Skip to main content

Regulators Tell Hedge Funds To Stop Treating Investors Like The Mix Of Gum And Dog Excrement On Their Bottom Of Shoes

New rules!
  • Author:
  • Updated:

Time was, hedge fund managers could treat their investors just one step above actual garbage. Oh, you want more clarity about how we value our investments? GTFO. You'd like to talk to Ken about the thesis behind one of our shorts? He'll get back to you between 12 and never and if you even think about calling this number again, you're done here. You need your money back? You can have it right after you ask your mother how my ass taste. You couldn't actually loan yourself $113 million from a gated investor fund and get away with it, but the climate was such that at least one guy though you could. Now, owing to new regulation as well some recent embarrassments, the Securities and Exchange Commission is warning managers to be nicer to clients or risk a time out.

Regulators are ramping up a new approach in policing the $3 trillion hedge-fund industry, focusing on how fairly managers treat their investors. The tack has emerged in a series of recent investigations into the way hedge funds value their thinly traded holdings and how they respond when investors ask for their money back. Those nuts-and-bolts issues used to be on the back burner for officials at the Securities and Exchange Commission, who didn’t have much oversight over hedge funds and didn’t prioritize the wealthy and sophisticated investors that invest in them. But such issues are getting more attention following setbacks in the courts for insider-trading probes that had commanded regulators’ time. In addition, the Dodd-Frank financial overhaul gave regulators a larger window into hedge funds’ inner workings, and they are now learning how to take advantage of it.

Of course, change doesn't happen overnight, so for now, how about just slightly better than the mix of crud and urine on the sole of your shoe?

Wall Street Cops to Hedge Funds: Treat Investors Better [WSJ]


Phil Falcone Will Borrow Hundreds Of Millions Of Dollars From Any Gated Investor Fund He Pleases

Phil Falcone, as some of you may know, has made some mistakes in the last couple years. Pouring his investors' money into a wireless start-up that may or may not ever get off the ground. Offering those who wanted out illiquid LightSquared equity instead of cash. Not getting his wife a driver for party-time.  If you're wondering why we haven't mentioned the time he borrowed $113 million from a gated fund in order to pay personal taxes, which he had not set aside enough money to cover, it's because Phil doesn't count it as a mistake, regardless of what you, or the SEC, or anyone else says. Hedge-fund manager Philip Falcone and his firm, Harbinger Capital Partners LLC, formally signaled their intent to seek the dismissal of fraud charges filed against them earlier this year by securities regulators, according to people familiar with the case. In June, the Securities and Exchange Commission filed civil charges accusing Mr. Falcone of putting his own interests, including maintaining a "lavish lifestyle," ahead of those of Harbinger's investors. The agency accused Mr. Falcone, Harbinger and Harbinger's former operating chief, Peter Jenson, of misleading investors and an outside law firm when Mr. Falcone took out a $113.2 million loan in 2009 from a Harbinger fund to pay his personal taxes, even as other investors in the fund were prevented from pulling their money. Lawyers for Mr. Falcone and Harbinger sent a letter to Judge Paul Crotty of U.S. District Court in Manhattan Friday, the deadline for responding to the SEC's complaint, saying they intended to seek dismissal, the people said. The letter also summarized arguments for the dismissal. Mr. Jenson also filed a letter Friday through his lawyers saying he intended to seek dismissal of the complaint. Representatives of Mr. Falcone and Harbinger have said before they planned to fight the allegations. In negotiations with securities regulators leading up to the charges, they had argued that Mr. Falcone and Harbinger were simply following sound advice from their legal counsel. Which, for those who missed it, was: “[L]ending money to principals is not part of the fund’s investment program” and "a loan . . . will never be a good idea" and "[We are] unequivocally against the loan idea for a number of reasons." Falcone To Seek Case's Dismissal [WSJ] Earlier: Phil Falcone’s Alleged Piggish Behavior Made Him Some Enemies

Bonus Watch '13: UBS Hedge Fund Employees None Too Happy To Be Treated Like UBS Employees

The Swiss are scheduled to communicate bonus numbers today. In the meantime, those working in UBS's O'Connor fund are preemptively pissed re: the news their compensation will be structured as though they were regular old employees of the bank. What are they doing about it?