Hedge Fund News Wrap: Week Ending 11/15/13

Hedge Fund Employee Charged in Carter’s Inc. Probe

Mark Megalli, an investment professional at the New York-based hedge fund, Level Global Investors LP, has been charged with trading on insider information about the clothing company Carter’s Inc.

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Allegedly, Megalli helped Level Global Investors avoid about $2.4 million in losses and make $853,655 in profits.

According to the Securities and Exchange Commission, Megalli obtained the information from a former vice president of Carter’s Inc, Eric Martin. Martin, who had left Carter’s and started his own consulting firm, leveraged a contact at Carters to obtain confidential information related to market-moving events at the company. This information was then passed off to Megalli, so that he could trade on it.

Among the other individuals charged in connection with the investigation at Carter’s were the company’s former executive vice president, Joseph Elles, and former president Joseph Pacifico.

 

See detailed coverage from:

Reuters

Newsroom America

The Wall Street Journal

 

 

 

SEC Negotiates First Deferred Prosecution Agreement with Hedge Fund Administrator

For the first time, the Securities and Exchange Commission negotiated a deferred prosecution agreement to gain the cooperation of an individual involved in a fraud investigation.

On Tuesday, the SEC announced that it had reached a deferred prosecution agreement with Scott Herckis, the former hedge fund administrator for Heppelwhite.

According to Dealbook, the SEC said that Herckis had given enough information about “accounting discrepancies” at the hedge fund to allow the regulatory body to shut it down last year. An emergency enforcement action against the fund’s founder, Berton Hochefeld, was filed.

The SEC’s complaint accused Hochfelt of misappropriating over $1.5 million from the hedge fund and overstating its performance to investors.

For his cooperation, Herckis will not be prosecuted.  However, Herckis must pay back $50,000 in compensation he received during his employment with Heppelwhite. In addition, Herckis will be banned from acting as a fund administrator for five years.

In the past, the SEC would use deferred prosecution to reward companies that provided their full cooperation, but this is the first time that they have used it with an individual.

Steven Nadel, a hedge fund lawyer at Steward & Kissel comments that the SEC “is going to use all its tool in its tool belt to go after the big fish.”

 

See detailed coverage from:

DealBook

Corporate Crime Reporter

HedgeCo

 

 

 

Hedge Funds Starting to Eye FedEx

Some of the top investors in the hedge fund industry are disclosing new positions in FedEx as part of their quarterly ownership disclosures.

According to Dealbook, Third Point had accumulated two million shares in the third quarter, Soros Fund Management disclosed that it had bought 1.5 million shares and call options, and Paulson & Company showed that it had bought 646,800 shares.

Collectively, hedge fund managers hold 3.8 percent of FedEx.

Jack Atkins, an analyst at Stephens Inc told Bloomberg News that hedge fund managers will have to confront a strong-willed CEO if they’re looking for change.

“If they think they’re going to come in and get Fred Smith to do their bidding, I think that’s wishful thinking at best,” he said. “Fred Smith is not going to be dictated to by an outside party, especially when shares are hitting an all-time high.”

Out of all the recent hedge-fund managers who have disclosed new positions, Dan Loeb is known to be the most aggressive when it comes to change. For instance, Loeb had sent a scathing letter to Sony Inc.’s management back in August, stating the company was being “ineffectively overseen.”

In an interview with CNBC today, Smith said that he was “flattered” about Dan Loeb’s recent investment in the company, but that he doesn’t plan on leaving the company in the “foreseeable future.”

 

See detailed coverage from:

CNBC

DealBook

Bloomberg News

 

 

Goldman Sachs to Wind Down Hedge Fund Unit

On Wednesday, Goldman Sachs’ CEO Lloyd Blankfein announced that the firm would begin to wind down its hedge fund unit to comply with new regulations under the Volcker Rule. However, Blankfein stressed that investment banking would remain as the primary focus for Goldman Sachs Group Inc.

Under the Volcker Rule, banks are not permitted to make speculative investments that do not benefit their customers. Former United States Federal Reserve Chairman Paul Volcker, after whom the rule is named, argues that speculative activity played a key role in the financial crisis of 2008.

Goldman Sachs is one of the few Wall Street banks that have scaled back to comply with the Volcker Rule. Back in June, JP Morgan announced its plans to break off its private equity unit as an independent firm.

At the Bank of America Corp. Conference, Blankfein stated that clients would continue to demand certain services regardless of Volcker prohibiting them. He also added that the rule would affect key businesses, as they won’t be as attractive as they once were.

 

See detailed coverage:

CNBC

HedgeCo

ValueWalk