Hedge Fund Law: SEC Names David Gottesman as Deputy Chief Litigation Counsel

A member of the team that obtained admissions of liability as part of an $18 million settlement with hedge fund adviser Philip Falcone and his advisory firm Harbinger Capital Partners has been appointed as deputy chief litigation counsel in the Division of Enforcement by the SEC.

David J Gottesman said, “I am honored to have the chance to serve as deputy chief litigation counsel.  I look forward to continue helping the Enforcement Division carry out its mission of protecting investors and the markets.”

This is not the same David Gottesman who is friends with Warren Buffet and a hedge fund billionaire in his own right.

Gottesman has successfully led several jury trials on behalf of the Commission, including a two-week jury trial that concluded with a finding of liability for accounting fraud against former executives of Hayes-Lemmerz, an international auto parts supplier.

He also led one of the SEC’s financial crisis cases against two former executives of Charles Schwab & Co. for misleading statements and omissions in marketing the Schwab YieldPlus Fund.  The defendants’ settlements included significant civil money penalties and industry bars or suspensions.

Matthew C. Solomon, chief litigation counsel in the Enforcement Division, added, “David has a keen sense of what works with judges and juries and has distinguished himself as an advocate by winning challenging trials against top defense counsel.  His trial acumen, together with his subject matter expertise and strong management experience, will be critical assets to our national litigation program.”

Fraud, Hedge Funds

Hedge Fund Mergers: GEMS Group Acquires Kenmar-Olympia

Receiving legal and regulatory approval, alternative investor GEMS Group has acquired hedge fund group Kenmar-Olympia.

“We are very happy to have concluded this acquisition that reinforces our research and international distribution capabilities.” Dr David Goldfarb, Managing Director of GEMS Investment Research said.

This merger launches the GEMS Kenmar-Olympia Group, which manages over $2 billion through a wide range of asset management products and services both in financial and real estate markets.

“The group offers in particular multi-strategy alternative and long only funds of funds on macro and thematic strategies; as well as a range of systematic global and sectorial single funds.” The hedge fund group said. “GEMS Kenmar-Olympia Group is also active in private banking, provides family office services and offers life insurance contracts linked to alternative and traditional vehicles.”

The GEMS Kenmar-Olympia Group has  offices in London, Paris, New York, Tel-Aviv, Geneva, Nassau, Buenos Aires and Singapore. Each firm of the new Group will continue to develop its own clientele capitalizing on improved research skills as well as better operational capabilities.

Hedge Fund Strategy, Hedge Funds

Hedge Fund Law Specialists Join Bloomberg BNA

The Bloomberg BNA Banking Report Advisory Board is adding hedge fund law firms and specialists to its panel of practitioners and policy experts from across the spectrum of banking law.  The Advisory Board will provide guidance and feedback for Bloomberg BNA’s Banking Report and Banking Daily.

The Bloomberg BNA Banking Report Advisory Board members are:

“The market for legal and financial information is evolving rapidly and nowhere is that more apparent than in the banking sector,” said Michael Eisenstein, Bloomberg BNA vice president and group publisher, Legal & Business Publishing. “The perspectives gained from this extraordinary group of banking professionals will help us keep an edge and provide even better resources for our clients. We are proud to have them join our first Banking Report Advisory Board.”

Hedge Fund Strategy, Hedge Funds

Hedge Fund People: FORT Opens NY Office

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Hedge fund FORT Management, founded in 1993 by Yves Balcer and Sanjiv Kumar, who formerly worked together as senior fund managers at the World Bank, has expanded its operations and opened an office in New York.

The hedge fund firm manages approximately $700 million in assets, FORT is an acronym for Financial Opportunities in Research in Trading.

Balcer is heading up the new office, located at 540 Madison Avenue, and is being joined by two new managing directors – Alan Marantz and Douglas McKeige – who have come on board to direct business development and assist in overall firm management.

Marantz is experienced in institutional asset management, having spent 26 years at Lehman Brothers, where he held various leadership roles including global head of Private Investment Management, global head of fixed income sales, head of Fixed Income Asia and global head of foreign exchange.

McKeige, an attorney, was formerly a managing partner with leading litigation firm Bernstein Litowitz Berger & Grossman, known for its work prosecuting securities litigation cases on behalf of institutional investors globally. During his tenure, he helped Bernstein Litowitz advise clients in evaluating and commencing securities and other investor-related claims.

Prior to coming to FORT, Messers. Marantz and McKeige worked at a discretionary macro hedge fund in New York, where they jointly directed business development efforts.

“Sanjiv and I felt that this was the right time to establish a presence in New York and we could not be happier in having Alan Marantz and Doug McKeige join our new office and help lead our business development initiatives,” Balcer said. “Alan and Doug each have strong backgrounds in asset management and investor relations that will complement our existing team. Having a New York location will allow us to have closer contact with our existing investors and create better access for prospective clients as we continue to grow FORT.”

Administrators, Hedge Funds

Massachusets Retirement Board Accuses Fletcher Hedge Funds Of $50 Million Fraud

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The Massachusetts Bay Transportation Authority (MBTA) Retirement Fund is suing New York hedge fund manager Alphonse Fletcher Jr., the Boston Globe reports.

MBTA lost $25 million when Fletcher International Ltd, the master fund for the Fletcher group of hedge funds filed for Chapter 11 bankruptcy protection.

“The lawsuit, filed Monday in New York, accuses Fletcher and his firm, Fletcher Asset Management , and other parties of conducting a “long-running fraud” in which they misused money for their own benefit, inappropriately took inflated management fees, and overstated the value of assets.” The Boston Globe said. “The plaintiffs — which include the $1.6 billion MBTA fund, the Fletcher Fixed Income Alpha Fund, and three other Fletcher entities — are seeking $50 million, according to the complaint, as well as management and attorney’s fees and interest.”

According to an internal report, MBTA management is working closely with the Trustee in a collaborative effort to recover damages from both Fletcher and the potentially responsible third parties who enabled him. The MBTA’s investment portfolio achieved a 16.19% gross investment return in 2013, representing more than a $200 million investment gain.

Hedge Fund Strategy, Hedge Funds

Court Approves $1.8 Billion Settlement In SAC Hedge Fund Case

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Steven Cohen’s hedge fund SAC Capital Advisors has received court approval on a record criminal settlement for insider trading on Thursday, as a US judge accepted a guilty plea from the hedge fund firm.

CBS reports: “U.S. District Judge Laura Taylor Swain formally administered the sentence on Stamford, Conn.-based SAC Capital LP and three related entities based on pleas made by a lawyer for the companies last fall to wire fraud and securities fraud.”

“These crimes clearly were motivated by greed, and these breaches of the public trust require serious penalties,” Swain said. “The defendants’ crimes were striking in their magnitude and strikingly indicative of a lack of respect for the law.”

The SAC companies will pay a $1.8 billion, a $900 million fine in the criminal case and $900 million in the forfeiture action. Because the SAC companies have already agreed to pay $616 million to the SEC to resolve related civil insider trading charges, the additional payment required under this agreement will be approximately $1.2 billion. The SAC companies also agreed that they cannot claim any tax deduction or credit for money paid in resolving the criminal case.

Cohen’s hedge fund is also trying to put the past behind them with a name change.

“In the aftermath of our settlement with the government, Steve and senior management considered whether our path forward as a family office would be simpler if we operated with new legal entities and new names,” President Thomas Conheeney said in a memo to employees. The new name refers to the address of SAC’s headquarters at 72 Cummings Point Road in Stamford.

“The name emphasizes we point to a successful future that rests on the exacting analyses of the companies, sectors and verticals by Point72’s portfolio managers and analysts,” Conheeney said. “We have selected strong new names that reflect our heritage or signal something important about our businesses.”

Fraud, Hedge Funds

Eurekahedge 2014 Index Up $30 Billion In Q1, Down In April

Hedge funds started the first quarter of the year with another month of negative returns, down 0.18% in March as managers navigated through a choppy start to the year. However, strong returns posted by fund managers in the previous month saw them through with the Eurekahedge Hedge Fund Index up 1.05% in Q1 2014, outperforming the MSCI World Index which has gained 0.67% over the same period.

Highlights from March 2014:
· Global hedge funds were up 1.05% in Q1 2014, with North American and European fund managers leading the tables with returns of 2.50% and 1.63% respectively.

· Net asset flows for Q1 2014 stood at US$32.6 billion, with capital allocations to North American managers at US$ 17.7 billion and those for European managers at US$ 13.6 billion.

· Japan focused hedge funds posted their third consecutive month of negative returns – down 0.84% in March and 2.09% in the first quarter of the year.

· Latin America focused managers surpassed all regional mandates delivering the strongest gains – up 1.53% in March, and outperforming the MSCI EM Latin America Index by 2.45% in Q1 2014.

· Distressed debt investing hedge funds delivered their ninth consecutive month of positive returns – up 2.70% in the first quarter of the year.

· CTA/managed futures hedge funds continued to languish, down 0.98% in March and 0.33% in Q1 2014. Investors have redeemed US$5.0 billion from the strategy in the first quarter of the year.

· Eastern Europe & Russia focused hedge funds fared the worst, losing 2.54% in March and 8.02% in Q1 2014, weighed down by geopolitical tensions in the region.

Global markets remained largely flat-to-negative during the month as better-than-expected US jobs data and the reduction of the Fed’s monthly asset purchase program by another US$10 billion heightened concerns that US interest rates could rise faster than previously anticipated.

Investor sentiment improved towards the month end as Fed chairperson Janet Yellen shifted the focus of her ‘forward guidance’ away from an unemployment target towards a more qualitative improvement in the US labour market – a move that will give the Fed more flexibility to influence rates until a sound economic recovery is ensured.

Meanwhile, European markets trended downwards as fears over disinflation re-surfaced in the Eurozone, while in Asia, markets declined on news of disappointing PMI data from China and an impending sales tax hike in Japan. Emerging economies continued to show signs of stability with the MSCI Emerging Market Index advancing 1.69% during the month as major emerging market currencies stabilised.

Most regional mandates ended the month in negative territory with Eastern Europe & Russia investing hedge funds seeing the strongest decline – down 2.54% as tensions between Russia and the West weighed on market sentiment.

The Eurekahedge Japan Hedge Fund Index dropped 0.84%, with long/short equities managers in the region posting losses as the Tokyo Topix declined 0.72% during the month on the back of an appreciating yen. Asia ex-Japan investing hedge funds were down 0.24%, with managers focused on the Greater China region posting strong losses, declining by 3.47%. European managers were also in the red, down 0.34%, though managing to outperform underlying markets as the MSCI Europe Index declined 0.98% during the month. North American managers posted gains of 0.45% and outperformed the MSCI North America Index which was up 0.38% during the month. The Eurekahedge Latin America Hedge Fund Index posted the strongest gains, up 1.53% as Brazil’s Ibovespa climbing 7.13% in March on the prospects of a more pro-market economic policy taking shape in the country. Emerging market focused hedge funds also ended the month in positive territory, up 0.67%.

Hedge Funds, Uncategorized, hedge fund research

N.J.-Based Brokerage Firm Charged With Manipulative Trading

The SEC has charged the owner of a Holmdel, N.J.-based brokerage firm with manipulative trading of publicly traded stocks through an illegal practice known as “layering” or “spoofing.” The SEC also charged the owner and others for registration violations. Two firms and five individuals agreed to pay a combined total of nearly $3 million to settle the case.

According to the SEC, the misconduct occurred from May 2008 to November 2011. Visionary Trading and its four owners –  Joseph Dondero, Eugene Giaquinto, Lee Heiss, and Jason Medvin – illegally received from Lightspeed a share of the commissions generated from trading by Visionary customers.  Lightspeed aided and abetted the violation by ignoring red flags that Visionary and its owners were receiving transaction-based compensation while Visionary and its owners were not registered as a broker or dealer or associated with a registered broker-dealer firm.

In layering, the trader places orders with no intention of having them executed but rather to trick others into buying or selling a stock at an artificial price driven by the orders that the trader later cancels. An SEC investigation found that Joseph Dondero, a co-owner of Visionary Trading LLC, repeatedly used this strategy to induce other market participants to trade in a particular stock. By placing and then canceling layers of orders, Dondero created fluctuations in the national best bid or offer of a stock, increased order book depth, and used the non-bona fide orders to send false signals to other market participants who misinterpreted the layering as true demand for the stock.

“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office. “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”

“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”

Fraud, Hedge Funds

Survey: Hedge Funds Struggling to Meet SEF Regulatory Preparedness

With the Dodd-Frank rule becoming effective for certain swaps to be mandatory when traded on Swap Execution Facilities (SEFs), a new survey by IPC Systems finds that the hedge fund industry is underprepared to meet the requirements of these new regulations.

The survey highlights the state of the industry’s preparedness for this new SEF model and potential impact on the OTC derivatives markets.

Key findings include:

“Over the last year, we have seen a lot of activity from financial firms that have been looking for additional or new network connectivity to many of the already registered SEFs or OTFs through Connexus, our Financial extranet,” said Ganesh Iyer, Director, Product Marketing, Financial Market Network at IPC. “While the survey results suggest that the industry is underprepared for mandated SEF trading, we see this issue as more of a fear of uncertainty around industry-wide implementation and regulatory governance. Individual firms, SEFs and their equivalent platforms are already planning connectivity, systems and processes to be ready to meet the new trading requirements.”

The survey was conducted during FIA Chicago, from November 5-7, 2013, and generated responses from hedge funds, investment banks, broker/dealers, exchanges and other financial institutions. Respondents came from the front, middle, and back office and included people involved in both the business and technology sides of trading operations. Nearly all respondents planned or have already connected to multiple SEFs.
SEFs that the largest percentage of respondents said that they plan to connect to are CMEGroup, TeraExchange, Bloomberg, and Eurex.

The full survey report, titled “Market View 2014: OTC Derivatives Regulations and Swap Execution Facilities”, can be downloaded from IPC’s website.

Hedge Funds, hedge fund research

Tech Hedge Fund To Return $2 Billion

Philippe Laffont, the founder of a $7 billion tech focused hedge fund has announced that he plans to return over $2 billion to investors in his flagship fund which was down 9% in March.

Laffont’s hedge fund was seeded by Julian Robertson of Tiger Management, who he used to work for. In 1999, he left Tiger to found Coatue Management, which is now a leading tech-focused, long/short equity hedge fund. He currently holds the position of CEO.

“We are focused on returns and do not want to become asset gatherers,” Lafffont said in a letter to investors, “We believe the right size for Flagship is $5 billion….We have dealt with tough markets in the past, however. We are confident that we have the ideas and risk management to navigate this environment.”

Coatue invests in tech stocks such as Twitter, Netflix, Facebook, LinkedIn, Yelp, Pandora, and more recently, SnapChat.

Events, Hedge Fund Strategy, Hedge Funds