Authorities Trim the Hedge Funds; City FOCUS

Daily Mail (London), October 21, 2009 | Go to article overview
Save to active project

Authorities Trim the Hedge Funds; City FOCUS

Byline: Lucy Farndon

ALREADY reeling from a crisis of confidence and poor investment returns, hedge funds face another major threat - in the form of the US authorities. Wall Street is abuzz with talk about the surprise arrest of Galleon Group's founder Raj Rajaratnam last Friday on insider dealing charges.

For many, it is hard to know what is more shocking - the allegation that Rajaratnam was working with a wide network of executives from highly respected firms or the extent of the secret monitoring and phone tapping undertaken by American investigators.

In what seems to be a step change in the determination to crack down on white-collar crime, it has emerged that federal investigators had spent two years probing Galleon and other firms, having secured permission from the courts to listen into phone conversations.

Last Friday's arrests are unlikely to be the last of it. While on this side of the pond, the Financial Services Authority has made little progress in cracking down on insider dealing - save for a few amateur crooks - the Rajaratnam arrest is said to be the first in a line of other 'significant' cases.

Experts are drawing parallels with the tough tactics used by the US authorities back in the 1980s, to nail Ivan Boesky, who made a fortune as an 'arbitrageur' betting on corporate takeovers.

He was jailed for using tips given by insiders and buying up shares shortly ahead of deals.

But his sentence was reduced after he helped build a case against junk bond financier Michael Milken.

Having been shamed over its failure to spot Bernard Madoff's [pounds sterling]65bn Ponzi fraud - whose victims included HSBC and Royal Bank of Scotland - the US Securities and Exchange Commission is desperate to crack other financial crimes.

Traditionally, hedge funds have managed to keep their heads down and avoid the same level of scrutiny seen at most publicly listed investment firms.

Although the industry has come under fire for being opaque, institutional investors have been happy to invest their cash and ask few questions, so long as the returns have made it worthwhile. Rockbottom interest rates in the wake of the financial crisis have made it all the more pressing for them to seek out higher returns.

Galleon had an impressive growth record. Set up in 1997 by Rajaratnam, it had assets of more than $7bn at its peak last year and was one of the world's largest hedge funds.

Rajaratnam managed the group's technology fund. It is in trying to inflate that fund's performance that he allegedly netted $20m in illegal profits between 2006 and 2009.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Authorities Trim the Hedge Funds; City FOCUS


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?