Category Archives: News and Commentary

Richards Testimony at Senate Madoff Hearing

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Yesterday the Senate Banking Committee held a hearing on the Madoff scandal.  Those present included: Senator Christopher J. Dodd; Professor John C. Coffee, Adolf A. Berle Professor of Law, Columbia University Law School; Dr. Henry A. Backe, Orthopedic Surgeon; Ms. Lori Richards, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission; Ms. Linda Thomsen, Director, Division of Enforcement, U.S. Securities and Exchange Commission; Mr. Stephen Luparello, Interim Chief Executive Officer, Financial Industry Regulatory Authority; and Mr. Stephen Harbeck, President and CEO, Securities Investor Protection Corporation.

We have reprinted below the testimony of Lori Richards.  For other testimony, please see:

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Hedge Fund Registration Becoming More Likely

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SEC Commissioner Calls for Hedge Fund Registration in Two Recent Speeches

In two separate speeches this year SEC Commissioner Luis A. Aguilar has called for hedge fund registration.  Commissioner Aguilar, appointed to the Commission last year, asked Congress to pass legislation amending the Investment Advisors Act to give the SEC authority to regulate hedge funds or hedge fund advisors.  Aguilar believes that increased regulation will provide the SEC with more information about funds and will also give the SEC the necessary tools to identify and potentially prevent misconduct prior to investor losses.  Continue reading →

Geithner Testimony – Consider Regulation of Hedge Funds

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Nominee Calls for More Financial Regulations

Treasury Secretary nominee Timothy Geithner testified before the Senate Finance Committee on January 21, 2009.  In prepared remarks Geithner hints at a desire to increase regulation of the financial markets:

I believe that markets are central to innovation and to growth, but that markets alone cannot solve all problems. Well-designed financial regulations with strong enforcement are absolutely critical to protecting the integrity of our economy.

During the testimony Geithner faced pointed questions regarding tax policies and the failure of the current regulatory regime to effectively police the financial markets.  Many times he stated that increased regulation may be necessary to protect all participants within the financial markets.  Specifically with regard to hedge funds, in his answer to a question posed by Senator Grassley, Geithner stated “I believe that we should consider requiring registration of hedge funds.” Continue reading →

Charges for Nadel

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SEC Charges Missing Trader for Defrauding Investors at Sarasota-Based Hedge Funds

FOR IMMEDIATE RELEASE
2009-10

Washington, D.C., Jan. 21, 2009 — The Securities and Exchange Commission today charged Arthur Nadel of Sarasota, Fla., with fraud in connection with six hedge funds for which he acted as the principal investment advisor. According to the SEC’s complaint, Nadel provided false and misleading information for dissemination to investors about the funds’ historical returns and falsely overstated the value of investments in the funds by approximately $300 million. Continue reading →

What is a hedge fund? (Part 2)

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Another Hedge Fund Definition

The term “hedge fund” has been defined numerous times in various government reports and in other financial publications.  We have provided a previous Hedge Fund Definition.  The definition provided below comes from the President’s Working Group report on Hedge Fund Best Practices.

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By “hedge fund” we mean a pooled investment vehicle that generally meets most, if not all, of the following criteria:  (i) it is not marketed to the general public (i.e., it is privately offered), (ii) its investors are limited to high net worth individuals and institutions, (iii) it is not registered as an investment company under relevant laws (e.g., U.S. Investment Company Act of 1940), (iv) its assets are managed by a professional investment management firm that is compensated in part based upon investment performance of the vehicle, (v) its primary investment objective is investing in a liquid portfolio of securities and other investment assets, and (vi) it has periodic but restricted or limited investor redemption rights. (This description is based in part on the definition in the Managed Funds Association’s 2007 Sound Practices for Hedge Fund Managers.) Although hedge funds may invest in private equity and real estate, this Report is not addressed to the specific considerations of private equity or real estate funds.  We use the terms “alternative asset manager” and “manager” to refer to the entity that establishes the investment profile and strategies for the hedge fund and makes the investment decisions on its behalf.

MBA Students Run Hedge Fund

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It is no secret that some of tomorrow’s brightest hedge fund managers are working with investment management and hedge fund techniques during their MBA programs.  Sometimes the work is self initiated – running incubator hedge funds outside of class.  Sometimes the work is part of a school sponsored program or class designed to give MBA students a crash course in hedge fund management.  The release below discusses a recent program by Cornell’s Johnson school which has been particularly successful.

If you are a current MBA student and are thinking about starting an incubator hedge fund, or other type of asset management business, we would be happy to discuss your current and future plans.  Continue reading →

Hedge Fund Best Practices – Full Report

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Full Report of Best Practices for the Hedge Fund Industry

As we discussed in an earlier article on Hedge Fund Best Practices, the President’s Working Group outsourced the creation of best practices for the hedge fund industry.  The report below, reprinted in its entirety, provides a comprehensive review of the major issues which hedge fund managers should be aware of when they are establishing their business.  I personally believe that all of the best practices below are reasonable and will, over time, become standard within the industry.

The report is broken up into five sections: (1) valuation, (2) risk management, (3) risk management, (4) trading and business operations, and (5) compliance.  Because the report is so long we will be providing a daily detailed analysis of each section. If anyone reads through the report and has comments, we would be happy to publish those comments as well.  Continue reading →

Secondary Hedge Fund Market

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Company Promotes Secondary Hedge Fund Trading

Some hedge funds, for a number of potential reasons, are closed for further investment by outside investors.  In these cases outside investors can try to get into the funds organically or they can enter the fund through the secondary hedge fund market.  In the secondary market, interests in a hedge fund are sold by withdrawing investors to investors who want to get into the fund.  There are many reasons why an investor would choose to sell through the secondary market instead of simply redeeming.  The most obvious is that the investor needs immediate liquidity.  While there is a small secondary market in hedge fund interests, it is not always easy to find investors wishing to sell on the secondary market.  Continue reading →

Hedge Fund Best Practices

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Private Group Promulgates Hedge Fund Best Practices

Under direction from the President’s Working Group on Financial Markets, a private sector group comprised of financial industry professionals and regulators released a finalized set of best practices for hedge funds and hedge fund investors.  Continue reading →

What is a Ponzi Scheme?

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Definition of a Ponzi Scheme

With all of the talk recently about the Madoff scandal and various other ponzi scheme’s affecting the hedge fund and investment management industry, we have decided to post a definition of a Ponzi scheme.  The definition below comes from the SEC and can be found here.  Continue reading →