The world’s biggest central banks may take some small steps to make their piles of cash a bit better reflective of global economic reality. Read more »
Investment In Paranoid Fantasy Of Massive Global Conspiracy Less Lucrative Than Promised
By Matt Levine
Last week the SEC settled a securities fraud case with one Ziad K. Abdelnour, CEO of Blackhawk Partners, for a $25,000 fine and a five-year ban from the securities industry. The fraud was not exactly hard to recognize: anyone who, while claiming to represent “a purported private equity ‘family office,’ solicited investors to invest in trading programs that purportedly yielded returns of up to 600% in as little as seven days, with no risk,” is overcompensating. (For: fraud.)
But Abdelnour’s fraud was even more obvious; he basically said right on his website – under the bold heading “WARNING ON SCAMS” – that what he was selling was a scam. As the SEC puts it, his “website also discouraged prospective investors from heeding Commission and FBI warnings about private placement programs, stating:”1
WARNING ON SCAMS
It is very common to find on the internet so many web-sites, or message boards/links to so-called official documents, or reports of the “Financial Authorities” warning the public that this business ‘does not exist’ and any of these offers are always scams. The reports in question could have been written by the SEC, FBI, ICC or any of the regulatory authorities. . . . You should all understand that most people that work at banks, securities houses, accountant firms, etc., have no insight into this kind of trading, and they are very eager to listen and comply with everything by the authorities. So if SEC, FBI and others say that this is all a scam, then they believe so.For all you nay-Sayers and disbelievers out there who are looking for evidence that this kind of trading exist[s]; try to learn and understand monetary history and banking and you will understand that this can, in fact, work- in theory. You don’t have to run around and try to find evidence, because unless you have USD10M to test it for yourself, then you need to rely upon others who are vouching. So we suggest that you find out the truth yourself, without listening to what others are saying.
Who are you going to believe: an SEC/FBI fraud warning, or some guy asking you to trust him with $10 million? The choice is clear. Read more »
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Hedge Funds
The Next Defendant To Chew Gum In U.S. District Judge Richard Sullivan’s Courtroom Gets An Extra 6 Months
By Bess Levin
Anthony Chiasson, the co-founder of the hedge fund Level Global Investors, was sentenced to 6.5 years in prison today for illegal trading in two tech stocks…Throughout the hearing, Chiasson sat surrounded by his lawyers, chewing gum furiously. “What I keep coming back to is this crime, these crimes, were committed over a long period of time, over a time when you were already fabulously wealthy,” said Judge Sullivan. “I don’t know if I’ve ever sentenced someone as wealthy as you.” He added: “It’s hard to understand why someone would risk something like that.” Chiasson’s lawyers, meanwhile, reviewed the many good deeds their client had done in life, his role as a family man with two small children and the fact that he was an altar boy when he was 8 years old. When it came time for Judge Sullivan to deliver the verdict, Chiasson, 39, stood up and shoved his hands deep into his pockets, his jaw chomping away the whole time. After informing Chiasson that he would be spending 78 months in prison, Sullivan said: “You conducted yourself with dignity—except for chewing gum.” [BusinessWeek]
The Dow Jones Industrial Average is a very stupid measure of the stock market for at least two reasons, which are (1) it is an average of only 30 big stocks and (2) it is weighted by share price, an entirely arbitrary number, rather than market cap or equal weighting or anything at all sensible. Was Mr. Dow an idiot? Probably not? He was just a guy inventing indices in 1896, when computers couldn’t fit in your pocket and were pulled by horses.1 Back then, to get a stock market average, some schmuck had to actually go look at a ticker tape for each stock price and then do the averaging on a … I’m gonna say an abacus? (Slide rule? HP 12C?) So “add up 30 stock prices and divide by 30″ seemed like a good plan; “take the float-adjusted market-cap-weighted average of 500 stock prices” did not. You can’t really fault Mr. Dow for the choices he made at the time he made them.
It is now 117 years later and nobody really uses the Dow anymore except, like, everybody, but people do use the S&P 500 index, which has the advantage that it’s a reasonable enough index of the thing it is an index of. But as with the Dow, a certain sense of “ooh the clerk is working so hard to calculate all these averages” still clings to the S&P, even though that’s obviously false. The clerk is a computer and it’s so bored calculating stock indices that it’s mining bitcoins on the side just to feel something.
I think that has something to do with this CBOE vs. International Securities Exchange dispute over S&P 500 (and DJIA!) index options. The CBOE lists such options; the ISE doesn’t but wants to. So the CME and McGraw-Hill, which together own the S&P 500 index, and the CBOE, which licenses it for options trading, sued in Illinois courts and got an injunction saying nobody else could use the index to list options. And today the CBOE finally totally won its case when the Supreme Court refused to hear it, leaving the Illinois court’s injunction in place, and thus leaving CBOE with a monopoly over derivatives on the S&P 500.2 Here’s CBOE’s gloating.
There’s no opinion from the Supreme Court and there’s a lot of goofball copyright preemption law involved; the Illinois court decided the case not on (federal) copyright law, but on … I dunno, this: Read more »
Confidential To JP Morgan Shareholders: Jamie Dimon Took His Own Non-Binding Vote And Early Results Indicate You People Might Wanna Be Careful What You Wish For
By Bess Levin
You wanna play hardball? James Dimon is game. Read more »
Dual-track Libor replacement lined up (FT)
The scandal-plagued Libor benchmark is likely to be replaced by a dual-track system with survey-based lending rates running alongside transaction-linked indices as soon as next year. … A UK committee charged with selecting a new Libor administrator is looking for a group that would be comfortable running rates based on estimates and qualified to design and administer a transaction-based replacement, he said. Short-listed candidates are to be interviewed next month.
A Top Contender at the Fed Faces Test Over Easy Money (WSJ)
Janet Yellen is a top contender for the job, assuming Mr. Bernanke steps down when his term ends in January, but her selection is far from certain. She faces a big question among investors: Is she wary enough about the risks of easy money to close the Fed’s credit spigot before financial bubbles emerge or consumer prices rise too far? As a first step, Fed officials have mapped out a strategy that maintains flexibility for winding down its $85 billion-a-month bond-buying program intended to spur the economy. But the timing of the withdrawal is still being debated.
Big Vote on Dimon May Hinge on Views on JPMorgan’s Top Director (DealBook)
Yet a year after the bank posted a multibillion-dollar trading loss that has helped drive out top lieutenants, spurred federal inquiries and prompted Congressional hearings, a growing number of investors are questioning whether Mr. Raymond has done enough to fortify risk controls and root out problems, say some of JPMorgan’s biggest shareholders. “I am really surprised that there has not been more blood spilled in the boardroom,” Mr. Gheit said. “It’s totally alien to the Lee Raymond I know.”
Holding Ourselves Accountable (Bloomberg)
Last month, we immediately changed our policy so that reporters now have no greater access to information than our customers have. Removing this access will have no effect on Bloomberg news-gathering. Now let’s also be clear what our reporters had access to. First, they could see a user’s login history and when a login was created. Second, they could see high-level types of user functions on an aggregated basis, with no ability to look into specific security information. This is akin to being able to see how many times someone used Microsoft Word vs. Excel. And, finally, they could see information about help desk inquiries.
Wall Street: How Much Does Bloomberg Know? (CNBC)
One hedge-fund manager, who wished to remain anonymous, described the Bloomberg practice as “shocking,” and he has asked his lawyers to review his agreement with Bloomberg to determine what kind of usage information Bloomberg can access from his fund’s terminal. “My initial reaction was a bit of schadenfreude. Like, finally, Goldman’s getting spied on. But then I realized, while it’s fine to spy on Goldman, they could be spying on me,” he said.
Horse-riding goat a normal occurrence, owner says (CBC)
“The goats like to always, of course, be close to the horse, and when she lies down, they lie down on her back,” Power said. “And, of course, goats being goats — you know, they’re pretty sure-footed little things — [the horse] gets up and most of the time they’ll just stay on and go for a ride around the farm.”
Read more »
$$$ JPMorgan Directors Oppose Splitting Dimon’s Role as ‘Disruptive’ [Bloomberg]
$$$ Carson Block Says He’s Shorting Standard Chartered Debt [Bloomberg]
$$$ Loeb Long Gone From Herbalife [NYP]
$$$ Why I’m Building A Bar At The Office [WSJ] Read more »
A subject dear to my heart for no particularly good reason is the controversy over whether activist hedge funds should have to disclose their positions early and often (so that management can react and everyone else can piggyback on their trade), or should instead be allowed to keep secretly buying stock so they can surprise everybody with a big stake. The current 1960s-era U.S. law is that once you buy 5% of a stock you get 10 days to disclose, and the controversy is mostly between people who think that’s just fine and people who think that that should be shortened to, like, one or two days. The SEC is considering, and Canada is more strongly considering, doing just that.
One side of this controversy is often represented by Harvard Law professor Lucian Bebchuk and his buddies, who basically think that activist hedge funds should be able to profit from their secret knowledge that they’ve been buying some shares because otherwise why would they do all their good activist deeds, while the other side is mostly represented by poison pill inventor Marty Lipton and his law firm, Wachtell Lipton, who basically think that activist hedge funds should be wiped from the face of the earth. Wachtell’s view on this is emotional enough that they think the SEC should make new rules without any empirical examination of what their effects would be, and so Bebchuk & buddies have a new paper out that (1) makes fun of them for that1 and (2) does the empirical analysis.
Specifically they look at 2,000 cases of activist hedge funds filing 13Ds between 1994 and 2007 and find that:
- Yes, hedge funds mostly do wait until 7-10 days after acquiring 5% of a company before filing their 13D,
- No, they mostly don’t buy shares during that whole time – “their purchases seem to be disproportionately concentrated on the day they cross the threshold and the following day,”
- No, the ones who file later mostly don’t disclose bigger positions than the ones who file sooner, and
- No, none of that has changed over time (at least, over 1994-2007), refuting Wachtell’s claim that “[t]he advent of computerized trading has upended traditional timelines for the acquisition of shares, allowing massive volumes of shares to trade in a matter of seconds.”2
Here’s how long hedge funds usually wait to file a 13D after they’ve crossed over 5%: Read more »
It’s not just Jeffery Gundlach’s daily pleas for a < DP > command. Even your and Alan Greespan’s inability to master the terminal’s most terribly elementary functions will do. Read more »
Ben Bernanke has done all he can, and it might not be enough. Read more »
Not Tim Geithner wants wily central banks around the world—well, the one in Tokyo, anyway—to know that he’s on to them. Read more »
- Use the Bloomberg command
NH BLG_DEALBREAKER <GO>
to access Dealbreaker
