Today's Top Stories Also Noted: Spotlight On... More hedge fund liquidations, as assets soar News From the Fierce Network: Today's Top News1. How long will Rajat Gupta languish in jail?
The historic insider trading investigation spearheaded by U.S. Attorney Preet Bharara has been a huge success. Roughly 60 of 66 people indicted have either been convicted or pleaded guilty, but if there is one area where prosecutors have had slightly less success, it would at sentencing hearings. More than a few guilty inside traders have appeared before judges, facing long possible prison terms only to see judges fall short of actually throwing the book at them. Bloomberg notes that Judge Jed Rakoff in particular has been willing to criticize federal sentencing guidelines and impose prison terms that were below both guidelines and the recommendations of prosecutors. Rakoff's sentence for Winifred Jiau was four years, for example, below both the federal guidelines and the 10-year term recommended by prosecutors. Two co-conspirators got probation rather than jail time. This might be of some comfort to Gupta, who faces up to 20 years for the most serious count on which he was convicted. There's little chance he will be hit with such a term. What's more, few can fathom him serving more than 11 years, which his one-time friend Raj Rajaratnam is serving. But will he get off with just a few years, given his massive record of charitable giving and his clean record? The sentencing decision may in part ride on what Gupta does from here. If he were to express guilt and remorse, it might work in his favor. But he is a proud man who may not want to go that route. I can only hope that he is getting solid legal advice. That said, it's unclear what the judge is mthinking. He just night want to send a message to the crème de la crème of executives by imposing a tough sentence. For more: Related articles: Read more about: Jail, insider trading 2. Case study: SC pension bets big on alternatives
It's hardly a secret that public pensions face a troubling gap between expected liabilities and current assets. Many have peered into the future and decided that the solution was alternative investments. So pensions are plowing more of their assets into a mix of hedge funds, private equity funds, real estate funds and so forth--none of which can guarantee any results. While the trend has been great news for alternative investment managers, it may not be so good for pensioners. The extent to which funds can accommodate future liabilities remains a huge question mark. A troubling case study, courtesy of the New York Times highlights the state of South Carolina's pension system. The pension has more than half its total investment in alternative investments. That's by far the most of any pension of its ilk in the country. To build such a position, South Carolina ended up paying $344 million last year alone "a Who's Who of hedge fund managers and private equity deal makers." And what has it gotten in return? The fund has just about equaled the national pension fund average over three years. The problem of course is that such investments are highly fickle. Now the new state Treasurer is worried. It will be interesting to see how he goes about rectifying what some see as a huge problem. For more: Related articles: Read more about: pensions, alternative investments 3. As Bharara moves on, Steve Cohen might avoid charges
What's next for Preet Bharara? He says he's not going anywhere, and most assume that there are a few more insider trading charges to come. But for the most part, now that he has taken down Rajata Gupta, a former director at Goldman Sachs and the ex-head of McKinsey, his historic insider-trading investigation could be winding down. Some of this top dogs in this area have moved on. The New York Times notes that "Christopher L. Garcia, who helped lead the government's widespread crackdown of insider trading, left in February. Jonathan R. Streeter, the lead prosecutor in the case against Mr. Rajaratnam, left earlier this year, as did Andrew Michaelson, who was crucial in bringing and prosecuting the Galleon case. And the Gupta trial is expected to be the last for the prosecutor Reed Brodsky, who also prosecuted Mr. Rajaratnam." Bharara himself seems to be shifting his attention to a new area: cybercrime. Bharara was quoted at a recent conference saying that cybercrime is what worries him "the absolute most." There's also lots of talk about his future. Some thin he is likely to move to a private firms (cashing out so to speak) or moving to a higher profile civil service job or perhaps even a run for office. One implication of all this is that perhaps we will not see another major insider trading conviction. Steven Cohen may have weathered the storm. Many thought the ultimate goal of the investigations was him and his firm SAC Capital. The media has long speculated about a possible indictment, but it just might be that a strong case against him emerged. For more: Related articles: Read more about: Hedge Funds, insider trading 4. Vikram Pandit bullish on retail market
The mood regarding second quarter earnings for banks right now is anything but bullish. Analysts have been busy paring their estimates, and there is no doubt more jockeying to come. Much of the angst has been due to FICC sales and trading and core investment banking, both of which are projecting weakness; it's really a matter of how weak. But there has been some strength in core consumer markets, or at least some anecdotal evidence of strength that might not show up in the aggregated numbers for a bit longer. It would be hard not to be intrigued by the current real estate market, where some have discerned some positive trends in a super low rate environment. Count Citigroup CEO Vikram Pandit as part of the positive-thinking group. In some brief remarks on CNBC, he suggested that the consumer segment was indeed showing some strength. Deal Journal notes, "Consumers have been paying down debt and losses from delinquent credit-card loans have been shrinking, helping banks to recovery. The housing market, meanwhile, benefits from government programs and extremely low interest rates which are enticing home owners to refinance their mortgages." I would not be surprised if the big consumer banks end up reporting better than expected retail mortgage activity, which will provide some nice offsets to the weakness elsewhere. Wells Fargo may have the most to gain in such a scenario, as it emerges at the biggest player in the retail market. For more:
Read more about: retail banking, mortgage 5. Jamie Dimon may face tougher questions
Jamie Dimon wasn't exactly put through the ringer when he appeared in a hearing before the Senate Banking Committee last week. The bank and Dimon personally have been fairly large contributors to more than half the committee members, and that investment seems to have paid off. One senator even asked for advice on solving the federal government's deficit woes. The CEO of JPMorgan Chase, which has suffered some big PR hits for its massive trading woes, would like nothing more than a repeat this week when he appears before a House committee. In fact, he has submitted--and released--virtually the same testimony he released for last week's Senate hearing. But Deal Book notes that there is a chance that the members will be a bit less deferential. "At the Senate hearing last week, Mr. Dimon received a free pass from many lawmakers, who seemed more interested in hearing his suggestions for fixing the economy rather than the details of his own bank's missteps. The House panel, which includes some 70 members, has a feistier flare than the Senate panel." Some of their ire could be directed at regulators who will also appear, as the list includes regulators from the Federal Reserve and the Office of the Comptroller of the Currency. This could be interesting, but it could also fizzle into overly deferential treatment. For more: Related articles: Read more about: banks, hedging Also NotedSPOTLIGHT ON... More hedge fund liquidations, as assets soar There has always been a lot of creative destruction in the hedge fund industry. That has held true as of late. According to Hedge Fund Research, 232 hedge funds liquidated in the first three months of the year. "That marked the highest quarterly liquidation of hedge funds since 240 shuttered in first quarter 2010," notes Reuters. "However, those closures were offset by an increase in new hedge funds." The key point here may be that total hedge fund industry assets hit a record $2.13 trillion. Article Company News: Industry News: Regulatory News: And Finally… The key to Mr. Softie's tablet. Article
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Tuesday, June 19, 2012
| 06.19.12 | How long will Rajat Gupta languish in jail?
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