Posted on 12/15/2004 3:53:28 AM PST by shrinkermd
San Diego — LAST Friday, Carl C. Icahn, one of Wall Street's perennial players, filed a lawsuit against a large hedge fund, accusing it of stock manipulation in a takeover battle. The suit came just a week after the Securities and Exchange Commission posted new rules requiring hedge funds to register with the agency.
Should hedge funds be the next frontier for financial regulators? The answer is yes, as long as the oversight isn't overzealous.
The most important players in today's financial markets, hedge funds are also the least understood. They are not, as one might suppose, funds that hedge their bets through a prudent combination of investments.
The first hedge fund, it is believed, was a 1949 investment partnership established by Alfred Winslow Jones that reduced risk by buying one stock while shorting another in the same industry. But even early imitators became more notable for borrowing money to speculate than for hedging.
(Excerpt) Read more at nytimes.com ...
there's nothing un-American about shorting the market, but hedge funds are too big and definitely under-regulated. Their huge size means that when one of them blows up, as they do periodically, the demise is seen as a threat to the entire financial system (viz. LTCM). This threat hijacks macro-policy at Treasury and Fed, at the expense of sound fiscal and monetary policy. Its a prima-facie case to regulate Hedge Funds on a par with ordinary Mutual Funds or Investment Banks.
This dimwits position is that the SEC shouldn't regulate right away, but just get everyone in a database and let the regulation creep in.
I've worked on wall street for 17 years and for hedge funds for nearly 10 and I'd be more than happy to leave New York and go to Bermuda. The company I'm with manages billions of dollars and can move all key personnel on a single 747. We can conduct our business from anywhere on the globe and don't have huge investments in factories or labor union agreements to keep us pinned here.
The entire company can literally be offshore in an afternoon so ...regulate away, but be careful what you wish for.
Just like Soros hedge fund Quantum group. And they don't have any US citizens on their board or in their employ so the IRS can't get under their hood.
If you're thinking about changing your citizenship, that won't help. Former US citizens are subject to scrutiny as soon as you land in a zone that cooperates with the US. Your hedge fund employer will offload you in a New York minute.
The problem with people and companies such as you are describing is they are too clever for their own good. Eventually society catches on to them and then they become pariahs. Once that happens if arrogance shows its ugly face, prison shortly follows.
And just to let you know a likely scenario it will be through counterfeiting statures applied to naked shorting. That's felonius with a capital F.
The next step is to control naked shorting and when that happens, hedge funds that act up now will see a dry up in their ability to manipulate. Their lawyers won't get paid. Game Over.
And their is nothing either wrong, or illegal about shorting if done within the limits of current regulation. You seem to want to imply otherwise, or do I misread you?
Yes you do misread. I would look closely at your company if I were you and (covertly so) to make sure they are not involved in any kind of naked shorting or implicated or associated.
For example, should your company borrow shares for shorting stocks and it is found that any of the loanable shares are loaned concurrently anywhere else, that is a form of naked shorting i.e. counterfeiting. Your company, its officers and employees can be held criminally associated and liable.
I wouldn't be the least bit smug about any of this as it is only the beginning.
So 17 years on Wall Street & 10 years with the hedge industry, if i read you right!
Few Questions:
What tricks of the trade do hedge funds practice in a non-transparent environment over a regulated market? By the way, please don't lean to broker rules as a fail safe & you know houses don't talk amoung themselves.
With probabable “most favored” broker/dealer status. Who carries non T3 settlement/liability on short? This does not mean the normal maintenance fee to carry. Yes, I’m talking naked.
Is it normal practice for unit holders to sign-off nondisclosure on hedge fund financial performance preventing them hitting the media?
How does your fund rank among the “best of” & worst of”?
Any comment to "... Many hedge funds use derivatives or sell stocks short, which is a bet they will lose value, to hedge their market exposure..." ?
TIA
By JUDITH BURNS December 2, 2004 6:52 p.m. Of DOW JONES NEWSWIRES
WASHINGTON -- The Securities and Exchange Commission announced Thursday that it has adopted a new rule prohibiting transfer agents from handling publicly traded stocks that are subject to restrictions such as those sometimes used to attack "naked " short selling.
The rule bars transfer agents from dealing in such stocks with restrictions or prohibitions on their transfer to or from intermediaries, including banks, brokers, and clearing agencies.
SEC officials said the rule is a companion to Regulation SHO, which aims to modernize rules on short selling and combat abuses such as naked short selling.
Short selling involves sales of borrowed stock, creating profits for short sellers when stock prices decline. The practice is legal, but subject to strict limits, some of which will be lifted when Regulation SHO takes effect, starting in January. The same regulation also seeks to curb abusive naked short sales, in which sellers don't intend to buy stock to replace borrowed shares.
Some small companies sought to erect defenses against naked short sales by imposing restrictions on the transfer of their stock, practices which will be effectively shut down under the rule announced Thursday.
Transfer agents who deal in stocks that carry such restrictions could face a range of sanctions, including possible enforcement action by the SEC, attorneys familiar with the rule said. Public companies are free to act as their own transfer agent, but SEC officials said those that do are subject to the same rules as any other transfer agent.
The main purpose of the rule is "to promote the integrity and efficiency of the U.S. clearance and settlement system," the SEC said in announcing the change.
The SEC rule, which was proposed in June, will take effect 90 days after it is published in the Federal Register, which is expected on Dec. 7.
-By Judith Burns, Dow Jones Newswires; 202-862-6692; Judith.Burns@dowjones.com
IMO, the SEC has done, and will do, very little about the naked short selling. It is actually worse on the commodity markets: silver has three times as many oz shorted as there is available silver. The scandal of overseas markets listing our stocks and then shorting them to oblivion is well known but little is done to protect us from that as well.
The industry is a lot less nefarious than you seem to think.
Maybe in your neck of the hedge market it's not so 'nefarious'.
But there's a scandal vortex coming which will suck the hedge industry into it just as Enron sucked alot of good energy companies into it.
Scandals are endemic to the Street. They come every few years. You just happen to be sitting in the sector that's next. Sorry.
Polish up your resume.
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