Wednesday, September 14th, 2011
by Paul Springer
Performance numbers for August and recent legal developments show that some hedge funds were extremely busy this summer – in court and in the markets.
August was a mixed bag for hedge funds according to data just obtained by CNBC. Funds lost ground, but still faired better than the S&P 500:
Hedge funds declined by more than 2 percent in August, according to new data from Hedge Fund Research. While that performance significantly outpaced the S&P 500 (which lost roughly 5.7 percent over that same period), it has thrown the industry into negative territory for the first time in 2011.
Funds that made a habit of shorting the market were up 7% on average, CNBC says.
Those who fared particularly badly were some of Maverick Capital’s funds and vehicles managed by Paulson & Co., Reuters says.
While August’s volatility after the debt-ceiling deal kept traders busy, the wheels of justice were grinding along at their usual lackadaisical pace. The wheels have ground to a halt right on top of former Galleon head Raj Rajaratnam, who is awaiting sentencing on Sept. 27. Rajaratnam has not show the contrition evinced by some others tried in the matter, and The Guardian says his attitude may not impress the judge favorably:
The hedge fund manager convicted of conducting America’s biggest insider trading scheme has told court officials he isn’t “clear” that what he did was wrong. The admission may lead to an ever harsher sentence, say legal experts.
Former SAC Capital Advisors portfolio manager Donald Longueuil will have plenty of material to work with if asked to prepare a “what I did last summer” essay. After receiving a two-and-a-half year jail sentence in July for criminal charges of securities fraud and conspiracy, Longueuil has now agreed to pay the Securities and Exchange Commission about $250,000 in disgorgement. The Wall Street Journal says Longeuil will receive credit for $1.25 million in the criminal case.
It was a good-news and bad-news scenario for Louis Bacon’s Moore Capital Management. The good news was the dismissal of a lawsuit that Reuters says disgruntled investors filed, alleging they had lost money because of illegal activities at the fund:
The settlement resolved claims over [trader Christopher] Pia’s alleged efforts in the last 10 seconds of trading days to enter large trades in “illiquid” platinum and palladium markets that pushed prices higher, a strategy known as “banging the close.”
The bad news: The fund already paid $25 million last year to settle charges of manipulating markets in the two metals. This year Pia agreed to pay $1 million to settle with the Commodity Futures Trading Commission.
An allegedly phony hedge fund is at issue in a civil lawsuit that the SEC filed to stop a deaf Texas man who purportedly drew on connections with other deaf people to solicit capital for investing in traded endowment polices (TEP), the U.K. equivalent of viatical settlements. The SEC’s complaint alleges that over 7,000 deaf investors sent money to Jody Dunn, who neglected to mention that he was allegedly using some of the money to make car and mortgage payments.
Victims were told that an initial $50 investment would allow clients to receive an $80,000 loan to purchase a TEP that yielded 1.2% per day. The ultimate destination of customer funds is not entirely clear at this point, but the commission says the money was not invested in anything – nor was it returned to investors.
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