Hedge Fund News Wrap: Week Ending 10/11/13

Hedge Fund Manager Falcone Banned from Insurance Unit

In August, Philip Falcone, the hedge fund manager of Harbinger Capital, agreed to a five-year industry ban while admitting wrongdoing to settle charges by the U.S. Securities and Exchange Commission. 
Now, the fund manager is being banned for seven years from decision-making roles at Fidelity & Guaranty Life Insurance, a unit of his firm.

In addition, Falcone is barred from “exercising direct or indirect control over the management, policies, operations, and investment funds” of Fidelity & Guaranty Life or any other insurer licensed in New York. The ban also applies to employees of his hedge fund.

In an email, Falcone stated, “I look for value in the markets and find management to operate the companies where we invest. I’ve never been involved in operating the insurance asset nor have I been on [its’] board.”

According to The Wall Street Journal, insurance companies with ties to hedge funds and private-equity firms have been expanding rapidly, which concerns regulators as “they have been studying possible new rules aimed at ensuring that the operating units are well capitalized.”

Regulators are concerned that insurers with ties to investment firms might be trying to meet short-term, high-return expectations with their own investors, which increases the possibility of these insurance companies failing.

“It is vital to ensure that those who operate insurance companies will always put retirees and policyholders first and act with the utmost integrity,” said Mr. Lawsky, the superintendent of the New York Department of Financial Services.

 

See detailed coverage from:

FINalternatives

Reuters

The Wall Street Journal

 

 

SAC Capital Given $1.8 Billion Ultimatum

After months of denying criminal insider trading allegations, SAC Capital Advisors is leaning towards admitting wrongdoing and paying a record fine, according to two sources for DealBook.

Federal prosecutors, led by General Attorney Preet Bharara, have offered the fund a deal that would require them to plead guilty and pay a penalty of $1.8 billion. SAC Capital has until November to make a decision.

If the fund does not accept the deal, federal prosecutors will pursue a much larger fine against the fund.

Last month, lawyers for the hedge fund argued that the $1.8 billion fine was too high, and that it should be reduced by the $616 million SAC had already paid to settle other insider-trading allegations earlier this year.

The current lawsuit against SAC Capital seeks to obtain “any and all” of the fund’s assets, which includes most of Steve Cohen’s assets.

After a settlement, SAC would most likely become a family office, and would manage Cohen’s money exclusively.

 

See detailed coverage from:

FINalternatives

DealBook

New York Business Journal

 

 

Hedge Fund, FX Concepts, to Close

After thirty-two years of being involved in the hedge fund industry, and once considered the largest currency hedge fund in the world, FX Concepts is winding down its investment management operations.

According to the firm’s Vice President, Jonathan Clark, “assets at the firm have dropped to levels that can no longer sustain the business.”

In the last couple of weeks, the firm’s final large client, the San Francisco Employees’ Retirement System, decided to redeem more than $450 million of the firm’s remaining $661 million in assets. This led the firm to lay off most of its employees, and the number has now dwindled down to twenty—a stark contrast from the sixty employees the firm had during its peak in 2007.

FX Concepts’ Chief Strategist, Robert Savage, told Reuters that sustained performance decreases in key funds had been the “main contributor to the firm’s current situation.”

The move by FX Concepts underscores the hedge fund industry’s continuing underperformance, which has left many investors dissatisfied. According to the HRFX Global Hedge Fund Index, hedge funds are up 4.29 percent year-to-date, while the S&P is up nearly 20 percent year-to-date.

 

See detailed coverage from:

Reuters

Forex Magnates

CNBC

 

 

Hedge Fund Manager, James Fry, Gets 17 ½ Years in Connection to Ponzi Scheme

Former hedge fund manager, James Fry, was sentenced to 17 ½ years in prison on five counts of securities fraud, four counts of wire fraud, and three counts of making false statements to the U.S. Securities and Exchange Commission.

Fry’s hedge fund, Arrowhead Capital Management, was used by Thomas Petters to mislead clients as he used their investments to finance some of his big box acquisitions. Then, Petters fabricated retail orders from his acquisitions and used them as collateral to borrow more money through the funds.

According to FINalternatives, Fry was not accused of knowing about Petters’ Ponzi scheme, but was found guilty of lying to investors about his Petters investments and the criminal history of Petters’ chief fundraiser, Frank Vennes.

Arrowhead clients lost $120 million in the Petters’ scam, and Fry is believed to have collected as much as $40 million in fees and commissions.

Thomas Petters was convicted of fraud in 2008 and is currently facing a 50 year federal sentence for turning Petters Group Worldwide into a $3.65 billion Ponzi scheme, making it the third-largest hedge fund fraud case in U.S. History.

 

See detailed coverage from:

HedgeCo

FINalternatives

 

 

Former Hedge Fund Manager, John Arnold, Donates $10 Million to Head Start Program

Former hedge fund billionaire, John Arnold, and his wife Laura, donated $10 million in emergency funding to the federally-funded Head Start Program after some of its centers closed due to the government shutdown.

Last week, it was reported that as much as 3,200 of the 19,000 preschoolers who benefit from the program had been sent home. The preschoolers were from seven Head Start programs that were forced to shut down across six different states.

Sally Aman, a Head Start spokeswoman, said that the “generous gift” would only sustain the seven programs through the end of the month.

In a statement, the Arnolds said, “We sincerely hope that our government gets back to work in short order, as private dollars cannot in the long term replace government commitments.”

 

See detailed coverage from:

NBC News

The Wall Street Journal

ABC News