Archive for the ‘Hedge fund’ Category

US Attorney Anne M Tompkins made the announcement in conjunction with Chris Briese, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division, and Jeannine A Hammett, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation Division (IRS-CI).

According to the criminal indictment, the defendants operated “hedge funds” as part of a conspiracy that took in $40 million from victims for a Ponzi scheme operating under the name Black Diamond Capital Solutions (Black Diamond). The indictment alleges that the conspiracy lasted from about October 2007 through about April 2010. The indictment alleges that the defendants lied to get money from their victims by claiming, among other things, that they had done due diligence on Black Diamond and were operating legitimate hedge funds with significant safeguards, when in reality, neither claim was true. The indictment also alleges that, as Black Diamond began collapsing, the defendants and others created a new Ponzi scheme and with a separate Ponzi account that Davey administered. Thereafter, new victim money was deposited into the Ponzi account and used to make Ponzi payments to other victims and to fund the defendants’ lifestyles.

Problems in the credit markets coupled with a sharp drop in equity markets have affected many hedge fund returns. As many managers in the loosely regulated $1.75 trillion industry suffer more losses in August, speculation mounts that more funds could be on the brink of shutting down.

Following is a list of firms whose hedge funds have recently posted losses or have been shut down entirely, their location, and a description of their troubles:

– Basis Capital (Australia) – The firm’s Basis Yield Alpha Fund files for bankruptcy protection in the United States on Aug. 29 amid mounting losses from U.S. subprime mortgage assets. Earlier the group suspended redemptions on two of its funds and appointed U.S.-based Blackstone Group to help prevent a fire sale of assets. In mid-August the group said that one of its portfolios had lost more than 80 percent.

– Bear Stearns Cos (United States) – Two Bear Stearns funds which invest in collateralized debt obligations — bonds comprising repackaged mortgages — by mid-June are trying to sell about $4 billion in bonds to raise cash for redemptions. Major investment banks seize assets or unwind positions. Bear eventually bails out one of the funds and lets the other one fail. In late July, Bear Stearns halts redemptions at a third hedge fund.

– Absolute Capital (Australia) – Half-owned by Dutch bank ABN AMRO. Temporarily closes two funds in late July with a combined A$200 million in assets amid problems with collateralized debt obligations.

– Macquarie Bank (Australia) – The bank warns in early August that retail investors in two of its debt funds face losses of up to 25 percent.

– Oddo Asset Management (France) – The French financial services company in late July closes its Oddo Cash Titrisation, Oddo Cash Arbitrages and Oddo Court Terme Dynamique funds, which manage total assets of around 1 billion euros.

– Sowood Capital Management (United States) – The hedge fund which managed money for Harvard University tells investors on July 30 that it will wind down after suffering losses of more than 50 percent which wiped out roughly $1.5 billion in capital.

– SAC Capital (United States) – Hedge fund which manages $14 billion loses 1 percent net of fees in July. It is still up 14 percent net of fees since January.

– Caxton Associates (United States) – The fund managed by industry veteran Bruce Kovner takes the unusual step of sending a letter to clients to assure them that market rumors about out-sized losses were false. The flagship Caxton Global fund is down about 3 percent in July but remains in the black for the year.

Investors are expected to hit hedge funds with a flood of redemption requests this fall, but those who try to withdraw their money may be in for an unpleasant surprise.

Most hedge funds have “lock-ups,” a minimum period of time during which investors agree to tie up their money and not make any withdrawals.

Once that period ends, investors generally can redeem their stakes as long as they give advance notice, usually 45 to 90 days before the quarter end. Although that cut-off has passed for many funds for the current quarter, investors can still put in requests to get their money out by year-end.

But hedge funds also can slow withdrawals, or suspend them altogether. While they’re usually loath to do this, since it can signal that a fund is on the verge of collapse, current conditions may result in more funds not letting investors take their money out – at least not immediately.

Hedge funds have been hard hit by the recent turmoil in the market. Two Bear Stearns hedge funds heavily invested in securities backed by subprime mortgages blew up in June. Ensuing volatility claimed funds at Sowood Capital Management and led to big losses at so-called quantitative funds, including some run by Goldman Sachs and others.

The losses sparked panic in the market, as well as worries that more problems will surface at other funds. That’s raised expectations that hedge-fund investors, which include institutions like university endowments and pension funds, will try to rush to get their money out before losing more. That, in turn, can unleash a vicious cycle: As hedge funds lose cash, they’re left with less money to invest, which can make it difficult for the funds to recover and hasten a downward spiral.

To avoid that scenario, hedge funds can make it tougher for nervous investors to bail out. For example, they can slow redemptions by imposing a “gate,” which allows them to cap the amount investors withdraw during a given period – usually at 20 percent of the fund’s net asset value, according to David Nissenbaum of law firm Schulte Roth & Zabel, whose hedge-fund practice dominates the industry.

They can also block withdrawals completely, for instance when they can’t accurately value the fund’s assets or don’t have the money to meet requests, legal experts say. Bear Stearns froze withdrawals on a third fund this month, although the reason for the suspension was unclear.