Monday, November 22, 2010

Bigger fish to fry

Today's raids on three hedge funds by the FBI as coordinated by the SEC confirmed the new SEC approach of leak and destroy rather than privately interview and take the information to a grand jury. Following the Front Point charges last week and the big Galleon case earlier in they year, the SEC is taking an aggressive approach to the taint of insider trading.

They should absolutely be on the case and they certainly haven't been as the hedge fund industry grew rapidly over the last twenty years. Whether the reputation destroying approach without due process that they have taken today is cool, I would say not. That they are focusing on the issue with intensity, however, is long overdue and can't be done daintily, one could say, if they are familiar with some of the amoral and crass and abusive folks that represent a small minority of the hedge fund community - small but they are definitely there and a few are "deans" of the darker side of the industry(LC or RR anyone).

As to the title of this comment, BIGGER FISH TO FRY, I have a hunch. These actions are setting up what some would say is the long overdue takedown of SAC Capital. SAC is a hyper short term trading firm that exploits, for the most part, negative information and innuendo that somehow finds its way into the market. It manages around $18 billion in assets which is by no means the biggest or baddest if that number is correct, but its significance is much greater than that. Because of its almost day trading approach, its equity trading volumes are often the number 1 ranked for many major trading houses.

What does that mean. They were the first phone call from an analyst after a new company sell side comment is released. They are prepped by those analysts thoroughly before any conference call that they participate in. Before RegFD this was "like taking candy from a baby". After FD only biggies like SAC could really exploit the information advantage fully, but the "float the rumor game" could still be played by gangs of interlocking friends and acquaintance big and small.

Is this illegal. That's for the SEC to work on and deal with. Is it unfair to many other investors - of course. Those of you who viewed posts here in 2006 and 2007 read about SAC quite a few times in my various rants, no need to go further. Some have always thought that there was more to that firm than just the promoted "intuitive market genius" and intense work ethic of their leader Steve Cohen.

Two of the firms raided today were founded and run by former SAC traders. I couldn't find out the pedigree of the third. Some Galleon traders and analysts had former relationships and current contacts with SAC.



Post a Comment

<< Home