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Galleon Inquiry Expands, As Implicated Quadrum Capital Shuts Down; SAC Connection Uncovered

Tyler Durden's picture




 

As the Galleon inquiry expands, we have been fairly certain that the dominoes would start falling. Whether or not one of these dominoes would be the fund that single-handedly defined the term "information arbitrage" is still anyone's guess, although as the WSJ reports today, a former employer of Stevie Cohen's until the year 2004, Richard Grodin, has received a subpoena for his trading records as part of the Galleon case. It appears that upon learning of the Feds sniffing around his 500 Fifth Avenue office, Mr. Grodin promptly shut his current hedge fund and got out of dodge.

Richard Grodin is (or rather was) head of SEC unregistered Quadrum Capital Management, which as Dealbreaker disclosed a few days ago was forced to promptly shut down, meaning that Mr. Grodin was well aware the allegations were about to start flying, and that judging by the haste of the shut down, there is much more to the story than mere allegations. Attempts by Zero Hedge to reach any of its principals listed below have so far been futile. One person who is sure to be saddened by this is Doug Leggate, Citi's former #2 oil analyst, who in the summer of 2008 left Citigroup to join the now defunct fund.

The common link in the case appears to be cooperating witness Choo Beng Lee, who worked with Grodin at another SAC-sponsored hedge fund called Stratix which was closed in 2007.

From the WSJ:

Mr. Cohen runs SAC's main hedge fund and has invested money on
behalf of his investors as well as his own money in funds run by former
SAC managers. Over the years, Mr. Grodin has worked as a portfolio
manager for SAC, as well as a division that invested SAC investors'
money. He also ran a separate independent fund in which Mr. Cohen was
an investor.

It is unclear which specific trades of Mr. Grodin's and their timing
are being sought. The 6-foot-5 Mr. Grodin, 40 years old, took time away
from his hedge fund this summer to play in a basketball tournament in
Israel, a person familiar with the matter says.

Mr. Grodin and Choo Beng Lee, who has been identified as a
cooperating witness in the government's case, have ties that stretch
back to the late 1990s when the two worked for SAC, people familiar
with the matter say. Mr. Grodin was a portfolio manager and Mr. Lee was
an analyst that worked with him.

Several years later, Mr. Grodin broke away from the main SAC fund to
work at Sigma, an SAC division, where Mr. Grodin continued to work as a
portfolio manager and Mr. Lee continued to serve as an analyst for him.
Mr. Lee's lawyer declined to comment.

Mr. Grodin later launched a hedge-fund named Stratix outside of
SAC's sphere, in which Mr. Cohen was an investor. At Stratix, Mr. Lee
worked for Mr. Grodin for several years, according to people familiar
with the matter. Mr. Grodin closed Stratix in December 2007.

How many more people will be uncovered as a result of this sting operation is unclear, although our bet is that much more than just 10 will ultimately be implicated. And just as all roads lead to Rome, all cases of insider trading ultimately are the result of some form of information arbitrage. Whether a publicity shy Mr. Cohen will have an official statement regarding his relationship with Grodin is as of yet unknown. Then again ole' blue eyes, who enjoys closing his multi-billion dollar fund flat at the close of each trading day, may just have bigger problems on his hands these days.

 

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Sat, 10/24/2009 - 15:14 | 109539 anynonmous
anynonmous's picture

Quadrum for a moment I thought I read Quadrangle

Sat, 10/24/2009 - 15:51 | 109566 Anonymous
Anonymous's picture

At the Turn the Corner Foundation's 2007 Unmask a Cure gala, one of the live auction prizes was breakfast with Steven Cohen at his Greenwich estate. Now THAT'S a prize!

http://www.turnthecorner.org/events_photo_unmask2007.htm

The Turn the Corner Foundation was founded by Richard Grodin and his wife back in 2002. That was the month before Stratix closed and Cohen didn't invest in Quadrum, but I would guess they have stayed in contact since then.

Doubt the feds would ever try to go after Cohen without a smoking gun though (and who knows, maybe he has no involvement?), but it'll take a lot more than this for Stevie to break sweat. It'll be interesting to see how this all unfolds.

Mon, 10/26/2009 - 10:30 | 110543 John Self
John Self's picture

If there's enough publicity, the feds will absolutely go after Cohen without a smoking gun.  Take a look at the track record of the Enron Task Force on appeals.  In the garden variety crime, you can count on the prosecutors leaving well enough alone in all cases except those that they have a reasonably strong case on.  But when the media lights are shining and the big-name pols are calling, everything goes out the window and prosecutions begin, absenc eof evidence be damned.

Sat, 10/24/2009 - 15:52 | 109568 Anonymous
Anonymous's picture

https://alumni.mckinsey.com/alumni/default/public/content/jsp/alumni_new...

"Their first novel, "Another Faust," is a satirical reimagining of the old story, involving five teens who must face the consequences of making Faustian bargains."

Sat, 10/24/2009 - 16:35 | 109598 Bruce Krasting
Bruce Krasting's picture

Wow. This thing is spinning out of control. Let's see, on one hand we have an over bought market and on the other there is hedge fund liquidation. October's not over.

Sat, 10/24/2009 - 17:11 | 109623 deadhead
deadhead's picture

+1

Sun, 10/25/2009 - 12:07 | 109730 anynonmous
anynonmous's picture

+2

Sat, 10/24/2009 - 16:42 | 109602 Rollerball
Rollerball's picture

I thought all roads led to Tel Aviv.

Sat, 10/24/2009 - 19:38 | 109721 Shylock81611
Shylock81611's picture

What the fuck does that mean?

Sun, 10/25/2009 - 06:16 | 109862 PrDtR
PrDtR's picture

..it MEANS he is either an islamic fanatic OR just an idiot!  hehe

 

Sat, 10/24/2009 - 17:16 | 109625 Careless Whisper
Careless Whisper's picture

How often do SAC traders call analysts and try to get them to change the rating on a stock SAC has a position in? Anyone? Anyone?

Sun, 10/25/2009 - 07:31 | 109924 Cognitive Dissonance
Cognitive Dissonance's picture

Me, me. Pick me. My hand is up, see? Come on, don't ignore me. Yes! 

My answer is 284,592,773, give or take a few.

My real question is this. How many other overflowing foul smelling turd filled septic tanks still need to be cleaned up after they pump this one out?

And why do I have this feeling in my bones that the only reason this particular septic tank is getting pumped out now is because they drew the short straw or they pissed off some very powerful people and this is their reward.

Speaking from personal experience, there is never just one cockroach, regardless of whether we're talking about the two or six legged variety.

 

Sat, 10/24/2009 - 17:41 | 109642 Anonymous
Anonymous's picture

grodin was most likely subpoenaed to find out what steven cohen knows, since they are so close

Sat, 10/24/2009 - 17:50 | 109651 Anonymous
Anonymous's picture

careless whisper,

say it again and again and again. they have been pressured with their jobs if they dont change thier ratings.

SAC, Galleon, Perry, ESL, Maverick, Pequot, laughably Tontine also, the list streches for miles.

SAC's track record up to 2001 was very eerily similar to Madoff's operation. He was smart to open up the model as it brought in more capital via increased capacity and ergo "plausible deniability". Stevie is not Raj.

kiloman

Sun, 10/25/2009 - 12:01 | 110007 Careless Whisper
Careless Whisper's picture

Tontine - oh pleeasse.  Does anyone know what that means? lol.

 

http://en.wikipedia.org/wiki/Tontine

 

Sat, 10/24/2009 - 18:07 | 109669 Anonymous
Anonymous's picture

"Stratix outside of SAC's sphere" lol
Better investigate all of SAC's other tentacles especially that ass-hat oompa-loompa at exis.

Sat, 10/24/2009 - 19:37 | 109719 Shylock81611
Shylock81611's picture

There's gonna be more singing than at church on Sun.!

 

The rats will come out like the lights are out and cheese is on the table.

 

Of course, the politics may kill an investigation the way that it killed the Steve Jobs inquiry.

 

The equity market is far more important than the rule of law--of course.

Sat, 10/24/2009 - 19:37 | 109720 Anonymous
Anonymous's picture

i dont believe they have the balls to go after SAC. if cohen was indicted think of the implications. it wud take down like 20 major funds. it wud ripple back to every major player in the entire financial system: goldman, glg, third point, kynikos and more(note loeb and chanos were the some of the only big wigs to show up to obamas speech in new york city a couple weeks ago). sac has been looked at before by the SEC as has exis(exis' founder even admitted to trying to speaking with hitmen) and these guys are still around. loeb is even being investigated by the sec right now according to a 2008 investor letter.

sec won't go after even one of cohen's crew, cause if they do, it'll just lead to more and more investigations. i dont think they want to take down everyone becuase 1)they dont have the capacity/operations strength to do it and 2)actual acute damage to the markets 3)with a trail developing, they can't be selective about who to investigate or charge if indeed sufficient evidence surfaces that crimes were committed so they wont even start to dig too deep.

Sat, 11/07/2009 - 23:37 | 123717 milbank
milbank's picture

Now that's what I call "Too Big To Fail" or, more appropriately in this case. . .

"Too Big To Jail."

Sat, 10/24/2009 - 19:39 | 109722 Anonymous
Anonymous's picture

i dont believe they have the balls to go after SAC. if cohen was indicted think of the implications. it wud take down like 20 major funds. it wud ripple back to every major player in the entire financial system: goldman, glg, third point, kynikos and more(note loeb and chanos were the some of the only big wigs to show up to obamas speech in new york city a couple weeks ago). sac has been looked at before by the SEC as has exis(exis' founder even admitted to trying to speaking with hitmen) and these guys are still around. loeb is even being investigated by the sec right now according to a 2008 investor letter.

sec won't go after even one of cohen's crew, cause if they do, it'll just lead to more and more investigations. i dont think they want to take down everyone becuase 1)they dont have the capacity/operations strength to do it and 2)actual acute damage to the markets 3)with a trail developing, they can't be selective about who to investigate or charge if indeed sufficient evidence surfaces that crimes were committed so they wont even start to dig too deep BECAUSE OF #1

Sat, 10/24/2009 - 20:42 | 109759 Anonymous
Anonymous's picture

Rich Johnson was the trader there and, I think, the story is Leggett showed up and didn't make money the Quadrum way... and left not long thereafter. It seemed like they were trading energy based on things people can't know, like how inventories were going. Not sure how one does that....

Mon, 10/26/2009 - 09:18 | 110518 Roy Batty
Roy Batty's picture

You are correct.  They had people on the payroll at all levels of certain energy/oil companies, including right on the rigs.  I'm not kidding.

Sun, 10/25/2009 - 00:06 | 109843 ToNYC
ToNYC's picture

One year A.L. (After Lehman) yet seems like only 45 minutes after the Titanic met the 'berg in another time compression. The early lifeboats were not really thought of as the survivors....come back in an hour, next year.

Sun, 10/25/2009 - 00:34 | 109853 Tripps
Tripps's picture

the SEC needs to pursue Stevie Cohen/SAC and all the relationships with all these other offshoots

 

 

this guy has been linked to naked shorting crews as well

 

wouldn't doubt if they already have a strong case against these guys. the best traders all have an unnatural edge why can't we admit it?

Sun, 10/25/2009 - 16:14 | 110121 Anonymous
Anonymous's picture

IMO Cohen is a crook and the walls are about to come crashing down on his empire. Rumors of the source of his unreal returns have been rife for years, as anyone in the biz can attest. Believe me, it IS a duck. Next on the hit list IMO will be Shumway. You heard it from the Big Dog.

Sun, 10/25/2009 - 16:42 | 110135 Anonymous
Anonymous's picture

Hey does anyone know if Art Samberg knew if this was coming down the pipe???

I am thinking yes...

Sun, 10/25/2009 - 23:59 | 110400 Anonymous
Anonymous's picture

In my brief experience on an equity sales trading desk in London back in the dotcom days, I can say this. I refused to pick up the light from SAC, GLG, Marshall Wace, and some Italian newbie Numero Regazzi (apologies on spelling, but not for refusing to answer your call). Fido was had been pushing the IOI thing hard, the big mutual funds got on board, and some of the hedge funds saw an opportunity. Trading flow. "Hey, we're good clients, why can't we see the naturals?"

Of course the game was to show them the big flow, and get paid back with orders later.

Perry wasn't on that list by the way. I can't say with any certainty that the poster above who lumped them in is wrong. But I can say that their trader then, and we did plenty of business, was of a whole different caliber. They weren't what we called fast money. They were smart money. Who knows, maybe they fooled us, but they sure didn't play the games we saw from SAC and the rest.

I left in disgust and now proudly earn 1/30th of what I did ten years ago. You live once, you gotta stay true. I shouldn't care at all, but I really do hope they take down the dirtbags, and SAC, GLG, and the others were nothing but just that.

Cheers!

Mon, 10/26/2009 - 00:02 | 110404 Anonymous
Anonymous's picture

In my brief experience on an equity sales trading desk in London back in the dotcom days, I can say this. I refused to pick up the light from SAC, GLG, Marshall Wace, and some Italian newbie Numero Regazzi (apologies on spelling, but not for refusing to answer your call). Fido had been pushing the IOI thing hard, the big mutual funds got on board, and some of the hedge funds saw an opportunity. Trading flow. "Hey, we're good clients, why can't we see the naturals?"

Of course the game was to show them the big flow, and get paid back with orders later.

Perry wasn't on that list by the way. I can't say with any certainty that the poster above who lumped them in is wrong. But I can say that their trader then, and we did plenty of business, was of a whole different caliber. They weren't what we called fast money. They were smart money. Who knows, maybe they fooled us, but they sure didn't play the games we saw from SAC and the rest.

I left in disgust and now proudly earn 1/30th of what I did ten years ago. You live once, you gotta stay true. I shouldn't care at all, but I really do hope they take down the dirtbags, and SAC, GLG, and the others were nothing but just that.

Cheers!

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