London based Lehman Brother International (Europe) (”LBIE”) has had more than $35 billion assets frozen as a result of their collapse last September. Only 13.3 billion has been returned thus far. PricewaterhouseCoopers (”PWC”), Lehman ’s administrator, is hoping to return an additional $11 billion to those affected hedge fund clients, without the need to post collateral or indemnify LBIE. PWC’s proposal was originally struck down by British courts, so they are hoping to get a 90% approval from its clients to approve the return of assets. Reuters reported that those hedge fund managers with frozen assets with LBIE will be receiving a proposal on Tuesday with PWC’s plan and will have until December 29th to vote. PWC is also hoping that if the plan is approved, to file claims at the end of February and return assets by the end of March.
Raj Rajaratnam seems to have a lot in common with his brother, Rengan Rajaratnam. They have the same initials R.R., both have managed their own hedge funds and BOTH have been involved with investigations for insider trading. Based on papers filed yesterday in New York federal court, Raj disclosed that he was deposed by federal authorities in 2007 in an insider-trading investigation involving “an unrelated hedge fund”, which was Sedna Capital Management and happened to be managed by the other R.R., Rengan Rajartnam as noted in an article in the Wall Street Journal.
Rengan managed Sedna Capital Management until late 2007, which is said to have been shut down after suffering losses and the costs of complying with the SEC investigation. It appears that the Galleon Group was requested to provide documents (about four million of them) in conjunction with the 2007 SEC investigation of Sedna Capital Management. The Wall Street Journal article also states that the status on the investigation of Sedna Capital Management isn’t clear, but based on what we know about Raj, it is probably not good.
On September 14, 2009, the staff of the SEC’s Division of Corporation Finance (the “Division”) published Compliance and Disclosure Interpretations (“CDIs”) relating to Sections 13(d) and 13(g) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The CDIs, which replace the Section 13 guidance contained in the July 1997 Manual of Publicly Available Telephone Interpretations, comprise the Division’s current interpretations of Sections 13(d) and 13(g), including Regulation 13D-G and the related Schedules 13D and 13G. The CDIs are in question-and-answer format and include both previous interpretations and new guidance from the SEC.
As described in more detail below, the original version of the CDIs initially released on September 14 included an interpretation of the 13D filing deadline that caused quite a stir within the securities industry. Read the rest of this entry »
A recent article posted on FINalternatives advised that “Insider-trading may be widespread in the hedge fund industry, the head of enforcement for the Securities and Exchange Commission said.”
Robert Khuzami said his office’s recent crackdown on insider-trading, which has snared several hedge funds, including the Galleon Group, may be an indication that such activity is “systemic” among hedge funds. And he warned that anyone engaged in illicit trading on insider-tips “should be worried.” Read the rest of this entry »
Eight federal regulatory agencies released a final model privacy notice form that will make it easier for consumers to understand how financial institutions collect and share information about consumers. Under the Gramm-Leach-Bliley Act, institutions must notify consumers of their information-sharing practices and inform consumers of their right to opt out of certain sharing practices. The form was developed by the Federal Reserve, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Securities and Exchange Commission. A link to the SEC release can be found here.
Human resources compliance is a necessity for any business in today’s legal environment. Between the Fair Labor Standards Act (FLSA), OSHA, sexual harassment, and antidiscrimination laws, a business that isn’t aware of its HR responsibilities is headed for trouble.
When done correctly, HR compliance is a process. It’s a way of defining proper individual and group behaviors, and assuring that laws and policies are understood and followed. This means you must know the laws and develop appropriate policies in relation to these laws. Compliance also means you and your managers need to communicate these policies to the troops, along with your expectations for adherence and the consequences for nonadherence. The latter requires specific investigative and punishment procedures.
Effective HR compliance programs need to be integrated into your business strategies and given more than just lip service. Compliance has to start at the top and trickle down to all levels, so everyone in the company knows that the workplace must be kept safe and discrimination won’t be tolerated.
These eight steps will help you achieve your compliance goals: Read the rest of this entry »
Earlier this week, Senator Chris Dodd, Chairman of the Senate Banking Committee released the details of his sweeping regulatory reform bill. Included in that bill was a provision for hedge fund registration. This follows the litany of proposed bills in both the House and Senate and the recent passing of a House bill by the Financial Services Committee.
The highlights of Senator Dodd’s bill is that it puts the threshold at $100 million AUM for mandatory registration (unlike the House bill which was $150M) and it exempts private equity and venture capital firms from registration although the ultimate decision of who will be exempted from registration will fall to the SEC. The bill also imposes new record-keeping and disclosure requirements for firms that manage private funds.
With the House preparing to take up debate about their regulatory overhaul bill, and this bill marking the starting point in the Senate, we will hopefully have a better idea of exactly where the final bill will end up very soon.
If you find yourself in or around the Greenwich, CT area next week, Bowne & Co. along with HedgeOp Compliance and Hedge Connection are sponsoring a free hedge fund compliance lunch seminar: “Pending Regulations for Hedge Funds, With a Special Focus on Managing Your Compliance Program.”
The keynote speaker will be Arthur Laby, Associate Professor, Rutgers University School of Law – Camden and former SEC Assistant General Counsel.
You can find more information and register online, here.
With all the recent attention on insider trading, I thought it would be useful to take a quick look at some of the basic concepts involved.
The term “insider trading” itself is not defined in the federal securities laws, but generally is used to refer to the use of material non-public information to trade in securities (whether or not one is an “insider”), or the communication of material non-public information to others. Section 204A of the Investment Advisers Act requires that all investment managers adopt formal policies which forbid any member, officer, director or employee from “insider trading.”
Although not specifically defined, it is generally understood that the law prohibits:
- trading by an insider, while in possession of material non-public information;
- trading by a non-insider while in possession of material non-public information, where the information either was disclosed to the non-insider in violation of an insider’s duty to keep it confidential or was misappropriated; or
- communicating material non-public information to others in breach of a fiduciary duty.
Next we’ll examine a few steps that advisers can take in order to minimize the risks of insider trading. Read the rest of this entry »
There has been certainly no dearth of hedge fund related news past month. Among the news of the complex web of insider trading involving Galleon, we learn of a less high profile but yet still surprising hedge fund related scheme involving Ezra Levy, the CFO/Trader of Boston Provident, stealing over a million dollars from the fund.
According to Reuters, Ezra is being accused of of 11 counts of wire and securities fraud in two schemes to defraud Boston Provident. Specifically, Ezra is accused of wiring $726,000 to his personal bank account from Boston Provident in monthly installments from January to October this year. He is also accused of generating a $600,000 profit for himself by having Boston Provident buy shares of Atlas Energy Inc (ATLS.O) and Atlas Energy Resources at inflated prices from an account he controlled. Boston Provident is run by Orin Kramer, chairman of the New Jersey State Investment Council, which oversees that state’s pension fund. In a recent statement, Boston Provident said it has fired Levy and intended to seize his partnership assets. It is claimed that Orin Kramer would personally replace the stolen funds and cover the firm’s legal fees.
In my view, this certainly highlights the importance of ensuring proper money movement controls at hedge fund firms. The requirement of dual signatories at both the management company level and fund level is but one small step in preventing such types of improper and fraudulent transfers from occurring.
