The Great Hedge Fund Scam of 2008
64They Always Come Back For More
Info, Followed by Opinion
INFORMATION SECTION
HEDGE FUND
Definition:
A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive
strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Hedge
funds are exempt from many of the rules and regulations governing other mutual funds, which allows them to accomplish aggressive investing
goals. They are restricted by law to no more than 100 investors
per fund, and as a result most hedge funds set extremely high minimum investment
amounts, ranging anywhere from $250,000 to over $1 million. As with traditional mutual funds, investors in hedge funds pay a management fee; however, hedge funds also collect a percentage of the profits (usually 20%).
This content can be found on the following page:
http://www.investorwords.com/cgi-bin/getword.cgi?id=2296&term=hedge%20fund ______________________________________
Most hedge funds are limited to a maximum of 100 high-net-worth investors. For an individual to invest in an unregistered investment company, the individual must be an accredited investor. This term is defined by SEC rule 501 of Regulation D. You can review the full text of this rule at the following link:
http://www.solarattic.com/rule501.htm
Regulation D states that hedge fund investors must meet the following characteristics:
- The individual must have at the time of investment a net worth (or joint net worth with spouse) exceeding $1,000,000, or
- The individual must have individual income exceeding $200,000 in each of the two most recent years or joint income with spouse exceeding $300,000 in each of the two most recent years, and must have a "reasonable expectation" of reaching the same level in the coming year.
Source: www.streetauthority.com
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OPINION SECTION
1. Yes, I know, the media has now designated this implosion of capitalism as a "credit crisis," as likely to impact Average Joe's and Jane's as much as it would Wall Street. 401k's, lines of credit to small businesses, home values...we've got the picture.
2. Yes, I know, the media is doing their best to convert the nasty-sounding "bailout" plan into the kinder, gentler "rescue" plan, as if we're dealing with a baby needing to be pulled from a burning house.
But the concrete fact that cannot be gotten around, regardless of how one labels it, is that the only DIRECT beneficiaries of the bailout will be Banks, Wall Street Traders, Insurance Titans and--most of all--Hedge Funds!
That's why I posted the information at the beginning of this article, so that people could at least know what these Hedge Funds are, by definition. These funds are restricted to wealthy people because the funds persue high-risk strategies that have high pay-offs when they work, but can result in total wipeouts when they're wrong. These vehicles are not for the Average Joe or Jane.
The rest of us, we're told, will be getting the INDIRECT benefits associated with the bailout, and will be spared the horror of watching our lives collapse if the Hedge Fund speculators--the media calls them "investors," of course--are reimbursed for their errors by Average Joey and Average Janie.
MyBlog: http://ProteanPerspectives.blogspot.com
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Ralph Deeds says:
2 months ago
Good Hub! Here's something from today's paper that confirms your worst suspicions!
Hedge Fund Executive Is Charged With Insider Trading
October 16, 2009 , 10:27 am
Update | 5:11 p.m. Raj Rajaratnam was ordered to post a $100 million bond as part of his bail conditions, though prosecutors argued for no bail because he posed a flight risk. Anil Kumar was released on a $5 million bond.
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.
Federal prosecutors for the Southern District of New York accused Raj Rajaratnam, 51, with illegally obtaining and trading on information on these companies, which also included Polycom, Hilton Hotels, Google and People Support. He was charged with four counts of conspiracy and nine counts of securities fraud. (Read the complaints after the jump.)
The prosecutors’ case is built on both statements from an unnamed cooperating witness, who has agreed to plead guilty, and from the recording of four conversations between the witness and Mr. Rajaratnam. The unnamed witness began conversations with the Federal Bureau of Investigation in 2007, which led to the phone taps.
At a press conference Friday afternoon, law enforcement officials described the case as a sign that the Justice Department, the Federal Bureau of Investigation and the Securities and Exchange Commission were stepping up their efforts against white-collar crime. Preet Bahara, the United States attorney for the Southern District of New York, compared the investigation to those used against the Mafia and drug cartels.
“This case should serve as a wake-up call to Wall Street and to every hedge fund manager,” Mr. Bahara said. “These people were privy to inside information, but they didn’t know one secret, that we were listening.”
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.
All six were arrested Friday morning. Five of the six are set to be arraigned in federal court in Manhattan Friday afternoon. Mr. Goel is set to be arraigned in California.
According to the complaint, the witness first approached Mr. Rajaratnam in mid-2005 about divulging nonpublic information. That led to a scheme that ran from January 2006 through July 2007 involving insider information about three companies — Polycom, Hilton and Google — in which the hedge fund executive garnered about $12.7 million in profit. Mr. Rajaratnam reciprocated by supplying inside information about other technology companies.
Mr. Rajaratnam partnered with the likes of Mr. Goel and Mr. Kumar, who supplied information about their portfolio companies or clients, and in turn made profitable trades for these associates. The unnamed cooperating witness is alleged by prosecutors to have also obtained insider information, including from an analyst at Moody’s Investors Service covering Hilton (and who was paid $10,000) and an unnamed employee at Market Street Partners, an investor relations firm working for Google.
Mr. Rajaratnam, a native of Sri Lanka, is listed as No. 551 on Forbes’s 2009 list of the world’s richest people, with an estimated net worth of $1.3 billion.
Law-enforcement officials on Friday said that Mr. Rajaratnam’s success appeared built not on “genius trading strategies,” but on his insider-trading connections.
“He is not a master of the universe,” said Robert Khuzami, the S.E.C.’s director of enforcement. “He is a master of the Rolodex.”
A spokesman for Galleon said in a statement: “Galleon was shocked to learn today that Raj Rajaratnam was arrested this morning at his apartment. We had no knowledge of the investigation before it was made public and we intend to cooperate fully with the relevant authorities. Galleon continues to operate and is highly liquid.”
A spokesman for Moody’s said in a statement: “Moody’s has strict policies against divulging confidential information, and the alleged wrongdoing by an individual at Moody’s would be an egregious violation of Moody’s policies and values. Moody’s fully supports the government’s prosecution of insider trading and will provide every assistance in its investigation of this matter.”
A spokesman for Intel said that Mr. Goel was placed on administrative leave Friday morning, and that the chipmaker had not been aware of the investigation until then. He added that Intel has not been contacted by authorities so far, but is ready to cooperate.
A spokeswoman for McKinsey said in a statement: “The firm was distressed to learn that Mr. Kumar was arrested and is looking into the matter urgently.” She declined to comment on Mr. Kumar’s job status, but a person briefed on the matter said that Mr. Kumar was placed on paid leave.
Representatives for I.B.M. and Market Street Partners declined to comment.
Representatives for Akamai and lawyers for the defendants were not immediately available for comment.
– Michael J. de la Merced. Steve Lohr contributed reporting.