Hedge Fund News Wrap: Week Ending 8/2/13

Former-Stock Analyst Charged With Insider Trading in Connection to SAC Indictment

Following last week’s indictment of SAC Capital, federal authorities have now charged a former stock analyst with insider trading. Sandeep Aggarwal, a former employee from Collins Stewart LLC, allegedly shared secret information with at least two hedge funds regarding a joint venture between Microsoft and Yahoo back in 2009.

According to U.S. Attorney Preet Bharara, “Aggarwal leveraged his contacts in the technology industry to obtain an illegal edge in the form of inside information about a highly anticipated development, then lied about his criminal conduct.”

The two hedge funds that were contacted by Aggarwal are SAC Capital and Millennium Management LLC. While Millennium Management reported Aggarwal to his employer under suspicion of passing insider information, a former manager from SAC Capital acted on the tip and proceeded to buy several hundred thousand shares of Yahoo stock for the hedge fund and for his personal account.

The manager in question, Richard Choo-Beng Lee, pleaded guilty to insider trading charges just last week. Lee has also been considered crucial to the government’s criminal case against SAC, as prosecutors have mentioned that he was part of an “insider trading group” at his previous employer—a piece of information that Steve Cohen decided to overlook upon hiring him.

SAC continues to fight the insider trading charges brought against the hedge fund. A spokesperson for the firm, Jonathan Gasthalter said, “SAC has never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously.”

See detailed coverage from:

BusinessWeek
Business Insider
DealBook

 

Yahoo Sued by Investor Over Repurchase of Third Point Shares

Shareholder Lawrence Zucker filed a lawsuit against Yahoo! Inc. for its repurchase of Daniel Loeb’s 40 million shares, totaling $1.16 billion. As part of the repurchase deal, Loeb also resigned from the company’s board of directors after a two-year effort to revamp the company.

The suit, which was filed in a New York state court, claims that Yahoo allegedly breached its fiduciary duty, wasted corporate assets, and allowed unjust enrichment.

According to BusinessWeek, Yahoo paid $50 million for the share repurchase, which is more than it should have paid based on the market price of its stock on the day before the sale was completed. As a result, Daniel Loeb’s hedge fund, Third Point LLC, was able to pocket $600 million from the deal.

Last week, the transaction between Third Point and Yahoo was under media scrutiny as some analysts felt it was an act of greenmail, or even insider trading. Loeb’s hedge fund is barred from owning more than three percent of Yahoo shares, and the hedge fund manager is not allowed to solicit proxies or make a shareholder’s proposal until 2018.

In response to the lawsuit, Third Point released a statement, “This is a baseless filing in law and in fact, and will be defended vigorously.”

See detailed coverage from:

BusinessWeek
Bloomberg

 

Loeb Takes Aim at Sony, Calls Entertainment Division “Red-Headed Step Child”

Following his departure from Yahoo’s board of directors, Daniel Loeb has found a new management team to shake up. This time, it’s at Sony Entertainment. In a heated letter to board members and investors, Loeb takes a dig at the current chief executive of the company, blaming him for Sony’s underperformance.

“Entertainment’s culture is characterised by a lack of accountability and poor financial controls. It’s perplexing that [chief executive Kazuo] Hirai doesn’t worry about a division that released 2013’s versions of Waterworld and Ishtar.”

Here, Loeb is referring to Sony’s “After Earth” and “White House Down” movies, which underperformed in the box office.

Since May of this year, Loeb has called for a breakup of the company, as he believes it is being “ineffectively overseen” and needs to be led by a board “whose job it will be to worry about such troubling results.”

To make his point even clearer, Loeb slammed the company’s management, saying that it must be embarrassed to address its problem as it treats Entertainment like its “red-headed stepchild.”

In response to Loeb’s blunt comments, a spokesperson for Sony stated:

“Sony is focused on creating shareholder value by executing on our plan to revitalize and grow the electronics business, while further strengthening the entertainment and financial service businesses, which generate stable profit. The Sony board of directors, as previously noted, is reviewing its proposals. Sony looks forward to continuing a constructive dialogue with our shareholders as we pursue our strategy.”

See detailed coverage from:

MarketWatch
DealBook
Financial Times

 

Hedge Fund Technology Spending is on the Rise

According to an article on HedgeCo.Net, hedge funds are willing to spend more these days on compliance technology as a way to avoid regulatory pitfalls. A study conducted by Aite Group, “The Trade Surveillance Compliance Market and the Battle for Automation,” found that compliance technology spending will most likely increase by 35% from 2012 to 2015.

An analyst in Institutional Securities and Investment at Aite Group said, “A good compliance platform should navigate many challenges in order to generate accurate and consistent alerts, as well as the specific key features a system must have in over to remain competitive.”

The growing costs of maintaining in-house resources has continued to grow over the past couple of years, as technology often requires realignment to comply with new regulation. As a result, many hedge funds are outsourcing their compliance requirements.

Click to learn about TradingScreen’s risk and compliance applications for the buy side:

Risk-in-a-Box
Buy Side Monitoring Window
Multi-Asset TCA

See detailed coverage from:
HedgeCo

 

“Fabulous Fab” Found Liable in Fraud Case

Fabrice Tourre, infamously known as “Fabulous Fab,” has been found liable on six of seven counts of violating securities law on Thursday. Tourre, who had been accused of misleading investors regarding a complex mortgage-backed securities package, was vice president at Goldman Sachs Group Inc.

The mortgages tied to the complex securities were selected by the hedge fund, Paulson & Co., which then proceeded to bet against the security and managed to profit $1 billion while other investors lost that same amount.

The case was closely watched by most on Wall Street, as the SEC continues its crusade against high-profile traders following the economic crisis of 2008.

However, critics have questioned the SEC’s decision to go after mid-level employees and not the banks that were responsible for the economic meltdown. For instance, Goldman Sachs was not part of the trial, as the company reached a settlement with the SEC totaling $550 million without admitting or denying wrongdoing.

Dennis Kelleher, CEO of the nonprofit group Better Markets, said, “No one should be allowed to break the law, but the SEC must stop chasing minnows while letting the whales of Wall Street go free. That only rewards and incentivizes more crime. The American people deserve better.”

See detailed coverage from:

Forbes
Huffington Post
Reuters