Hedge Fund News Wrap: Week Ending 9/6/13


Judge Delays SAC Capital Civil Lawsuit

U.S. District Judge Richard Sullivan has agreed to delay a civil forfeiture lawsuit against Steven Cohen’s SAC Capital in order to allow a criminal insider-trading

case to move forward.

Although Sullivan expressed concerns about “stopping this dead and starting from zero,” he agreed to delay the case until January 6th 2014, as a lawyer for the hedge fund firm informed him that the government has handed over terabytes of material in the criminal case relevant to the civil one.

Meanwhile, SAC Capital is set to raise its bonus and compensation structure for 2014 by 3.5 percent in an effort to stem the exit of employees. According to Bloomberg’s source, the increase will be paid to equity, macroeconomic and quantitative-trading portfolio managers.

Analysts working on long/short equity funds are set to receive a guaranteed minimum bonus of $300,000 for the year.

The increase in bonuses was announced days after investors had filed final redemption notices, leaving SAC with virtually little outside capital. Last week, SAC’s “last man standing,” Ed Butowsky, said he was forced to take his and his clients’ money out.

Michael Schachter, a lawyer for the hedge fund firm, said that he wasn’t concerned about the delay or the impact it would have on the firm’s ability to litigate the civil case.

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The Wall Street Journal



Bear Stearns Hedge Fund Lawsuit Dismissed

A U.S. District Judge rejected Bank of America’s fraud and breach of fiduciary duty claims against two former Bear Stearns executives, citing that the bank failed to prove damages that could be traced to the conduct of the two hedge fund managers.

Bank of America accused Ralph Cioffi and Matthew Tannin of lying about the health of their hedge funds, which had invested heavily in mortgage-backed securities that fell in value when the housing market collapsed in 2008. In 2007, Bank of America had securitized mortgage securities owned by the Bear Stearns hedge funds, and when the funds imploded in June of the same year, Bank of America lost billions of dollars in the C.D.O-squared deal.

Bank of America said it would not have entered these transactions had it known that the funds were “desperate to secure liquidity” to avoid an imminent collapse as investors piled up redemption requests.

In dismissing the suit, U.S. District Judge Alison Nathan said, “There is no evidence from which a rational jury could conclude that there was a duty on the part of the defendants [Bear Stearns] to disclose the redemptions at the funds.”

The dismissal of the civil claim is another victory for Cioffi and Tannin. Both were acquitted in 2009 of criminal fraud and conspiracy charges over the handling of the hedge funds, whose collapse left investors with an estimated $1.6 billion in loses.

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Chicago Tribune



Citigroup Sheds Hedge Fund to Comply with Volcker Regulations  

This past month, Citigroup Inc has sold more than $6 billion in private equity and hedge fund assets in order to comply with regulatory changes, known collectively as the Volcker Rule, that restrict a bank’s holding of alternative assets.

On August 9, Citi sold a $1.9 billion emerging markets hedge fund to the fund’s manager. Then last week, Citi sold a $4.3 billion private equity fund, Citi Venture Capital International, for an unknown price to Rohatyn Group.

The Volcker Rule, which is a specific section of the Dodd-Frank Reform, restricts banks from making speculative investments that do not benefit their customers. In addition, it limits the amount banks can invest in private equity and hedge funds to 3 percent of tier one capital. These changes will come into effect within the next few years.

According to ValueWalk, “some critics have contended that alternatives didn’t contribute to the financial crisis and that the new regulations are shoring up weaknesses that might not exist.” However,  former U.S. Federal Reserve Chairman Paul Volcker disagrees, citing that speculative activity played a key role in the events leading to the financial crisis of 2008.

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Fund of Hedge Funds CEO Arrested in Prostitution Sting 

James A. Bisenius, the CEO and CIO of Common Sense Investment Management LLC, was among nine men arrested in a prostitution sting in Tigard, Oregon. This event has thrust Common Sense into the media spotlight, and the fund’s president, Dean Derrah, released a statement following the CEO’s arrest:

“Jim Bisenius’ recent personal transgression bears no reflection on this outstanding team of professionals or the quality of portfolio management at CSIM. Going forward, the firm’s partners have decided that Jim will remain in his role as chief executive officer and chief investment officer and he will deal with this recent event as the personal matter that it is.”

The $2.9 billion firm was founded in 1991, and invests money in hedge funds on behalf of endowments and pension funds. According to Dealbook, some of its clients include the Cincinnati Retirement Fund, the Oklahoma Municipal Retirement Fund, and the Fresno County Employees’ Retirement Association.

According to DealBook’s source, the news could potentially harm the fund’s reputation. Hedge funds are known for being media shy, and Common Sense has managed to remain out of the limelight for more than two decades since its inception.

Bisenius faces up to one year in prison and a $5,000 fine if convicted.

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