Winehole23
10-20-2009, 04:24 PM
How Dirty Are Hedge Funds? (http://www.forbes.com/2009/10/20/galleon-hedge-fund-wire-personal-finance-galleon.html)
Neil Weinberg (http://search.forbes.com/search/colArchiveSearch?author=neil+and+weinberg&aname=Neil+Weinberg), 10.20.09, 12:45 PM EDT
Dirty enough to be drawing the wrong lessons from Galleon.
http://images.forbes.com/media/2004/sneakpeek/nweinberg.jpg
How dirty is the hedge fund business? Filthy would be a fair assessment. Not that this should come as a surprise to Forbes readers. After all, a 2004 cover story, titled "The Sleaziest Show On Earth (http://www.forbes.com/forbes/2004/0524/110.html)," profiled the industry's many transgressions--from bogus performance figures and nonexistent audits to outrageous fees and outright theft.
Such views were given further credence last week by an academic paper concluding that 21% of hedge funds (http://topics.forbes.com/hedge%20funds) lie about past legal and regulatory problems and 28% propagate incorrect or unverifiable information about other topics (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1456414).
Lest there was any doubt, here's a tidbit of news from the wake of the unfolding Galleon Group insider trading (http://topics.forbes.com/insider%20trading) case that has apparently been built on wiretaps. An unnamed hedge fund has responded to the arrest of Galleon's founder and four others by putting out feelers for the services of experts who can come in and make sure its own employees are not wearing wires.
That news comes from Edward Siedle, who investigates money management wrongdoing out of Benchmark Financial Services and occasionally contributes to Forbes (http://www.forbes.com/2009/10/15/calpers-villalobos-public-pension-fund-personal-finance-siedle.html).
What struck Siedle as amusing yet sad: The fund isn't looking for legal or other guidance into how to ensure its employees comply with an ethical compliance policy. No, instead its concern is in making sure that any crooked dealings (or conversations that might be construed as such) aren't captured on tape.
"It's a lot like the worry they've already got with e-mails," says Nathaniel Burney, a former New York City prosecutor who now does defense work for hedge funds and other white-collar clients. "Now phone calls are just another form of communication they have to be careful about."
Wherever the fuzzy line is drawn between using legal research and illegal non-public data, there's no doubt that cashing in on an unfair information edge is one of the hedge fund industry's core competencies. After all, outside investors aren't paying hedge fund managers those out-sized fees to take market risks but to mint money.
No less an icon than George Soros (http://topics.forbes.com/George%20Soros) was convicted of insider trading by France's highest court in 2006. Never mind that the wheels of justice took two decades to roll forward or that they failed to put much of a crimp in the operations of America's 15th richest man (http://www.forbes.com/lists/2009/54/rich-list-09_George-Soros_L9II.html).
My guess is that in the coming months, plenty more sleaze will come to light as hedge funds seek to recover some of their past glory and riches. That's precisely what happened in the midst of the tech bust a half-decade ago when desperation prompted hedge funds and their Wall Street cronies to cook up illegal schemes and rip off mutual fund investors for hundreds of millions of dollars. There's no reason to think hedge funds will be any less creative this time around.
Neil Weinberg (http://search.forbes.com/search/colArchiveSearch?author=neil+and+weinberg&aname=Neil+Weinberg), 10.20.09, 12:45 PM EDT
Dirty enough to be drawing the wrong lessons from Galleon.
http://images.forbes.com/media/2004/sneakpeek/nweinberg.jpg
How dirty is the hedge fund business? Filthy would be a fair assessment. Not that this should come as a surprise to Forbes readers. After all, a 2004 cover story, titled "The Sleaziest Show On Earth (http://www.forbes.com/forbes/2004/0524/110.html)," profiled the industry's many transgressions--from bogus performance figures and nonexistent audits to outrageous fees and outright theft.
Such views were given further credence last week by an academic paper concluding that 21% of hedge funds (http://topics.forbes.com/hedge%20funds) lie about past legal and regulatory problems and 28% propagate incorrect or unverifiable information about other topics (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1456414).
Lest there was any doubt, here's a tidbit of news from the wake of the unfolding Galleon Group insider trading (http://topics.forbes.com/insider%20trading) case that has apparently been built on wiretaps. An unnamed hedge fund has responded to the arrest of Galleon's founder and four others by putting out feelers for the services of experts who can come in and make sure its own employees are not wearing wires.
That news comes from Edward Siedle, who investigates money management wrongdoing out of Benchmark Financial Services and occasionally contributes to Forbes (http://www.forbes.com/2009/10/15/calpers-villalobos-public-pension-fund-personal-finance-siedle.html).
What struck Siedle as amusing yet sad: The fund isn't looking for legal or other guidance into how to ensure its employees comply with an ethical compliance policy. No, instead its concern is in making sure that any crooked dealings (or conversations that might be construed as such) aren't captured on tape.
"It's a lot like the worry they've already got with e-mails," says Nathaniel Burney, a former New York City prosecutor who now does defense work for hedge funds and other white-collar clients. "Now phone calls are just another form of communication they have to be careful about."
Wherever the fuzzy line is drawn between using legal research and illegal non-public data, there's no doubt that cashing in on an unfair information edge is one of the hedge fund industry's core competencies. After all, outside investors aren't paying hedge fund managers those out-sized fees to take market risks but to mint money.
No less an icon than George Soros (http://topics.forbes.com/George%20Soros) was convicted of insider trading by France's highest court in 2006. Never mind that the wheels of justice took two decades to roll forward or that they failed to put much of a crimp in the operations of America's 15th richest man (http://www.forbes.com/lists/2009/54/rich-list-09_George-Soros_L9II.html).
My guess is that in the coming months, plenty more sleaze will come to light as hedge funds seek to recover some of their past glory and riches. That's precisely what happened in the midst of the tech bust a half-decade ago when desperation prompted hedge funds and their Wall Street cronies to cook up illegal schemes and rip off mutual fund investors for hundreds of millions of dollars. There's no reason to think hedge funds will be any less creative this time around.