October 13, 2005

Hedge Funds accused for their role in shady PIPE transactions

Hedge funds are known to make their investments through various strategies to derive phenomenal returns which beat traditional market returns, and at times land up into trouble. This time the Hedge funds are ensnared by the Securities and Exchange Commission (SEC) for manipulative trading in the market for private stock placements by small companies. There are two Hedge Funds who have been issued a so-called Wells Notice by the SEC for their alleged role in the $14 billion-a-year market for private investments in public equity (PIPE). The SEC generated interested some 2 years back in PIPE dealings, however, the action gathered momentum when the SEC, in conjunction with the NASD, began a broad inquiry into the PIPEs market some 18 months back. The two regulators issued subpoenas and requests for documents to 20 brokerages houses as well as 10 hedge funds which are big PIPE investors in the past couple of years. However it may not be the first time that any hedge funds would have been convicted in any PIPE wrongdoings to date. The previous accused hedge funds are - HBK Investments role in PFSweb (Nasdaq: PFSW); former hedge fund manager Ms. Hilary Shane’s and Friedman Billings Ramsey’s (NYSE:  FBR) role in Compudyne (Nasdaq: CDCY); Knight Capital’s Deephaven asset management group over series of PIPE transactions from June 1999 through March 2004. TheStreet.com Reports:

This summer, Knight Capital (NITE:Nasdaq) disclosed that its Deephaven asset management group could face potential regulatory action over its trading in a series of PIPE deals from June 1999 through March 2004. Refco (RFX:NYSE) , meanwhile, has set aside $5 million to cover the cost of settling allegations that some of its brokers acted improperly in arranging trades for an investor in a PIPE transaction.

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October 13, 2005 in Gossip & Scandal, Regulation | Permalink




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