Tips For Investors: Rapoport on Hedge Fund Advertising

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Dian Vujovich at the Palm Beach Daily News writes about the recent changes to the Securities Act of 1933, which allows hedge funds to raise money through general solicitation and advertising to the public.

US hedge funds are, for the first time, able to solicit investors freely and advertise their funds through mass media channels, from television adverts to newspapers articles and websites.

“This is obviously a monumental development in the industry, lifting the general solicitation ban for hedge funds.” Evan Rapoport, founder of industry portal HedgeCo.net, said earlier this year in a HedgeCo exclusive. ”It’s easy to imagine a world where the largest hedge funds are purchasing spots on CNBC. The industry has operated since the days of Alfred Winslow Jones under the basis of no general advertising, but I think we are moving closer to a point where hedge funds themselves will resemble the mutual fund industry. We already see transparency mandates causing funds to report holdings, the proliferation of UCITS funds with daily liquidity, and now general solicitations move us one step closer to the inevitable.”

Dian interviewed Evan Rapoport on his views on the repealing of the SEC’s 80-year ban and what investors should be aware of when looking into possible investments. The article came out came out in hard copy in the Sunday Palm Beach Daily News’ ”Shiny Sheet.”

Rapoport said: (source)

* Verify all of the hedge fund’s providers. That means finding out whether the fund has a quality auditor in place and is one that is registered with a Public Company Accounting Oversight Board. This private-sector non-profit organization was created by the Sarbanes-Oxley Act to oversee the auditors of publicly traded companies.

* Contact the fund’s auditor and obtain copies of current and past audits. “You want to review those audits because they’ll tell you things like how much money the fund manages, if the assets they say they have are correct. And give you affirmation on the performance (the fund) is posting,” Rapoport said. “That’s very important.”

* Become familiar with the hedge fund’s administrator and administration firm. The administrator keeps the fund’s month-to-month accounting records and produces the net asset values (account statements) for investors. Sometimes the administration firm also has to sign off on any fund-related money movement. “Money cannot be moved out of accounts, not out of the brokerage accounts, the limited partnership accounts, etc., without the administrator signing off on that money movement,” Rapoport said.

* Ask for a copy of the Due Diligence Questionnaire. In it will be background information about the fund managers, their investment strategy, how they employ that strategy and a list of the fund’s third-party providers.

“It (the questionnaire) will provide you with a wealth of information about the organization as a whole so you can get comfortable with not only the fund and the performance, but the people behind the fund and the strategy that they look to employ.” Rapoport concluded.

Hedge Fund Strategy, Hedge Funds

Hedge Fund People: David Tenney Joins Citi

David H. Tenney has joined Citi’s Prime Brokerage business as a Managing Director and Regional Head of Sales for the Americas. He will manage the firm’s unified hedge fund sales efforts across Prime Brokerage, Securities Lending and Delta One.

Tenney has 23 years experience in senior management. Most recently, he was a Managing Director and Head of Client Relations at Forester Capital LLC. Prior to Forester Capital, he was a Managing Director at Russell Investments leading its alternative investments business including Hedge Funds, Real Estate, Commodities, Infrastructure and Private Equity.

Tenney also spent 21 years at Goldman Sachs and held a variety of management roles across the firm’s Securities and Investment Research Divisions.

“David brings to Citi over two decades of high-level management and sales experience across the financial services sector,” said David Murphy, Citi’s Head of Prime Finance for the Americas. “We are pleased to have him on board and look forward to having him as part of our integrated services for our hedge fund clients.”

Hedge Funds

Hedge Fund Receives Confiscated Art As Compensation For Fraud

Hedge fund Heathfield Capital Limited has received eighteen pieces of contemporary art including pieces by Andy Warhol, Mark Rothko and Damien Hirst. The artwork has been valued at approximately $33 million.

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The New York-based hedge fund was a victim in a $400 million fraud scheme by Manhattan lawyer Marc Dreier, who was sentenced to 20 years in prison for selling $700 million in fake promissory notes to hedge funds in 2009.

Among the allegations, Dreier allegedly marketed bogus promissory notes that included ones tied to a real estate development company based in New York. Prosecutors said Dreier then covered it up by producing phony documentation and false financial statements to keep the investors from discovering the scheme.

According to the prosecution, Dreier convinced hedge funds to purchase these notes by highlighting the discount they would receive due to the original investors facing a cash crunch brought on by the current economic turmoil. Though the hedge funds weren’t specified, prosecutors say that one New York fund wired $100 million to one of Dreier’s accounts, while another fund in Connecticut wired about $13.5 million.

Hedge Funds

Hedge Fund People: Gordon Elliot Named COO of AxiomSL

Former managing director at UBS and Barclays Capital, Gordon Elliot, has been named COO of hedge fund regulatory reporting, compliance and risk management firm Axiom Software Laboratories, Inc.

In the newly-created position of Chief Operating Officer, Elliot will focus on implementing AxiomSL’s strategies and realizing company objectives, including exploring partnerships for key expansion and growth initiatives in line with the company business goals. Elliot will report directly to Alex Tsigutkin, AxiomSL CEO.

Earlier in his career, Elliot held a position at Swiss Bank Corporation, which became AxiomSL’s first client to implement its global regulatory platform.

“Gordon is a solid leader dedicated to consistently delivering results with a strong focus on operational excellence. I trust his ability to align AxiomSL’s integrated data-driven solution in addressing our clients’ regulatory needs and to continue our sustainable growth in Europe, Americas and Asia Pacific,” Tsigutkin said.

Gordon received his BS in Computer Science from Rensselaer Polytechnic Institute and his MBA in Financial Management from Pace University.

Administrators, Hedge Fund Strategy, Hedge Funds

Former Hedge Fund General Council Named Director Of FBI

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Former General Counsel at hedge fund Bridgewater Associates has been named by the senate as the new director of the FBI by a 93-to-1 margin.  James Brien Comey, Jr. will succeed Robert S. Mueller III, the Washington Post reveals.

Comey was the United States Deputy Attorney General, serving in President George W. Bush’s administration. As Deputy Attorney General, Comey was the second-highest ranking official in the United States Department of Justice (DOJ) and ran the day-to-day operations of the Department, serving in that office from December 2003 through August 2005. He was U.S. Attorney for the Southern District of New York prior to becoming Deputy Attorney General.

In 2010, he became General Counsel at Bridgewater Associates. In early 2013, he left the hedge fund to become Senior Research Scholar and Hertog Fellow on National Security Law at Columbia Law School. He also joined the London-based board of directors of HSBC Holdings.

Kentucky Republican Rand Paul was the only senator to vote against Comey.

Events, Hedge Fund Strategy, Hedge Funds

Former Goldman Hedge Fund Trader Found Liable For Fraud

Fabrice Tourre, the former Goldman Sachs hedge fund trader with the nickname ”Fabulous Fab” has been found liable for fraud by a jury in Manhattan on six of seven counts of fraud.

The SEC in 2010 filed securities fraud charges against Goldman, Sachs & Co. and an employee, Fabrice Tourre, for making material misstatements and omissions in regards to a CDO that contributed to the financial crisis by magnifying losses associated with the downturn in the United States housing market. The failed mortgage deal cost investors approximately $1 billion.

“The SEC had accused Tourre of misleading institutional investors about subprime mortgage securities that he knew were doomed to fail, setting the stage for a valued Goldman hedge fund client, Paulson & Co., to secretly bet against the investment.” USA Today reports.

The SEC fined Goldman Sachs over $550 million, ordering a sweeping review of the companies business standards. SEC lawyers called Torre ”The face of Wall Street greed.” He faces potential fines and a possible ban from the financial industry.

“We are gratified by the jury’s verdict,” said Andrew Ceresney, co-director of the regulator’s enforcement division, Bloomberg reports. “We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street.”

Fraud, Hedge Funds

Pennsylvania Hedge Fund Manager Pleads Guilty

Pennsylvania hedge fund manager Lloyd Barringer pled guilty over the weekend to four counts of fraud: securities fraud, conspiracy to commit securities fraud, mail fraud, and conspiracy to commit mail fraud.

The charges stem from his operation of the Gaffken & Barriger Fund LLC, which was based in Monticello, Sullivan County, New York. Barriger was the president of the hedge fund and the principal shareholder, director, and officer of G&B Partners, Inc., the fund’s managing member and sole common shareholder. He surrendered to the FBI in May 2011.

“Once again, belief in hedge funds by hopeful investors proved to be sadly misplaced,” Attorney Preet Bharara said, “Investors entrusted their hard-earned dollars to Lloyd Barriger, believing his promises that their savings would be safe and secure in his fund. But, as we have alleged, they were sorely mistaken. Even as problems with the fund multiplied, Barriger allegedly continued to lure investors in with his misinformation.”

Barriger raised approximately $12.6 million while lying to investors about the fund’s financial condition, according to federal prosecutors. They will seek the whole amount in forfeited assets.

The hedge fund manager faces a maximum sentence of 20 years in prison on each count. He also faces on the securities fraud count a fine of the greater of $5 million or twice the gross gain or gross loss from the offense, and on the mail fraud count a fine of the greater of $250,000 or twice the gross gain or gross loss from the offense.

Fraud, Hedge Funds

Survey: Hedge Funds Focus On Long/Short Equity and Event-driven Strategies

Credit Suisse polled 185 institutional investors on their strategy and allocation activity for its mid-year Hedge Fund Investor Survey. 88% of institutional investors said that they plan to make additional allocations to hedge funds during the second half of the year.

In addition, respondents were asked to share their insights into whether they are planning to allocate, maintain or decrease allocations to various hedge fund strategies in the second half of this year.

The top 3 strategies that investors were interested in, in the US and Asia, were, Long/Short Equity- Fundamental (57%), Event Driven (47%) and Global Macro (39%)

“From this mid-year survey, it is clear that investors remain focused on long/short equity and event-driven strategies, particularly those involving fundamental approaches,” said Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse.

Going into more detail, Credit Suisse said: “When evaluated on a gross basis (straight percentage increasing allocation), respondents believed that Long/Short Equity- Fundamental strategies are likely to see the most gross allocation activity in the second half of this year, with 61% of global investors surveyed indicating that they plan to allocate, followed by Event Driven, with 51% planning to allocate. Conversely, investors indicated that Commodities funds are likely to see the most redemption activity over the next six months, with 32% indicating that they plan to lower their allocation to the strategy, followed by Emerging Markets Credit, with 29% planning to reduce their allocation.”

Hedge Fund Strategy, Hedge Funds

Yahoo Repurchases 40 Million Shares Held By Hedge Fund Third Point

Hedge fund founder Daniel Loeb is taking a step back from Yahoo, resigning his position on the board and selling back his shares in the company. Yahoo has agreed to buy back 40 million shares of common stock owned by Third Point LLC, at $29.11 per share, TechCrunch reports.

The other directors nominated by Third Point – Harry J. Wilson, and Michael J. Wolf, have also submitted their resignations from Yahoo’s board of directors, effective July 31, 2013.

“Daniel Loeb had the vision to see Yahoo for its immense potential – the potential to return to greatness as a company and the potential to deliver significant shareholder value,” said Yahoo CEO Marissa Mayer. “On behalf of the Board and our entire team, I’d like to take this opportunity to personally thank Dan, Michael, and Harry for the tremendous opportunities they created here at Yahoo.”

“Harry, Michael and I are pleased to have played key roles in Yahoo’s resurgence since we joined the Board last spring,” said Third Point CEO Daniel S. Loeb. “Since our Board’s rigorous search led us to hire Marissa Mayer as CEO, Yahoo!’s stock price has nearly doubled, delivering significant value for shareholders.”

Yahoo plans to purchase an additional $1.9 billion of Yahoo common stock, the share repurchase is part of a bigger $5 billion buyback program at the company.

Events, Hedge Fund Strategy, Hedge Funds

Eight Hedge Funds Dump all Gun Stocks, 14 More Cut Holdings

Eight hedge funds and money managers have completely divested their gun holdings, valued at $150 million, just six months after Moms Demand Action for Gun Sense in America launched a national divestment campaign against manufacturers of assault weapons and high-capacity ammo clips. Fourteen more firms have scaled back their gun investments by 7.4 million shares—27 percent of their holdings.

“We weren’t going to let business-as-usual stand after Newtown. We put investors who were quietly propping up the gun lobby on notice, and we’ve proven that public pressure can be a game-changer,” Public Advocate Bill de Blasio, said. “This is by no means over. The NRA used its money and political influence to distort the debate in Washington. We need to break its stranglehold on the legislative process by continuing to bring pressure on its biggest financial backers.”

“There are many ways to address the epidemic of gun violence in America, including changing federal and state laws, and pressuring American businesses to put in place policies that protect their customers. By divesting from companies that profit from sales of assault weapons and high-capacity magazines, these companies are making an investment in the safety of American children,” said Shannon Watts, founder of Moms Demand Action For Gun Sense In America.

The number of hedge funds on de Blasio’s online watch list has been reduced to 14 and the number of money managers to 21. Each of the firms listed by de Blasio holds shares in at least one of three publicly traded gun manufacturers—Smith & Wesson Holding Company; Sturm, Ruger & Co; and Olin Corporation, according to the most recent SEC filings.

Hedge Fund Strategy, Hedge Funds