And you managers: Get under the bus!
Citadel makes $75,000 bid to see competitors’ strategies
Add to the growing list of people who rue the day they ever heard of Christopher Sugrue, or MinusFunds, or the S&P hedge fund indexes: the hedge fund managers and trading advisors who agreed to run the managed accounts. In its latest attempt to extract value from the rubble, what’s left of MinusFunds plans licensing the “proprietary database of the historical trading positions of the managed accounts known as the ‘SPhinx Funds’” for the period from Jul. 2002 to Jun. 2006.
First up, with a bid of $75,000 for the “perpetual, non-exclusive, non-sublicensable, and non-transferable” peek at some of his largest competitors’ most intimate secrets? Come on down, Ken Griffin, principal of Citadel Investment Group, already recently in the news for floating a $2 billion bond issue to show his prime brokers just who is boss, days after denying yet another round of rumors that he’d Amaranthed himself.
The stunt has some hurdles to overcome, not least the existence of confidentiality agreements in the contracts between MinusFunds and at least some of the managers. But one well-known trading advisor characterized the initiative as “pretty sleazy.”
It’s likely the database would allow Citadel, and presumably other licensees, to reverse-engineer a wide range of trading strategies implemented by some of the world’s best-known hedge fund managers. (An email to Citadel sent after normal working hours last night seeking to confirm that that was its interest in the database had received no response by pixel time.)
But this being MinusFunds, the questions don’t end there:
- The filing was dropped into the in-tray of the US Bankruptcy Court in New York on Wednesday, Nov. 22 – the day before Thanksgiving – and requires objections to be filed not later than Dec. 15, the date of the hearing to consider the licensing proposal. However, as far as NakedShorts has been able to establish, the process of informing managers did not begin until, effectively, Tuesday morning, Nov. 28, taking almost a week out of the already limited objection period. (A call to an attorney at MinusFunds’ counsel, Curtis, Mallet-Prevost, on this and other questions, was not returned by pixel time).
- The filing said that notice would be served by email or US mail. However, it offered no service deadline, and provided no schedule of the parties to be served, meaning that it’s impossible to determine whether or not managers whose proprietary data is subject to the proposed licensing agreement will learn of the proposal in time to file objections, or whether the list of potentially-affected managers is complete.
- Nothing in the court filing refers to the confidentiality provisions in the contracts between the managers and MinusFunds. The legal argument consists of five paragraphs, calling on the court to apply the “business judgment” rule, deferring to “the debtor’s articulation of a sound business purpose and showing that the proposed transaction is in the best interests of the estate absent persuasive contrary evidence.” The filing is also entirely silent on any moral questions that may arise from handing out detailed proprietary trade information, at least some of it protected by confidentiality provisions, to anybody with $75,000.
- The filing provides no information as to the extent of any due diligence that Citadel may already have been allowed to conduct on the database. Neither does it say whether MinusFunds was approached by Citadel, or whether MinusFunds has - not for the first time in living memory - got creative with the family - or, in fact, other families’ - silver.
- According to the filing, the proposed license agreement was only brought before the court out of “an abundance of caution” given earlier authorization of the sale – but not, specifically, licensing - of de minimis assets. That order clearly stated a limit of $50,000 on the “book value or aggregate consideration” of the de minimis asset covered by that authority. While not privy to all the mysteries of the judicial system, NakedShorts understands that $75,000 is roughly 50 percent more than $50,000, even in Bankruptcy Court, if not necessarily at MinusFunds.
The list of managers who ran managed accounts for the SPhinX Funds included some of the world’s best known hedge fund managers including Bridgewater, Campbell & Co., Clinton Group, Deephaven, Michael Vranos’s Ellington Management Group, Gabelli Associates, GLG, Leon Cooperman’s Omega Advisors, David Harding’s Winton Capital Management, and Robert Rotella’s Rotella Capital Management. (Not all managers were active for the entire life of the funds, which were intended to replicate the performance of the S&P hedge fund indexes.)
Favorite footnote:
By serving many, if not all, of the Service Parties by email rather than US Mail, the debtor will save the cost of postage which savings is significant under the circumstances of the debtor’s case…[Emphasis added].
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