Hedge Fund Investigations
service to readers, the site has compiled a collection of key articles about
fund practices and the investigations that are underway. The
collection is divided into three broad categories: commentary, specific
fund practices, and the SEC inquiry. A final section includes information
about the activities of the Washington Legal Foundation.
Beware the Hedgehogs. In the course of writing a Nixon speech imposing wage and price controls, Arthur Burns reminded me that it was Bernard Baruch who startled Congressional investigators in 1917 by asserting coolly, "I am a speculator." Arbitrageurs, speculators and short-sellers, Baruch and later Burns explained, all help spread risk and make markets more liquid. That was then; now it's gotten out of hand. The hidden hands of speculators, profiting from bad-news rumormongering, good-news insidership and no-news accounting, made markets unsafe for ordinary investors. --William Safire , The New York Times, September 5, 2002.
Hedge Fund Hijinks.
Visitors to this space know there have been few topics we've nagged about more
incessantly in the last year than the need to crack down on abuses in the hedge
fund industry. --Christopher Byron,
New York Post, April 14, 2003.
Short sellers trash, then sue, Santa Clara tech firm. There was something curious about the securities fraud case against Terayon Communications Co. Shareholders sued the Santa Clara firm on April 13, 2000, one day after Terayon stock plummeted more than 25 percent. But the 58-page complaint was much too detailed for a last-minute lawsuit. It was certified for filing a full day before the stock's precipitous fall. And the shareholders leading the San Francisco class-action included a fund run by Dallas investor Edward "Rusty" Rose III. . . With Terayon, he was playing both sides of the fence. --Reynolds Holding, San Francisco Chronicle, November 9, 2003
Talking with SEC on Analysts, Hedge funds.
Concerns about possible
collusion between Wall Street research analysts and hedge funds were raised on
Thursday at a U.S. congressional hearing on the market role of the loosely
regulated investment pools. In the hearing, Rep. Michael Oxley asked
Securities and Exchange Commission Chairman William Donaldson about reports
that brokerage firm stock analysts may have skewed their research "to curry
favor with short-selling hedge funds." --
Testimony of Terry Lenzner. (House
Financial Services Committee hearing).
want to congratulate the Chairman , this committee, and its staff for the
initiative they have taken in reviewing activities of short sellers and their
relationship to the plaintiff ’s bar. For too long, their activities have
flown below the regulatory radar screen. These include abusive tactics
of the short sellers, lack of timely information on their activities and their
unholy alliance with the plaintiff ’s bar. The result has been, in numerous
cases, the manipulation of a stock downward and consequent loss by the
affected company of access to capital markets, reduction in employment and
shareholder value and a reduction in the Gross National Product.
Examines Research By Gotham Partners on MBIA. The New York
Attorney General's office is looking into allegations that Gotham Partners
Management Co., a once-highflying hedge fund, acted improperly in connection
with a bearish position in bond-guarantee firm MBIA Inc., say people familiar
with the matter.
--Henny Sender and Gregory Zuckerman, Wall
Street Journal, January 16, 2003.
Some Ugly Short Stories: SEC Pledges to
Look into Dirty Deeds as Firms Fight Back.
Chattem Inc. President Alec Taylor figured something was wrong in
January when he heard investors fret about rumors of financial woes at the
consumer products company and watched its share price plummet 25 percent.
But it wasn't until almost Valentine's Day that he discovered the problem. A
long-time investor forwarded an email to Taylor of a report that San
Francisco-based hedge fund Barbary Coast Capital had sent out to its limited
partners . . . . --Leticia Williams,
CBS.MarketWatch.com, April 10, 2003.
Suit Batters Penney Shares, But Serves Short-Sellers Well. Shirley Minsky was observing the seven-day Jewish mourning period for her husband last January when a family friend called, not to offer his condolences, but to get information. . . A week later, a civil lawsuit accused Eckerd Drug Stores of widespread overcharging for prescription drugs. . . It had one named plaintiff: Mrs. Minsky. She says she never talked to any of the lawyers who filed the litigation. . . . "They made up the whole damn story," Mrs. Minsky says of the plaintiffs' lawyers. --David Armstrong and Ann Zimmerman, Wall Street Journal, January 10, 2003.
A Whisper Can Sink a Stock.
People have to remember what it was like during some other bad
periods. They have to remember how easy it was to knock stocks down in 1987 and
again in 1990. Stocks can lose value in a minute when hedge funds
circulate negative rumors about companies. Yes, they do that.
J. Cramer, Thestreet.com, July 19, 2002.
SEC Chief Reiterates Hedge Fund Concerns.
The head of the Securities and
Exchange Commission on Wednesday reiterated
concern about hedge funds, traditionally an investment outlet for the wealthy
that are increasingly luring small investors. "I believe the time has
come for us ... to review hedge funds and how they are operated, managed and
regulated. We are looking to ensure investor protection," SEC Chairman William
Donaldson said at the start of a two-day conference on hedge funds.
-- Associated Press, May 14, 2003.
Managers Offering Mutual and Hedge Funds Probed.
managers branching into hedge funds to woo new customers are facing scrutiny
from regulators who fear that traditional mutual fund investors could be
harmed as the two different types of funds are offered under one roof, lawyers
said on Monday. -- Svea Herbst-Bayliss,
Senate Banking Committee. Written remarks submitted by SEC
Chairman William Donaldson at Committee hearing on April 10, 2003. Also,
statements by Senators Shelby,
Dole, Corzine, and Sarbanes prepared for the hearing.
Washington Legal Foundation
Announcement of Complaint to SEC.
On January 21, 2003, WLF filed a complaint with the Securities and Exchange
Commission (SEC), asking the agency to investigate circumstances surrounding the
filing of a class action lawsuit in Florida against Eckard Drug Stores. The
complaint alleges that the lawyers who filed the suit may have been part of a
scheme to manipulate the stock price of Eckard's parent corporation, for the
purpose of making money from selling the stock "short" prior to filing suit. WLF,
which filed the complaint as part of its Investor Protection Program, argued
that such manipulation appears to be rampant among some members of the
Read Full Complaint.
Read Freedom of Information
Request for Related Documents.
The Relationship Between Shortsellers and Trial Attorneys (Testimony presented to U.S. House of Representatives Committee on Financial Services.) Evidence suggests that trial attorneys who file class action lawsuits may be selectively providing short sellers and others with information as to when the lawsuit against a publicly traded company will be filed with the court. The stock in the company is sold short before the suit is filed, and profits are realized when the price of the stock falls after the suit is filed and made public. Other questionable devices have been used by trial attorneys, such as encouraging analysts to downgrade the stock of a targeted company to spur the company to quickly settle the underlying suit, regardless of its merits. WLF believes that this issue has been overlooked or ignored in the post-Enron regulatory, enforcement, and legislative environment designed to restore investor confidence and integrity in the securities markets.
Page Created 4/26/03 •
Updated 5/14/03 • Updated 6/20/03 • Updated 6/22/03
• Updated 10/13/03