JPMorgan AGM punctured by thorny hedge issues
By Christopher Elias
LONDON/NEW YORK, May 17 (Business Law Currents) - JPMorgan’s disastrous $2 billion hedge loss has raised some thorny issues on management oversight, corporate governance and the effectiveness of the Volcker Rule, as division at the banking giant’s annual general meeting highlight a growing tension between its shareholders and management.
Little more than a week ago, prior to Tuesday’s annual general meeting (AGM), JPMorgan announced that it had incurred a $2 billion loss as a result of a hedge gone wrong from its London offices with the possibility of $1 billion in additional losses to follow. (more…)
U.S. SEC set to monitor private equity funds, official says
By Stuart Gittleman
NEW YORK, May 8 (Thomson Reuters Accelus) - Many of the world’s top private equity funds will soon be examined by the U.S. Securities and Exchange Commission, Carlo di Florio, director of OCIE, the SEC’s Office of Compliance Inspections and Examinations, said.
Fourteen of the 50 largest hedge fund advisers in the world, and 18 of the 50 largest private equity funds in the world, are newly registered with the SEC under the Dodd-Frank Act, di Florio said at a private fund compliance conference in Manhattan last week. (more…)
If the founder of Bain Capital becomes president of the US, will all of these attempts to monitor funds for risk and criminal activity become toothless or eliminated? Don’t these firms virtually run the government already?
JOBS Act provision opens door to hedge fund advertising, trade group urges caution
By Emmanuel Olaoye
NEW YORK, April 9 (Thomson Reuters Accelus) - A little known provision of the new small-business capital JOBS Act opens the door to advertising by hedge funds, but an industry organization cautioned members that the advertisements must still comply with state laws and other regulations.
Firms registered with the U.S. Commodity Futures Trading Commission or state regulators should seek legal advice before advertising to the public to avoid the threat of enforcement, Ron Geffner, vice president at the Hedge Fund Association and partner at the law firm Sadis & Goldberg, told Thomson Reuters. (more…)
Financial institutions and investment funds should prepare now for FATCA
By Steven D Bortnick, contributing author for Thomson Reuters Accelus
NEW YORK, April 4 (Thomson Reuters Accelus) – The enactment of the Foreign Account Tax Compliance Act (FATCA) as in March of 2010 has sent shock waves through financial institutions and investment fund management companies. FATCA aims to obtain information to prevent U.S. persons from evading taxation through the use of foreign entities. Although the law does not fully enter in force until January 1, 2013, the effort to become compliant with FATCA should begin immediately. Some tips on how to do so are noted below.
The legislation is the direct result of the events that led to UBS’ admission that it helped U.S. taxpayers evade U.S. income tax on U.S.-source income. While the goal is the increased collection of tax, the intention is not to create any new tax. FATCA’s goal is accomplished by adding an entirely new chapter to the Internal Revenue Code devoted to due diligence, reporting and withholding. Failure to comply will result in withholding tax at the rate of 30 percent, including withholding on items understood not to be taxable in the hands of foreign persons. (more…)
Compensatory penalties, hedge-fund insider cases mark SEC enforcement trends
By Nick Paraskeva
NEW YORK, March 14 (Thomson Reuters Accelus) - The U.S. Securities and Exchange Commission wants more power to fine firms and individuals for fraud and market abuses, in the face of tougher public scrutiny and judicial opposition to recent settlements. While the agency has been imposing stiffer penalties, the amount remains constrained by the agency’s current authority, said George Canellos SEC New York Regional Office Director.
Canellos was speaking as part of a panel last week on trends in financial enforcement and securities litigation after Dodd-Frank. The panel was organized by NYU Stern Business School and NERA Economic Consulting. (more…)
Einhorn/Greenlight Capital fine highlights duty for investors to seek absolute clarity over inside information
By Martin Coyle and Alex Robson
LONDON/NEW YORK, (Thomson Reuters Accelus) – A decision by the UK Financial Services Authority (FSA) to fine hedge fund manager David Einhorn and his Greenlight Capital fund 7.3 million pounds ($11.5 million) has highlighted the need for professional investors to ascertain clearly what constitutes inside information, securities lawyers said. The FSA said that it fined Einhorn 3.64 million pounds and Greenlight Capital 3.65 million pounds for using inside information that he obtained from a broker before selling shares in a UK public company in 2009. Einhorn’s is the biggest scalp by far of the FSA’s renewed determination to punish market manipulation as part of its “credible deterrence” policy.
The regulator said that Einhorn learned from a telephone conversation with the broker that British pub company Punch Taverns was on the verge of a significant equity fundraising, prompting the New York-based financier to sell down his holdings before an anticipated fall in the shares. (more…)
Tiger Asia case has exposed Hong Kong regulator’s enforcement reach, say lawyers
HONG KONG/NEW YORK, Sept. 15 (Thomson Reuters Accelus) – The Hong Kong securities regulator’s legal troubles in bringing disciplinary action against New York-based hedge fund Tiger Asia Management has shown the limitations of its regulatory reach and signalled that funds may be safer operating from offshore, according to a source close to the proceedings. The source, a senior local financial lawyer close to the case, said that his advice for foreign funds that did not need to be licensed and regulated in Hong Kong was to forgo doing so in order to reduce the risk of disciplinary action by the territory’s Securities and Futures Commission.
The SFC is locked in a legal battle over its disciplinary action against Tiger Asia and three of its officers — Bill Sung Kook Hwang, Raymond Park and William Tomita — first taken in August 2009. The SFC alleged the hedge fund and its senior management breached local market misconduct and insider dealing rules during a placing of China Construction Bank shares in Hong Kong in early 2009, earning itself a profit of $29.9 million. (more…)
The best way to handle risk: hedge funds
The following is a guest post by Sebastian Mallaby, the Paul A. Volcker Senior Fellow for International Economics at the Council on Foreign Relations and the author of More Money Than God: Hedge Funds and the Making of a New Elite. The opinions expressed are his own.
If only U.S. lawmakers were better acquainted with Jim Simons. If they understood this hedge-fund billionaire, the financial regulation now emerging from Congress might look different.
Simons is a poster child for the hedge-fund industry. His team of scientists in Long Island manages a black-box fund called Medallion, which has been up every year since 1990, usually posting gains of well over 50 percent. In several years over the past decade, Simons is said to have earned more than $1.4 billion—the amount, in today’s dollars, that J.P. Morgan accumulated during his entire lifetime. The legendary Morgan was known as Jupiter because of his godlike power over Wall Street. Hence the title of my history of hedge funds: More Money Than God.
The golden algorithms that drive Medallion’s profits derive partly from the mathematics of code-breaking, and partly from the related field of computerized translation. But lawmakers don’t necessarily need to know that. All they need to grasp is that Simons and his scientific colleagues are not the sort of people whom you find on Wall Street—and that the flaws that brought on the financial crisis are much less pronounced at hedge funds.
Crises occur when everybody crowds into the same misguided trade—emerging-market assets in the mid 1990s, mortgage securities in the mid 2000s. But Simons doesn’t follow crowds; he is a nonconformist and contrarian. When he worked for the Pentagon’s code-cracking unit, he not only refused to respect his overlords’ Vietnam policy—he denounced it in the New York Times, and was fired for his outspokenness. He chain-smokes intensively and refuses to wear socks. He seldom drives without exceeding the speed limit.
The quants whom Simons collected around him are also far from being crowd-followers. Henry Laufer, who holds the title of chief scientist, is so blissfully indifferent to the rest of the world that when a close colleague refused to speak to him for weeks, Laufer failed to notice. Peter Brown, one of the two translation experts who have run the company since Simons’s retirement, used to go about the office on a unicycle. I once asked Brown what he thought of the famous founder of another hedge fund. Brown shrugged; he had never heard of him.
Okay, so the reason this hedge fund did so well was because they handled their own money and were not too-big-to-fail.
So… we should put _them_ in charge of vast amounts of everyone else’s money. Excellent point. I do not feel like I just wasted my time reading this article.
ANALYSIS-Even with new rules, life goes on for Wall Street
By Steve Eder
NEW YORK, June 25 (Reuters) – U.S. lawmakers have hammered out a law that is designed to fundamentally change Wall Street, but financial professionals largely yawned.
Legislators took steps that at first blush could change the industry, including limiting banks’ swaps-dealing operations and their investments in private equity and hedge funds.
But in the end, banks like Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley won concessions that watered down the proposals that could have been most damaging to their profits, staving off a watershed overhaul like the one that took place after the Great Depression.
One former executive at a major bank estimated that profits for the biggest dealers could fall by 3 to 5 percent because of the bill, which is far better than some had expected.
“It really could have been worse,” one banking lobbyist said on Friday morning, calling the process “grueling” and saying that just 24 hours earlier the proposals were more damaging for banks.
“People are going to have to make changes and it is going to cost money, but it’s not going to ultimately change their ability to do business.”
ANALYSIS-Wall Street still in the hedge fund game
By Svea Herbst-Bayliss and Matthew Goldstein
BOSTON/NEW YORK, June 25 (Reuters) – It appears Wall Street investment banks can stay in the highly-profitable hedge fund business after all.
An overhaul of financial regulations hammered-out by U.S. lawmakers after weeks of negotiation would permit Wall Street banks to continue to manage and sponsor hedge funds along with private equity funds, according to lawyers and Wall Street officials familiar with the massive bill.
For months Wall Street bankers and hedge fund managers have worried that the legislation, which could be signed into law by President Obama within two weeks, would prohibit investment banks from running hedge funds and possibly force them to sell these often very profitable businesses.
But the version of the bill agreed to by lawmakers on Friday morning would not force the draconian changes sought by some critics of the financial industry, said sources familiar with the bill.
Still, Wall Street is not quite ready to celebrate.
That’s because a final language of the financial regulatory reform bill in not yet public and must still be voted on by Senate and the House of Representatives before going to Obama.
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