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SEC Scolded, Wilcox Launch, MF Global FBI, SEF Case Dismissed

SEC Scolded Over Records (WSJ)

An internal watchdog slapped the Securities and Exchange Commission on the wrist for its now-discontinued policy of discarding records from preliminary inquiries into possible Wall Street wrongdoing. SEC Inspector General David Kotz, in a report released Tuesday, said the regulator misled another federal agency, the National Archives and Records Administration, about its documents policy. The report also concluded the SEC should have retained preliminary investigation inquiry materials it was routinely discarding. But Mr. Kotz said he found no evidence of improper motives behind the policy or that it had hampered any full investigations. He declined to refer the matter to Justice Department officials for a possible criminal investigation.

Tom Wilcox to Launch Cider Mill Investments (HFMWeek)

Tom Wilcox, former CIO of the defunct ‘Tiger cub’ Shumway Capital Partners (SCP), is gearing up to start a family office. According to a source familiar with his plans, the new venture, Cider Mill Investments, will be based in Connecticut, the previous home of Shumway. Earlier this year, Wilcox was at the heart of Shumway founder Chris Shumway’s decision to restructure the firm’s personnel and return all outside capital by the end of Q1 2011. In the reshuffle, Wilcox was appointed CIO, while Shumway became CEO. In the role, Wilcox managed the main portfolio in the firm’s $8bn fund, which saw $3bn in investor redemptions. Wilcox follows Shumway alumnus Paul Hudson who also decided to set up his next venture post-Shumway. HFMWeek previously reported that Hudson started Glade Brook Capital, a global long/short hedge fund manager seeded by SCP.

Westgate Judge Orders Money Returned to Victims of Nicholson Ponzi Scheme (NorthJersey)

A federal judge has ordered that victims of James Nicholson’s Ponzi scheme be paid restitution, but the government still refuses to say when they will get their money back. In an order filed Tuesday, U.S. District Judge Richard Sullivan directed a court clerk to distribute to victims their shares of $19.6 million from two government recovery efforts. A year ago, Sullivan sentenced Nicholson — who headed the hedge fund Westgate Capital Management — to prison for 40 years. The funds have been sitting in government accounts for months, even as many Westgate investors have waited, frustrated, to recoup some of their losses. Investors of different financial backgrounds have said they need the money for living expenses, retirement or business investment.

MF Global Collapse Could Affect Hedge Funds (HFMWeek)

The collapse of US brokerage firm MF Global, which filed for bankruptcy this week after eurozone debt exposures worth $4bn were revealed, could leave some hedge funds at risk after possible deficiencies in client accounts were exposed. A joint statement by the SEC and Commodity Futures Trading Commission (CFTC) said the company had “reported possible deficiencies in customer futures segregated accounts held at the firm”. Hedge funds and others use these accounts as collateral for trades executed by MF Global on the futures market. They contained around $7.3bn as of 31 August, according to CFTC data. The missing figure could stand at around $700m, the New York Times reported, citing sources.

SEF Private Issuers Trust Case Dismissed (MarketWatch)

SEF Private Issuers Trust (the “Trust”) announces that yesterday Mr. Justice Newbould of the Ontario Superior Court of Justice (the “Court”) issued reasons for judgment and has dismissed, with costs payable to the Defendants (as defined below), the claim brought by a group of off-shore hedge funds (the “Plaintiffs”) against Strategic Energy Management Corp., the manager of Strategic Energy Fund (the “Fund”), Sentry Select Capital Corp., the Fund’s investment advisor, and Computershare Trust Company of Canada, the Fund’s trustee (collectively, the “Defendants”), in respect of the Fund’s 2007 exchange offer. No word has yet been received as to whether the Plaintiffs plan to appeal yesterday’s decision.

MF Global Draws FBI Interest (WSJ)

The fallout from MF Global Holdings Ltd.’s collapse intensified as the Commodity Futures Trading Commission voted to issue subpoenas to the securities firm and the Federal Bureau of Investigation planned to examine whether client funds are missing, according to people familiar with the situation. The two moves are the result of a discrepancy of hundreds of millions of dollars in the New York company’s books that was discovered just before MF Global tumbled into bankruptcy Monday, according to people familiar with the matter. It isn’t clear if the discrepancy, about $900 million as MF Global raced to sell itself over the weekend, was caused by money being diverted by company officials desperate to meet margin requirements or collateral calls as the financial situation became dire, these people said. Another possibility is that the gap reflects bookkeeping or accounting errors, as well as a delay in recording transactions in MF Global’s books given the securities firm’s far-flung trading and clearing operations.

Weavering Fund CEO ‘Lied” (Reuters)

The manager of Weavering Macro fund, the hedge fund whose credit crisis collapse left investors with hundreds of millions of dollars of losses, lied to clients and massively wrote up the value of assets, a court heard. The liquidators of Weavering’s UK operation began a civil case in London’s High Court last month for fraud and breach of duty against Magnus Peterson, Weavering’s chief executive and manager of its Macro fund, and other employees.The case centres on more than $600 million (375 million pounds) of interest rate swap agreements between the Macro fund and a British Virgin Islands company called Weavering Capital Fund (WCF), which was related to Weavering. The liquidators say WCF was controlled by Peterson and used to hide hundreds of millions of dollars in trading losses from investors — a claim that Peterson denies, saying that the swaps were part of a hedging strategy. Robert Anderson QC, representing the liquidators, alleges that Peterson “continually and royally misled” investors by concealing the fund’s investment in the swaps.

Bannasch’s Cadian Hedge Fund Doubled Its MF Global Stake Before Selling (Bloomberg)

Cadian Capital Management LLC, a hedge fund run by Eric Bannasch, raised his stake in MF Global Holdings Ltd. (MF) early last week only to slash the holdings days later as the trading and futures firm collapsed. Cadian, which owned 10.2 million MF Global shares at the end of the second quarter, reported in a regulatory filing late yesterday that it had purchased an additional 10.6 million shares as of Oct. 25. The firm reversed gears on Oct. 27 and 28, selling more than 7.7 million MF Global shares, according to a second filing with the U.S. Securities and Exchange Commission.

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