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Hedgefundgate Begins: Numerous Insider Trading Charges Forthcoming

Tyler Durden's picture





 

Rajmahal was just the beginning. The Sri Lankan, who just made the record books for spending a generous $100 million on bail and has even bigger digs in New York's Sutton Place complex (although not quite Richard Perry big), is just the proverbial appetizer. And if regulators have truly decided to start treating the hedge fund industry like the 21st century equivalent of organized crime (which they have as previously disclosed by the US attorney), tonight many other wannabe billionaires are not sleeping too well (and even considering checking out Expedia for some sweet one-way trip deals). Because if they are not, they will be after reading the most recent take on their upcoming plight. From Bloomberg: "Federal investigators are gearing up
to file charges against a wider array of insider-trading
networks,
some linked to the criminal case against billionaire
hedge-fund manager Raj Rajaratnam that shook Wall Street last
week, people familiar with the matter said." If nothing else, this will hopefully force many of them to reevaluate the nomenclature of what funds to allocate the hundreds of billions of dollars that have emerged from the "sidelines" recently: it would appear The Insider Trading Rapid Value Appreciation Offshore Fund, most recently developed at Shady Pickins Asset Management (SPAM L.P.), may not be the best appellation after all.

And, in the most delicious sense of Kafkaesque irony, nobody is safe anymore: if you have talked on the phone, exchanged text messages, or even communicated in smoke signals to get that $100k "sure thing" - you are on the hook.

The pending crackdown, based on at least two years of
investigation, targets securities professionals including hedge-
fund managers, lawyers and other Wall Street players, the people
said, declining to be identified because the cases aren’t
public. Some probes, like the one that focused on Rajaratnam,
rely on wiretaps. Others stem from a secret Securities and
Exchange Commission data-mining project set up to pinpoint
clusters of people who make similar well-timed stock
investments.

And the following advice demonstrates just why the SEC is so terrified of going after not just the medium fry, but the really big fish (pardon, we may have some interspecies confusion as we realize cephalopods are a different phylum than fish):

“If you’re going to shoot the king, you better shoot to
kill,” said Bradley Bennett, a partner at Baker Botts in
Washington who formerly focused on insider-trading cases as an
SEC investigator. “If they’re going to take on a billionaire,
they need to have the strongest possible cases. The defendant’s
own words are the strongest possible evidence.”

Surprisingly, the SEC is actually taking the right approach in cracking the not so complex web of information leaks:

The SEC began using computer
software about two years ago to sift hundreds of millions of
electronic trading records, known as blue sheets, attached to
the stock exchange reports about suspicious incidents, according
to people familiar with the project. By looking for patterns in
the library of data, they identified groups of traders who
repeatedly made similar well-timed bets.

Once investigators find a cluster of correlated trades,
they tap other sources of information to unravel how its members
obtain and share tips, the people said. For example, if a group
profits on trades before a series of corporate takeovers, the
SEC may check so-called league tables listing which investment
banks or law firms advised the deals. If one firm was involved
in all of them, an employee there may be the source of the leak.

The data-mining strategy yielded one of its first cases in
February, when the SEC and U.S. prosecutors charged takeover
advisers at UBS AG and Blackstone Group LP with taking part in
an $8 million insider-trading case, people familiar with the
inquiry said. Authorities used a “novel” technique to detect the
scheme, the SEC’s lead investigator on the case, Daniel Hawke,
said at the time, without elaborating.

And here is why anonymous and numerous sources within the buyside community advise us that a whole plethora of hedge fund bosses simply picked up and left as soon as the Rajmahal news broke on Friday...

Surveillance during the probe of Rajaratnam, 52, led
investigators to other suspects and more charges are likely,
people familiar with the matter said.
U.S. Attorney Preet
Bharara said Oct. 16 the Justice Department will continue using
wiretaps to root out insider-trading.

Luckily, Raj had a big rolodex, big enough in fact to provide quite a few promising leads to any aspiring regulator. So big in fact, that quite a few of the speed-dial names have already leaked and are making the rounds. Keep an eye out on some of the major $1 billion + HFs tomorrow to see who decides to not show up for work, or at least looks behind their backs every 5 minutes for the guys in the trench coats...

This one is about to get exciting.

 


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Sun, 10/18/2009 - 23:22 | Link to Comment spekulatn
spekulatn's picture

"It looks like I picked the wrong week to stop sniffing glue."

"MARK IT ZERO, DUDE"

Mon, 10/19/2009 - 14:08 | Link to Comment _Biggs_
_Biggs_'s picture

Striker!

Sun, 10/18/2009 - 23:32 | Link to Comment Michael
Michael's picture

The national debt clock will cross 12 trillion soon. Maybe by the end of this month.

http://www.usdebtclock.org/

Mon, 10/19/2009 - 02:06 | Link to Comment Anonymous
Sun, 10/18/2009 - 23:45 | Link to Comment mberry8870
mberry8870's picture

I would be shocked if the SEC really did it's job.

Mon, 10/19/2009 - 00:33 | Link to Comment Anonymous
Mon, 10/19/2009 - 05:49 | Link to Comment Rusty Shorts
Rusty Shorts's picture

Has anyone seen this ? ...DavidLightman ( aka reinhardt ) calling a market crash on the 19th and 20th Oct 2009.

 

http://www.youtube.com/watch?v=gQETQAW0jZo&feature=sub

Mon, 10/19/2009 - 13:01 | Link to Comment AN0NYM0US
AN0NYM0US's picture

posted on Mayhem's thread - Marty Zweig made a similar prediction on Friday October 16 (but for a different decade)

http://www.youtube.com/watch?v=2MyToTwag34

Sun, 10/18/2009 - 23:48 | Link to Comment Anonymous
Mon, 10/19/2009 - 00:03 | Link to Comment Careless Whisper
Careless Whisper's picture

Less competition for GoldmanSachs (its a bank holding company NOT a hedge fund).

Mon, 10/19/2009 - 01:14 | Link to Comment Ruth
Ruth's picture

GS gave up their bank holding status

Mon, 10/19/2009 - 01:32 | Link to Comment Careless Whisper
Careless Whisper's picture

Oh that's right, now they're a "financial holding company" with full access to the zero interest Federal Reserve Bank window.

http://www.foxbusiness.com/story/markets/industries/finance/goldman-sachs-financial-holding-company/

 

Mon, 10/19/2009 - 08:06 | Link to Comment HEHEHE
HEHEHE's picture

One wonders how much of these sudden indictments are timed to draw attention away from the outrage over Goldman's bonus payments.

Mon, 10/19/2009 - 10:00 | Link to Comment You Cant Handle...
You Cant Handle the Truth's picture

Everybody should be asking the question:  why are we prosecuting a little fish for getting inside info WHEN GOLDMAN SACHS IS LIKELY MAKING $23 BILLION IN BONUSES FROM INSIDE INFO !!

Mon, 10/19/2009 - 02:10 | Link to Comment Anonymous
Mon, 10/19/2009 - 13:02 | Link to Comment AN0NYM0US
AN0NYM0US's picture

I just posted the link above

Mon, 10/19/2009 - 00:05 | Link to Comment defender
defender's picture

"The SEC began using computer software about two years ago"

Sounds about right to me...

Mon, 10/19/2009 - 00:10 | Link to Comment JohnKing
JohnKing's picture

Sounds like they re-purposed some HFT stuff.

Mon, 10/19/2009 - 10:02 | Link to Comment You Cant Handle...
You Cant Handle the Truth's picture

Shocking revelations this week:  The SEC only recently discovered how to get and use wiretaps and computer analysis.

 

Mon, 10/19/2009 - 10:28 | Link to Comment Anonymous
Mon, 10/19/2009 - 13:55 | Link to Comment cougar_w
cougar_w's picture

It took them all this time to find a FORTRAN IV programmer who could code to their new IBM 7090 mainframe.

That, and sourcing punch cards.

But they're on it now. Oh yeah.

cougar

Mon, 10/19/2009 - 00:10 | Link to Comment Anonymous
Mon, 10/19/2009 - 06:24 | Link to Comment Jendrzejczyk
Jendrzejczyk's picture

Perhaps the authorities will "Deep Capture" that perfect (G)assbag.

Mon, 10/19/2009 - 00:21 | Link to Comment FischerBlack
FischerBlack's picture

Am I the only one who thinks insider trading bans are stupid? The bans prevent asset prices from moving to their true value at the time that value changes. When is this ever a good idea? If everyone could just trade based on what they know, prices and price movements would trend smoothly ahead of major developments. They would reflect high-quality, important information much sooner. And with all the insiders scrambling to trade on their inside information, the profit-potential of that information to any one insider is degraded significantly. And it might even bring down the average pay of corporate insiders as it would be expected that part of their compensation will be tradeable insider information. I don't know, it just seems there are many reasons to consider getting rid of insider trading bans altogether. 

Mon, 10/19/2009 - 00:33 | Link to Comment JohnKing
JohnKing's picture

I'm quite sure they got rid of insider trading bans some time ago. Things have gone very well ever since.

Please don't tell me about Martha Stewart or the occasional ding on some low-rung peon. Insider trading goes on unabated for the white shoe boys, they just call it "networking".

Mon, 10/19/2009 - 00:52 | Link to Comment Anonymous
Mon, 10/19/2009 - 00:58 | Link to Comment Howard_Beale
Howard_Beale's picture

You cannot be serious...your premise is ridiculous. Perhaps you knew about 9/11 and shorted the airlines? Get real. Insider trading bans are not about price discovery. They are about everyone getting the same info at the same time and then price discovery occurs. Just watch after hours on earnings information--that's enough to show who wins and loses in the casino. If I know that XXX co is going down from the CEO of XXX, then I have knowledge that puts me ahead of the pack. It's unfair and wrong.

Mon, 10/19/2009 - 01:27 | Link to Comment Anonymous
Mon, 10/19/2009 - 08:01 | Link to Comment JohnKing
JohnKing's picture

Sure Howard that sounds ok, are you suggesting a public information exchange? Perhaps all musings from corporate land be routed through one wire? Of course you would still have those who would get in front of that and game it which leads us back to insider trading bans.

Mon, 10/19/2009 - 02:20 | Link to Comment Anonymous
Mon, 10/19/2009 - 09:05 | Link to Comment JohnKing
JohnKing's picture

The Najarians should be in jail. They profit from EVERY Recco they make on CNBC, they are MMs for their own touts. Talk about stealing in broad daylight, these guys take the cake.

Mon, 10/19/2009 - 12:03 | Link to Comment Anonymous
Mon, 10/19/2009 - 00:22 | Link to Comment Anonymous
Mon, 10/19/2009 - 00:59 | Link to Comment I am a Man I am...
I am a Man I am Forty's picture

That's what it looks like to me.

Mon, 10/19/2009 - 09:12 | Link to Comment docj
docj's picture

+1

Head of nail, hammer, some assembly required.

Bring on the show-trials.  Let's make sure a couple of hedge-fund pirates are going to get strung from the yardarm while the admirals of the pirate fleet (GS, JPM, Citi, etc. – you know, the TooBigToFail Armada) will be given free sailing to continue to rape and pillage the taxpayer in broad daylight.  Bread and circuses.

Awesome.

 

Mon, 10/19/2009 - 14:04 | Link to Comment cougar_w
cougar_w's picture

Welcome to the updated release of "The Count of Monte Cristo", now set on Wall Street instead of in 18th century Europe.

For the attention-deficit crowd: Everyone stabs everyone else. Everyone dies. It takes 50 years to work itself out. And only the Devil laughs.

cougar

Mon, 10/19/2009 - 00:27 | Link to Comment Anonymous
Mon, 10/19/2009 - 00:33 | Link to Comment Anonymous
Mon, 10/19/2009 - 10:08 | Link to Comment You Cant Handle...
You Cant Handle the Truth's picture

No, they'll pull this thread a little, cut it off and make a sweater, and then the media will spend months telling us how the sweater makers have made the only sweater that -- oh hey, look over there -- a shiny object.

Mon, 10/19/2009 - 00:38 | Link to Comment Anonymous
Mon, 10/19/2009 - 01:55 | Link to Comment I am the mole
I am the mole's picture

You're on to something there...

Mon, 10/19/2009 - 03:23 | Link to Comment Unscarred
Unscarred's picture

+10000

Mon, 10/19/2009 - 15:05 | Link to Comment Anonymous
Mon, 10/19/2009 - 15:08 | Link to Comment Anonymous
Mon, 10/19/2009 - 00:54 | Link to Comment Michael
Michael's picture

The real estate news seems to be getting worse. It looks like the second tsunami wave of foreclosures is hitting. Someone should let those crazy Californians know there are some screaming deals over here. I here they got bidding wars again over there.

Foreclosure crisis far from over for South Florida

http://www.miamiherald.com/business/story/1288053.html

 

Mon, 10/19/2009 - 01:21 | Link to Comment Anonymous
Mon, 10/19/2009 - 14:07 | Link to Comment cougar_w
cougar_w's picture

Repeat yes.

But this time your hair all falls out.

And there is no next time.

Mon, 10/19/2009 - 01:33 | Link to Comment Anonymous
Mon, 10/19/2009 - 02:15 | Link to Comment Anonymous
Mon, 10/19/2009 - 02:16 | Link to Comment MsCreant
MsCreant's picture

"whole plethora of hedge fund bosses simply picked up and left as soon as the Rajmahal news broke on Friday..."

Comment 1.

Kinda like roaches if your place is infested and you turn on the light.

Comment 2.

a) I bet there are folks "running" who are not on anyone's list.

b) I wonder if someone is watching to see who runs?

Mon, 10/19/2009 - 14:11 | Link to Comment cougar_w
cougar_w's picture

The authorities don't care if they run.

The authorities will be helping them with their luggage and boarding pass at the terminal.

Don't forget who is the Master here. They can run their operations (and continue to pay those bribes) from the Cayman Islands. It's the new economy, and it runs on distilled greed.

cougar

Mon, 10/19/2009 - 02:59 | Link to Comment Anonymous
Mon, 10/19/2009 - 03:04 | Link to Comment Art Vandelay
Art Vandelay's picture

Wake me up when the SEC wins a conviction.

Mon, 10/19/2009 - 10:13 | Link to Comment You Cant Handle...
You Cant Handle the Truth's picture

They don't need to convict;  it will settle or plea out most likely.  They just play good cop, bad cop with the FBI as bad cop, and then people settle for a fine or go to jail, depending on how many people they inject into that same process.

And if they do go to trial, they are truly, absolutely fucked.

Mon, 10/19/2009 - 14:13 | Link to Comment cougar_w
cougar_w's picture

Only the janitor will go to trial.

Mon, 10/19/2009 - 03:46 | Link to Comment MsCreant
MsCreant's picture

Could the bloggers get together to do something? Mish, Karl, Zerohedge, etc. without ego, posturing, look at me? Just do it, in unison, at a particular time, and rock the blogosphere? Make such a collective uproar that the Mainstream press cannot ignore it? 
 
It would take some time to organize (not much). It may be a statement you all can agree upon. On that day, you publish that statement and nothing else for the day. AS MANY OF YOU AS YOU CAN GET ON BOARD.

The next step would be something the likes of us who lurk and post on these blogs would do in unison. Phone, fax, and email bomb, the statement to the media (letters to the editor, post on MSM blogs, comments) faxes and letters to the white house and congress. 
 
Maybe we even take a day off from work to do it.

This is something that could be done. It could be massive. Bigger than any tea party. This is the age of the net. Lets bring the fight to them electronically. 
 
Come on....

ps can't make Normal O above go away...

Mon, 10/19/2009 - 04:50 | Link to Comment Anonymous
Mon, 10/19/2009 - 13:27 | Link to Comment MsCreant
MsCreant's picture

Thanks anon for the positive words. I have posted it a few other places. Got a little response at Mish's, his post inspired me to suggest this over there. I'll keep at it. It seems doable. And there are so many of us who lurk. A lot of creativity, a lot of outrage.

We gotta move this ball forward.

I have also taken my money out of everything. I have not yet paid my county tax, though I have the money (kind of chicken, it has been billed but it is not due till next year).

So starving the beast is the other one.

Mon, 10/19/2009 - 07:47 | Link to Comment HEHEHE
HEHEHE's picture

Federal dog and pony show.  Get the sheeple looking at the evil hedge funds while "traditional" Wall Street robs the community chest with the governments assistance.  I've no sympathy for any of these hedge fund douchebags but I am sure their crimes are a pittance compared to the taxpayer robbery going on in broad daylight in order to "save the financial system".

Mon, 10/19/2009 - 09:37 | Link to Comment Anonymous
Mon, 10/19/2009 - 08:08 | Link to Comment aswipe
aswipe's picture

Obama to the SEC: get me some heads on a platter! Protect the elite and give the people a fleeting moment of satisfaction that the SEC real does care and they do know what they are doing. 

Mon, 10/19/2009 - 13:04 | Link to Comment AN0NYM0US
AN0NYM0US's picture

+1

Mon, 10/19/2009 - 08:12 | Link to Comment Anonymous
Mon, 10/19/2009 - 10:15 | Link to Comment You Cant Handle...
You Cant Handle the Truth's picture

Well, I doubt the SEC will be doing that with a Goldmanite as Chief Operating Officer.

I guess we'll have to rely on the FBI...

Mon, 10/19/2009 - 12:07 | Link to Comment Anonymous
Mon, 10/19/2009 - 14:07 | Link to Comment duckweed
duckweed's picture

Absolutely! This is exactly what I expected,let's grab some brown or black faced outsider, anyone who doesn't look like the real face of Wall Street (WASP, White Anglo Saxon Protestant Male) and hang him on all the front pages of MSM. That way the neo-boys get double play out of it.... the picture of Raj plays well into our deepest psychological fears of those brown men from the east, middle east, where-ever, and it will help on a sub-conscious level, to further personify everything average joe and jane amerika fear. It is just another image to help drum up support for our other endeavour, bombing Iran into the stone age. Yes, this guy is someone the public can personify all their hatred toward, instead of let's say, Jamie Dimon, Hank Paulson, Tim Geithner, and a whole slew of others that look just like you and me, only a shit yacht richer than the rest of us.

I wanna see the real people in charge of the banking/financial/hedge industry swing. You couldn't convince me in a million years that whatever Raj did, the others haven't done themselves.

Mon, 10/19/2009 - 08:15 | Link to Comment deadhead
deadhead's picture

I'll be curious to see if they ever got any taps into the world's biggest hedge fund.

Mon, 10/19/2009 - 08:18 | Link to Comment Cheeky Bastard
Cheeky Bastard's picture

IIRC, Ray Dalios Bridgewater Associates is the biggest hedge fund in the world.

Mon, 10/19/2009 - 08:28 | Link to Comment spanish inquisition
spanish inquisition's picture

SEC - Hello to all our regular playa's. We will be conducting "investigations" into insider trading and rounding up some more Martha's and Cuban's (but a slightly higher level). Please disceminate information through regular channels and refrain from using outside feeder programs (we will be using wire taps). JPM and GS, please have a few low level operatives prepped and ready to go in case we need to build credibility in the operation.

Sheila

Mon, 10/19/2009 - 08:42 | Link to Comment Anonymous
Mon, 10/19/2009 - 14:21 | Link to Comment cougar_w
cougar_w's picture

Um... everything now works to the detriment of small investors.

Small investors are just the grease in the wheels of this fcking meat grinder. They need you because they need something to kill.

Any small investors left are going to be reduced to hide glue in the next down turn. And after, small investors will be buying and selling produce futures at the farmers' market, and happy with a $50 profit on the weekend.

cougar

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