Sunday, October 6, 2013
Saturday, July 27, 2013
Hedge fund pleads not guilty to US fraud charges
A sign is displayed in front of SAC Capital Advisors headquarters in Stamford, Conn., Thursday, July 25, 2013. The hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm. (AP Photo/Seth Wenig)
A sign is displayed in front of SAC Capital Advisors headquarters in Stamford, Conn., Thursday, July 25, 2013. The hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm. (AP Photo/Seth Wenig)
In this Dec. 10, 2009 photo released by Peppe Communications, billionaire hedge fund manager of SAC Capital Advisors based in Stamford, Conn., Steven Cohen and his wife Alexandra attend a benefit for the Mercy Corps Action Center to End World Hunger in New York. The hedge fund operated by Cohen was hit with white-collar criminal charges Thursday, July 25, 2013, that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm. (AP Photo/Peppe Communications, Jenny Boyle) NO SALES
A sign is displayed in front of SAC Capital Advisors headquarters in Stamford, Conn., Thursday, July 25, 2013. The hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm. (AP Photo/Seth Wenig)
U.S. Attorney for the Southern District of New York Preet Bharara speaks during a news conference, Thursday, July 25, 2013 in New York. SAC Capital, the hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm. (AP Photo/Mary Altaffer)
U.S. Attorney for the Southern District of New York Preet Bharara speaks during a news conference, Thursday, July 25, 2013 in New York. SAC Capital, the hedge fund operated by embattled billionaire Steven A. Cohen was hit with white-collar criminal charges Thursday that accused the fund of making hundreds of millions of dollars illegally, and a related government lawsuit said insider trading was pervasive and unprecedented at the firm. (AP Photo/Mary Altaffer)
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NEW YORK (AP) — Prosecutors said a large volume of evidence including electronic messages, court-ordered wiretaps and consensual recordings is stacked against a Connecticut-based hedge fund that pleaded not guilty Friday to criminal charges accusing it of letting insider trading flourish for more than a decade.
Assistant U.S. Attorney Antonia Apps told a federal judge in Manhattan that investigators had “voluminous” evidence against SAC Capital Advisors, a Stamford, Conn.-based firm owned by billionaire Steven A. Cohen.
She said the evidence included “electronic messages, instant messages, court-ordered wiretaps and consensual recordings.”
The plea was entered by Peter Nussbaum, SAC’s longtime general counsel, and came a day after the company was charged with wire and securities fraud, accused of making hundreds of millions of dollars illegally. Federal prosecutors described a culture at SAC that permitted, if not encouraged, insider trading.
Prosecutors said the victims were large companies whose inside information was stolen and traded upon. The next hearing was set for Sept. 24.
Outside court, lawyers for the company including Nussbaum declined to comment and paced on a sidewalk looking for cars to pick them up as the media followed.
SAC said in a statement after the charges were announced Thursday that it will continue normal operations. It said it “has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously.” The company declined through a spokesman to comment Friday.
Cohen has not been charged and was not in court Friday. He is referenced in court papers only as the “SAC owner” who “enabled and promoted” insider trading practices.
At a news conference Thursday, U.S. Attorney Preet Bharara said SAC “trafficked in inside information on a scale without any known precedent in the history of hedge funds.”
“When so many people from a single hedge fund have engaged in insider trading, it is not a coincidence,” the prosecutor said. “It is, instead, the predictable product of substantial and pervasive institutional failure.”
He declined to comment on whether Cohen would be charged, saying: “I’m not going to say what tomorrow may or may not bring.”
From 1999 to 2010, the company earned hundreds of millions of dollars illegally as its portfolio managers and analysts traded on inside information from at least 20 public companies, Bharara said.
The possibility that the criminal case could topple the firm, which once managed $ 15 billion in assets, led the prosecutor to note that the government was not seeking to freeze SAC’s assets. Bharara added that prosecutors were “mindful to minimize risk to third-party investors.”
Still, the government in one lawsuit sought SAC’s forfeiture of “any and all” assets.
The charges came less than a week after federal regulators accused Cohen in a related civil case of failing to prevent insider trading at the firm. While the Justice Department’s action targets SAC but not Cohen directly, the civil case brought by the Securities and Exchange Commission seeks to effectively shut him down by barring him from managing investor funds.
___
Associated Press writers Christina Rexrode in New York and Marcy Gordon in Washington contributed to this report.
Hedge fund pleads not guilty to US fraud charges
Monday, May 27, 2013
Hedge Fund Performance Update: Dan Loeb Is Crushing It In 2013, Everyone Else - Not So Much
Just like last year, when it was the turn of Europe-focused crushed and battered hedge funds to generate outsized returns due to some brief ECB-inspired euphoria, if only for a brief period, and then promptly fall back into obscurity, so now it is the time of the “Japan” strat. As the latest HSBC hedge fund performance report confirms, the best YTD returns are, as expected, those for Japan-focused funds at least until the already fading Abenomics euphoria reverts them back to the mean.
So how are the legacy titans of the hedge fund world doing? The answer is in the table below: of the vast majority of hedge funds, only a handful are outperforming the market year to date. This is becoming a major concern for an industry that has underperformed the S&P for the fifth year in a row, and which has to fight tooth and nail to justify its exorbitant fees in a world in which there is no need to hedge any risk any more: after all, Ben Bernanke has everyone covered. One fund that has nothing to worry about is Dan Loeb’s Third Point as it continues its juggernaut of crushing both returns and competition without pause.
Full HSBC report:
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Hedge Fund Performance Update: Dan Loeb Is Crushing It In 2013, Everyone Else - Not So Much
Saturday, May 25, 2013
How Did Major Hedge Fund Earn 30% Returns for 20 Years Straight? Lots of Cheating
How would you like to invest $ 10,000 and watch it grow over 20 years into $ 1,461,920? Well that"s what happened at the giant hedge fund, SAC Capital Advisors, which made a 30% return for 20 years in a row.
How is it possible to make such profitable investments again and again and again? The U.S. Attorney for Manhattan, Preet Bharara, believes he has the answer: SAC is cheating … again and again and again. In fact, Bharara suggests that hedge funds that engage in insider trading may be rotten to the core:
“Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual; we are talking about something verging on a corrupt business model, for the defendants seem to have taken the concept of social networking and turned it into a criminal enterprise. ” [refers to a 2011 hedge fund indictment, not the current case against SAC.]
To date, nine current and former SAC employees face insider trading criminal charges stemming from their work at the firm. Four have pled guilty and two are still fighting their indictments. Now the head of SAC, multi-billionaire Stephen A. Cohen (note the initials), will be subpoenaed to appear before a grand jury. The federal strategy may be to indict the entire hedge fund and shut it down, according to the New York Times.
We do not know as yet to what degree SAC relied on illegally obtained information (or other illicit activities) to amass its extraordinary profits. But we do know this: hedge funds don"t like to gamble. Rather they want to make their billions by betting on sure things. In researching my book, How to Make a Million Dollars an Hour, it became clear that that the hedge fund industry as a whole is up to its eyeballs in a series of unethical maneuvers that sometimes are legal, sometimes are borderline and often are outright criminal.
But aren"t there many (some?) honest and ethical people working in America"s 8,000 hedge funds?
Maybe so, but the overwhelming culture within hedge funds makes cheating a way of life, according to Lynn Stout of UCLA Law School. In her article, “How Hedge Funds Create Criminals,” Stout claims that hedge funds flash three critical signals that promote unethical behavior:
Signal 1: Authority Doesn’t Care about Ethics. Since the days of Stanley Milgram’s notorious electric shock experiments, science has shown that people do what they are instructed to do. Hedge-fund traders are routinely instructed by their managers and investors to focus on maximizing portfolio returns. Thus, it should come as no surprise that not all hedge-fund traders put obeying federal securities laws at the top of their to-do lists.
Signal 2: Other Traders Aren’t Acting Ethically. Behavioral experiments also routinely find that people are most likely to “follow their conscience” when they think others are also acting prosocially. Yet in the hedge-fund environment, traders are more likely to brag about their superior results than [about] their willingness to sacrifice those results to preserve their ethics.
Signal 3: Unethical Behavior Isn’t Harmful. Finally, experiments show that people act less selfishly when they understand how their selfishness harms others. This poses special problems for enforcing laws against insider trading, which is often perceived as a “victimless” crime that may even contribute to social welfare by producing more accurate market prices. Of course, insider trading isn’t really victimless: for every trader who reaps a gain using insider information, some investor on the other side of the trade must lose. But because the losing investor is distant and anonymous, it’s easy to mistakenly feel that insider trading isn’t really doing harm.
Brilliant Criminals?
The more we dig into what hedge funds actually do, the more we find that insider-trading is just one of many unethical strategies used to rig bets. Their goal always is to find a sure thing. And the only sure way to secure such infallible investments is to cheat.
At the height of the housing bubble, large banks colluded with hedge funds to sell mortgage-related securities that were designed to fail so that the hedge funds could collect insurance on that failure. (This is exactly like building a home that will burn down in three months so that you, the seller and builder, can collect the insurance.)
High frequency hedge funds set up their super-computers next to the stock exchanges so they get the information a few nanoseconds before the rest of us. This allows them to deploy automated systems to front-run our trades. Between the time you press your E-trade button and the time the trade actually goes through, a high-frequency trader is buying what you want and selling it back to you for a few pennies more. By systematically fleecing stock-market participants, high-frequency traders extract $ 5 to $ 20 billion a year from the rest of us.
Jim Cramer (host of CNBC"s “Mad Money”) admits to planting false stories with his media colleagues while he was running a successful hedge fund. Through manipulating the media, Cramer was able to move stocks in the direction he wanted in order to cash in. In a startling kiss-and-tell online interview he admits that the hedge fund game consists of one lie after the other. Furthermore, he says that if you"re not willing to lie, cheat and violate the law, “maybe you shouldn"t be in the game.”
To provide even more incentive for hedge fund managers to cheat their way to riches, the federal tax code rewards them with a special tax loophole called “carried interest.” As a result, billionaire hedge fund managers pay a lower tax rate than the rest of us, and neither political party has the nerve to remedy this blatant injustice.
Let us now praise famous hedge funds?
Because so few of us know these stories, and because so few of us feel comfortable wading into the muck of high finance, hedge fund moguls preen about the universe bestowing a small part of their ill-gotten gains upon institutions that can help them enhance their reputations. Central Park and the New York Public Library are receiving $ 100 million each from prominent hedge fund managers seeking to polish their images. Colleges want hedge fund managers on their boards and in charge of their endowments. Non-profits, even progressive ones, kiss up to them, hoping to score big donations. Pension funds scramble to invest in hedge funds, looking to secure a share of the booty.
But very few have the nerve to ask where hedge fund riches really come from. If you"re receiving such largess, you don"t want to know if the money is tainted. Better to pretend that these guys are just brilliant investors with the uncanny gift for making 30 percent a year, year after year after year.
All of us should be grateful that our Wall Street-riddled government still has honest prosecutors like Preet Bharara who are not afraid to ferret out the cheats and put them away. So far his Manhattan office has secured 81 indictments against hedge fund managers and traders, 74 of whom have either have pled guilty or have been convicted.
Only another 10,000 or so to go.
Related Stories
- "Furlough Friday" hits US federal employees
- US durable goods orders rebound in April
- "If Money Were No Object" – Behind Our Obsession With Powerball
How Did Major Hedge Fund Earn 30% Returns for 20 Years Straight? Lots of Cheating
How Did Major Hedge Fund Earn 30% Returns for 20 Years Straight? Lots of Cheating
How would you like to invest $ 10,000 and watch it grow over 20 years into $ 1,461,920? Well that"s what happened at the giant hedge fund, SAC Capital Advisors, which made a 30% return for 20 years in a row.
How is it possible to make such profitable investments again and again and again? The U.S. Attorney for Manhattan, Preet Bharara, believes he has the answer: SAC is cheating … again and again and again. In fact, Bharara suggests that hedge funds that engage in insider trading may be rotten to the core:
“Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual; we are talking about something verging on a corrupt business model, for the defendants seem to have taken the concept of social networking and turned it into a criminal enterprise. ” [refers to a 2011 hedge fund indictment, not the current case against SAC.]
To date, nine current and former SAC employees face insider trading criminal charges stemming from their work at the firm. Four have pled guilty and two are still fighting their indictments. Now the head of SAC, multi-billionaire Stephen A. Cohen (note the initials), will be subpoenaed to appear before a grand jury. The federal strategy may be to indict the entire hedge fund and shut it down, according to the New York Times.
We do not know as yet to what degree SAC relied on illegally obtained information (or other illicit activities) to amass its extraordinary profits. But we do know this: hedge funds don"t like to gamble. Rather they want to make their billions by betting on sure things. In researching my book, How to Make a Million Dollars an Hour, it became clear that that the hedge fund industry as a whole is up to its eyeballs in a series of unethical maneuvers that sometimes are legal, sometimes are borderline and often are outright criminal.
But aren"t there many (some?) honest and ethical people working in America"s 8,000 hedge funds?
Maybe so, but the overwhelming culture within hedge funds makes cheating a way of life, according to Lynn Stout of UCLA Law School. In her article, “How Hedge Funds Create Criminals,” Stout claims that hedge funds flash three critical signals that promote unethical behavior:
Signal 1: Authority Doesn’t Care about Ethics. Since the days of Stanley Milgram’s notorious electric shock experiments, science has shown that people do what they are instructed to do. Hedge-fund traders are routinely instructed by their managers and investors to focus on maximizing portfolio returns. Thus, it should come as no surprise that not all hedge-fund traders put obeying federal securities laws at the top of their to-do lists.
Signal 2: Other Traders Aren’t Acting Ethically. Behavioral experiments also routinely find that people are most likely to “follow their conscience” when they think others are also acting prosocially. Yet in the hedge-fund environment, traders are more likely to brag about their superior results than [about] their willingness to sacrifice those results to preserve their ethics.
Signal 3: Unethical Behavior Isn’t Harmful. Finally, experiments show that people act less selfishly when they understand how their selfishness harms others. This poses special problems for enforcing laws against insider trading, which is often perceived as a “victimless” crime that may even contribute to social welfare by producing more accurate market prices. Of course, insider trading isn’t really victimless: for every trader who reaps a gain using insider information, some investor on the other side of the trade must lose. But because the losing investor is distant and anonymous, it’s easy to mistakenly feel that insider trading isn’t really doing harm.
Brilliant Criminals?
The more we dig into what hedge funds actually do, the more we find that insider-trading is just one of many unethical strategies used to rig bets. Their goal always is to find a sure thing. And the only sure way to secure such infallible investments is to cheat.
At the height of the housing bubble, large banks colluded with hedge funds to sell mortgage-related securities that were designed to fail so that the hedge funds could collect insurance on that failure. (This is exactly like building a home that will burn down in three months so that you, the seller and builder, can collect the insurance.)
High frequency hedge funds set up their super-computers next to the stock exchanges so they get the information a few nanoseconds before the rest of us. This allows them to deploy automated systems to front-run our trades. Between the time you press your E-trade button and the time the trade actually goes through, a high-frequency trader is buying what you want and selling it back to you for a few pennies more. By systematically fleecing stock-market participants, high-frequency traders extract $ 5 to $ 20 billion a year from the rest of us.
Jim Cramer (host of CNBC"s “Mad Money”) admits to planting false stories with his media colleagues while he was running a successful hedge fund. Through manipulating the media, Cramer was able to move stocks in the direction he wanted in order to cash in. In a startling kiss-and-tell online interview he admits that the hedge fund game consists of one lie after the other. Furthermore, he says that if you"re not willing to lie, cheat and violate the law, “maybe you shouldn"t be in the game.”
To provide even more incentive for hedge fund managers to cheat their way to riches, the federal tax code rewards them with a special tax loophole called “carried interest.” As a result, billionaire hedge fund managers pay a lower tax rate than the rest of us, and neither political party has the nerve to remedy this blatant injustice.
Let us now praise famous hedge funds?
Because so few of us know these stories, and because so few of us feel comfortable wading into the muck of high finance, hedge fund moguls preen about the universe bestowing a small part of their ill-gotten gains upon institutions that can help them enhance their reputations. Central Park and the New York Public Library are receiving $ 100 million each from prominent hedge fund managers seeking to polish their images. Colleges want hedge fund managers on their boards and in charge of their endowments. Non-profits, even progressive ones, kiss up to them, hoping to score big donations. Pension funds scramble to invest in hedge funds, looking to secure a share of the booty.
But very few have the nerve to ask where hedge fund riches really come from. If you"re receiving such largess, you don"t want to know if the money is tainted. Better to pretend that these guys are just brilliant investors with the uncanny gift for making 30 percent a year, year after year after year.
All of us should be grateful that our Wall Street-riddled government still has honest prosecutors like Preet Bharara who are not afraid to ferret out the cheats and put them away. So far his Manhattan office has secured 81 indictments against hedge fund managers and traders, 74 of whom have either have pled guilty or have been convicted.
Only another 10,000 or so to go.
Related Stories
- "Furlough Friday" hits US federal employees
- US durable goods orders rebound in April
- "If Money Were No Object" – Behind Our Obsession With Powerball
How Did Major Hedge Fund Earn 30% Returns for 20 Years Straight? Lots of Cheating
Tuesday, May 7, 2013
Hedge fund chief Paulson loses big on gold
President and Portfolio Manager of Paulson & Co. John Paulson speaks during the Sohn Investment Conference in New York, May 16, 2012.
Credit: Reuters/Eduardo Munoz
NEW YORK |
NEW YORK (Reuters) – Hedge fund billionaire John Paulson is emerging as one of the biggest losers in this year’s gold rout, further tarnishing his once legendary status in the $ 2 trillion hedge fund industry.
Paulson’s $ 700 million gold fund lost a whopping 27 percent in April, when the price of the metal plunged 17 percent over a two-week stretch, according to performance figures provided by a person familiar with the fund.
The jarring one-month decline in the Paulson gold fund brings the year-to-date loss for the fund to about 47 percent, the source said. The fund’s losses were magnified by the fact that its bullish bet on gold is effectively a leveraged bet that uses derivatives tied to the price of gold to enhance returns.
The majority of the money invested in the Paulson gold fund is believed to be the billionaire’s own.
Paulson rose to fame after he made $ 15 billion for his firm in 2007 by betting against subprime mortgages before the housing collapse. Since then, however, he has struggled to duplicate that success, and several of his portfolios have lagged in recent years.
Assets under management at his Paulson & Co firm have dropped to $ 18 billion, down from $ 38 billion in early 2011, due to investor redemptions and poor performance.
To be fair, the April selloff in gold was particularly fierce and came as a surprise to many hedge fund managers who were long either gold bullion or the SPDR Gold Trust, the most popular gold exchange-traded fund.
Hedge fund manager David Einhorn said on a conference call on Tuesday, “We were somewhat surprised by the swift decline in the price of gold in April.”
Paulson disclosed the gold fund loss to investors on Monday along with results for his other funds, the source said.
Over two weeks in April, the price of gold plunged 17 percent, from $ 1,603 per ounce to a low of $ 1,321 on April 16, before starting to rebound. As of Tuesday, the metal was trading near $ 1,446.
Regulatory filings show that at the end of last year Paulson’s firm was the largest holder of the SPDR Gold ETF, with 21.8 million shares. Paulson has not yet disclosed its latest position in the gold ETF. Since the beginning of the year, the gold ETF has fallen about 14 percent.
Paulson’s hedge funds also are large investors in shares of gold mining companies, which similarly have sold off this year.
Until this year, gold had been a solid investment. In the wake of the financial crisis, a number of hedge funds began buying gold as a hedge against inflation. But inflation has yet to materialize, despite the Federal Reserve’s aggressive purchases of Treasuries and mortgage bonds to stoke the economy.
Paulson’s more widely held Advantage fund declined 0.8 percent in April, largely because of its gold positions, the source said, and is up 2.5 percent for the year through April.
The Advantage fund and a leveraged version of it were once two of Paulson’s most popular funds but now have less than $ 5 billion in assets.
The average hedge fund is up a little over 3 percent this year, while the Standard & Poor’s 500 is up about 13 percent.
It’s not been all bad news for Paulson. Two other funds managed by him are performing well this year and far outpacing the returns of the average hedge fund.
His credit-focused fund, which invests in mortgage securities and bank debt, is up 11.9 percent for the year. The Paulson Recovery fund, which invests in some insurers and asset management firms, is up 21.8 percent. And a merger-focused fund is up 7.1 percent.
Paulson will be one of the featured speakers at this week’s SALT Conference in Las Vegas, a popular event with wealthy investors. The conference, sponsored by Skybridge Capital, begins Tuesday night.
(This version of the story corrects the description of leverage in the third paragraph to remove reference to borrowing.)
(Reporting by Katya Wachtel; additional reporting by Svea Herbst-Bayliss and writing by Matthew Goldstein; Editing by Chizu Nomiyama, Kenneth Barry and John Wallace)
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Hedge fund chief Paulson loses big on gold