Hedge Fund News Wrap: Week Ending 12/20/13

Former SAC Trader Convicted of Insider Trading

After ten hours of deliberation, a jury found Michael Steinberg, a senior employee at SAC Capital Advisors, guilty of insider trading. Steinberg was convicted of four counts of securities fraud and one count of conspiracy for trading using confidential information. The reading of the verdict was temporarily delayed after Steinberg appeared to faint in court.


The verdict is a blow to the giant hedge fund firm, as Steinberg is the highest-ranking employee at SAC Capital to stand trial for insider trading. So far, a number of other SAC employees have pleaded guilty to insider trading amid a wave of SEC lawsuits, according to multiple news reports.

For over a decade, the government has been investigating SAC Capital, which has been known for its better-than-average performance in the industry. At its peak, SAC managed $15 billion in investments, with $6 billion belonging to CEO and founder Steven Cohen.

A former portfolio manager, Mathew Martoma, has also been charged with insider trading and is expected to go on trial next month. Martoma’s lawyer released a statement on Wednesday, “The facts in Mr. Steinberg’s case are totally unrelated to the case against Mr. Martoma.”

Moreover, the Securities and Exchange Commission has filed a continuing civil case against SAC founder, Steven Cohen, but he has not been accused of criminal wrongdoing. To be sure, according to the Wall Street Journal, “the decision to charge him or not could be influenced by whether prosecutors are able to extract cooperation from current or former employees in the wake of Mr. Steinberg’s conviction.”

Currently, SAC is in the process of scaling back its operations in order to become a family office. As a family office, the firm will manage Cohen’s money exclusively. However, the Wall Street Journal reports that the FBI’s insider-trading investigation into SAC and Cohen remains active.



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The Wall Street Journal



Hedge Fund Calls for Split of Darden Restaurants

Under mounting pressure from the hedge fund firm, Barington Capital Group, Darden Restaurants Inc. will split off or sell its struggling Red Lobster chain.

Barington Capital Group holds more than two percent of Darden. In September, the hedge fund firm demanded that Darden split Red Lobster and Olive Garden into a separate company to keep them from weighing on the returns of the other faster-growing franchises at Darden. According to Reuters, Barington says that Darden has become too large to compete with rivals such as the Cheesecake Factory and Brinker International’s Chili’s Grill & Bar.

According to FINalternatives, Darden will hold a tax-free spin-off of Red Lobster and will stop adding new branches of its Olive Garden restaurants. In addition, the restaurant group will slow the growth of its LongHorn Steakhouse chain, while reducing acquisitions. Darden has also outlined a plan that will cut spending by $60 million annually. The extra money will be used to support dividends and share buybacks.

However, it appears that the firm is not happy with Darden’s latest moves. James Mitarotonda, chairman and chief executive of Barington, released a statement: “While today’s announcement is a first step toward improving focus and operating execution at Red Lobster and Olive Garden, we view the plan by Darden as incomplete and inadequate.”



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Treasury Finds Hedge Funds Less Risky Than Perceived

A new study conducted by the United States Treasury’s Office of Financial Research finds that the hedge fund industry is not as risky as some regulators thought.

Richard Berner, the director of the Treasury’s Office of Financial Research, says that the conclusions are “tentative,” and are based on an examination of hedge funds’ “leverage levels, risk modeling, and the amount of hard-to-value assets.”

These findings may have an impact on how policymakers decide future rules and regulations on financial institutions.

The data was obtained from new fillings required under the Dodd-Frank Act of 2010, which requires large private funds to submit confidential information to the United States Securities and Exchange Commission. The fillings allow regulators to monitor hedge funds and any systemic risks they might impose on the economy.

In response to the report, Richard Baker, president and chief executive of the Managed Funds Association, released a statement:

“We appreciate the OFR’s analysis of the …data, which largely confirms the history of data on hedge fund strategies and their use of leverage, and tracks with MFA’s view that hedge funds currently do not pose a systemic risk.”



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First-Ever Hedge Fund Marketing Video Goes “Viral”

In September, the 100-year old ban on hedge fund advertising was lifted. Most firms have proceeded with caution, while others scoff at the idea of advertising their offering to the general public. However, for the first time ever, a hedge fund firm has launched a marketing video.

Topturn Capital recently became the first hedge fund to launch a video advertisement. The video went “viral” in a short amount of time, according to media reports, and has garnered more than 6,000 views in four days.

In the video, Topturn Capital features a professional surfer, Joe Curren, riding the waves. According to HedgeCo, A “top turn” is a piece of surfing terminology that refers to a surfer’s ability to reposition himself back into the momentum of moving water.

In a statement, Topturn co-founder Dan Darchuck states that hedge funds and private equity industries are now operating in a new marketing environment:

“A marketing deck seen by a few highly informed industry experts might provide excellent detail, but will mean very little to the public and wider financial community. And it certainly won’t spark their imaginations. That’s why our first public outreach video is all about reaching a broader audience.”

Darchuck also states that the changing regulatory environment has encouraged Topturn to “rethink everything we thought we knew about marketing.”

“This notion that the investment community won’t respond to more standard marketing content is obviously not accurate. Of course, we still need to provide investors with the necessary details, but marketing is about starting those new conversations which can get you there.”

Watch the video here.



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Sacramento Bee