Hedge Fund Lounge

Connecticut to Hedge Funds: Welcome

cmccaffrey — Thu, 01 Jul 2010 20:38:13 +0000

According to Reuters, New York is poised to assess a new income tax on hedge fund managers who work in New York but live elsewhere in the hopes of raking in an extra $50 million a year. They propose to do this by taxing carried interest– profits earned by managing assets– at ordinary income tax rates. Hedge fund managers who live in New York already pay these rates. Reuters notes:

New York state’s highest income tax rate of 8.97 percent for people who earn more than $500,000 a year tops the equivalent income tax rate of 6.5 percent in Connecticut.

And any hedge fund or private equity chiefs who decided to keep commuting to their offices in New York would be paying both states’ income taxes — on the same earnings.

Connecticut’s Republican governor, however, offered an alternative in letter to the New York Hedge Fund Roundtable, a trade group:

As lawmakers in Albany consider a proposal to vastly increase the tax liability of hedge fund professionals who work in New York – many of whom have already wisely decided to live in Connecticut – I would like to convey a very simple, yet heartfelt, message: Connecticut welcomes you!

Mayor Michael Bloomberg commented, “I think it’s the best thing that ever happened to Connecticut; I can’t think why every hedge fund wouldn’t pick up tomorrow and move”

According to Reuters, New York City, home to many of the mega-rich in the United States, relies heavily on taxing their income and job-creating spending in shops, theaters, florists and the like. A mere 5,000 people, whose incomes exceeded $4 million, paid nearly 39 percent of all the city’s income taxes in 2007.

Those qualifying for New York’s top tax bracket also will be paying higher income taxes due to two other provisions in the bill the state legislature is expected to enact as soon as Thursday. Eliminating property tax rebates for the mega-rich will add a few tenths of a percentage point to New York’s top income rate. And their charitable deductions will be reduced by half to 25 percent of their state income. These provisions may entice the wealthiest members of New York society, not just hedge fund and private equity managers, to flee to New Jersey or Connecticut.

Hedge funds and private equity executives, however, still face the risk, though it has failed so far, that Congress still might raise federal tax rates on their carried interest.

Alleged Mobster Joins Accused in Ridiculous Fraud Case

cmccaffrey — Tue, 22 Jun 2010 16:48:53 +0000

Remember a few months back when I wrote about the insane fraud perpetrated by the men behind Gryphon Holdings? The guys who thought it was a good idea to falsify endorsements from George Soros and the Financial Times? Yeah, those guys… Well, it turns out they might have ties to the mob. Like, the Gambinos–the crime family once led by John Gotti. I couldn’t make this up if I tried.

According to FINalternatives, Federal prosecutors have charged nine more people in the Gryphon Holdings case, bringing the total number of people charged in the case to 14. Among the newly charged is Michael Scarpaci, an alleged Gambino associate, who already faces racketeering charges in a separate federal case.

According to prosecutors and the SEC, which also filed a parallel civil suit, Gryphon holdings defrauded investors out of $17.5 million. They allege that Gryphon claimed to be a $1.4 billion fund and garnered clients—many of them elderly—through unsolicited e-mails and telephone calls.

FINalternatives reports,

Once they had contact information, the firm’s employees allegedly used high-pressure sales tactics and a variety a fraudulent tactics to get between $99 and $250,000 for its investment advice.

In addition to its fictitious hedge fund, authorities say Gryphon had fictitious offices in Manhattan, London and Sydney, Australia—it was actually run from a Staten Island strip mall—and fictitious traders, Michael Warren and Kenneth Maseka, who the SEC say were “figments of” Gryphon president Kenneth Marsh’s imagination.

All 14 of those arrested have plead not guilty. They each face 20 years in jail if convicted.

Trading Floor TVs Help Prevent World Cup Related Absenteeism

cmccaffrey — Tue, 22 Jun 2010 16:20:22 +0000

With most World Cup games taking place during working hours, many employers (particularly in Europe) are making concessions to employees by showing games on trading floor TVs to help avoid absenteeism or clogged Internet networks as workers log on to live streams of the games. According to the Chartered Management Institute, the cost to U.K. businesses in terms of lost working hours may reach 1 billion pounds ($1.48 billion). According to a survey conducted in April by YouGov and Telegent Systems cited by Bloomberg, 38 percent of employees in England would be prepared to skip work to watch the soccer. Of 2,463 people interviewed online, 48 percent said allowing staff to watch games at work would have the most positive impact on morale.

Hedge Funds Report Biggest Monthly Losses Since Lehman Collapse

cmccaffrey — Thu, 10 Jun 2010 19:53:17 +0000

According to Bloomberg.com, hedge funds lost an average of 2.7 percent in May according to the HFRX Global Hedge Fund Index, as the sovereign debt crisis in Europe prompted declines in stocks, the euro and commodities, and the gap between the yields in U.S. short-term and long-term debt narrowed. This was the biggest decline in the industry since November of 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers’ collapse two months earlier.

Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased.

John Paulson’s fund lost 6.9 percent through May 21, bringing its year to date loss to 3.3 percent. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said. Representatives for these funds declined to comment. Paulson, Halvorsen and Bacon have among the best long-term returns in the industry, each with average gains of 20 percent or more since inception.

SAC capital also suffered losses, but only 2.9 percent, reducing this year’s gain to 4 percent. Citadel is said to have lost 2 percent and Brevan Howard .1 percent, respectively.

The measures many managers, including Paulson, Halvorsen, and Bacon, put in place to hedge against falling markets didn’t work. Their bets on falling stocks didn’t make enough money to counter losses in shares the managers expected to climb. Commodities lost heavily in may, taking losses of 8.2 percent according to the UBS Bloomberg CMCI Index. In addition, those expecting economic growth suffered losses when the difference between payouts on two-year and 10-year Treasury notes narrowed instead.

A few funds actually gained. Among them, notably Caxton Associates LLC rose 1 percent as of May 21 and was up 4.5 percent for the year. Autonomy Capital Research LLP gained .7 percent and is up 12.5 percent for the year.

Robert Gibbins, manager for the $1.5 billion firm, said his trades were based on the forecast that global economies won’t improve until currencies are better aligned, and in particular Chinese officials agree to let the yuan strengthen, he said.

Gibbins said his profitable trades included wagers that the S&P 500 would fall and that interest rates in a number of countries would slide.

BAM Capital LLC, a $300 million hedge-fund firm in New York that bets on price volatility, returned 7.7 percent last month through May 21 with its main BAM Opportunity Fund LP, bringing its gain for the year to 8.2 percent, according to an investor.

However, despite a turbulent May, price swings haven’t changed managers’ attitudes views on whether the global economy is in trouble or recovering.

Really Rich: Chamillionaire Explains His Home Foreclosure

cmccaffrey — Thu, 10 Jun 2010 18:52:00 +0000

courtesy of Dealbreaker

Let me give you the short business answer. I bought the house in Houston. I have multiple mortgages. Some for me, some for other people. This house was my most expensive mortgage. I decided to let that house go, because the house ended up being worth nothing when the market went down and I decided to just let it go and give it back to the bank. It wasn’t a situation where they came and took it from me. I just didn’t feel like it was a good business investment, to keep paying that much mortgage on a house that I was never at. Don’t try to take this to a point where Chamillionaire has money problems. There was no financial negligence, none of that. I’m still a Chamillionaire. When I’m a Cha-thousandaire, then you’ll have a real story.

Of course.

Pole-Dancing Wife of Accused Ponzi-Schemer Ken Starr Seeing Spotlight Again

cmccaffrey — Fri, 28 May 2010 14:59:34 +0000

Celebrity investment adviser Kenneth Starr (not to be confused with the Clinton prosecutor) was arrested Thursday on charges of bilking his clients out of an estimated $30 million. Though not charged, his lovely wife, Diane Passage, a former Scores stripper and pole dancer who danced under the name “Chase” according to the Huffington Post and also worked an advertising job by day to support her son prior to marrying Starr and becoming a music and movie producer, is alleged to have profited from his malfeasance, whether or not she was aware of it.

According to the New York Daily News, Passage held a series of jobs which entailed little responsibility and huge salaries not commensurate with the work she was doing. The paper reports,

The bodacious brunette held a series of “no-show” jobs at sham corporations and burned through money stolen from his wealthy clients, sources and court papers say….Court papers say Starr got her the $150,000-a-year gig and that she “had no real responsibility and showed up once per month.”

According to Gawker,

Passage is the founder of a group called Pole Superstar (warning, NSFW), which puts on a pole dancing competition. Its mission is to “recognize the increasing interest in pole dancing as a sport, fitness activity and art form, worldwide.”

But she’s a stripper with a heart of gold apparently: the group Passage founded, Pole Superstar, says that it benefits an organization called S.P.I.N. (Single Parents In Need). However, although the organization accepts donations on its Web site, it has not been incorporated as a nonprofit charity and is now under investigation, according to the New York Post. Gawker also notes that the uber-busy Passage is working on a movie adaptation of Larry McMurtry’s book Desert Rose, about which she blogged on Pumps Mag,

Coincidentally, I have the movie rights to Larry McMurtry’s novel The Desert Rose, which is a story about a Las Vegas showgirl. I obtained the rights about five years ago and started working on the movie with Martin Bregman, whose films include Scarface, Serpico, The Bone Collector, and more. This movie has been a slow process since I manage multiple projects, but I feel like my involvement with the Pole Superstar Las Vegas show will help me along with the movie since there are similar elements. The Desert Rose is about an aging Las Vegas showgirl whose underage daughter is being groomed to take the mother’s place as the star of the show. The story merges female competitiveness with mother/daughter tension – something that women can relate to, in the enticing Vegas setting that men can relate to.

Who couldn’t relate to that?

Anyway, it’s not really clear how aware Passage was of her husband’s financial misappropriations… The criminal complaint details some of the trinkets Passage received from her hubby over the years, one would assume purchased with the money stolen from clients:

Also mentioned in the criminal complaint, the $7.5 million condo they bought:

Celeb Financial Advisor Charged with Fraud

cmccaffrey — Thu, 27 May 2010 17:22:46 +0000

Kenneth Starr, a New York investment adviser with a long list of celebrity clients (not to be confused with the Ken Starr who prosecuted Clinton), was was arrested by U.S. agents on Thursday on charges of running an alleged investment fraud– more specifically a Ponzi scheme– of as much as $30 million. According to Reuters, both civil and criminal charges were filed against Starr, 65, accusing him of swindling his high net worth clients through Starr Investment Advisers and Starr & Co. The civil charges also name his wife, Diane Passage, and Colcave LLC, another firm Starr controlled, as defendants in civil charges filed by the SEC.

According to Reuters,

The criminal complaint also charged prominent New York City politician Andrew Stein, a Democrat, with making false statements to the Internal Revenue Service and failing to disclose the existence of an entity called Wind River LLC.

Starr stated that funds going to Wind River were loans to Stein, a former president of the New York City Council, for his work as a “placement agent” for investments, according to an affidavit filed in court by an IRS agent.

According to the criminal complaint, Starr misappropriated funds, ripped off his clients and used the cash to buy himself a posh new house.

NBC News reports,

Ken Starr, who boasts a client list that includes Annie Leibovitz, Uma Thurman, Martin Scorsese, Wesley Snipes, Henry Kissinger, Caroline Kennedy and Robert Ziff among others, was arrested by IRS agents this morning and is expected to face investment fraud, tax fraud and other related charges, officials said. He is expected to appear in court later today.

Soros’ Ex Busted For Forging Rx Scripts

cmccaffrey — Thu, 27 May 2010 16:35:46 +0000

Former Miss Russia and hedge fund billionaire George Soros’ ex girlfriend Anna Malova was arrested in New York for forging a prescription on a stolen prescription pad for the narcotic Vicodin. Malova was charged with criminal possession of a controlled substance and forgery. According to the New York Daily News, lawyers for the 1998 beauty queen are asking the Manhattan judge presiding over her case for more time to prove she is a user, not a dealer. For her part, Malova is claiming that she deserves to go to rehab, not jail. The judge has granted her lawyers until August 9 to prepare a defense.

According to FINalternatives, this is the second time Malova has been arrested for forging a prescription. There is another case pending in Manhattan from November. This time, Malova filled a prescription using a pad stolen from her psychiatrist’s office to obtain 85 pills, the New York Daily News reports. According to the Associated Press, Malova’s doctor reported her prescription pad stolen shortly after Malova left there Feb. 24. Although she was a doctor in Russia, she is not licensed to practice in New York.

Two People Arrested in Disney Insider Trading Scheme

cmccaffrey — Wed, 26 May 2010 18:18:43 +0000

In a brilliant move, a former Disney employee and her boyfriend were arrested this morning in Los Angeles for allegedly trying to sell insider information regarding the media giant to various hedge funds for $15k a pop. Bonnie Hoxie, who worked as an assistant in Disney’s communications department, according to Dealbreaker, and her boyfriend, Yonni Sebbag sent unsolicited emails to hedge funds asking for cash in exchange for insider information about earnings and Disney’s plan to sell ABC to two PE firms. (The news about ABC, which the New York Post hinted at earlier this week, has already caused a jump in Disney’s stock.)

But, being good samaritans, some of the hedge funds on the receiving end of these emails alerted the FBI and the Feds arranged a sting operation.

Here’s one of the emails, cited on Dealbreaker, which Yonni wrote to about 20 hedge funds and an undercover FBI agent posing as a hedge fund manager:

Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 05/03/10 [sic]. I am willing to share this information for a fee that we can determine later. I am sorry but I can’t disclose my identity for confidentiality reasons but we can correspond by email if you would like to discuss it. My email is eilatcap@gmail.com. I count on your discretion as you can count on mine. Thank you and I look forward to talking to you.

Apparently, all Bonnie wanted out of the heist was a purse and a pair of shoes… From the SEC’s complaint, cited on Dealbreaker:

Hoxie stated “here is the bag that you are going to get for me – thank [sic],” and attached a link to a picture of an expensive Stella McCartney designer handbag available for $700 at Neiman Marcus, an upscale department store. Sebbag replied that he would get Hoxie the bag “next week.” Anticipating that they would receive substantial compensation from the Putative Traders, Sebbag stated “I may be able to [buy] u 2 of them, lol.” Hoxie responded via email, “In that case, i also love love these shoes” and attached a link to a picture of expensive Stella McCartney shoes also sold at Neiman Marcus.

The pair are being charged with one count of wire fraud and one count of conspiracy. They face a maximum sentence of 25 years in prison and a fine of at least $250,000.

New York Cap Intro Event

admin — Thu, 20 May 2010 21:23:24 +0000

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