Yesterday's link to the BusinessWeek story regarding SEC interest in possible insider trading seemed to hit a nerve. To that end, lets take a look at a recent Times Online article concerning Philippe Jabre's GLG Partners, Europes's third largest hedge fund, which has been dogged by allegations of insider for going on two years (as was mentioned briefly at the end of the BW piece).

Conventional wisdom has it that Europe's FSA is more on top of their hedge fund market than the SEC here in the states. Might Federal regulators be examining closely how their colleagues across the pond are handling these matters as a prelude to their own action?

Scandal at the heart of the City

The Sunday Times
January 22, 2006
By Peter Koenig and
Louise Armitstead

GLG Partners, Europe’s third-biggest hedge fund with $11.5bn under management, and its co-owner Philippe Jabre stand accused of insider dealing. Guilty or not, the case has focused attention on the hedge-fund industry and its relationship with investment banks...

...Nearly two years after the City regulator began investigating allegations of insider trading against him and his firm, GLG Partners, a London-based powerhouse, it was now the job of the FSA’s regulatory decisions committee (RDC) to hear the evidence before making a decision.

The case presented by the FSA’s investigators over the next two days centred on Jabre’s trading in the run-up to a $2.9 billion (£1.6 billion) sale of stock by Japan’s Sumitomo Mitsui bank in March 2003. The FSA’s investigators accused Jabre of receiving details of the stock sale from a banker at Goldman Sachs in London in advance of public disclosure. They alleged that Jabre illegally traded on this information to make about $5m for GLG.

City hedge funds and investment bankers are gripped by the drama. Hanging in the balance is the fate of GLG, Europe’s third-largest hedge fund with $11.5 billion under management. More dramatically, Jabre, co-owner and star trader of the fund with a personal fortune estimated at £180m — his assets include a ski chalet in Courchevel, France — could face a lifetime ban from working in the City if found in breach of FSA regulations.

Hedge-fund managers, bankers and regulators further afield are watching, too. The allegations and evidence produced against Jabre and GLG look like part of a general malaise in the City rather than the transgressions of a single fund. If this is the case, the reputation of Britain’s financial capital would suffer.

The sums involved could be huge. Last year’s insider-trading scandal, which led to the conviction of Daily Mirror City Slicker journalist James Hipwell, involved tens of thousands of pounds. If there is a magic circle of City hedge-fund traders and investment bankers operating within the wider investor and investment-banking community, it could involve millions of pounds.

City hedge funds and the investment-bank units serving them generate about £20 billion annually in profits. If 5% comes from trafficking in information unavailable to other investors, the figure might be as high as £1 billion. “The scandal could be the 21st- century London equivalent to what happened on Wall Street in the 1980s, when men like Ivan Boesky and Michael Milken traded tips on pending company mergers and acquisitions,” said one American banker...

London first...New York next?

More here.

-- MDT

Labels: Financial Services Authority, insider trading, Philippw Jabre