Thursday November 5, 2009, 12:34 pm
For heavens sake - it's time you get those bastards.

Thursday November 5, 2009, 2:28 pm
Unfortunately, hedge funds have been exempt for decades as the Investment Advisors Act of 1940 did not require them to be registered. Unregistered firms are not audited, and abuses like this one are very difficult for authorities to catch. I wrote an article on this topic a few months ago about the SEC under Bush appointee and SEC head, Christopher Cox, and his attempt to require registration of hedge funds. Here is an excerpt that is relevant to this story.

We know that Madoff chose to utilize a “secret” firm located on a separate floor to run his Ponzi scheme. We know that he registered this firm, on advice of counsel, in 2006. The firm was not new and had been managing, or in Madoff’s case stealing, money for years. However, prior to 2006, there was no requirement to register this particular type of advisor as it was considered exempt from the Investors Act of 1940. This act required the registration of firms that provided investment management as defined by the Act and the Madoff firm fell under the exemption because it was an advisor to hedge funds. Neither hedge funds, or their advisors, were required to register with any self-regulatory or governmental agency.

The Act exempts these funds and advisors because of the limited number of clients that invest in them and because their investors had to be “accredited”. Accredited investors must have a minimum net worth of $1,500,000 or an annual income for the previous two years of at least $200,000. Basically, congress decided many years ago that wealthy investors would be willing to give up some regulatory protection in exchange for the ability to invest in products that were limited in distribution. Consider it a privilege of wealth! In 2005, the SEC adopted new rules requiring “advisers to certain private investment pools (“hedge funds”)” to register their firms with the SEC by February 1, 2006. They decided to require the registration because they redefined the definition of investor. In most of these funds, the investors are institutional hedge funds with numerous clients. Prior to the new rule, each one of these funds was considered to be one investor and the SEC did not “look through” the fund to find the actual number of investors that the fund represented. With the new rule in place, Madoff was advised to register his fund and he registered prior to the deadline of February 1, 2006.

In justifying the new rule, the SEC stated that they ”are concerned that individuals have targeted hedge fund investors and chosen hedge funds as a vehicle for fraud because these individuals could operate their funds without regulatory scrutiny of their activities”. Hedge funds offered, and continue to offer, an unregulated environment that provided generous compensation and the ability to manage money without oversight!

Phillip Goldstein, co-founder of Bulldog Investors, hedge fund advisor, director, and a well-known hedge fund activist filed suit to block the SEC rule. Mr. Goldstein has worked vigorously to prevent regulation of hedge funds and has portrayed the ability of hedge funds to operate in secret as a “first amendment issue”. In a unanimous decision on June 23, 2006, the US Court of Appeals for the District of Columbia agreed with him and struck down the rule. As a result of this decision, advisors to hedge funds could continue to operate with minimal regulation and without registering!

In his testimony to congress on July 25, 2006, then SEC Chairman Christopher Cox responded saying, “given the recent invalidation of the SEC’s hedge fund rule by the United States Court of Appeals, we have been forced back to the drawing board to devise a workable means of acquiring even basic census data that would be necessary to monitor hedge fund activity in a way that could mitigate systemic risk.
The current lack of such basic data requires me to hedge when I say that the SEC’s best estimate is that there are now approximately 8,800 hedge funds, with approximately $1.2 trillion of assets. If this estimate is accurate, it implies a remarkable growth in hedge fund assets of almost 3,000% in the last 16 years.” If the Chairman of the SEC doesn’t know how many hedge funds exists, how can we expect the SEC to successfully prevent criminal activity within them?
Congress needs to remove the hedge fund exemption in its entirety. Allow the SEC to examine the books and records, just as they do for investment advisors. The SEC cannot be expected to investigate operations that can simply turn them away at the door.

Fortunately, congress is including this issue and numerous bills are now on the floor of congress to require hedge funds to register. The Private Funds Transparency Act of 2009 sponsored by Sen John Reed D-RI amends the Investment Advisors Act of 1940 to require hedge fund registration. The bill is currenlty in committee.

Bad news, but good post, thanks Lone!

Thursday November 5, 2009, 3:33 pm
thanks terry

Thursday November 5, 2009, 6:25 pm
Ooooooooooooooooooooooo someones gonna be in trouble....and they thought bad of Martha...pfffffftttt

Big Gorilly Huygs

Monday November 9, 2009, 3:15 am
One of the accused inside traders, Raj Rajaratnam is being sued by victims of the Sri Lankan based Tamil Tigers rebels.

http://online.wsj.com/article/SB125622461941301455.html

Terror Victims Sue Hedge-Fund Founder
Action in New Jersey Accuses Galleon's Raj Rajaratnam of Funding Sri Lanka's Tamil Tigers

WASHINGTON -- A group of victims of terror attacks by Sri Lanka's Tamil Tigers rebels filed suit against Raj Rajaratnam, the Galleon Group hedge-fund founder charged in an insider-trading case, accusing him of funding the Tigers'"crimes against humanity."

The lawsuit alleges that from 2000 to 2007, Mr. Rajaratnam and a family foundation led by Mr. Rajaratnam's father gave more than $5 million to a U.S. charity, called the Tamil Rehabilitation Organization, that the U.S. government subsequently declared in 2007 to be a fund-raising front for the Tamil Tigers.

Mr. Rajaratnam, 52 years old, was among six people arrested Friday in the insider-trading case.

Federal prosecutors charged Mr. Rajaratnam with securities fraud and conspiracy to commit securities fraud.

James Walden, an attorney for Mr. Rajaratnam, has said his client is innocent of the insider-trading charges and will fight them. Of the lawsuit filed Thursday, Mr. Walden said: "The accusation that Mr. Rajaratnam supported the LTTE is flatly untrue and libelous, and we are confident that the court will dismiss these baseless charges. Mr. Rajaratnam has the greatest sympathy for all victims of violence in Sri Lanka and has a long history of helping Sri Lankans of all ethnic groups through substantial charitable donations over many years."

U.S. prosecutors investigating the Tamil Tigers fund-raising network looked into donations Mr. Rajaratnam and other wealthy members of the Tamil community in the U.S. gave to the now-defunct TRO USA charity.

The U.S. government brought criminal charges against eight people accused of raising money to help the Tigers buy weapons and help efforts to remove the group from the U.S. terrorism-sanctions list. Mr. Rajaratnam wasn't among the eight, and the U.S. didn't allege he had any knowledge that the funds he provided the TRO were routed to the Tigers.

In court documents related to the terrorism case, a Federal Bureau of Investigations agent cites documents uncovered in court-authorized searches as showing donations to TRO USA made by a person identified only as "individual B."

Mr. Rajaratnam wasn't named in the filings but is the person identified as "individual B," according to people familiar with the probe.

The lawsuit alleges that Mr. Rajaratnam gave $1 million to the TRO USA charity in 2004. An FBI affidavit filed in one of the Tamil Tigers fund-raising cases, in Brooklyn, N.Y., also cited the $1 million 2004 contribution by "individual B" and another in 2000.

Michael Elsner, attorney for those bringing the lawsuit, said in a statement: "The defendants, we allege, have the plaintiffs' blood on their hands because those who paid for murder are just as culpable as those who committed the acts."

Write to Evan Perez at evan.perez@wsj.com