Author Archives: Lila

Reverse Midas: SAC Spin-Offs Fail Even When They Succeed

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Reading this report about SAC Capital by Reuters, I was struck by a few things.

But first, here’s the chronology (skip below for my argument):

  • 1980s: Steven Cohen allegedly involved in insider trading at Gruntal
  • 1999-2004, 2004-2007, 2007-2009: Insider trading at Spherix (ex-SAC trader Richard Lee’s own firm); and possibly at Stratix (founded by Goodman and Grodin in 2004, also ex-SAC traders, with SAC as a sizable investor); and (again, possibly) at SAC itself, by Richard Lee and Ali Far, also an alum of SAC.
  • 2006: SEC investigates SAC and two other firms for manipulation of Fairfax Financial stock. Investigation dropped in 2007
  • 2007-2009: Agent Kang investigates 20 hedge funds for insider trading
  • 2007: SEC investigates SAC over Andrew Tong’s sex charges. Case sealed in 2008. Reopened in Nov. 2009, this time focusing on insider trading. About this time, Richard Grodin’s and Ian Goodman’s firm Stratix (where Lee and Far worked) closes. Grodin then begins Quadrum, which also closes
  • Oct-Nov 2009: Galleon Group charged by Kang with insider trading and 14 traders arrested, including former SAC traders, Richard Lee and Ali Far
  • Nov-Dec 2009: Cohen’s ex-wife alleges insider trading when Cohen was at Gruntal & Co. in the 1980s
  • Dec. 2009: Ex-SAC trader and founder of Stratix Richard Grodin subpoenaed

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Now that you have that in mind, here are the things that struck me:

1. The high number of SAC traders who seem to have gone off into their own businesses.

You’d think with all that money and the fund’s record as the most consistently successful in the business (only one bad year on record), their traders would stay forever. Quite the opposite.  People seem to have been leaving all the time to form their own businesses.

But SAC was also said to be a very tough environment. You produced, or you left.

So maybe that’s why Lee and Far, Grodin and Goodman, all left to found their own firms?
Could be. But I’m not convinced.

2. None of the spin-off firms seems to have been very successful.

Why not? Why couldn’t these hot-shot traders make money on their own?

The Reuters piece suggests that perhaps the SAC experience didn’t foster business ability. And that perhaps SAC traders flounder without SAC’s huge supporting cast.

But those things are likely to be true of other firms as well, not solely SAC.

Still not convinced.

Furthermore, consider this.

3. A spin-off fund that didn’t get money from Cohen ended up quite successful:

“Healthcor, a healthcare industry focused fund, had raised $3.2 billion by June 2009 since launching four years ago. The fund returned 25 percent in 2006, 18 percent in 2007, and was up 4 percent last year, when the average hedge fund lost 19 percent. In the first 10 months of 2009, Healthcor was up 7 percent.

Healthcor, founded by Arthur Cohen and Joseph Healey, opened without any financial support from SAC. In fact, soon after Cohen and Healey struck out on their own, SAC sued the pair, accusing them of breaching their employment contracts. The matter ultimately was settled. (Healthcor’s Cohen is not related to SAC’s Cohen).”

4. Even spin-offs that were doing well were shut down.

When Stratix started in 2004, it had $60 million given to it by SAC. When it shut down, in 2007, it was up 17% and had $530 million under management. Yet it shut down. Why did it shut down? Those numbers sound pretty good.

Another spin-off, Fontana Capital, started out in 2005 with $50 million of SAC money. It grew to $325 million by 2006.  But sometime in 2007, Cohen pulled out all his money. And in 2009, Fontana was down to $16.1 million, despite being down only 7.69%, compared to the average S&P Financial index loss of 57%. Again, that sounds like it wasn’t doing all that bad.

Reuters quotes someone familiar with the record of ex-SAC traders:

“So many of the ex-SAC people seem to have this model where they attract you with fantastic returns in the first year but in year two or three or four you get annihilated,” said a person who is familiar with several former SAC employees’ records.

Shades of Bernie Madoff….

Someone need to look closely at what happened to the money at these firms…

SEC Subpoenas Former SAC Trader Grodin

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El Economista carries this Reuters report, dating from yesterday, Dec. 24, on the SEC´s subpoena of a former manager at Steven Cohen´s SAC Capital hedge-fund:

“Federal prosecutors in the Galleon Group case have sent a subpoena to a former employee of Steven A. Cohen’s SAC Capital Advisors, a sign that the scope of the problem into the largest hedge-fund insider trading case in history is expanding, the Wall Street Journal reported, citing people familiar with the matter.

The subpoena seeks trading records from a former SAC hedge fund manager, Richard Grodin, who employed a cooperating witness in the insider trading case announced last week, the Journal said.”

My Comment

It’s all getting pretty tangled, so first let me try to bring some order into the picture.

  • I blogged, via Terri Buhl, that hedge-funds are going SAC-remote, deleting their email records and changing their trading positions so they don´t look too similar to Cohen´s, in anticipation of a probe. And now here come the subpoenas.
  • The subpoena to Grodin arises out of the two-year FBI investigation of twenty hedge-funds that became public in October 2009 with the Galleon arrests.
  • The investigation is headed by FBI agent B. J. Kang.
  • Kang also led the probe into the alleged stock manipulation of Fairfax Financial in 2006, in which SAC was one of three hedge-funds involved.
  • The two traders, Richard Choo-Beng Lee, and Ali Far, have admitted that they were involved in insider trading not only at their own fund Spherix, but  going back to 1994. This makes it highly probable that they were also trading illegally at SAC, where Lee worked for about five years.
  • Specifically, the agreement Far and Lee signed with the US Attorney’s Office charges conspiracies to commit insider trading from 2007-2009, from 2004-2007, and from 1999-2004.
  • Galleon chief Raj Rajaratnam’s brother Rengan, who was investigated for insider trading at his firm Sedna, also worked for SAC in 2003.
  • Lee is also going to be testifying about any insider trading he might have done at another firm, Stratix, which was founded by former SAC trader Richard Grodin, and yet another SAC alumnus, Ian Goodman.
  • Stratix, whose investors include SAC (is your head whirling?), shut down in 2007.
  • Then Grodin began another firm, Quadrum, which also shut down (“abruptly”, says Reuters).
  • Also, in November, we had the bizarre revelations of Andrew Tong, who claims he was sodomized and forced into oral sex, cross-dressing, and the ingestion of female hormones (to make him the perfect androgynous trader) by his boss, SAC trader Ping Jiang. Investigated in 2007, the case was dismissed as lacking in substance. The records were sealed, leaving many people feeling that the SEC, as a Harvard paper recently confirmed, tends to go after smaller rather than bigger fish.
  • But in November ’09, the Tong case was opened again and given wide attention on the internet, this time with more attention to Tong’s claims that Ping Jiang forced him to into illegal trading that led to a $3 million loss. The loss was the reason SAC gave for Tong’s firing. But Tong himself claims that that was just an excuse and that the sexual harassment was the real reason. He also claims that Cohen knew what was going on and didn’t care, as long as money was being made. In keeping with the firm’s reputation for secrecy, Cohen made everyone sign confidentiality agreements and kept even top officers in the company out of the loop.
  • These revelations have been followed by new charges made by Cohen´s ex-wife Patricia that her husband had cheated her out of money in their divorce settlement. Some of that money, she now claims, was hidden from the government and came from illegal insider-trading by  Cohen was he was a young trader in the 1980s at Gruntal & Co., a shady brokerage with a history of embezzlement and scandal.

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NOTE:

**If you want to understand the modus operandi of one of these insider trading deals, read Deep Capture´s latest analysis. It displays some of the emails sent by certain hedge-funds that colluded with SAC in the manipulation of the stocks of Fairfax Financial, Jim Chanos´Kynikos and Third Point among them.

The Fairfax investigation (opened in 2006) petered out, but Deep Capture’s email collection nixes any chance that the record can be wiped clean by any of the funds involved (you can also see Bagley´s piece posted at Seeking Alpha).

Oscar Wilde On Incarnation

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Oscar Wilde in De Profundis

“Who never ate his bread in sorrow, Who never spent the midnight hours Weeping and waiting for the morrow, – He knows you not, ye heavenly powers.’

They were the lines which that noble Queen of Prussia, whom Napoleon treated with such coarse brutality, used to quote in her humiliation and exile….

Clergymen and people who use phrases without wisdom sometimes talk of suffering as a mystery. It is really a revelation. One discerns things one never discerned before. One approaches the whole of history from a different standpoint. What one had felt dimly, through instinct, about art, is intellectually and emotionally realised with perfect clearness of vision and absolute intensity of apprehension. Continue reading →

Den Of Thieves: Hedge-Hogs Go Into SAC-Remote Mode

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Update: Deep Capture indicates that they have some emails proving insider trading, so any attempts to delete files/emails by SAC and other firms might not be any good, since  the files just happen to implicate said firms in…insider trading.

Ah, the web we weave…etc. etc.

Terry Buhl at Hedge Fund-Implode.com reports that residents of hedgefund land are going into SAC-remote mode:

“Funds like Blue Ridge, Greenlight, Third Point, Glenview, and Maverick are cutting back on any contact with King Stevie. When we asked major players such as Jim Chanos and others if they’ve been pinging Stevie about a trade lately, you’ll get a very defensive `no.’ Why? Because word on the street is they all think FBI special agent BJ Kang, who is now dogging Stevie, has the goods to deliver the hammer soon in the form of  an indictment or arrest for insider trading.

Extra measures are being taken to hire data-miners to comb through any and all emails firms and their trading consultants ever sent to anyone at SAC in an attempt to erase them from internet memory. According to traders we talked with, they are even going as far as getting out of trades that might look similar to any of Stevie’s. So it looks like running due diligence on your `SAC risk’ to prove to your investors that you’re clean – like Larry Robbins of Glenview capital just did – is the new `killing it’.”

My Comment:

Just to recap.

*Steven Cohen is the multibillionaire chief of legendary hedge-fund SAC, which sits at the top of the heap among funds. Cohen, famously reclusive, is said to have had only one bad year of trading.

Now he´s having a bad time from the  FBI investigation of the insider-trading case against New York-based hedge-fund Galleon Group, which is proving to have teeth in it.

SAC has a history of elbows-and-knees-style trading practices, according to this 2003 Business Week article.

*The head of Galleon (which once managed $7 billion in assets), Sri Lanka-born Raj Rajaratnam was arrested, along with five others, on October 16  in a $17 million dollar insider-trading case brought by federal prosecutors and the FBI.

(The numbers vary: it´s $20.8 million, according to a later WSJ report, and $25 million in a NY Daily report)

*The case was unusual in that FBI agent B. J. Kang used wire-tapping for the investigation (normally used only in drug-related cases).

*The Galleon arrests were quickly followed by other arrests of  traders, lawyers and hedge-fund managers on November 5, including one Zvi Goffer, who, as the brains of the insider network, was referred to as “the octopussy.” This brought the total number of arrests in the case to 14 (Correction on 12/29: I read 20 elsewhere) and added another $20 million to the fraud, already the biggest in Wall Street history since the days of Ivan Boeksy in the 1980s.

*On December 16, Steven Cohen´s ex-wife Patricia accused him of hiding millions from her and of insider trading in a 1986 merger when Cohen was a young trader at now-defunct broker, Gruntal.

*Indicted on December 17 (December 15, according to one source) by a Federal grand jury  on multiple criminal counts of insider trading and securities fraud,  Rajaratnam  pleaded not guilty. Many of the charges against him carry upto 20 year prison sentences. The trial is expected to take place in the summer of 2010.

*The broker Gruntal has an interesting history, in that it seems to be the place where several of the biggest names on Wall Street (aka some of the most crooked players) crossed paths:

Bernie Madoff, Ezra Merkel (Madoff fund associate), Ivan Boesky (infamous 1980s trader), Michael Milken (junk bond innovator), Carl Icahn (famed and feared corporate raider), Steven Feinberg, ,…and yes, Steven Cohen:

From Deep Capture:

“Another of Madoff’s most important “feeders” was J. Ezra Merkin, who managed the Ariel Fund, which seems to have been designed specifically to raise money for Madoff’s fraudulent investment business. In this regard, the New York attorney general has described “Merkin’s deceit, recklessness, and breaches of fiduciary duty…”

While Merkin was “deceitfully” feeding the Madoff Ponzi, he was also a co-owner, along with Steve Feinberg, of Cerberus Capital Management, a fund named after the mythological three-headed dog that guards the gates of Hell.

Previously, Feinberg was a top trader for Michael Milken at Drexel Burnham Lambert. After Drexel, Mr. Feinberg moved (on Milken’s recommendation) to a brokerage called Gruntal & Company.”

Gruntal owed its existence to the generous junk bond finance that its parent company, the Home Group, received from Michael Milken. Its options department was founded by Carl Icahn, who later became a “prominent” billionaire owing to the junk bond finance that he received from Michael Milken.

When Icahn left Gruntal, he was replaced by a Milken crony named Ron Aizer, who proceeded, on the recommendation of Milken, to hire two traders.

The first trader hired by Aizer was, according to a reliable source, investigated by the SEC for trading on inside information that he received from Milken’s operation at Drexel Burnham Lambert. This trader is now a “prominent” billionaire and the manager of a well-known hedge fund. The second trader hired by Aizer is now also a “prominent” hedge fund manager, though he is not quite a billionaire. Both of these traders play important roles in the story of Dendreon. Carl Icahn, the founder of Gruntal’s options department, has a cameo role, too.”

There is more, of course, much more to the story, and many more names, including Michael Steinhardt, Marc Rich who was pardoned by Clinton for tax evasion and dealing with Iran against US law, and many others, but that would make this post far too long, so I will send you instead  to this page.…and this...for now.

(Of course, we could ask why hedge-funds with an edge get to be prosecuted, while governments with the biggest edge of all don´t  – but there, we won´t spoil the fun).

Wiki Whacking: Green Doctor Of Wikipedia

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“Lawrence Solomon at the National Post writes about a topic that WUWT readers have known about for a long time: How Wikipedia’s green doctor rewrote 5,428 climate articles.

We’ve known for some time that Wikipedia can’t be trusted to provide unbiased climate information. Solomon starts off by talking about Climategate emails.

The emails also describe how the band plotted to rewrite history as well as science, particularly by eliminating the Medieval Warm Period, a 400 year period that began around 1000 AD.

The Climategate Emails reveal something else, too: the enlistment of the most widely read source of information in the world — Wikipedia — in the wholesale rewriting of this history.

He then focuses on RealClimate.org co-founder William Connolley, who has “touched” 5,428 Wikipedia articles with his unique brand of RC centric editing:

All told, Connolley created or rewrote 5,428 unique Wikipedia articles. His control over Wikipedia was greater still, however, through the role he obtained at Wikipedia as a website administrator, which allowed him to act with virtual impunity. When Connolley didn’t like the subject of a certain article, he removed it — more than 500 articles of various descriptions disappeared at his hand. When he disapproved of the arguments that others were making, he often had them barred — over 2,000 Wikipedia contributors who ran afoul of him found themselves blocked from making further contributions. Acolytes whose writing conformed to Connolley’s global warming views, in contrast, were rewarded with Wikipedia’s blessings. In these ways, Connolley turned Wikipedia into the missionary wing of the global warming movement.

The Medieval Warm Period disappeared, as did criticism of the global warming orthodoxy. With the release of the Climategate Emails, the disappearing trick has been exposed. The glorious Medieval Warm Period will remain in the history books, perhaps with an asterisk to describe how a band of zealots once tried to make it disappear.”

My Comment:

As you know, wiki engineering is one of my recurring obsessions, having had to go through 3 rounds of wikipedia fighting to stay on it, and having nearly had some associates’ wiki pages wiped out because of their connection to me.

And what was I guilty of? Of nothing more dreadful than respectful, fairly carefully modulated writing on such hoary topics as Zionism, media corruption, racism, racialist ideology, banking, and the Federal Reserve. Never have I advocated anything that could remotely be called racist, foul, biased, or misogynist. I have simply been factual and rather indifferent to political codes or the particular form of brainwashing prevalent in the US – which is, if we don’t know about it, it ain’t worth knowing.

Whenever I suggested that wiki was manipulated, I was told I was being conspiratorial, that I was imagining things…and that that isn’t the way the world works.

But now…wiki-whacking has been exposed for all to see. If it’s this bad on climate-gate, think about all the other topics that have been skewed.

But that’s all going to change soon….little by little. Now that the whistle has been blown on these kapos, their come uppance is round the corner.

See this piece, that reports on the canning of errant wiki administrator, climatista Connolley.

“Scientific” Academies Need A Taste Of RICO Too

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Alan Caruba , a conservative writer and reviewer:

“Consider a letter dated October 21, 2009 and signed by the presidents of the American Association for the Advancement of Science, the American Geophysical Union, the American Meteorological Society, the American Society of Plant Biologists, the Association of Ecosystem Research Center, the American Chemical Society, the American Institute of Biological Sciences, the American Society of Agronomy, the American Statistical Association,

And the Botanical Society of America, the Crop Science Society of America, the Natural Science Collections Alliance, the Society of Industrial and Applied Mathematics, the Soil Science Society of America, the Ecological Society of America, the Organization of Biological Field Stations, the Society of Systematic Biologists, and the University Corporation for Atmospheric Research.

Together, they asserted that “Observations throughout the world make it clear that climate change is occurring, and rigorous scientific research demonstrates that the greenhouse gases emitted by human activities are the primary driver.” It went on to repeat all the usual scary scenarios of rising sea levels, urban heat weaves, wildfires, and other climate-related events.

In a footnote, the letter to U.S. Senators said, “The conclusions in this paragraph reflect the scientific consensus represented by, for example, the Intergovernmental Panel on Climate Change and the U.S. Global Change Research Program.”

We now know that the “science” being cited by these two entities was, at least in the case of the IPCC, totally rigged, but the presidents of these alleged science-based organizations took it on face value despite ample scientific evidence it was false. The revelations of emails exchanged between the perpetrators of the hoax have demonstrated the deceptions…….

In light of this, who can trust these organizations? And who can trust the “science” produced by NASA and other U.S. agencies that have benefited from billions in grants directed at so-called climate, i.e. global warming research?”

Sad SAC: Reuters Spikes Hedge Story On Complaints From Steve Cohen

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Via Finalternatives:

“Reuters opted against running a story about alleged insider-trading on the part of SAC Capital Advisors founder Steven Cohen after Cohen himself complained about the news agency’s coverage, a journalism blog reports.

Cohen repeatedly called Devin Wenig, CEO of Thompson Reuters Markets Division and the second-in-command at Reuters parent Thomson Reuters, according to Talking Biz News. The hedge fund boss reportedly complained that the story, which the University of North Carolina blog reports would have been an “incremental” advance in the story of alleged insider-trading more than 20 years ago, was part of a pattern of persecution on the part of Reuters.

Wenig forwarded Cohen’s complaints to Reuters editor-in-chief David Schlesinger, who in turn referred the story to editors. Those editors debated the story, written by Matthew Goldstein, before deciding to kill it after three days.

“We make decisions on whether or not to run stories purely on journalistic grounds,” a Reuters spokesman told Talking Biz News.

Goldstein was the first reporter to cite the unsealed court documents that include explosive allegations against SAC and former SAC portfolio manager Ping Jiang. Cohen’s ex-wife, Patricia, last week sued him for $300 million, accusing him of insider-trading, perjury and hiding assets from her and from the authorities.”

My Comment

Looks like more confirmation of the Deep Capture thesis – that major newspapers are bending over backwards…and forwards….for the big hedge funds.

I notice that Hedge World has picked this story up….as well it should, it’s a big one… and very kindly links this blog, as well as the ever-alert zerohedge – the only MSM-touted blog I truly dig, mainly because I dig the characters on it.

Earlier, I blogged that Steven Cohen was also having problems with a militant ex-missus, who has gone public with allegations that he perjured himself, hid money from the government (here we are on Stevie’s side), and did other sorts of naughty things, like insider trading, that reclusive billionaires really shouldn’t do, not if they want to stay either reclusive or billionaires.

We have much more sympathy for Mr. Cohen, of course, than we do for the self-important twits and petty tyrants who fly their bylines at major newspapers with little respect for the body politic. At least, we understand simple greed. But the weedy vanity of the pen-pushing mob needs to be exposed for what it is. 

Now comes Mr. Goldstein, who clearly suffers from the delusion that his job is to break important stories, no matter how exalted the net worth of the subjects. That didn’t sit well with his boss, and now the dirty laundry is out in the open.

Meanwhile, as if irate Sith ladies and spiked stories weren’t enough, there’s also a forced oral sex- cross-dressing- cum- sexual-harassment suit coming back from the past to haunt Sad SAC.

Who knew you could have so much fun without getting naked (shorted)?

P. J. O’Rourke On Santa And God

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P. J. O’Rourke via Samizdata:

“I have only one firm belief about the American political system, and that is this: God is a Republican and Santa Claus is a Democrat. God is an elderly or, at any rate, middle-aged male, a stern fellow, patriarchal rather than paternal and a great believer in rules and regulations. He holds men strictly accountable for their actions. He has little apparent concern for the material well-being of the disadvantaged. He is politically connected, socially powerful and holds the mortgage on virtually everything in the world. God is difficult. God is unsentimental. It is very hard to get into God’s heavenly country club. Santa Claus is another matter. He’s cute. His nonthreatening. He’s always cheerful. And he loves animals. He may know who’s been naughty and who’s been nice, but he never does anything about it. He gives everyone everything they want without thought of a quid pro quo. He works hard for charities, and he’s famously generous to the poor. Santa Claus is preferable to God in every way but one: There is no such thing as Santa Claus.”

Weapon Of Resistance: The AK-47

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C. J. Maloney in Lew Rockwell:

“Who says that God has no sense of humor, if a rather dark one, when He gives for us the ironic fact that of all the forms of political organization that humans herd themselves into there has been none more reactionary, bloodthirsty, or political than Stalinism, and that’s the one which gave us the cheap to produce, lethal, and amazingly low maintenance AK-47. Besides corpses and vodka, the AK-47 was the only thing communist Russia was ever able to mass-produce.

“A guerilla army in today’s world needs little more than an ample supply of AK-47s, something to believe in, and the support of those around them to be unconquerable. That’s all. And Mikhail Kalashnikov, God bless him, has put that ability in the hands of people from one end of the earth to the other.

“Alexander Hamilton wrote in The Federalist No. 29 that should the federal government ever turn despotic it “can never be formidable to the liberties of the people while there is a large body of citizens, little, if at all, inferior to them in discipline and the use of arms.” If every American family had an AK-47 hanging on the wall over the 46″ wide-screen plasma, that’d force enough to give any army pause.

“So next May Day, assuming you remember it at all, take a moment to honor the memory of the millions slaughtered over the lethally stupid idea of communism, but give a nod to God’s great mercy, to His mysterious way that willed that very same idea to birth the AK-47. It gave to the working masses the ability to defend themselves from the more virulent strain of politicians; it is the sword of the common man. Of all the firearms yet dreamed up by mankind, it is the automatic for the people.”

Barack Obama: The Looks That Kill

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Insightful piece by Mary Rizzo in The Palestine Chronicle on the triumph of style over substance in the career of Barack Obama:

“In Afghanistan at least one hundred innocent civilians were killed by a few men flying US Air Force planes, and this was not an isolated attack, it is simply one that had been reported. This act, when done by the Republicans, was immediately condemned by those who consider themselves to be “anti-war”. The complaints never seemed to last longer than a few days and they had no practical efficacy whatsoever, but the feeling was that it was wrong, it was putting America in a worse position and that one should protest, not really for the Afghanis or Iraqis, but for the sake of the image of the USA. All of this has simply faded out because their man, the charming and attractive Obama is doing it, and his narrative of the Good War, they believe, is going to be enough to do the trick.

Certainly, there is nothing new about the utilisation of rhetoric and image to make effective propaganda. What would really be sad is if those who identify with Obama because of his attractive image identified with all the hypocrisy he represents, and the lack of awareness that he is as imperialistic and as warmongering as any president before him, none excluded. If looks could kill, they probably will.”