by breaking the company up." The North American group agreed to keep the company and its management intact, Beverly said.

Read More: Hedge funds raise bid for nursing home firm Beverly Enterprises

The modern day dacoits have rocked the investors’ boat

The horror stories about Hedge funds’ being masked white-collar rogues cannot be easily wiped off. KL Group, a hedge fund advisory firm is another fund which has conned its investors to the tune of $200 million. The fund based in West Palm Beach, Florida has swindled away some the rich and smart individuals in the state. The fund was managed by three all Korean-born Americans principals who are siblings. Mr. Won Sok Lee and his two brothers Mr. John Bae Kim and Mr. Yung Bae Kim are absconding from the SEC, the Justice Department and a court-appointed receiver who are hunting them down. The trio opened a hedge fund advisory business in Palm Beach, one of the nation’s wealthiest enclaves three years back. The investors were lured in the trap with stupendous returns assured, Mr. Donald Trump had also been approached who although refused to be fooled. KL Group has shut shop and the principals are rumored to have jumped ship will the booty. The Financial Express Reports:

Three years ago, Lee and the Kim brothers opened a hedge fund advisory business in Palm Beach, one of the nation’s wealthiest enclaves. Driving flashy cars and living lavish lifestyles, the three principals — all Korean-born Americans in their mid-30’s — befriended the right people, who provided them with access to society functions and introductions to their wealthy clients. The aura of success and exclusivity around the firm was so strong that investors often begged to be let into its funds, some of which were said to have astounding annualised returns of 125 per cent for several years.

Read More: Hedge Funds: Paradise and money lost

August 22, 2005

Hedge Fund fraud costs millions to Floridians

In a scenario, where the hedge fund industry operates without any accountability, transparency and many regulations, disasters are inevitable.  Recently a full blown scam came to light when hoards of Floridians saw their money vanish without a trace. KL Financials collected $160 million from 200 unsuspecting investors have now been charged for misrepresenting the fund's performance and possibly misappropriating money. Most of these 200 investors were people of retirement age and have reportedly lost everything. The company’s assets have now been frozen. Three men have been accused of directly receiving $20 million during their six-year reign at KL and spending lavishly on million-dollar homes, exotic sports cars and frequent trips to Las Vegas. Two of these men have fled the country and the third who stayed back is being questioned on the ware bouts of the other two. But even he has not disclosed anything and has now asserted his Fifth Amendment right to avoid self-incrimination to each of 195 questions asked. KL Financials, self proclaimed hedge funds operators had flashy offices in Palm Beach country and were successful in impressing investors who poured in large amounts of their savings in the lure of huge profits.  Businessweek.com reports:

“Most of KL Financial's 200 clients were men of retirement age. Gary Klein, a lawyer representing dozens of them, told The Miami Herald that he has clients who lost everything.”

Read More: Floridians lose millions in hedge fund

Hedge Funds not happy with Cable & Wireless deal

Hedge funds seem to be annoyed with the extremely low valued deal that Cable & Wireless seems to be offering Energis. The deal is reportedly for £780 million. A group of debt holders of Energis, holding 25% of the C tranche of debt are hoping to prevent this deal by appointing Close Brothers to act on behalf of them.  Elliott Management which is the company’s largest shareholder and the banks that own Energis debt are apparently quite pleased with what C&W is offering. However the holders of C debt are understandably quite unsatisfied with the price being offered as the remittance to them would only be 80p in the pound. They feel this amount is quite low when seen in the light of the synergies that C&W will enjoy by acquiring Energis and its customers. Consolidation these days seem to be the buzz word with the bigger and stronger players acquiring the smaller ones and profiting from the sheer size and reach. Earlier C&W had offered only £500 million for the deal and in a year this amount has been increased to £780 million. As such, the debt holders feel that the amount can certainly be increased in order to meet their expectations. Businee.timesonline.co.uk reports:

“Consolidation in the corporate telecoms arena, where there is fierce competition, is now regarded as essential. While C&W could seek tie-ups with other targets none would give it the scale to fight against BT as Energis would, the debt holders will say.”

Read More: Hedge funds attack C&W deal

Hedge funds bow down to the final offer of C&W; to win Energis

Several Hedge funds had shown their unhappiness over the amount that C&W has been offering for acquiring Energis. So much so, that they were trying to stop the deal from taking place altogether. But according to latest reports, C&W seems to have garnered enough support to facilitate the takeover. Apparently the protesting hedge funds were made to realize that if C&W walked away from the deal, there were no other takers. This would ultimately lead to collapse of their stakes. The hedge funds had been protesting against the amount being offered, saying that it was too low taking into account the ultimate benefits that C&W would derive after the merger. However, C&W which had increased its offer from $500 million to $ 780 million declined to further raise this amount. They stated that this was their final ‘take-it-or-leave-it’ offer and the unhappy funds had to cave in to the demands. Forbes.com reports:

“According to the The Independent, Energis has been piling pressure on the hedge funds holding out, but said it expects enough to cave in by the deadline, citing sources close to the talks”

Read More: C&W to win Energis as hedge funds cave in – report

August 20, 2005

Rocker Partners and Gradient Analytics sued by Overstock.com

Overstock.com, which is an online retailer has alleged that Hedge Fund Rocker Partners has been indulging in illegal shorting of it's stock. This has led to a nosedive of share value from $77.18 in Jan 2005 to $45.43 now. This has resulted in massive losses for the firm. When hedge funds indulge in short selling, it implies that the firm is selling borrowed stock with the intent of buying it back later at a lower price. This helps them to make profits due to the drop in stock price. Generally this is done when the fund feels that the shares are overvalued and will return to its fair price. Overstock.com alleges that research firm, Gradient Analytics has aligned itself with Rocker Partners some time back. At the insistence of Rocker Partners, the research firm withheld negative information about the company and published it with a time gap. This gap allowed the hedge fund to make adjustments in its portfolio leading to a virtual downpour of shorting of its shares. This activity is being seen as an illegal act of killing the company. Momey.cnn.com reports:

"Gradient had been publishing negative reports on Overstock.com for months before Rocker became a client, however, according to a report in The New York Post, which cited a person familiar with the situation."

Read More: Overstock.com sues hedge fund

July 27, 2005

CIBC accused of improper financing of hedge funds by SEC

Canadian Imperial Bank of Commerce (CIBC) has been accused of financing hedge funds that engaged in improper mutual fund trading activities by US regulating authorities. CIBC will therefore pay SEC $125 million towards repayment of ill-gotten gains and as penalty. CIBC is Canada’s fifth largest bank. The bank in a statement said that the payments will be made from previous accruals that have been set aside. CIBC has been found guilty of financing hedge fund customers with financing used to trade mutual fund shares. This was done by indulging in practices like ‘late-trading’ and ‘market timing’ trading which makes use of zone-related pricing differences. They also financed customers in violation of margin and credit extension requirements. On receiving payment, SEC will pay the mutual funds and shareholders who have been harmed because of the practices of CIBC. The bank has also taken adequate actions by stopping finance for hedge funds that engage in market-timing and also removed the employees who were involved in this practice. Reuters.com reports:

“The SEC said the CIBC units helped hedge fund customers with financing used to trade mutual fund shares improperly, both by illegal late trading after hours, known as "late trading", and by questionable "market timing" trades that exploited time zone-related pricing differences.”

Read More: UPDATE 2-CIBC to pay $125 mln in fund trading settlement

July 24, 2005

KL hedge fund case: some findings

There has been a lot of development since SEC ordered the closure of West Palm Beach-based KL Hedge Fund group on March 1st 2005.  KL has been charged of violating laws and defrauding investors. About 230 investors have put in money close to $150 million into six hedge funds since 1999. KL group’s partners, Won Sok Lee, John Kim and Yung Bae Kim, have lost all of it is trading or spent it on building assets for themselves and on their personal spending. When the KLs trading records were scrutinized, it was found that they had made massive losses from the very beginning by ‘short-selling’. The value of stocks usually rose leading to losses which they again tried to make up by gambling more and ended up loosing more money. Firms investigating the group’s spendings are attempting to review all the bank accounts where they feel that the group has put the investor’s money. They also believe that there may be several more accounts of this type and also expect ‘Third-party’ liability as it is difficult to pull off a fraud of this proportion by themselves. Just to give an idea, the last known mega loss made by any hedge fund was $59 million by Maricopa Investment Funds of Naples. MSN.com reports:

“There also are indications money put in by second waves of investors were used to pay original investors what they thought were profits, Lewis said. A review of KL trading shows there were "massive losses," almost from the start and "short-selling on a massive scale"

Read More: Condo, jewelry, Maserati, Porsche recovered in KL hedge fund case .

July 17, 2005

Hedge Funds returns to be overall lower this year

Deutsche Bank recently conducted a survey on the hedge fund industry where they surveyed 1,000 respondents with a total of $645 billion in hedge fund assets. The report made public recently indicated that the industry is not really concerned about the overall health of the sector and there is no let down in enthusiasm either. After the dismal performance of the industry earlier this year, the situation is looking up with 1.6% return in June as indicated by Hedge Fund Research of Chicago. Deutsche Bank further revealed that the fund investors are expecting returns in the range of 6 to 8% this year. Last year the average return of the $1 trillion hedge fund industry was 9%. The gains this year are expected to come from investments in individual stocks by tracking economic trends.  The survey also indicated that the probability of inflow of money into private partnerships, catering to wealthy individuals and institutions, is less. Investors who are already investing in hedge funds suggested that they ware planning to invest no more than $40 billion which is much lesser than what was seen in the last few years (over $70 Billion annually). International Herald Tribune.com reports:

“Hedge funds may be starting to recover from declines seen in the first four months of the year. The average fund returned 1.6 percent in June, according to Hedge Fund Research, based in Chicago. Last year, hedge funds returned 9 percent, on average.”

Read More: Modest gains seen for hedge funds

July 11, 2005

Pension Funds adopting a wait-and-watch strategy before taking a plunge into Hedge Funds

KPMG asset Management in collaboration with another firm has recently put forward a detailed report on the acceptability and future of Hedge Funds as an investment instrument by Pension Funds. The report indicated that new money into hedge funds is very likely to come from Pension Funds. This is so because these funds are waiting before they take the plunge. The hesitation prima face comes from the lack of complete understanding of certain parts of how hedge funds operate. Also strategies like leverage and opacity are leading to some amount of discomfort amongst pension fund managers. This highlights the need for educating fund mangers on hedge funds. The report also indicated that North American Pension Fund managers are more likely to take the plunge as compared to European Pension Fund Managers. This may be because the pension funds outside North America invest in hedge funds more for opportunities for quicker returns rather than for strategic reasons. Hedgeco Breaking News reports:

"In our interviews with pension funds and their consultants, one message came through clearly: trustees need more education and information than they currently have."

Read More: Pension Fund Trustees uneasy about Hedge Funds