Labels: background checks, Financial Services Authority, GLG, Mondaq, Philippe Jabre

Labels: Financial Services Authority, Philippe Jabre, Year in Review

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Labels: Financial Services Authority, insider trading, Philippw Jabre

Misconduct fine for Deutsche Bank

April 11, 2006
BBC News

The FSA seeks to maintain confidence in financial markets. The Financial Services Authority (FSA) has fined Deutsche Bank £6.3m (9.2m euros; $11.1m) for misconduct in its handling of share trades in two firms. The FSA found the bank breached acceptable standards of market conduct in two share transactions handled by a London-based unit in 2004. The fine is the third largest imposed on a firm for market misconduct by the regulator since 2001. Deutsche Bank said it had tightened up its procedures in response.

...The FSA found the bank had made errors in the purchase of shares in Swedish firm Scania in 2004, fining it £5.8m. It was also fined £500,000 for failing to ensure proper procedures were followed in the sale of shares in Swiss firm Cytos.

Deutsche's buying of Scania stock on the open market, at a time when it was handling the sale of a block of Scania shares bought from Volvo, was not sufficiently transparent. This, the FSA said, resulted in potential investors not having a "full understanding" about the market for Scania shares. The FSA also found that relevant information was not shared with senior management or internal compliance units while some details released to investors were "incomplete or inaccurate".

David Maslen, who headed the Deutsche department handling the sale process, has separately been fined £350,000 for his behaviour. The FSA said that, in his position, Mr Maslen should have been aware of the rules governing market conduct but found no evidence of deliberate wrongdoing on his part...

Labels: Financial Services Authority

Labels: Financial Services Authority

Labels: Financial Services Authority, Philippw Jabre

Trader in insider dealing case not coming back, says GLG

By Gary Parkinson
City Editor
The Independent
February 27, 2006

Philippe Jabre, the GLG Partners star trader under investigation for alleged insider dealing, is unlikely to return to the hedge fund manager whether or not he is cleared of any wrongdoing. The founders of GLG - the Israeli-American Noam Gottesman and the Belgian Pierre Lagrange - are telling investors not to count on Mr Jabre's return no matter what the outcome of the Financial Services Authority inquiry.

The City watchdog is examining whether Mr Jabre traded in the Japanese company Sumitomo on inside information gleaned from the Goldman Sachs banker John Rustum. Separately, French financial regulators are looking into Mr Jabre's trading in the French company Alcatel.

The FSA's decision on Mr Jabre is expected soon, while the French are unlikely to arrive at findings for some time. Theirs is the more complex case. Should the FSA find against him, Mr Jabre faces suspension or even an outright ban from trading....

Labels: Financial Services Authority, insider trading, Philippw Jabre

Hedge fund star faces ban

The Sunday Times
February 05, 2006
By Peter Koening
and Louise Armitstead

One of Europe’s largest hedge funds and its star trader face censure by the City regulator as early as this week over an insider-trading scandal that has rocked the financial capital. Sources close to the Financial Services Authority (FSA) say Philippe Jabre, a fund manager at GLG Partners, may be fined and barred from trading after a two-year investigation. GLG, his employer, could be fined.

But people familiar with the investigation say GLG and Jabre are already considering appeals. So far the probe has taken place behind closed doors. An appeal would be held in public before The Financial Services and Markets Tribunal, a body that has been critical of the FSA in the past. An open hearing may prove embarrassing for the FSA as well as for Goldman Sachs, the US investment firm that managed the 2003 stock sale by Japan’s Sumitomo Mitsui bank, which is at the heart of the FSA’s investigation.

GLG and Jabre are expected to argue Goldman supplied privileged information about the stock sale in a way that left Jabre free to deal without breaking insider trading rules. GLG and Jabre are also expected to claim that Goldman and the FSA sat on evidence that supported this defence...

Labels: Financial Services Authority, insider trading, Philippw Jabre

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...

Labels: Financial Services Authority, insider trading, Philippw Jabre

More Heat On Hedge Funds - Regulators are probing trades by managers with inside access

BusinessWeek
February 6, 2006
By Emily Thornton with
Amy Borrus in Washington
and Stanley Reed in London

As if there weren't enough controversy surrounding hedge funds, now the Securities & Exchange Commission is investigating suspicions that fund employees are engaging in insider trading. It's not the typical heard-it-from-a-friend-at-the-company stuff, either. In the last decade hedge funds have ventured into the deepest reaches of finance. They've gone from trading stocks and bonds to making loans, participating in private placements, sitting on bankruptcy committees, and agitating for positions on corporate boards. In the process they've obtained all sorts of nonpublic information -- and regulators are worried that many have been mismanaging it at best and illegally profiting from it at worst.

The SEC, NASD, and Financial Services Authority in London have launched a flurry of probes. So far the inquiries have resulted in only a handful of insider-trading charges against hedge fund managers. But regulators expect the improper handling of insider information to be a big focus of enforcement actions in 2006. "Hedge fund assets have grown significantly, and there is a lot more competition for returns," says Scott W. Friestad, an associate director at the SEC's Enforcement Div. "In this situation people sometimes cut corners. We are devoting substantial resources to these investigations." Steve Luparello, an executive vice-president for market regulation at NASD, agrees. "Hedge funds misusing nonpublic information is a growing issue," he says.

Perhaps the easiest avenue of abuse: private placements, or restricted shares of public companies that are sold directly to investors. Regulators are cracking down on funds that participate in private placements and then take advantage of the information they glean. The biggest case thus far has been that of Hillary L. Shane, the manager of hedge fund FNY Millennium Partners LP. The NASD and SEC charged her in May with fraud and insider trading for allegedly agreeing to buy unregistered shares as part of a private placement in Maryland security systems outfit CompuDyne Corp. (CDCY ) and then short-selling the registered stock, betting that it would fall in value.

Investment bank Friedman, Billings, Ramsey Group Inc. (FBR ) invited Shane to participate in the placement on the condition that she treat the information as confidential. Shane has paid a $1.45 million fine to settle charges brought by the SEC and the NASD. She never admitted or denied wrongdoing. Shane's lawyer declined to comment.

TIP OF THE ICEBERG

There's likely to be much more fallout from the CompuDyne case. NASD says it's still investigating individuals and entities. Regulators haven't accepted FBR's offer to pay $7.5 million to settle charges that it aided the hedge fund manager. FBR declined to comment.

Meanwhile, an investigation into Van D. Greenfield, the 60-year-old principal of New York-based broker-dealer Blue River Capital LLC, has brought the issue of mishandling of nonpublic information obtained from bankrupt companies' creditor committees to the forefront. In November, Greenfield paid the SEC $150,000 to settle charges that he failed to guard sufficiently against the potential for misuse of insider information he obtained while serving on the bankruptcy committees of WorldCom, Adelphia Communications, and Globalstar Telecommunications.

Greenfield had agreed to keep all information confidential and informed his employees that he couldn't trade in the securities of those issuers. But the Chinese wall separating him from his traders was porous. Greenfield frequently walked through his firm's trading room -- which consisted of four desks on the ground floor of his New York City townhouse -- and asked employees for stock quotes for Adelphia and WorldCom securities, according to the SEC complaint. Greenfield did not admit or deny the charges. And "there was no finding of any misuse of material nonpublic information," says Greenfield's attorney, Arthur S. Linker of Katten Muchin Rosenman LLP. "There was no finding of insider trading."

Nevertheless, the settlement has spurred other industry veterans to lodge complaints of possible insider trading by hedge funds and other creditor committee members. "We have heard that there's more insider trading and misrepresentation to get on creditors' committees than had been reported to us," says Alistaire Bambach, chief bankruptcy counsel in the SEC's Enforcement Div. "We are very concerned about these activities."

In London, the Financial Services Authority is investigating abuse of confidential borrower information. The case everyone is talking about: a probe into whether a trader at GLG Partners LP, a London hedge fund, improperly used information provided by Goldman, Sachs & Co. (GS ) in advance of a security offering by Sumitomo Mitsui Financial Group Inc. in 2003. "The FSA is concerned about any instances where parties who are made insiders then use that information to trade in related securities," says spokesman David Cliffe. The crackdown is just beginning.

Labels: Financial Services Authority, insider trading

Deadline looms as SEC turns screw on hedge funds

By Andrew Parker in New York,
Stephen Schurr in London and
Francesco Guerrera in Hong Kong
The Financial Times

The chief US financial regulator is flexing its muscles again, both at home and abroad. The Securities and Exchange Commission has set a deadline of Wednesday for many US and foreign hedge fund managers to register with it. They must provide the regulator with information about their businesses and brace themselves for the possibility of inspections.

The extension of the SEC's supervisory work to hedge funds, where wealthy investors put their money, represents a big expansion of its powers and responsibilities. However, intense controversy and uncertainty surrounds the regulator's flagship project. A federal appeals court was asked in December to strike down the SEC's rule requiring hedge fund managers who advise more than 14 investors to register with the regulator.

Phillip Goldstein, a New York-based hedge fund manager, says he is "cautiously optimistic" that the court will support his argument that the SEC did not have the authority to draw up the rule in October 2004.

William Donaldson, the SEC's Republican chairman at the time, had to rely on the support of the regulator's two Democratic commissioners to get the rule approved. He insisted the rule was necessary for the SEC to gain a full understanding of the traditionally secretive hedge fund industry, which controls assets worth $1,200bn. More than 1,000 hedge fund managers had registered with the SEC before the rule was approved. Some did so voluntarily, while others had to if they were advisers to mutual funds, for example.

But the SEC estimated that a further 1,000 hedge fund managers would have to register following the rule. Mr Donaldson said the growth of hedge funds had been accompanied by increasing instances of fraud. He highlighted 51 SEC investigations into hedge fund managers accused of fraud between 1999 and 2004. Since then the SEC has brought a further 30 cases, including against Samuel Israel III, founder of the Bayou group of hedge funds, where investors had put $450m.

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.Today, concerns about the SEC's registration rule focus on compliance costs, and the risk they will be passed on to investors in the guise of reduced returns. Hedge fund managers, for example, must appoint chief compliance officers at their businesses. But Ernst & Young, the accountants, last month published a survey of 109 managers that found 85 per cent thought the annual costs to be $500,000 or less, which was "generally below market projections".

Some hedge fund managers appear to be taking steps to avoid having to register with the SEC by Wednesday. Managers do not have to register if after February 1 they do not take additional money from existing clients or accept contributions from new investors. They also do not have register if they bar clients from withdrawing their investments for more than two years.

SEC officials say the UK and Hong Kong are the most significant overseas jurisdictions for hedge fund managers. By the end of last Thursday, 113 hedge fund managers based outside the US were registered with the SEC. Of these, 68 are in the UK and seven are in Hong Kong.

In London, some hedge fund managers regard the SEC's oversight as unwarranted, given that the Financial Services Authority, the chief UK financial regulator, scrutinises their industry. "Outside the US, the feeling is that the FSA is completely on top of hedge funds, far more than anyone else in the world," says Philippe Bonnefoy, partner at Cedar Partners, a London-based fund that invests in hedge funds.

In Hong Kong, hedge fund managers say they expect the bigger players to register with the SEC, partly because it would help them improve their image. "They may not like it but they have little choice if they want to continue to attract US investors and not raise suspicions in the eyes of regulators," says the Hong Kong-based manager of a large hedge fund.

Labels: Bayou Group, Financial Services Authority

FSA says institutions should beware hedge fund risks

October 12, 2005
By Pratima Desai
Reuters, UK

Institutions such as pension funds should carefully check out the hedge funds they invest in and understand that they may be risking their capital if a fund collapses, the Financial Services Authority said. Tom Huertas, the FSA's head of wholesale bank regulation, said at the Reuters Corporate Finance Summit that hedge funds were a positive development in financial markets and they broadened investment options for institutions. "In terms of what's called a blow-up...we expect institutional investors to be professional buyers and to do their own due diligence and...recognise that they are at risk for the entire amount of their investment," Huertas said.

In its June discussion paper, the FSA outlined some of the risks hedge funds pose to financial markets, including erosion of confidence, disruption of liquidity and challenges in valuing portfolios. "We have a discussion paper indicating some reservations about hedge funds being sold to individual investors," Huertas said at the Summit held at Reuters headquarters in London...

The FSA's June discussion paper can be found here (PDF). The hedge fund industry was given until the end of October to provide comment ont he paper.

The full Reuters article is located here. Many thanks to the always interesting Hedge Fund Street for the link.

-- MDT

Labels: Financial Services Authority

Fears of hedge-fund meltdown prompt FSA to launch probe

By Jason Nissé
May 8, 2005

John Tiner, the chief executive of the Financial Services Authority, has launched a wide-ranging investigation into the workings of hedge funds in London which is expected to lead to a massive shake-up in the way they are regulated.

The probe was prompted by concerns that certain of the "cutting-edge" trading practices in the £500bn industry, much of which is based in London, could lead to market abuse and financial instability. There are also fears that a massive financial scandal could be brewing after what was described by an industry insider as "a few near misses".

Regulators from the FSA have been visiting scores of hedge funds in recent weeks, often sitting in with traders and checking dealing data. They have also been taking written submissions from leading hedge fund managers and talking to traders who deal with them at the large investment banks.

It is hoped that a report on the hedge fund industry, which will recommend new reporting and regulatory procedures, will be on Mr Tiner's desk by the end of next month. He is expected to send it out to the City for consultation before any new systems are put in place.

The FSA is concerned that hedge funds are having a disproportionate influence on the markets, increasing volatility and adding to trading risks. It has also been concerned that it is not up to speed with some of the highly sophisticated trading strategies that have been developed in this fast-moving sector.

Labels: Financial Services Authority, insider trading