As you may have heard, not too long ago, the government decided to crank up the heat on alleged insider traders, devoting considerable resources to nailing these guys and girls to the wall. Phone lines have been tapped, friendships destroyed. Last year, anyone who’d ever glanced in the direction of a person who’d had a 5 minute conversation with hedge fund manger Raj Rajaratnam went down, as U.S. Attorney for the Southern District of New York Preet Bharara sent the message that while you all may have been used to an era of loosey-goosey, he runs a much tighter ship. To that end, those committing non-violent crimes have been sent to jail for really, really long time, even if a unique constellation of ailments ravaging their bodies meant time behind bars would most certainly kill them. And with Bharara and Co showing no signs of easing up on their targets, some of you might be worried a stay in the big house may be in your future, having wittingly or unwittingly gotten on his bad side. But you need’t be! While Raj might tell you otherwise, according to at least one guy doing time, prison is not actually so bad. In fact, you might actually enjoy it. Continue reading »
insider-trading
A Tip For Would Be White-Collar Criminals Weighing Consequences Of Playing It Fast And Loose: “Prison Is Amazing”
By Bess LevinMore People Will Soon Have The Opportunity To Share David Einhorn’s Insider-Trading Confusion
By Matt Levine
Finally someone’s listening to us, I guess:
While prominent hedge-fund manager David Einhorn was the focus of the latest alleged insider-trading case this week, a supporting actor in the drama belongs to a fraternity of London bankers that also is under increased scrutiny.
Andrew Osborne, until last month a so-called corporate broker in the sprawling London outpost of Bank of America Corp.’s Merrill Lynch investment-banking unit, is alleged to have passed sensitive information to Mr. Einhorn, according to people familiar with the matter.
The U.K.’s Financial Services Authority is planning to fine Mr. Osborne £350,000 pounds ($549,674) for his role in the matter, said these people on Thursday.
This is not to be confused with the other other fines in the Greenlight case, which include Greenlight’s poor London trader being fined because he should have known that his boss should have known that he was breaking the law, or something. This is the guy who told Einhorn, on a non-wall-crossed call with him and Punch Taverns management, that Punch was going to raise £350mm, which Einhorn may or may not have laughed off as fee-seeking banker bluster. It comes from this Wall Street Journal article about “corporate brokers” – basically, as far as I can tell, ECM banker types who, um, do a lot of calling of investors and saying “how would you feel about a £350mm capital raise at Punch, hypothetically of course?” – and about how the UK is cracking down on insider trading. Just like the US is. Sort of: Continue reading »
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Hedge Funds
It’s Also Not Entirely Clear To David Einhorn, Or Us, Why Punch Isn’t In Any Trouble Here
By Matt Levine
On further inspection Greenlight Capital’s unfortunate relations with Punch Taverns went down more or less as I had thought: they had an un-wall-crossed conversation with management that David Einhorn took to be a sign to sell, and sold without ever agreeing to keep any information confidential. One key and sort of amusing difference – if you believe Greenlight’s explanation – is that, contrary to what I and the FSA thought, the sell signal in Einhorn’s mind wasn’t “Punch is going to raise equity.” It was “the CEO of this company thinks it’s a piece of crap.” Which I guess is also material nonpublic information.
Anyway here is something Einhorn said on his call yesterday:
The Decision Notice … doesn’t seem object to my having sold the stock. The problem is that I didn’t get permission first. “It was a serious error of judgement on Mr Einhorn’s part to make the decision after the Punch Call to sell Greenlight’s shares in Punch without first seeking any compliance or legal advice despite the ready availability of such resources within Greenlight.” It was already obvious to me that I was clear to trade. I have no idea why a compliance officer would have reached a different conclusion. It is highly unlikely that asking would have led to a decision to restrict ourselves.
Here is an alternative view: Continue reading »
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Hedge Funds
Greenlight Capital Fined Over ‘Punch’ Trades For Reasons Not Entirely Clearly Clear To Greenlight
By Bess Levin
According to the FSA, which imposed the £7.2 million fine for “inadvertently engaging in market abuse in connection with trading of Punch Taverns…the market abuse was not deliberate or reckless. Mr. Einhorn did not believe that the information that he had received was inside information and he did not intend to commit market abuse.” Sayeth Einhorn: Continue reading »
Here is a thing no one says: “we really need to reduce the penalties for [unpopular crime].” And nobody said it again last week:
Under proposed amendments to the Federal Sentencing Guidelines announced last week, recommended punishments for insider trading are likely to increase in response to Congressional pressure to ratchet up sentences for securities fraud. That will put even more pressure on defendants to cooperate with the government in the hope of receiving a reduced penalty. … The proposed amendments to the insider trading guideline would increase the “offense level,” which determines the recommended sentence, by two points if the violation involved “sophisticated insider trading,” and four points if the person was an officer or director of a public company or affiliated with a brokerage firm or investment adviser.
Notice no enhancement for being affiliated with Congress or a regulatory agency! Funny how these things work.
So one theory of insider trading goes like this:
1. Some people get inside information and trade on it.
2. Most people don’t.
3. The ones that do are evil! Send them to jail forever!
You could I think – maybe I’m totally off on my own on this one – have another theory which goes more like this: Continue reading »
Diamondback’s founders, Richard Schimel and Larry Sapanski, said Monday in a letter to clients that the investment firm’s external lawyers had conducted an “extensive review” of trading records and communications. As part of the review, lawyers with Wilmer Cutler Pickering Hale & Dorr LLP sifted through millions of emails and instant messages, analyzed thousands of trades, and made eight presentations to federal authorities regarding their findings between December 2010 and this month, according to a person familiar with the matter. The review “found no evidence establishing improper trading by any other Diamondback employee,” Mr. Schimel and Mr. Sapanski said in the letter, [announcing its $9 million settlement with the SEC]. [WSJ]
“We coined this investigation ‘Perfect Hedge’ because if you’re armed with that insider’s information, you can initiate the perfect hedge,” FBI agent David Chaves said in an interview of the largest hedge fund investigation ever. “You’re always protected — the upside and the down side.” [Bloomberg]
Noah ‘Judas’ Freeman Required Little Convincing That A Week In Puerto Rico > A Lifelong Friend
By Bess Levin
Remember Noah Freeman? To recap, he’s the former SAC trader who, in addition to taking part in an insider trading scheme, committed an arguably worse** crime (within a crime) when he stabbed his best friend, Donald Longueuil in the back. Despite splitting the work of obtaining and trading on material non-public information from a lobster-loving tyrant 50/50, Judas Freeman decided that Don, the guy who served as best man at his wedding and who prior to that happy day, helped him “get out of bed in the morning” following a bout of depression on account of being dumped by his previous fiancée, should be the one to take the brunt of the punishment. That’s why he agreed to wear a wire and coax Longueuil into incriminating himself on tape on four separate occasions, which finally paid off when Don gave Judas a riveting blow by blow account of exactly how he destroyed evidence of the insider trading they both took part in.
In exchange for selling his friend down the river, Freeman was given permission to go on vacation with his wife (first to Puerto Rico, then the U.S. Virgin Islands, which he’d been looking forward to for months). Now, at first glance, this seems fairly ice cold. Colder than the ice Judas and Don once glided down, hand in hand, even. One might even get the impression that Judas believed friends who will not only share your interest in ice skating but who will nurse you back to health following an emotional breakdown and give a bang-up speech at your wedding grow on trees. But maybe it didn’t go down like that? Maybe Judas tried desperately to avoid betraying the one person who was always there for him? Maybe he told the Feds they could go to hell and he didn’t jump at the chance to save himself on the back of Donald? Unfortunately, the evidence suggests otherwise. Continue reading »
I was a little tickled to read this morning that Ben Bernanke had refinanced his mortgage at around the same time the Fed announced Operation Twist in September. There are a couple of ways to read this story. One is that a hard-working and heavily mortgaged civil servant, savvy about the macroeconomy and the rates markets, decided that long-term fixed rates were as low as they are likely to be for a while and so September was a good time to refinance. The other is, as Simone Foxman tongue-in-cheek puts it, “Bernanke Personally Cashed In On Operation Twist.” Conspiracy theories abound with Bernanke, and I’m sure somebody somewhere really thinks that Ben Bernanke intentionally put the U.S. on a path to the Weimar-style hyperinflation that is coming any day now just to save a hundred bucks a month on his mortgage payments, but…I’m with her that it’s an amusing coincidence.
If you like a slightly different flavor of conspiracy, though, you might ask: why wasn’t Bernanke refinancing in, say, July or August? Sure, maybe he was busy with the whole stewardship of the economy and/or after-dinner Kindle reading. Or maybe he knew that the Fed was going to move to lower long-term rates and so abstained from trading based on that. Maybe he was taking advantage of his insider knowledge to make a personal profit, or at least avoid a loss.
Or not, whatever, what a stupid thing to think. But I thought of it again when I read Mr. Steven A. Cohen’s cogent argument that insider trading rules are somewhat more ambiguous than the proper form of address for him: Continue reading »
You may remember that, earlier this week, Bloomberg reported that in June 2008, with the world’s financial system in the balance, then-Treasury Secretary (and Goldman Sachs alum) Hank Paulson (1) rode in an elevator and (2) upon disembarking from said elevator told a bunch of his friends who had WORKED AT GOLDMAN WITH HIM about how he was going to nationalize Fannie and Freddie (which he did about two months later) so his friends should short the hell out of the GSEs, which they then proceeded to do, or not do, since “The managers attending the meeting were thus given a choice opportunity to trade on that information. There’s no evidence that they did so after the meeting; tracking firm-specific short stock sales isn’t possible using public documents.”
So that happened. Fast forward to September 2011, when, with the world’s financial system in the balance, New York Fed president (and COINCIDENTALLY ALSO a Goldman Sachs alum) William Dudley met with some other hedge fund friends to ask them about what to do about Europe. And again about two months later, the Fed did some stuff about Europe. Very suspicious.
The Wall Street Journal reported on this meeting today and, while the article loses some points for not describing whether Dudley stepped off an elevator, jogged up a flight of stairs, or clambered in a window to arrive at the meeting, it’s actually remarkably fair in explaining how much you should freak out about this (not that much), as well as in foreshadowing how much people will freak out about it (quite a bit):
Continue reading »
The SEC tends to come in for a lot of good-natured joshing around here, and elsewhere, for amusing foibles like spending their days surfing porn, ignoring multibillion dollar Ponzi schemes when they’re told about them directly, and complaining bitterly when anyone suggests that their priorities might be misplaced. Also on some people’s complaint list is that the SEC tends to be heavy on lawyers and light on forensic accountants, economists, traders, quants, and just generally anyone who might have a glancing familiarity with things financial.
But credit where it’s due: the SEC has gotten a bit better at using market mechanisms to find the next big, or little, or whatever fraud. This week has seen a spate of stories about how the SEC, and the Feds generally, are using new and existing whistleblower programs to encourage people to come to them first if they have negative information to peddle. The headliner is Grant Wilson, who new-best-friend-of-the-SEC Harry Markopolos recruited to expose some currency trading unpleasantness at his former employer BoNY Mellon, but others seem to be in the SEC’s pipeline.
More intriguingly, though, the SEC is doing a great job at shutting down its competition. Continue reading »
