Posts Tagged ‘Hedge Fund’

MSNBC wrote: A former top executive at a $1 billion hedge fund investment firm was sentenced to more than two years in prison Friday in the first sentencing to result from what prosecutors have called the largest hedge fund insider trading case in history.

Mark Kurland, 61, of Mount Kisco, N.Y., was sentenced Friday to two years and three months in prison and ordered to forfeit the $900,000 he made through illegal trades by a judge who blamed the attitudes of people like Kurland on the country’s financial collapse two years ago.

U.S. District Judge Victor Marrero said Kurland, a co-founder of New Castle Partners hedge fund in Manhattan, “frankly should have known better” than to join an inside trading scheme that led to the arrests of top executives including one-time billionaire Raj Rajaratnam.

“He had a choice as a leader of the financial industry. He could have led by example. Instead, he chose to follow. He became a joiner, surrendering to the spree of the financial market’s virtual mob mentality that nearly brought down this country’s financial industry in the quest for ever bigger and faster gains,” Marrero said.

Kurland, who had pleaded guilty to conspiracy to commit securities fraud and securities fraud, was among 11 people who have pleaded guilty in the case. Many of the others had agreed to cooperate with the government, a step which delays their sentencing.

Rajaratnam, the portfolio manager for the Galleon Group hedge fund, has pleaded not guilty and disputed government claims that he pocketed as much as $50 million through a network of cheating executives at financial firms and companies privy to inside information.

The judge criticized pleas for leniency on Kurland’s behalf on the grounds that he had a minimal role, that he did not benefit much financially, that others were more at fault and that there was no real harm to the markets.

Read the whole story >

Hedge Funds Review wrote that Recently the UK Financial Services Authority (FSA) broke new ground by taking action against a hedge fund manager for using inside information to deal in corporate bonds (UK FSA fines hedge fund manager over insider trading, September 9, 2008).

Steven Harrison, the former manager with Moore Capital Management, was fined £52,500 and agreed not to perform any controlled function for a period of 12 months.Although this is not the first time the FSA has taken action against a hedge fund manager for market abuse, it is the first case involving activity in the credit markets.

Hedge funds and their managers need to focus on this case. Two important questions are of immediate concern:

Are hedge funds providing adequate training to enable staff to identify how the market abuse and insider dealing regimes relate to their business?

Do hedge funds have effective procedures in place to identify when they receive inside or restricted information and how to conduct themselves when they do?

Although the FSA found Harrison’s conduct was not deliberate, it did make the point that he “ought to have realised that the information he was given constituted inside information”.

This is an unusually sympathetic view for the regulator given that it had evidence that Harrison had been asked if he “wished to receive restricted information in connection with an upcoming financing”. This was immediately before being given information, which he later claimed he did not identify as inside information, and despite the fact he almost immediately instructed his traders to purchase the bonds to which the information referred.

It is doubtful the FSA will continue to be so sympathetic. Hedge fund managers can expect closer scrutiny in respect of equity markets and credit market transactions.

It has been almost a year since the FSA published its findings of visits to hedge fund managers in Market Watch 24. The visits focused on the controls in place to mitigate the risk of market abuse. The FSA commented it was “disappointed by some of what we saw”.

In April 2008 the FSA’s market cleanliness update reported informed price movements (IPMs) as being just under 30% of all takeovers during 2007. This was up from the previously published 2005 figure of 23.7% which at the time the FSA said remained “a cause for particular concern”.

The FSA’s action was designed to send a clear message of the regulator’s expectations in this area. Given the ‘disappointing’ results from its review of hedge fund’s market abuse controls and the rising instances of IPMs, it can only be a matter of time before the FSA looks for more suitable scalps to underline its credible deterrence message in insider dealing and market abuse.

Fund managers need to think carefully about the consequences of being wall crossed and ensure that if they are they do not become involved in trading affected securities.