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What To Do When The FBI Raids Your Hedge Fund
From Bloomberg's Jonathan Weil
What to Do When the FBI Raids Your Hedge Fund
As if the global capital markets
hadn’t suffered enough shocks lately -- artillery fire in Korea,
meltdown in Ireland, Eva Longoria Parker’s divorce filing --
life just threw America’s hedge-fund masters a beanball. It
appears the government wants to toss many of them in jail.
This week the Federal Bureau of Investigation executed
search warrants at three large hedge funds’ offices as part of a
widening insider-trading investigation. Several other funds,
including SAC Capital Advisors, got subpoenas for documents.
What does this crisis mean for the industry? We already can
guess the first question that must have leaped to the mind of
every self-respecting wealth maximizer: “How can I use this
information to make enough money to buy myself a jet?” The
answer, of course, is that it pays to be on the inside.
This raises an even more intriguing existential question.
Is it possible for a hedge fund to profit off its own imminent
collapse? A little role-playing exercise shows it’s not only
possible -- it’s preordained.
Imagine you are a skilled trader at a hedge fund with a few
billion dollars under management. You learn that FBI agents have
just arrived to raid your firm. Lesser beings might cower under
the pressure. You, though, realize that you now possess the
ultimate edge: The knowledge of what is happening to you at this
very moment. You scan the latest news for headlines about your
firm and, seeing none, set about on an action plan.
One Question
Soon the unsuspecting public will be told that financial
stocks are plunging on the news that your firm is being raided.
You have the benefit of knowing this in advance. The only
remaining questions: Do you short Goldman Sachs? Do you short
other large banks, too? More importantly, do you short them for
your personal account, or for your fund’s? Sensing nothing but
upside in the downside, you settle on all of the above.
Next comes the due diligence. Brilliantly, you recall a
speech in March by Robert Khuzami, the head of the Securities
and Exchange Commission’s enforcement division.
“The masterminds leave the fewest footprints, and they are
often planning their defense at the same time they are
committing the fraud,” he said. “To take a simple example,
those who trade on insider information may well accumulate at
the same time a stack of research reports on a company whose
stock they just illegally purchased, and point to that file when
law enforcement comes knocking.”
As you consider whether to send Khuzami a thank-you note,
you hit the print button. Piles of bearish research reports
churn out, ready to be placed on your desk as if they had been
there for weeks. You’re probably just being paranoid, though.
For all you know, the trades you executed were legal.
Make a Call
Right about now, your attention starts to shift. There’s
the question of whom to call first about the FBI raid. Personal
lawyer? Spouse? Lover? No, you resolve instead to call your
fund’s top so-called expert-network service. They helped get you
in this mess. Surely they can get you out, right?
Past experience tells you the experts’ information always
falls into one of two categories: Worthless or way, way too
good. You hope for the latter. Even if the network can’t lure
away Khuzami from the SEC to represent you, maybe the experts
could dig up some dirt on the pimply FBI agents downloading your
firm’s e-mails? Suddenly it occurs to you that all your phones
probably are tapped. Better hold off on making that call.
»
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How are YOU gonna celebrate Double POMO Monday?
remember to leave a bit of room for the tax raise dessert at the end boys :)
that is why they call them hedgefunds, right? too funny
LOL ;-))
Too many hedge funds, not enough FBI agents. All-in-all, the risk/reward still says it's worth it. ;-))
+10 boy, if that don't put the whole stinkin' mess we're in neatly into a nutshell, what does?
this sentence got me.
"This raises an even more intriguing existential question. Is it possible for a hedge fund to profit off its own imminent collapse? A little role-playing exercise shows it’s not only possible -- it’s preordained."
he calls that an "existential" question...."intriguing", no less....hahahaha (to quote Mogambo) ROTFLMAO. It's not existential - it's personal. As in, who the fuck ya think runs those funds?
"who runs those funds." depends on the definitions of the
word "runs" and what tense, past, present or future.?
and the composition of what constitutes a "fund"? all
foreign to me, i put it all in the same locked box in my
mind that has been labeled "bullshit". what i want to know
is whether a 1 oz gold eagle is worth 1464 dollars plus shipping?
touche! Fair price, maybe a litle high, but depends if insurance included...
This is the one that got me:
"For all you know, the trades you executed were legal."
Laws so unclear that people can't know in advance if their actions are legal, or illegal are necessary for:
a) destroying the free market to keep it free
b) keeping the sheeple scared in a totalitarian dictatorship
c) populist rhetoric
If you guessed c, you get the bonus booby prize: the former Republic, the USA, is accelerating down that slippery slope!
Another variant on, "He'd sell his mother to make a buck."
“How can I use this information to make enough money to buy myself a jet?”
what these hedgies don't want to be groped or zapped?
they want to choose the groper / zapper. tastes vary.
they do not want a tsa min. wage variety. so, the logical
conclusion would be to offer a variety of "personal space
investigators" , from economy to high "class" ( that would be
hot russian / oriental/ etc.) available at the tsa stations to
perform required safety inspections for the airlines and good of the
"greater security" needs. pay as you go, toll booth consistent,
free market problem solving type meme. happy ending predicated
on contractual basis. and available for the kids of functional and
organic stage / development, new world order and all.
turning me on, cupcakes!
apologies
no need, now where was I?
There is a very serious possibility we have a BANK RUN December 7th. Please watch and share this video with the people you care about (http://youtu.be/U0KGv3Xw0KY).
Anonymous-
This is really scary guys, people are already talking about it and it has spread from France to the UK and now coming to the United States.
Brother Greenne, Max K has been pushing this hot and heavy as well as the Silver Kill JPM. If it works, it would be the most amazing liberating thing I have ever seen. I have already done my part early. Live Free or Die!
thank God i am not that rich to invest in hedge funds...otherwise, i would go crazy losing all that money...
the lesson of the story: what goes around comes around...and NO we ARE NOT exceptional...just another footnote in world history.
http://www.bloomberg.com/news/2010-11-26/what-to-do-when-the-fbi-raids-your-hedge-fund-commentary-by-jonathan-weil.html
This narrative, super-compressed, needs to be read, reread, until real-world practical understanding comes and/or at least; understanding THAT, still, we do/did NOT yet understand...
or, less YET, super-minimally as..... entertainment for "triskaidekaphobes"; the world, a stage....
Here in CT, the hedge fund raids are 13th page news. The shepple drone liberals here only care about what celebrities are wearing and such dribble. Joe Bag-O-Donuts has not a clue.
If it's that bad in CT, just imagine the rest of the country is like!
When do they raid BofA, JPM, GS, HSBC.....?
Until then I view this as political posturing, sacrificial lambs, and consolidation of control and power.
Yup... GS going to escape w/o any wounds... Obama is one phone call away
Bet you'll die and hope you lose...
Wellington Mgmt is also under this investigation. They are one of the biggest money managers for Vanguard.
Jonathan Weil ROCKS!
One of the few left.
Weil is consistently good. I'll bet the hedgies think today's column is a real hoot too.
Oh hell ya!
+1
The FBI only investigates/raids the people/firms they are told to. The US Attorney only prosecutes those they are allowed to. If you are making real money on insider information you better be spreading the profits around to judges, politians, and have high powered attorneys on retainer.
By the way, did anyone see Client 9 - The Rise and Fall of Eliot Spiter? Good movie, a little fragmented, but provides some insight in to the massive Wall Street fraud and how the Guberment deals with those looking to help the people. I give it six thumbs up.
+1
Anyway, I thought they were just rounding up poor Chinese analysts and quants these days. Successful HFTs will never go anywhere near jail.
Pull out the heavy leveraged guys, create a scapegoat for rigged markets.....look out below! Politicians and the FED come out clean.
Now the TSA are the new perverts and the SEC the good guys.
OK ZH, In this case what would have been the trades? lubidicus tellmeus nowus pleaseus...
now let's play the game as George Soros. this time you get advance notice several weeks in advance and your fund is not the one being raided because you control the US Govt through your "expert network" of puppets and surrogates. (eg. B Hussein Obama) in fact you get better than advance notice - you personally pick and choose who the FBI will raid! (govt is way too dumb to figure this out on their own.)
30% / yr doesn't sound so hard now huh?
...some cynic actually suggested to me that there may be a correlation between the size of political contributions made (or lack thereof) and not being raided (or being first in line to be butt scoped). I told her that was preposterous, this is America, after all, not some South American banana republic.
Excellent writing.
"worthless or way way too good" LOL
OT: More info on that Stuxnet virus, for all the fans out there:
http://www.foxnews.com/scitech/2010/11/26/secret-agent-crippled-irans-nu...
Has anyone talked to Microsoft about their involvement in the building of the Nuclear Plant in Iran? Seems treasonous to me. Siemans, well let the Krauts deal with them.
...with Microsoft involved, it will be buggy and open for intrusion by Stuxnet...just do not live downwind from it...
The BANK RUN Dec. 7,2010 will happen were i live it is the talk of the town. Everyone i work with are planning on taking out all extra money and leaving only enough to keep the acc. open on Friday the 4th of Dec. Everyone who i work with does not want to be the one who left there money in the bank when the Bank run starts. To be the only on left holding the bag. Two words to live by.... Food & Ammo ...bitches
The BANK RUN Dec. 7,2010 will happen were i live it is the talk of the town. Everyone i work with are planning on taking out all extra money and leaving only enough to keep the acc. open on Friday the 4th of Dec. Everyone who i work with does not want to be the one who left there money in the bank when the Bank run starts. To be the only on left holding the bag. Two words to live by.... Food & Ammo ...bitches
The BANK RUN Dec. 7,2010 will happen were i live it is the talk of the town. Everyone i work with are planning on taking out all extra money and leaving only enough to keep the acc. open on Friday the 4th of Dec. Everyone who i work with does not want to be the one who left there money in the bank when the Bank run starts. To be the only on left holding the bag. Two words to live by.... Food & Ammo ...bitches
Eric Cantona (Famous French Footballer) is sparking things up in Europe. I know the Americans only think about shooting people & revolution these days, but this bank run protest could just be a peaceful fantastic global middle digit to the banksters, at no cost to you!
I am starting early and taking out all the cash in my current account tomorrow. (It's too bloody complicated to cash my ISA's, and other long term holdings)
http://www.bankrun2010.com/
http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=518700&in_page_id=7
http://www.facebook.com/pages/StopBanque/119038221489346?v=info
http://www.facebook.com/event.php?eid=101996426533405
I'm all for making our voices heard, but collapsing the banking system on purpose seems a little spiteful.
Step 1: Pull all my currency out of the banks.
Step 2: Banks collapse.
Step 3: Stare at my pile of now-worthless currency.
Step 4: Profit?
Disclosure: Like all gnomes, I'm long underpants.
You haven't got the whole picture. All banks don't collapse, just the big ones. Cash doesn't become worthless. Just put it in your local bank or S&L. Think broadly, my friend. Buy a few silver rounds while you have the cash in hand.
...Just Great....King Rat eats its offspring....
....what if all the PDs get indited....who will The Ben Berananke turn to then to implement his golden showers? Maybe there is a special "Do Not Raid" list in the hands of the FBI? Maybe they will need to share this with the various state AG's who are running for higher office?
Wake me up when any significant number of these crooks are actually charged with anything. I'll be shocked if it happens. I'll be even more shocked if it results in anything other than some miniscule settlement, combined with no admission of guilt
Whatever moves markets makes money for these crooks. Watch for a surge in hiring of likely scapegoats that they can later feed to FBI. In two years these firms will all be bitching if the Feds haven't raided them in the past two months, particularly if they've been throwing them good tips all year and it's bonus season already.
Push comes to shove, banks squeeze the B/Ds and throw the chatty suspects under the bus. They couldn't cover them anyhow with the haircuts their risk managers demand. Look to the survivors said Santo Trafficante. GS and MS, where it's quite a bit easier to trade against the (res)public than the active hedgie.
I've been wondering roughly the same thing about the demise of the JPM rigging of the silver [and gold] markets.
If JPM was to liquidate ALL its short positions, then simultaneously (though slightly before is better) buy the same number (or more) long positions, they would remove the tightly jammed cork from the price of silver [and gold] and simultaneously be positioned to clean up on the certain price explosion.
Talk about starting phase 3 of the silver and gold boom!
News Flash - FBI Raids hedge funds http://www.youtube.com/watch?v=FuzFyH1zbig
Now this is news I can get behind!
We are running a very inefficient government. Not that this comes as news to anyone, but I have a suggestion which might help. I borrow my idea from the US' long experience with the Farm Subsidy program.
We are paying the bankers and the big hedge funds as it is. ZIRP, TALF, the bailouts and backstops, QEI through QEnth, etc., is going out the taxpayers' door in ever-increasing amounts, and it is certain to continue.
Why not pay them not to trade? Just like we sometimes pay farmers not to grow soybeans.
Think of the damage they cannot do. Think of the useless and dangerous products they won't create. Think of how much better off we would be if back in 2003 or so we just told hedge funds like Goldman Sachs and JPMorgan and Amarinth that we would pay them a couple billion a year to just sit on their hands, turn UP the volume of CNBC, go pick out drapes for the new Hamptons house, choose the interior on the G650, or head over to the Sothebys auction of Willem de Kooning works (which would be going for $13 million and not $130 million).
It's not like we would miss them. What does Goldman Sachs currently do that adds any value whatsoever to American society? The Senegalese sidewalk purveyor of copywatches at least helps people get to the bars on time. Goldman merely trades for their own account, or else spends its time finding new and novel ways to rape Bavarian trust banks. We could do without all the collateral damage they cause.
It would also be cheaper in the long run.
Go back to the year 2000. Just about any banker or HF manager would have been bursting with pride if he took home "a unit". Back then a unit was $100 million. Tudor had done it. So had Soros. A traditional IB-type would have been pleased as punch with $25 million.
Those paltry sums don't cut it anymore. A billion is the new "unit". For an IBer, the new unit is the old HF unit, which is $100 million. In five years they'll add another zero to the right on both.
A trader with a unit as a goal has to take risk. Big risk. WMD-type risk. Bring the whole system down by Tuesday risk. TEOTWAWKI risk.
What's to stop them from trying? Has a single one of the TBTF institutions been cut down to bite size? No. They're all bigger than they were when they had us all on our knees (for Congresspeople "on our knees" has something to do with the restrooms in the Capitol Building or a Minneapolis airport). Have any real rules---not the Doddy ones---been put in place that would prevent another CDO gone squared? No. Do we know any more about their positions now than we did before the crash? With FASB changes, even they know less than they did, since accuracy doesn't matter anymore in the world of infinite bailouts.
We missed our chance. We could have bought a thousand egos on the cheap. Now it's gonna cost us. Expectations have changed.
What hasn't changed is the size of the ego. These have only grown larger. What hasn't changed is the destructive power in the hands of the few. That, too, has only grown larger. What hasn't changed is the ability or willingness of the supposed regulators to do what they are paid $180K a year to do. Too much porn to download, so little time. What hasn't changed is the system that allows "slippage" in the form of K Street Manna-ia from ZIRP and TALF and QE into the coffers of people who want to continue to be able to dine at Lloyd's and Jamie's table (with the other hired help, of course, not in the main room) and SERVE THE PEOPLE.
Well, the People have been served. On a platter.
Please pass the barbecue sauce.
u 2 fun e!
roll.
"sit at your office and stare at the homeless guy out your window per government order." We could call it "Operation Curb Your Enthusiasm." I like it...
Cheaper yet to round up all of these fuckers and exterminate them right down to the last chromosome.
Probably provide deterrance value too for the future.
(I think I'm a little cranky today...)
I would advise that under these circumstances....short your own fund.:)
I sense double dipping snitchez bitchez!.
The headline is somewhat incomplete. Hedge fund and Mutual fund companies are embroiled in this mess.
*Exhibit A: Janus Capital and Wellington Management. Wellington is biggest fund manager at Vanguard.
what the SEC is broke and needs some fines? Done!
'worthless or way too good'. I think if you trade on information that you know is way too good it's not much of a defense to claim that for all you knew, the trade was legal.
What do you do when the FBI raids your hedge fund?
Simple, first try to tell them that you are banker
If that doesn't work - say you work for Rahm
If that doesn't work - say you are doing research for the Dem's
If that doesn't work - get out the little white envelope and start handing out fiat.
The trouble goes away fast.
Fantastic! Loved it!
The only way to not suffer them is to be them...