NakedShorts

Fortress’s other poo problem

Fortress Investment Group is intimately acquainted with the figurative poo generated by credit market excesses, which may or may not be fully priced into the 95 per cent poopage in its stock price from the top tick recorded on its Feb. 2007 IPO. Now, a subsidiary of RailAmerica, Fortress’s short-line railroad operation, is having its own literal poo issues. 

BAKERSFIELD, Calif. - A California short line shut down last week owing to an unusual problem: Three feet of cow manure had drifted across its main line. Wind gusts of 40 to 60 mph blew the excrement from an adjacent dairy farm across the San Joaquin Valley Railroad’s main line to a depth of three feet.

It was “like a snowdrift, but it was cow manure,” SJV assistant general manager Patrick Kerr told TRAINS News Wire. “In all my years of railroading, I’ve had snowdrifts, I’ve had sand drifts, I’ve had rockslides, but I’ve never had a line shut down by poo.”

While the idea of Wes Edens having to grab a shovel holds a certain appeal, not so much.

Kerr said the manure was dry, so it didn't smell as bad as one might imagine. The owner of the dairy farm, who had the proper equipment for removing the drift, helped clean it up.

Maybe they should get someone with the proper equipment to help clean up that other somewhat stickier manure pile. 

Manure fouls California short line [$$]

Trains News Wire Feb. 23 2009

Goldman gets the memo

This party-pooping business is getting out of hand, with innocent hedge fund managers and investors now being victimized:

Goldman Sachs called off its big Miami hedge-fund conference scheduled for the first week of March, telling clients that going ahead with the normally posh event there could cause image problems for the firm at a time of intense scrutiny over banks' spending habits...

...The Goldman conference, which was to be held March 2-4 at the Fairmont Turnberry Isle Resort & Club in Miami, typically draws a who’s who of hedge-fund managers and rich investors. It’s usually one of the two highest-profile U.S. prime-brokerage conferences of the year, along with Morgan Stanley’s, which was held as planned last week in Florida. Both conferences bring together bank executives with many of their most-valued hedge-fund clients for panel discussions and business-strategy talks, cocktail parties and rounds of golf, according to people who’ve attended.

Goldman’s upcoming US Hedge Fund Symposium was titled “Industry Leaders Discuss the Lessons of 2008 and the Opportunities of 2009.”

The trade is probably a bit crowded by now, but one of “the Opportunities of 2009” is shorting luxury resorts. At least until Goldman pays back that $10 billion in TARP funds crammed down its neck by the former chairman (then d/b/a Secretary of the Treasury), just a few days after he had taken care of its “immaterial” AIG exposure.

Postponed parties and a slightly dented stock price notwithstanding, it’s still good to be a Goldman.

Goldman Cancels Miami Fund Conference

by Jenny Strasburg and Aaron Lucchetti

The Wall Street Journal Feb. 4 2008

Goldman Sachs Would Like to Repay Treasury, CFO Says

by Christine Harper

Bloomberg Feb. 4 2009

It’s Schadenfreude Saturday!

Capping the payoff

Having earned been paid $115 million since 1999 for taking lunch and, on a busy day, pontificating, former Treasury secretary Bob Rubin capped his payoff for helping debauche Glass-Steagall, without which intervention Citi might still be a functional financial institution rather than a ward of state. 

Not forgetting, of course:

Inside and outside the bank, Mr. Rubin is blamed by some for pushing Citigroup to rev up risk-taking as the housing and derivatives bubbles expanded — a move that has saddled Citigroup with tens of billions of dollars in write-downs and necessitated a sweeping government bailout of the financial giant...Citigroup’s share price is down 70% since he came on board. 

In the next turn of the revolving door, NakedShorts has the over/under on Hank Paulson joining the board of JP Morgan Chase (or similar) at Sep. 2009. And is taking the under. (Related links after the jump).

Bailing on another Ponzi

The eponymous J. Ezra Merkin resigned as chairman of GMAC LLC, slipping over the gunwales of the Cerberus-GM joint venture under cover of a “board restructuring” triggered by a TARP-funded bailout that, but for the fact that TARP has no rules other than whatever Hank & Neel say they are, seemed to have broken every rule in the book.

Mr Merkin stands at an intersection of two of the largest current business stories — the federal bailout of the auto companies and the Madoff financial scandal. 

In addition to being chairman of GMAC, Mr Merkin is a hedge fund operator who invested more than $1.8 billion of his clients’ money with Mr Madoff. Mr. Merkin’s three private investment funds — Ascot, Ariel and Gabriel — are among the largest of the so-called feeder funds that placed investors’ money with Mr Madoff without their knowledge, according to the investors. Mr Merkin collected millions of dollars in management fees annually for his work.

Among all the allegedly professional money managers hit by the Madoff fraud, Merkin has been the most egregiously self-pitying, whimpering, in his Dec. 11 letter to his Ascot Partners LP hedge fund investors that “As one of the largest investors in our fund, I have also suffered major losses from this catastrophe.” At least with GMAC off his plate, he’ll have plenty of time for the deposition hell that awaits.(Related links after the jump).

Gross miscalculation

Barrons’ is out with the first part of its annual WrongTable (© Alchemy of Trading) this weekend, and the first question indicates pretty much how everybody did. 

Barron’s: Let’s forget about 2008 — and that includes most of your stock picks. With the market down 36% from its highs, the government bailing out everything in sight and a new president coming to town, what is the outlook for 2009?  

And my personal favorite, if not the worst, of the records on display? (Click for a more legible image).

Of course, at the beginning of 2008 Gross had neither established his stranglehold on Fred Reserve policy, nor had Pimco been named among the four entirely unconflicted investment managers — with Goldman Sachs Asset Mgt, BlackRock Inc and Wellington Mgt Co — that will help Fred’s New York branch buy in $500 billion worth of mortgage-backed securities by mid-2009. So Bill’s 2009 picks, which should show up next week, might be worth following. Unless, of course, he needs to unload a little something on the great unwashed. (Related links after the jump).

Blame Canada! Fortress inconvenienced again

12 injured, 53 rescued in gondola prang

Vancouver Sun photo

Fresh off its recent brush with corrupt New York attorney Marc Dreier in the offices of the Ontario Teachers Pension Plan, Wes Edens’ Fortress Investment Group had probably had its fill of Canadian adventures. The fates determined otherwise.

But FIG also mostly dodged another embarassment in Canada Tuesday afternoon, when a wreck on the gondola system serving Whistler Blackcomb — alpine skiing venue of the 2010 Olympics — injured 12, none seriously, while 53 people had to be rescued. Whistler Blackcomb is operated by Intrawest, the FIG-controlled resort operator that itself recently survived an encounter with a $1.7 billion debt mogul.

How much more good luck can Wes really stand? 

Talking a good game. Playing...?

Not so much. RMF on Operational Alpha

RMF operational due diligence heads Richard Bernard Bachmann and Michael Buerer suggest to Nicola Horlick that a couple of Madoff feeder funds would be a good home for almost 10 per cent of Bramdean Alternative Ltd’s assets. 

[CORRECTED Dec. 18] A couple of people you’d think might be keeping their heads down right about now are Richard Bernard Bachmann and Michael Buerer. Respectively head and deputy head of operational due diligence for RMF Investment Management, they seem to be somewhere in the accountability chain for almost $400 million (that we know about) of the Madoff mishap — $360 million on RMF’s own account, and near enough to $20 million at Nicola Horlick’s Bramdean Alternatives Ltd, for which the Man Group plc subsidiary was hedge fund sub-advisor.

They blipped NakedShorts’ radar as the authors of a five-page mostly-marketing paper ‘Operational alpha — alternative sources of return’ in the latest edition of The Capco Institute Journal of Financial Transformation. And for what are probably a couple of mild-mannered Pfaffikon guys, they turn out to be quite the unintentional comedians.

Since the costs of doing business are increasing, investors are required to assess the quality of hedge fund managers’ optimization strategies. This assessment should be based on an in-depth analysis of internal processes and controls with a special focus on best execution practices — i.e., the analysis of pre-trade office processes, trade execution functions, and the manager’s ongoing research activities to analyze the quality of execution — and best compliance practices when dealing with multiple regulators. This means that hedge fund investors will need to build an experienced operational due diligence team who can analyze documents and questionnaires, go on site, and review information to provide a qualitative operational risk assessment.service providers or invest through a fund-of-hedge fund provider.

Stay with me. The tension builds.

This assessment cannot be conducted in isolation, but requires an understanding of the investment strategy and its embedded risks especially with respect to liquidity and volatility. Most probably though, managers will be reluctant to release this level of transparency. As a result, in most cases only large, sophisticated investors with a close relationship with the manager will be able to obtain such information to incorporate within their investment decision making.

Drum-roll...

On the other hand, large fund-of-hedge fund providers tend to have the necessary size and scale to build specialized teams with access to a considerable section of the hedge fund universe across different styles, regions, and life cycles of managers. This gives them a competitive advantage. In addition, size and reputation increases their power to obtain information and especially over time, as the relationship evolves, create an even clearer competitive advantage over other forms of service providers.

OK, I guess you had to be there. Bachmann and Buerer and RMF certainly were. 

Operational alpha, alternative sources of returns

Bernard Richard Bachmann and Michael Buerer

The Capco Institute Journal of Financial Transformation Vol. 24

Two quick things:

• A sincere thanks to the person who, requesting anonymity, pointed NakedShorts into the light (and selected the highlight reel). 
• If the link to the article mysteriously disappears, as these things are wont to do, please feel free to contact NakedShorts for your very own copy of the article.  

Eddie Lampert’s waterfall

It’s been a week or two since anybody called Eddie Lampert “The next Warren Buffett.” And now, it seems, either Bill Ackman got the memo, or even value tramps (not a typo) have stops. From the 13F-HRs of Pershing Square Capital Management LP, vis-a-vis its long dance with Two-Wrongs-Don’t-Make-A-Right (SHLD): 

Jun. 30 2008 (Filed Aug. 14 2008)

Shares: 6,746,568; Value: $496.95 million

Sep. 30 2008 (Filed Nov. 13 2008)

Shares: 501,000; Value: $46.84 million

Ackman did well to scamper when he did. While SHLD ran up from $73.66 on Jun. 30 to $93.50 on Sep. 30 (including a brief sojourn over $100 that month), it closed tonight at $30.19. Oh well, on to the next Target. 

Whatever you do, don’t buy Sears

by Suzanne Kapner

Fortune Nov. 18 2008

PANIC!

Bart calls (another) bottom

Barton Biggs, the long-time Morgan Stanley global strategerist now doing a hedge fund manager impersonation, hit Fortune this week with a soft-core piece posing as  “the enlightened...opinions of aged participant about the unknown.” Without stopping to debate the highly arguable characterization of Biggs as a ‘Hedge fund star,’ or even the value of anybody’s opinions about “the unknown,” let’s move along to the underlying thesis: “Fears are overblown.”

Everyone’s worried that hedge fund investors will pull their money out en masse and ignite another market selloff. That's not how it looks to one insider. 

So let’s review some of Bigg’s notable early-rather-than-wrong calls of recent years.

July 2001

Barton M. Biggs believes “hedge-fund mania now grips the US and Europe.” It is “rapidly assuming all the classic characteristics of a bubble,” contended the chief global strategist and chairman of Morgan Stanley Investment Management Inc, New York, in a Global Strategy report to clients. [Emphasis added]

Two years later, and with the alleged “hedge fund bubble” having only inflated in the wake of the 2002-2002 bear market, Biggs established Traxis Partners.

August 2004

Hedge funds started a year ago by a leading investment strategist, Barton M. Biggs, have been stung by losses this year, partly because of a bearish bet on the price of oil at a time when the commodity’s prices are setting records...Yesterday, crude oil for September delivery settled at a record $48.70 a barrel on the New York Mercantile Exchange. Futures prices have climbed more than $10 a barrel since the end of June.

In his letter to investors, Mr Biggs said he thought the price of oil should be closer to $30 to $34 a barrel. So convinced is Mr Biggs of his investment thesis that he increased the size of his bet in July, even as prices were rising. “When the price of an investment goes against us, unless the fundamentals have changed, our inclination is to buy more,” he said in the letter. [Emphasis added]

May 2008

Well, not Biggs, but Cyril Moulle-Berteaux, described as “managing partner of Traxis Partners LP,” cooked up some housing recovery hash for The Wall Street Journal’s op-ed page featuring these among other gems:

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market...

...We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now. [Emphasis added]

More disturbing yet: NakedShorts agrees with Biggs’ tenet that the worst of the hedge fund selling is probably done, and would further aver that reports of its contribution to the recent market declines have mostly been at least somewhat overblown.

But that bit about “The bottom of a bear market by definition has to be the point of maximum bearishness, and I think we’re there.” Not while Bart & The Bottom Callers are still flapping their gums. 

Jinx documentation after the lump.

Academics: TARP shifts wealth to banks

Paulson’s Gyffte, from the Land of Lincoln Friedman

The Pointy-Head corollary to NakedShorts’ Obviousness Rule states that, even if something is obvious, is is not officially true until people with multiple letters after their names, and otherwise bereft of gainful employment, say so.

David S. Products, a proud graduate of the University of Chicago Graduate School of Business, stoops to explain the latest timely research emanating from his alma mater:

I know you are not a scholar but if you check with NakedShorts’ Ivory Tower division staffers, they just might be able to use the Obviousness Rule in reading this scholarly article. Apparently, the earth-shattering finding is that the TARP bailout was a net transfer of wealth from taxpayer to bank stakeholders, with some money lost on the margin due to friction costs.

He means this:

Abstract

We calculate the costs and benefits of the largest ever U.S. Government intervention in the financial system. We estimate that the revised Paulson plan increased the value of banks’ financial claims by $109 billion at a taxpayers’ cost of $112 -135 billions, creating no value in the banking sector. We compare the cost of Paulson’s plan with the costs of alternative solutions that would have achieved the same objective in term of solvency of the banking system. We find that the revised Paulson plan is the most expensive for the taxpayers, second only to the original Paulson plan. The biggest beneficiaries of this massive redistribution were the debtholders of financial institutions, especially those of the three former investment banks and of Citigroup. The equity holders just broke even. [Emphasis added]

And, for the benefit of the auld firm of Hank, Bernanke, Kash’n’Kari & Geithner, a model. Or, more precisely, an illustration of the model:

Paulson’s Gift (Preliminary Draft)
by Pietro Veronesi & Luigi Zingales

University of Chicago, NBER & CEPR

Nov. 5 2008

Right, now he buys his own cappuccino

Kevin Davis snags $7.5m in pay-for-fail deal

NEW YORK, October 29, 2008 – MF Global Ltd. (NYSE: MF), a leading broker of exchange-traded futures and options, announced the company’s board of directors has appointed Bernard W. Dan...chief executive officer, effective immediately.

Hang on. Didn’t some other guy...?

He will succeed Kevin R. Davis, who has [cough, cough] resigned from the company and its board of directors after 17 years with MF Global... “I would like to thank Kevin for the role he played in building one of the industry’s leading brokers in futures and options” blahdey-blah blah-blah-blah said Alison J. Carnwath, chairman. 

No mention of the fact that the stock, sold to you at $30 in the July 2007 IPO, put in a new intraday — $1.93 — and closing — $2.25 — lows Tuesday, despite the 11 per cent rampage in the broad market. So let’s take a look at ‘Transition Arrangements,’ under the inadvertently appropriate heading ‘Compensation Matters.’

• The company will pay you a transition payment of $7.5 million on the first regular payment date following the six month anniversary of your transition date. Nice. 
• Plus you get to keep 808,333 restricted stock units (or, as RSUs should be more accurately characterized, giftes from the goodnesse of the shareholder’s harte). 

Somewhat mitigated by the “Clear your desk” package being rather less costly than anticipated by the company’s proxy statement earlier this year. And the near 45 per cent celebratory run-up in the stock based on some combination of Davis’s defenstration and a less-lousy-than-anticipated pre-announcement of results for Q2:(Fiscal) 2009. 

As Churchill nearly said, “You can always count on the MF Global board to do the right thing—after they’ve tried everything else.” (Speaking of which, the company also announced that its insurers would spit up a $75 million contribution against the $76.8 million it paid to settle its role in the PAAM Scam).

Bernie Dan has a mess on his hands. But that’s not a first for him and, as an observer as astute as he is modest recently proffered (writing under an assumed name and in a different venue):  

Past performance is, as they say, no guarantee of future results. But it’s often a good clue, and Bernard W. Dan is certainly a better start than MF Global has had so far. 

The next project here involves having non-executive director (and NakedShorts reader) Bob Sloan finally stick his paw into his pocket and actually buy some stock, or at least start taking more than 25 per cent of his egregriously excessive — $250,000 a year — compensation in scrip rather than used bills. It’s that ol’ alignment of interests thing.

MF Global Appoints Bernard W. Dan as CEO

MF Global press release Oct. 29 2008

MF Global Conference Call with Investors

Oct. 29 2008

MF Global Form 8K

US Securities & Exchange Commission

Oct. 29 2008

Earlier on NakedShorts (after the jump)

Give my regards to 85 Broad

“High conviction” Masters of the Universe sale  

Goldman Sachs Dynamic Opportunities Limited (“GSDO”) is a Guernsey registered closed-ended, fund of hedge funds which is listed and traded on the main market of the London Stock Exchange (“LSE”). GSDO launched in July 2006 and was the first closed-ended, exchange listed investment company managed by Goldman Sachs. GSDO represented the largest initial public offering of a fund of hedge funds listed on the LSE up to that point. GSDO is managed by Goldman Sachs Hedge Fund Strategies LLC (“HFS” [or Commodities Corp. to its really old friends]) which has 38 years of experience in allocating to alternative investment strategies. GSDO invests in a concentrated portfolio of high conviction managers. GSDO allocates to both core strategies such as relative value, event driven, tactical trading and equity long/short strategies as well as other niche strategies.

A 12-month chart for GSDO, the GBP-denominated (and largest, with its £182 million market cap accounting for about 75 per cent of the pool at Oct. 27) share class:

Click image for detailed view

And, for your edification, a 12-month view of the NAV premium-discount:

Click image for detailed view

As someone very wise once said, in bear markets they come for everybody sooner or later. And who might they be coming for? Allocations at Dec. 31 2007, the latest date for which information seems to be available, including the 0.14 per cent holding in Amaranth International Ltd (good choice):

Click image for detailed view

More sordid details here. (US readers encountering the disclaimer page should feel free to lie to the pretend compliance qualifiers. I did.) 

Thanks Simon, for the hedzzup and the screen grabs.

Bo goes 0 for 2

Anne Unsolicited-Correspondent checks in:

I doubt it’s worth the pixels to report, but a very reliable source has told me (cue gasps of surprise) that [former Nymex boss and MotherRock founder] Bo Collins has done it again. Blown up, deep-sixed it, bought the farm that is. Statistically I’d say this guy is due for a real big win. I’m in for at least a mill when he starts up his new, new, new hedge fund.

Not quite, although near enough for gummint work:

1. According to a source familiar with developments, Collins is winding down the prop trading entity 1.618 Group, formed amidst much hilarity after the MotherRock debacle. “No outside investors involved, just Bo’s money,” according to the source.
2. Which seems to accord with the following post on an Elite Trader message board on Tuesday evening. According to the pseudonymous contributor, it was received from a friend on Friday (Oct. 17):    

1.618 Group is going through a restructuring that will result in a significant change to its core trading business. The company has closed outstanding positions and its participation in energy markets going forward will be greatly reduced. 1.618 Group will remain in operation but will be refocusing its business and trading efforts. Renovatio will remain an active participant in energy markets. 

Several employees will be leaving the firm to begin a new venture and are exploring strategic opportunities with RBC Capital Markets. The new company will be actively focused on trading energy markets. The separation is amicable and all parties involved are content with the restructuring and new business.

No word on what a Renovatio is. But it all helps explain the recent surge in hits on...

Earlier on NakedShorts

Diddley Bo

Apr. 26 2007

Capitalism, baby! Or capitalist baby?

CHICAGO, Oct 22 (Reuters) - The head of Citadel Investment Group, one of the world's biggest and most powerful hedge funds, said on Wednesday that America needs another stimulus package to boost growth and warned against new regulation for hedge funds. 

Kenneth Griffin...said in a panel discussion that fear is partly responsible for recent dramatic moves in financial markets, but urged regulators not to make things worse with inappropriate new rules...

Another US stimulus package needed — Citadel chief
by Ben Klayman
Reuters Oct. 22 2008

(Tug o’ the forelock: John Lothian)

Headline from an idea by Adam.

Buffett says ‘Short Uncle Sam’

“Buy American. I am” was the headline in The New York Times Friday, over an op-ed in which Avuncular of Omaha re-dished such hardy chestnuts as “Be fearful when others are greedy, greedy when others are fearful” and Wayne Gretzky’s “Skate to where the puck is going.” 

So...I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. 

The usual suspects spun the ‘Buy America’ message for all it was worth. Nobody seemed to notice the other side of the memo: sell Treasuries. Which, thanks to the flight-to-safety trade, are perhaps the last bubble intact amidst the financial smeltage. With new supply aplenty assured.

Buy American. I Am. 

by Warren E. Buffett

The New York Times Oct. 17 2008

Disclosure: Long TBT. As always, early, which is indistinguishable from being wrong. So far.

Not so high and mighty now, huh?

With the Brits about to quasi-nationalize what’s left of its banking sector this morning, it seemed appropriate to regurgitate this little blast from the past. 

The financial crisis in America is really a moral crisis, caused by the series of proofs...that the leading financiers who control banks, trust companies and industrial corporations are often imprudent, and not seldom dishonest. They have mismanaged...funds and used them freely for speculative purposes. Hence the alarm of depositors and a general collapse of credit.
The Economist  Nov. 2 1907

Tug o’ the forelock, JB. Different JB. 

Relevant factoid: H.M. TheQueen will, when the British government assumes a controlling stake in the Royal Broke of Scotland, achieve primary dealer status at the Federal Reserve Bank of New York, through her ownership of Greenwich Capital Markets Inc d/b/a RBS Greenwich Capital.  Two things:

1. Tim Geithner will have to start minding his Ps and Qs at those endless meetings about cleaning up the CDS debacle. 
2. Be interesting to see what happens with that big flash building with the raggedy-ass RBS banner and the big flash trading floor set-up now under construction in Scamford, Conn, adjacent to the UBS complex, speaking of things that have out-lived their usefulness. 

Math, by Fidelity

$400.52 + $2.15 = $406.13. Must’ve been a divvy in there somewhere. 

After the jump, a look at the chart for the last 2 mins of GOOG trading Tuesday afternoon, during which the price fluctuated from $0.00 to $489-odd, resulting in the following not-an-explanation:

Pursuant to Rule 11890(b) NASDAQ, on its own motion, has determined to cancel all trades in security Google Inc Cl - A "GOOG" at or above $425.29 and at or below $400.52 that were executed in NASDAQ between 15:57:00 and 16:02:00 ET. In addition, NASDAQ will be adjusting the NASDAQ Official Closing Cross (NOCP) and all trades executed in the cross to $400.52.

Not that it was the only stock involved in obvious windowdressing and related shennanigans.

Shamans of the Day

To commemorate yesterday’s $2.5 billion sale of Neuberger Berman, the core of Lehman Bros’ asset management business, to private equity firms Bain Capital and Hellman & Friedman, step forward another clutch of Wall Street’s Finest (© Jeff Matthews): 

Neuberger Berman, based on comparisons with other asset management firms, is valued at $6.5 billion by Standard & Poor's equity research and $13 billion by Ladenburg Thalmann & Co. The business is worth $8 billion according to Fox-Pitt Kelton Cochran Caronia Waller. Hintz, a former chief financial officer at Lehman who rates Lehman shares “market perform,” estimates the unit’s value at $7 billion.

Valuations that, to be fair, were no more delusional than most in Dick Fooled’s Fantasyland.

Nice trade, Brad!

Lehman May Get $7 Billion for Neuberger, Hintz Says

by Yalman Onaran

Bloomberg Aug. 12 2008

Weekend reading

Amidst shelling, out from their shells

The riotage brought (at least) a couple of hedge fund managers out of their shells. 

Let’s step back. Wall Street’s greed and short sightedness, and the consumers’ real-estate bacchanalia, was certainly a big part of recent events, but the biggest drivers in creating the current crisis were (IMHO) not the fault of private enterprise but, as usual, of the government...

Cliff Asness Is Mad As Hell

by Joe Nocera

Executive Suite (NYT) Sep. 21 2008

There is nothing wrong with Government coming to the rescue of financial institutions where mismanagement has caused risk of failure in a way that jeopardizes the stability of the entire financial system. What is wrong, and is both a violation of public trust and a display professional incompetence, is to contribute taxpayer money in a way that enriches management and the owners of these mismanaged companies rather than the taxpayers. 

Violating Trust and Professional Incompetence

by Tim McCormack

via Opalesque Sep. 24 2008

On the other side

1. Rip van Christopher Cox

2. The perils of lying to Dave
    in re: Letterman v. McCain

3. Spot the Braincell

    in re: Palin v. Python

4. Breaking: The ratters sold their souls

SEC triggers prison construction boom

Right about now, a whole bunch of people should be sweating buckets.

Washington, D.C., Sept. 24, 2008 – The Securities and Exchange Commission today charged a San Luis Obispo, Calif.-based investment adviser and its owner with fraud for failing to disclose a material conflict of interest when recommending that their clients invest in a hedge fund...

The SEC alleges that WealthWise LLC and its principal Jeffrey A. Forrest recommended that more than 60 of their clients invest approximately $40 million in Apex Equity Options Fund, a hedge fund managed by Salt Lake City-based Thompson Consulting, Inc. (TCI)...WealthWise and Forrest failed to disclose a side agreement in which WealthWise received a portion of the performance fee that Apex paid TCI for all WealthWise assets invested in the hedge fund.  From April 2005 to September 2007, WealthWise received more than $350,000 in performance fees from TCI.  Apex collapsed in August 2007, and WealthWise clients lost nearly all of the money they invested.

“Today’s action demonstrates that investment advisers will be called to account when, as we allege here, they receive undisclosed kickbacks for putting their clients into investments,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.  “We will aggressively pursue advisers who seek to line their pockets at the expense of their clients.”  [Emphasis added]

Investment advisors, or similar, taking undisclosed fee-splits from hedge funds in which they invest client assets? Or multiple similar variations on the fee-sharing theme, all featuring the word “undisclosed”? While not generally in the business of making predictions, NakedShorts predicts a tornado of revised disclosure memoranda. 

SEC Charges California Investment Adviser With Fraud

US Securities and Exchange Commission

Press release Sep. 24 2008 

SEC retires ‘Moron du Jour’ title

Panic-stricken regulator walking it back. Again.

So, after all today’s excitement, including this morning’s 5:56 am EDT press release, the following billet doux showed up at 3:45 pm EDT:

The commission staff is recommending to the commission a modification to its order prohibiting short selling in securities of specified financial firms.  This modification would extend, for the life of the order, the exemption for hedging activities by exchange and over-the-counter market makers in derivatives on the securities covered by the order.

The main impact of the recommendation, assuming its adoption, is that it will allow options and swap markets, and products such as the inverse and double inverse financial sector ETFs offered by ProShares and Rydex, to function in whatever manner it is that passes for normal in these barmy days. It also effectively guts the ban on short-selling the 799 financial stocks (see Pp 4-24) but...whatever.

Of course, it’s not the first time in little more than two months Cox’s Band of Ignorami have been forced into rapid retreat on attempts to strangle short-selling. The exact same thing happened after the announcement of its Jul. 15 emergency order which eliminated the naked short-selling of Phoney (FNM), Fraudy (FRE) and the listed primary dealers.

Statement of SEC Division of Trading and Markets

US Securities and Exchange Commission

Press release Sep. 19 2008

The case of the exploding heads

Regulators race to end short selling

Christopher Cox, chairman of the US Securities and Exchange Commission, has an excuse. He is an attorney and a politician and has the moral compass and market comprehension for which that sub-genus is held in such high regard. Hector Sants, chief executive officer of the UK’s Financial Services Authority, has none: he actually worked in capital markets, if working for Credit Suisse and its predecessors meets that standard.

Barry?

We are a nation of morons,
led by complete idiots, 
making us complicit in 
our own self destruction.

FSA bans shorting of financials

by Paul Murphy

FT Alphaville Sep. 18 2008

SEC Plans to Temporarily Ban Short-Selling

by Kara Scannell and Deborah Solomon

The Wall Street Journal Sep. 18 2008

SEC: Ban all short selling

by Barry Ritholtz

The Big Picture Sep. 18 2008