Hedge Funds, No Thanks!--The hedge fund apocalypse is here 2-19-12
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Hedge Funds? No thanks! 3-1-07
We're hearing a lot about hedge funds these days. Last year SEC Chairman Donaldson, former CEO of Donaldson, Lufkin, Jenrette advocated minimal regulations for hedge funds. This year, SEC Chairman Cox and Treasurer Henry Paulson have decided the public interest would not be served by subjecting hedge funds to federal oversight, despite the fact that the pension funds of many ordinary Americans are increasingly being invested in hedge funds.
So far as I've been able to determine there is no accurate measure of hedge fund performance because of the absence of reporting requirements and because the performance of the unsuccessful ones that are dissolved and disappear are not included in the statistics that are available. Hedge funds offer the promise of higer than market returns at the price of higher than market risk. The typical management fees are 2% of the funds invested plus 20 percent of the profits. The managers, however, don't suffer any of the losses. They come out of the investors' hides. This fee arrangement provides and incentive for hedge fund managers to put investors' money into high risk ventures in order to maximize their return. It also provides an incentive for trading on insider information not available to the ordinary investor. This set-up is a recipe for disaster for ordinary folks. Of course ordinary folks aren't allowed to invest in hedge funds except vicariously with their pension money. Anyway, by now you correctly get the idea that I'm not an advocate of hedge funds.
Here is a link to a Slate article on hedge funds by Daniel Gross.
http://www.slate.com/id/2159584/fr/flyout
1-17-12NYTimes--Tech Research "Analyst" Accused of Selling Insider Information to Hedge Funds
- Tech Analyst Arrested in Insider Trading Crackdown - NYTimes.com
John Kinnucan, a technology analyst who gained notoriety last year for openly challenging federal authorities, was arrested on Thursday night, accused of selling inside information to hedge funds.
2-16-11NYTimes--Hedge Fund Operator, Philip Falcone, Losing Big Bet on LightSquared
- Loss of Wireless Dream Caps Philip Falcone's Fast Fall From Grace - NYTimes.com
The F.C.C.'s rejection of LightSquared's broadband plan could spell disaster for the hedge fund manager Philip A. Falcone, who has spent billions of dollars on the project.
2-11-12NYTimes--Hedge Fund's Chief is Charged in Case Tied to Galleon
- Whitman Capital Founder Is Charged With Insider Trading - NYTimes.com
Douglas F. Whitman, the founder of Whitman Capital, surrendered to the F.B.I. on charges of illegal trading in tech stocks using tips from people in the Galleon Group fraud.
1-19-12NYTimes--FBI Makes Insider Trading Hedge Fund Arrests
- U.S. Charges 7 for Insider Trading of Dell Stock - NYTimes.com
Federal prosecutors depicted a "circle of friends," including Anthony Chiasson of Level Global, who together earned about $62 million in illegal gains in Dell stock. [Insider trading is rampant on Wall Street, in my opinion.]
Some Hedge Funds Fudge their Valuations in Quarterly Reports to SEC and to Hedge Fund Data Base Providers
The Wall Street Journal reported on December 30, 2011 on academic studies using statistical analyses which show that some hedge funds' quarterly reports to the SEC on the valuations of the securities in their portfolios are over-stated or under-stated by as much as 10 percent. 'The economists say the results...suggest hedge funds "take advantage of lax regulation by strategically fudging equity position valuations to impress existing or potential clients.'"...The researchers found that the hedge funds whose holdings exhibited the widest discrepancies were more likely to report smoother monthly returns to hedge fund data base providers than were funds who reported accurate valuations to the SEC.
The WSJ article ended up with the question that if there are significant deviations in the reported prices of listed securities, what would a study show about reported prices of harder-to-value holdings such as derivatives, or thinly traded complex bonds.
Some Good Advice for Ordinary Investors
12-12-08 NY Times--Ron Lieber and Tara Siegel Bernard offer some good advice for investors.
5 PERCENT--Any investment has at least a remote possibility of going to zero or close to it. But when you're dealing with hedge funds and other exotic fare, the risks can be bigger, for reasons like leverage and strategy and lying and stealing.
HUMILITY--Investing, in general, requires humility. Few people have enough of it. It is the reason so few people put most of their money in index funds which track various asset classes rather than trying to pick winners. One problem with hedge funds is that they appeal to all the wrong instincts. They are for the privileged. Investors need to have a minimum net worth to qualify. In case of the money managed by Madoff many people seemed to have gotten in by belonging to the right country club. All too often rich individuals make easy marks because the pitch is, "You're special, you can get something that other people can't get."
But you probably aren't special--You probably are hearing about the second or third or fourth tier ideas in the world of alternative investments. Be honest with yourself: If you are in on them, how special could they really be, given the enormous demand for truly unique investment opportunities.
SMARTS--You may be rich and you may be smart. But smart about this sort of investing? Not so much.
RESEARCH--Dong your homework on a sophisticated investment opportunity is not easy. Your financial planner may not have the time or the skills to do a thorough investigation either.
SECRETS--One hard part about investing in hedge funds is that some of the most successful ones will not say much about how they work. If they disclose too much about their tactics, others will copy them and their investors will be hurt.
http://www.nytimes.com/2008/12/13/business/yourmoney/13money.html?_r=1&ref=business
12-10-11NYTimes--SEC Looks a Possible Fraud in Harbinger's Dealings with Goldman Sachs
- S.E.C. Looks at Harbinger's Dealings With Goldman - NYTimes.com
The S.E.C is investigating whether Harbinger agreed in 2009 to agreed in 2009 to allow Goldman to withdraw up to $50 million from the firm, while not striking similar deals with other clients.
Hedge Funds a Good Deal??
- Hedge Funds a good deal?
More than 180 Hedge Funds Liquidated in the Second Quarter Donna Kardon reports in the Wall Street Journal 9-19-08 that More than 180 hedge funds were liquidated in the second quarter amid volitile...
6-20-11NYTimes--Another Insider Trading Conviction "A little more sugar for the cooks."
- Consultant for Expert Network Is Convicted in Insider Trading Case - NYTimes.com
Winifred Jiau, 43, was charged, tried and convicted in less than eight months, and now faces up to 25 years in prison when she is sentenced in September.
5-22-11NYTimes--Senator Grassley Investigating Insider Trading By Sac Capital Advisors
- Grassley Investigating Trades Made by SAC Capital - NYTimes.com
Senator Charles E. Grassley, Republican of Iowa, is examining 20 stock trades by the hedge fund SAC Capital Advisors, a spokesman for the lawmaker said Saturday.
5-20-11NYTimes--FrontPoint Folds Most Funds Following Insider Trading Investigation
- FrontPoint to Shut Most Funds After Insider Charges - NYTimes.com
The decision to wind down and restructure its business is a surprising reversal of fortune for FrontPoint, which had appeared to have weathered the scandal.
5-12-11NYTimes---The Galleon Insider Network
- The Galleon Network - Interactive Feature - NYTimes.com
Prosecutors have called it the biggest insider-trading case in United States history. On Wednesday, a jury in federal district court in Manhattan found Raj Rajaratnam guilty of 14 counts of securities fraud and conspiracy. He had been accused of maki
5-12-11NYTimes--Rajaratnam's Invaluable Circle of Friends
- Galleon Chief's Network of Friends Who Tell Secrets - NYTimes.com
What made Raj Rajaratnam stand out in the hedge fund world was his deep set of contacts inside Silicon Valley executive suites and on Wall Street trading floors.
12-2-10NYTimes--Hedge Fund High Flyer Stumbles
- Harbinger Hedge Fund Stumbles in Cash Bind
Alarmed by the investigations and uneasy about Mr. Falcones 4G ambitions, investors like Goldman Sachs, the Blackstone Group and New York States public pension fund have asked to withdraw money from Harbinger.
11-18-10NYTimes--Ex-McKinsey Executive Settles Galleon Insider Suit for $2.8 Million
- Anil Kumar, ex-McKinsey Executive Settles Insider Case for $2.8 million
Mr. Kumar said that he received $1.75 million in payments from Mr. Rajaratnam after providing information from 2004 to 2009. Mr. Kumar was a direct investor in a Galleon fund, prosecutors and the S.E.C. contend.
3-29-10 NYTimes--Former Top IBM Executive, Robert W. Moffat, Jr. Pleads Guilty In Galleon Insider Case
- IBM Executive Cops a Plea in Galleon Insider Case
Former I.B.M. senior executive, Robert Moffat, Jr. pled guilty on Mon. to providing confidential information about Advanced Micro Devices and Lenovo to a hedge fund consultant accused of participating in a wide-ranging insider trading scheme.
2-9-10 Intel Insider Sinks Galleon
- Sinking Galleon
Former Intel exec. admitted Mon. he leaked confidential corporate information to his close friend Raj Rajaratnam, founder of Galleon hedge fund. He adds to a list of cooperating witnesses that federal prosecutors are using to build a case against Raj
2-5-10 NYTimes--Burton Malkiel Recommends Index Funds, Knocks Hedge Funds
- Dowdy Index Funds Endorsed by Professor Burton Malkiel
Malkiel, economics prof. at Princeton, has long advocated index funds. Whats striking now is his belief that the wealthiest would have fine returns without the volatility and high fees if they simply used indexes to diversify their investments.
7 Indicted in Galleon Insider Case NYT 1-21-10
- 7 Indicted in Galleon Insider Trading Case
Federal prosecutors on Thursday unveiled grand jury indictments against seven people in the wide-ranging insider-trading case involving the Galleon Group and numerous other hedge fund traders, lawyers and corporate executives.
11-12-09 Why Insider Trading is Hard to Define, Prove and Prevent
- Insider Trading is a Murky Concept
"I think there are some libertarians who think we should allow it," says Wharton finance professor Jeremy J. Siegel. "But I think insider trading is not a good thing. It makes it more risky to buy securities..."
11-12-09 NYTIMES--Bear Stearns Prosecutors Screwed Up
- Federal Prosecutors Flubbed the Bear Stearns Case
The prosecution blew it: 1st, in the indictment for conspiracy and fraud, it relied on snippets of e-mails that in their entirety proved to be ambiguous. 2nd, the prosecutors argued that the men were out-and-out liars, which was hard to prove.
11-10-09 NY Times Bear Stearns Hedge Fund Managers Acquitted of Fraud
- Two Bear Stearns Hedge Fund Mgrs. Acquitted of Fraud
A jury in Federal Court in Brooklyn decided that the two managers did not lie to investors by giving an upbeat financial picture without disclosing that the two hedge funds they managed were plummeting and Cioffi had already pulled $2 million out.
11-5-09 NYTimes---14 Charged in Galleon Insider Case
- 14 Charged in Galleon Insider Trading Case
n the latest criminal complaints, prosecutors described a network that used prepaid cellphones to avoid detection, and that was pierced in part through surveillance and wiretaps.
11-7-09 NYTimes--Lawyers Flooded with Questions from Worried Executives on Insider Trading
- Just What is Insider Trading? Is there a big gray area?
Switchboards at law firms have been lighting up in recent weeks as hedge fund managers and technology executives deluge lawyers with one question: What information is safe to share, in case the feds are listening?
11-1-09 NYTimes Rajaratnam Swaggers in the Spotlight
- Raj Rajaratnam is a down-to earth family man and sports fan
For Rajaratnam, the billionaire hedge fund mgr charged with insider trading, legal problems are nothing new. In 2005, he paid $20 million in back taxes, penalties and interest to settle a federal investigation into a sham tax shelter that he used.
11-1-09 IBM Vice President Implicated in Galleon Insider Trading
- IBM Vice President, Robert Moffat Fired as a Result of Galleon Insider Trading Scheme
In the federal indictment, Mr. Moffat was accused of passing along delicate company information about I.B.M.s earnings and the plans of a chip-making partner, Advanced Micro Devices, to a hedge fund broker. Mr. Moffat denied the charges.
11-1-09 Wall Street Journal Galleon and the Trouble with Insider Trading
- Galleon and the Trouble with Insider Trading by Andy Kessler in the Wall Street Journal
The arrest of Rajaratnam puts a spotlight on the insider trading game. Is trading on industry knowledge widespread? Absolutely. That's how some hedge and mutual funds get an edge. Is insider trading also widespread? Only the SEC wire tappers know.
10-31-09 NYTimes Big Investors Grow Wary of Hedge Funds
- Big Investors Wary of Hedge Funds
The bloom is off the rose, but n because of the bad performance, said Sol Waksman, of BarclayHedge. The performance was bad but not letting people redeem their money hurt them more. The Madoff scandal hurt And the news with Galleon is not helping.
10-29-09 NY Times-- Missed Chances to Catch Galleon
- Missed Chances to Catch Galleon Insider Trading Scheme
The first tip from inside Intel reached Rajaratnam a decade ago from the same source who has turned against him in the biggest insider case in a generation...years before the current case erupted, Ms Khan was caught passing information to Rajaratnam.
10-22-09 nytimes Galleon Informant has Checkered Past
- Galleon Informant Provided Tips to Raj Rajaratnam
Roomy Khan, the central witness who brought down the Galleon hedge fund, is a former Galleon employee with a history of financial trouble who agreed to cooperate with prosecutors after she was caught making trades using inside information.
10-23-09 NY Times Witness Has Long History of Supplying Insider Information
10-21-09 One Trade Wiped Out Insider Profits
- Rajaratnam Lost Big on One Trade Wiping Out Insider Profits
Raj Rajaratnam masterminded one of the biggest insider schemes ever. If Rajaratnam was trading on insider information, apparently he wasn't very good at it. The trades that led to his arrest Rajaratnam lost millions from the alleged illegal trades.
10-17-09 NY Times Hedge Funds Unsettled by Galleon Arrests
- Arrests Unsettle Hedge Fund Industry
Rajaratnam's arrest has shaken the secretive hedge fund world, in which intelligence on companies is shared among Wall Street analysts, traders and other investors. To gain an edge, hedge funds use lobbyists, private investigators, connected sources.
9-17-09 Hedge Fund Fees Too High?
- Hedge Fund Fees Challenged by Big Investors
By his calculations, a typical debt-focused hedge fund would need to earn 36 percent more than a high-yield bond mutual fund, which charged a standard 0.5 percent fee, just to achieve the same return.
10-16-09 NYTimes Hedge Fund Operator Charged Insider Trading
- Raj Rajaratnam, Hedge Fund Executive Charged with Insider Trading
The founder of the Galleon Group, a big New York hedge fund, was charged on Friday with insider trading in the stocks of several companies, including Advanced Micro Devices, Clearwire and Akamai, earning about $20 million in the process.
4-1-09 SEC Investigating "Preferential Redemptions" by Hedge Funds
- One More Reason not to Invest in Hedge Funds!
SEC investigating whether hedge funds advisers favored their own interests over investors in liquidations. A record 778 hedge funds liquidated in the 4th quarter of 2008.
1-29-09 JP Morgan Chase sued for putting clients into Madoff funds
JPMorgan Chase is under the gun of lawsuits from European clients who were put into hedge funds that invested their money in accounts managed by Bernie Madoff. The European clients lost $50 million and are claiming JPMorgan Chase failed to do due dilligence on their investments with Maddoff. And, worse, they are claiming that JP Morgan Chase, based on inside information not disclosed to its clients, pulled it's own money out of Madoff shortly before the shit hit the fan, so to speak. Here's a link to an article in today's NYTimes.
http://www.nytimes.com/2009/01/29/business/29madoff.html?ref=business
Hedge Funds Unhinged NY Times Business 1-17-09
- Hedge Funds, Unhinged - NYTimes.com
Two out of 3 hedge funds lost money last year. How many will claw their way back to profitability? The gilded age of hedge funds is losing its luster. The funds, pools of fast money that defined the era of Wall Street hyper-wealth, are in the throes
12-12-08 HEDGE FUND VICTIMS of GIANT MADOFF PONZI SCHEME
- http://www.nytimes.com/2008/12/13/business/13damage.html?ref=business
Frauds on Wall Street aren't unheard of. But a $50 billion Ponzi scheme is a bombshell by any standard. Citadel Investment Group said it is halting redemptions. Others likely affected as well by Madoff Ponzi scheme.
The end of the financial World As We Know It--NY Times 1-04-09
- The End of the Financial World As We Know It Lewis & Einhorn NYTimes
Michael Lewis, an editor at Vanity Fair and author of “Liar’s Poker,” is writing a book about the collapse of Wall Street. David Einhorn is president of Greenlight Capital, a hedge fund, and the author of “Fooling Some of the People All of the time."
10-23-08 Hedge Funds Lose their Lustre
- Hedge funds liquidation of assets leads to big market decline.
The gilded age of hedge funds is losing its luster. The funds, pools of fast money that defined the era of Wall Street hyper-wealth, are in the throes of an unprecedented shakeout. Even some industry stars are falling back to earth.
10-14-08 High Flying Hedge Fund Falls to Earth by Louise Story in the NYTimes
- High Flying Hedge Fund Falls to Earth
Remy Trafelet's flagship hedge fund has dropped 26% this year. For the $2 trillion hedge fund industry, a long-feared shakeout is at hand. Some analysts say one out of every ten funds could fold.
7-10-08 Rock Bottom Hedge Fund
- Hedge Fund Operator, John Devaney Describes Rock Bottom
One by one, John Devaney sold his treasures-his Renoir and his Gulfstream, his home and his helicopter. Even his yacht. Devaney, who made and lost a fortune in mortgage investments shut his hedge fund and told investors all their money was gone, too
6-26-08 Warren Buffett Bets on Vanguard Index 500 over Hedge Fund
- Buffett bets on Index 500 Fund
Buffett bets on Vanguard Index 500 Fund over hedge fund because it's very hard for hedge fund to make up for the 2% it takes off the top every year plus 20% of the profits.
Criminal Charges Against Two Bear Stearns Hedge Fund Managers 6-17-08
- Criminal Charges Against Hedge Fund Managers
The funds’ managers, Ralph R.Cioffi Jr. and Matthew M. Tannin, told investors that the funds were in good shape just weeks before the funds collapsed.
Alex Tarquinio on Hedge Funds NYT 3-18-08
- Hedge Funds
An investor worth up to $10 million can achieve a well-diversified, tax-efficient portfolio without resorting to hedge funds. Hedge funds are like the lottery. They can achieve spectacular returns or flame out.
11-9-07 Free Rolls for Hedge Funds (with your money!)
- FreeRolls--Why Hedge Funds and Stock Options are Not a Good Deal for Investors
The compensation terms for hedge fund managers and for many corporate executives ostensibly are designed to benefit investors by rewarding performance by the fund or corporation's top managers. In practice...
3-4-07 NYTIMES---2 + 20 and Other Hedge Fund Math by Mark Hulbert, NYT
- Hedge Fund Math
MANY people would jump at the chance to invest in hedge funds, which have mainly been available to only the wealthy. But a new study finds that the funds’ high fees make it unlikely that investors will improve their long-term results.
3-2-07 NYTimes---Insider Trading Scandal Reaches Far Into Wall Street, Hedge Funds
- Insider Trading/Hedge Funds
Thirteen people were accused yesterday of taking part in the trading ring, including a former Morgan Stanley compliance official, a senior UBS research executive, three employees from Bear Stearns and a Bank of America employee.
Fraud Down on the Bayou
4-15-08 Hedge Fund Founder Sentenced to 20 YearsA federal district judge sentenced Samuel Israel III, co-founder of a hedge fund, the Bayou Group, now defunct, to 20 years in prison on Monday for his role in a cheme that cheated investors out of more than $400 million.http://www.nytimes.com/2008/04/15/business/15bayou.html?scp=1&sq=Samuel+Israel+III&st=nyt
Hedge Fund Operator Ordered to Pay $300 Milion for Defrauding Investors
- Hedge Fund Ordered to Pay $300 million for Fraud
Prosecutors indicted Paul Eustace, founder of Philadelphia Alternative Asset Management Company, on two criminal counts of commodities fraud. The government said Mr. Eustace stole $200 million from clients 2001-2006.
Ron Insana Finds Running a Hedge Fund is Harder Than It Looks
- Insana Folds His Fund of Funds
If there was one thing Mr. Insana had built up over his career in journalism, it was great contacts. He knew everybody in the hedge fund business, which is why, when he started Insana Capital Partners, he chose to create a fund of funds.
Merle Hazard Meets Arthur Laffer
- Merle Hazard Meets Arthur Laffer In the Hamptons and Sings About Hedge Funds
Rock Bottom In The Hamptons by Merle Hazard Hedge Funds--No thanks! Sophisticated Market Analysis
weird coincidence that I just read something on your hedge funds in the news (quote above)
Thanks for the comment. We're on the same page.
more on the hedge fundz, latest:
Hedge funds hit hard by subprime woes
http://money.cnn.com/2007/03/16/markets/hedge_subp
The limited partnership investment funds are much more exposed to the high-risk loans than mutual funds.March 16 2007
Good information about hedge funds. Like http://www.opaleseque.com
Tnx for you comment.
A shakeout in the hedge fund industry is under way!
I can't resist saying I told you so. This hub was first published 3-1-07.
That was a good call Ralph! You have all the bragging rights :)
Great call, Ralph! I've long thought the non-wealthy, the Average Joes, have more common sense about money than those who have more than they know what to do with. To us at the bottom of the pile, it's M-O-N-E-Y, a finite amount we need to keep a roof over our heads and food on the table. For the super-rich, it becomes simply a THING to be moved around to avoid taxes or to make *more* money. Easy pickings for unscrupulous people like those in the news items above.
Ralph- I believe Madoff promised 10% interest rate without investing in a safe high yielding areas. It is sad when many hard working people lose their life's saving. I have all my savings in a bank account and my company based 401k I don't even know how much it is worth so far. I guess just being busy working I never paid attention to these things. I will have to pay more attention to my finances now. Thanks for reminding me. Btw Happy New Year and I like your new wise man look. The national animal of India(tiger) look was a little intimidating and now I feel much more comfortable talking to your present avatar...hehe
Thanks for the comments. Here's some additional information on investing in mutual funds:
http://hubpages.com/hub/How-to-Invest-Money-in-Mut
http://hubpages.com/hub/How-to-invest-in-foreign-m
Unless you have a defined benefit pension, you should be saving and investing no less than 15% of your earnings every year. Otherwise, as I've warned my children, you'll end up at age 70 living in a tenement in a bad neighborhood, sitting on a broken down bed, in your pee-stained underwear, with a bare light bulb hanging down from the ceiling and a bottle of Ripple on the floor.
Ralph- Thanks for those links and I will check them out soon. Hope everything is going smoothly at your end. Happy New Year.
JPMorganChase implicated in Madoff ponzi scam.
Hedge fund founder/executive of Galleon Group is charged with an illegal insider trading scheme which netted him $20 million. His bail was set at $100 million because he was deemed a flight risk.
Others charged by prosecutors include Mark Kurland, the president of New Castle Partners, another large money manager; Danielle Chiesi, a former Bear Stearns executive who now works at New Castle; Rajiv Goel, an executive at Intel’s treasury department who supported the company’s venture capital arm; Anil Kumar, an executive at McKinsey & Company; and Robert Moffatt, an executive at I.B.M.
10-16-09 NY Times article here
News of Mr. Rajaratnam’s arrest has also shaken the secretive hedge fund world, in which intelligence on companies is often shared among Wall Street analysts, traders and other investors. To gain an edge, hedge funds use lobbyists, private investigators and other connected people to dig for information about a company or industry.
While most of the information is obtained legally, the government’s use of wiretapping and confidential witnesses in the Galleon case raises questions about when investors can act on information that is not public. The case also signals a new zeal by regulators and law enforcement officials to clamp down on Wall Street crime after failing to detect the $68 billion Ponzi scheme run by Bernard L. Madoff. NYTimes 10-17-09
Smart people in the know have avoided hedge funds for years. Only people who gamble their money, rather than play the market got taken in. It's sad but if you don't know what you're doing, you shouldn't risk your money. People are much more apt to take risks with your money than their own. Ben Franklin said it best when he said "Neither a lender nor a borrower be".
I agree completely. However, we need enforcement of effective rules against Ponzi schemes, insider trading, front running, trading after the market is closed, etc.
Raj Rajaratnam, the authorities say, masterminded one of the biggest insider-trading schemes in a generation.
Skip to next paragraph
Daniel Acker/Bloomberg News
Raj Rajaratnam leaving federal court last Friday.
Related
Thin Line Separates Insider Trading and Research (October 20, 2009)
Times Topics: Raj Rajaratnam
But if Mr. Rajaratnam was trading on insider information, apparently he was not very good at it.
A close examination of the trades that led to his arrest last week reveals a startling fact: In all, Mr. Rajaratnam lost millions from what prosecutors characterize as illegal trading. NYTImes 10-21-09
The latest hedge fund insider trading scandal involving insider trading by Raj Rajaratnam's Galleon Group exposes the seamy side of Wall Street and doesn't inspire confidence in the financial industry's treatment of ordinary investors. The line behind insider trading and investment analysis and research is a thin one. Too often the individual investor is at the bottom of the investing food chain, the last to get the bad news or the good news about his stocks. The "big boys" bail out before he gets the bad news and buy before he gets the good news. The SEC faces a near impossible task in enforcing the laws against insider trading.
Again, you don't ever talk about how you keep the enforcers from being co-opted by the very people they are to oversee. Look at the SEC. They did nothing about Enron and Arthur Anderson. Industry journals were all talking about the "creative" bookkeeping Enron was doing, but there wasn't a peep from the SEC, at least not until the company unraveled and all those people lost out. Your average investor shouldn't be investing. Especially in an unsustainable boom caused by the Clinton administration's loose monetary policy. Joe Schmoe always gets hammered in situations like that.
I have talked about how the regulatory agencies have been co-opted by the industries they are supposed to be regulating.
"the Clinton administration's loose monetary policy."??? My recollection is that libertarian, Ayn Randian, Alan Greenspan, appointed by Bush I, reappointed by Clinton and Bush II, was responsible for the loose monetary policy and bubble in the Bush administration and in large part, among others, to blame for the crash. It hadn't gotten out of hand in the Clinton administration.
I'm not a fan of hedge funds or the conflicts of interest between stock brokers and mutual funds and their customers.
What's your solution? Give up efforts by the government to regulate banks, drug companies, airline safety, and so forth? Regulators do a much better job during Democratic administrations than Republican administrations. Bush let the mining, oil, electric power, pharmaceutical and insurance industries write their own tickets.
Sure, Greenspan was a Randian when he took over, but his subsequent policies were anything but Randian. That's what we call saying one thing and doing quite another. It's how you tell the measure of a person. Greenspan failed. Actually Bush I didn't do a thing, he wanted to ride the recession out, knowing that it would end. That's what gave Billy Clinton his opening to the Presidency.
Hadn't gotten out of hand in the Clinton administration? By 1999 the stock market was way overvalued, Peter Schiff said he was amazed at the number of people who refused to invest in foreign markets in 1998 and 1999 because they wanted a slice of the NASDAQ. Which is why he's in business and most of the people who refused him wound up in the poorhouse.
Really? Tell that to GE. Seems to me the Obama administration is giving them a sweet deal. So much so their network, NBC isn't even bothering to do any real investigating on the President, his cabinet and his kitchen cabinet.
Corporations only get away with the things they do because they co-opt government and government co-opts them. Look at how Goldman used the Treasury to take down rivals and look how the Treasury used Goldman to exert unprecedented control over the nation's banking industry. That pic you posted on your other hub is more true than you realize.
Blaming Clinton for a crash that occurred nearly eight years after he left office is a bit of a stretch, don't you think? Now you guys are blaming Obama for Bush's follies when he's been in office only eight months. Come on, fair is fair!
Ledefense tech, I'm tired of your patronizing tone: "more true than you realize." You have no idea "what I realize." Why not just stick to the issues and skip the speculation about "what I realize."
It seems to me that the definition of insider information is somewhat fuzzy. As an individual investor I often feel as if I'm at the bottom of the food chain. The last to get the good news and bad news. Scandals revealed in the past few years have not been reassuring--conflicts between mutual funds and their investors, Enron, apparently widespread re-valuing and backdating of stock options and other shenanigans involving, as Pearson Hunt used to say, O.P.M., drug companies bribing medical school professors, and so forth. Perhaps these conflicts have always been there, but I don't recall so many scandals in nearly 50 years of investing.
October 30, 2009, 1:47 pm
I.B.M. Executive in Insider-Trading Case Departs
By Steve Lohr
I.B.M. is getting a little more distance from the Galleon insider-trading case that broke this month.
The company posted a brief message this morning on its internal Web site. “Bob Moffat, who had been placed on a leave of absence as a result of a U.S. federal investigation into his personal activities, is no longer an employee of I.B.M.,” it said.
Robert W. Moffat Jr. was a longtime I.B.M. manager, who rose to become a senior vice president for the company in charge of its systems and technology group — chip manufacturing and server computers.
In the federal indictment, Mr. Moffat was accused of passing along delicate company information about I.B.M.’s earnings and the plans of a chip-making partner, Advanced Micro Devices, to a hedge fund broker. Mr. Moffat, through his lawyer, has denied any wrongdoing.
More inside traders caught in SEC investigation as number charged rises to 14.
"I think there are some libertarians who think we should allow it," says Wharton finance professor Jeremy J. Siegel. "But I think insider trading is not a good thing. It makes it more risky to buy securities. When someone is offering to buy or sell, it might be that he or she has some inside information and you are going to get duped. So you cannot trust that you are going to get a fair price." Put simply, insider trading means other investors pay more than they should when they buy and get less than they should when they sell.
A former executive of Intel admitted in court on Monday that he had leaked confidential corporate information to his close friend Raj Rajaratnam, the founder of the Galleon Group hedge fund. He adds to a list of cooperating witnesses that federal prosecutors are using to build a case in a wide-ranging insider-trading scandal.
Rajiv Goel, formerly of Intel, said he had leaked inside information to Raj Rajaratnam.
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The executive, Rajiv Goel, said at a court hearing that his friendship with Mr. Rajaratnam began 25 years ago when the two attended the Wharton School at the University of Pennsylvania.
Mr. Goel said he provided Mr. Rajaratnam in 2007 with inside information about Intel’s financial condition before it was publicly released. He also tipped Galleon’s founder about a pending joint venture between the Clearwire Corporation and Sprint Nextel, a deal in which the chip maker Intel planned to invest $1 billion. Mr. Goel was a managing director in Intel’s treasury department until he left the company in late January.
A former executive at McKinsey & Company agreed Monday to pay $2.8 million to settle civil charges filed by the Securities and Exchange Commission, after he pleaded guilty to criminal fraud charges related to the Galleon Group insider trading case. NYTimes 5-18-10
Harbinger Hedge Fund in Cash Bind?
But even as his satellite orbits overhead, Mr. Falcone seems to be losing altitude. Federal authorities are examining whether he used his giant hedge fund as a personal piggy bank to pay a personal income tax bill. They are also investigating whether his money management firm, Harbinger Capital Partners, gave preferential treatment to certain clients.
Alarmed by the investigations and uneasy about Mr. Falcone’s 4G ambitions, investors like Goldman Sachs, the Blackstone Group and New York State’s public pension fund have asked to withdraw money from Harbinger.
Meanwhile, Mr. Falcone has been selling investments. He has unloaded stakes in Citigroup and The New York Times Company and a $650 million investment in Inmarsat, a British satellite company.
All of this has led to speculation in the hedge fund community that Mr. Falcone and his firm are confronting a cash squeeze. If more investors withdraw money, the whispers go, Mr. Falcone could be in trouble.
FrontPoint folds most hedge funds following insider trading investigation.
"FrontPoint Partners, once a multibillion-dollar hedge fund before it was battered by allegations of insider trading, will shut down most of its funds by the end of the month." NY Times 5-20-11
GOP Senator Grassley investigating insider trading at SAC Capital Advisors.
Another insider trading conviction:
Winifred Jiau, 43, was charged, tried and convicted in less than eight months, and now faces up to 25 years in prison when she is sentenced in September.The jury foreman, Susan Kohlmeyer, an educator from Westchester County in New York, expressed dismay about corruption in the world of finance.
“I was despairing when I heard from those witnesses about what goes on in the system,” she told reporters outside the courthouse, according to news wire reports. “I hope that hedge funds will be re-examined, because there’s a lot of corruption.”
Ms. Jiau was one of just five insider trading defendants to fight the government’s charges this year. All have been found guilty.
NY Times 6-20-11
The S.E.C has been investigating whether Harbinger agreed in 2009 to allow Goldman to withdraw up to $50 million from the firm, while not striking similar deals with other clients, according to people with knowledge of the investigation who were not authorized to talk publicly. At the time, Harbinger had limited investors from redeeming their assets because of the market turmoil during the financial crisis. Before joining Harbinger, Mr. Asali was co-head of Goldman’s hedge fund strategy group, helping to steer client investments to outside managers, including Harbinger.
Some Hedge Funds Fudge their Valuations in Quarterly Reports to SEC and to Hedge Fund Data Base Providers
The Wall Street Journal reported on December 30, 2011 on academic studies using statistical analyses which show that some hedge funds' quarterly reports to the SEC on the valuations of the securities in their portfolios are over-stated or under-stated by as much as 10 percent. 'The economists say the results...suggest hedge funds "take advantage of lax regulation by strategically fudging equity position valuations to impress existing or potential clients.'"...The researchers found that the hedge funds whose holdings exhibited the widest discrepancies were more likely to report smoother monthly returns to hedge fund data base providers than were funds who reported accurate valuations to the SEC.
The WSJ article ended up with the question that if there are significant deviations in the reported prices of listed securities, what would a study show about reported prices of harder-to-value holdings such as derivatives, or thinly traded complex bonds.
U.S. Charges 7 for Insider Trading of Dell Stock - NYTimes.com
Federal prosecutors depicted a "circle of friends," including Anthony Chiasson of Level Global, who together earned about $62 million in illegal gains in Dell stock.
[Insider trading is rampant on Wall Street, in my opinion.]
Whitman Capital Founder Is Charged With Insider Trading - NYTimes.com
Douglas F. Whitman, the founder of Whitman Capital, surrendered to the F.B.I. on charges of illegal trading in tech stocks using tips from people in the Galleon Group fraud.
2-16-11NYTimes--Hedge Fund Operator, Philip Falcone, Losing Big Bet on LightSquared
Loss of Wireless Dream Caps Philip Falcone's Fast Fall From Grace - NYTimes.com
The F.C.C.'s rejection of LightSquared's broadband plan could spell disaster for the hedge fund manager Philip A. Falcone, who has spent billions of dollars on the project.
1-17-12NYTimes--Tech Research "Analyst" Accused of Selling Insider Information to Hedge Funds
Tech Analyst Arrested in Insider Trading Crackdown - NYTimes.com
John Kinnucan, a technology analyst who gained notoriety last year for openly challenging federal authorities, was arrested on Thursday night, accused of selling inside information to hedge funds.
BOOKS ON HEDGE FUNDS (which are best avoided)
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Iðunn 5 years ago
http://news.yahoo.com/s/ap/20070301/ap_on_bi_ge/se
"Husband and wife lawyers and 11 top Wall Street workers were charged Thursday with making more than $15 million in illegal trading profit through an alleged federal securities fraud scheme, authorities said.... Besides the lawyers, defendants including registered representatives, compliance personnel and hedge fund portfolio managers, improperly relied on hundreds of tips during five years of illegal trading, she said."