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Today's Top News1. Fund manager allocates winning trades to himself
California-based Aletheia Research and Management and its founder, Peter Eichler, have been charged with an eyebrow-raising "cherry-picking scheme," one that allowed the firm to allocate trades after they had been consummated. The SEC claims the scheme allowed Eichler to steer profitable trades into his own accounts and unprofitable trades in to the accounts of a pair of hedge funds he controlled. The charges alledge that it allowed his personal accounts and other favored accounts to earn $4.1 million in illegal profits, while sticking the hedge funds with trading losses of about $4.4 million. Eichler says he did not intentionally harm any of his clients. The system basically gave Eichler the ability to wait and see how options trades worked out before he allocated them to various accounts. The trades that were assigned to Eichler's personal accounts were profitable in nearly all cases, while only 32 percent of the trades allocated to the Aletheia hedge funds were profitable, the SEC charges. The SEC's suit follows wrongful-termination complaint filed in 2010 by Roger Peikin, a co-founder of Aletheia, who charged that Eichler had "successfully rid himself of all internal controls, allowing him free rein to operate Aletheia as his personal fiefdom." That a manager can allocate trades after they are consummated is disconcerting. At a minimum, hedge funds should be able to explain why this is impossible given their OMS and execution system controls. Hopefully, it is a rare occurrence. For more: Related articles:
Read more about: Enforcement Action
2. Mathew Martoma will not turn on Steven Cohen
I've suggested recently that Mathew Martoma represents the best hope for the government to bring charges against SAC and its founder Steven Cohen. With Martoma in the truck, the case against Cohen looks strong. Without him, there probably isn't a case at all. The fact that Martoma was arrested and charged with insider trading no doubt reflected the Feds playing what they considered one of their last trump cards, a final push to force him to cooperate. But so far, Martoma refuses to turn on the guy who rewarded him richly for a few trades but then abruptly fired him. "The fact that Martoma, a 38-year-old father of three young children, has held out so far is baffling to authorities, according to the person familiar with the investigation. The main witness Martoma would potentially face in court—Dr. Sidney Gilman, an 80-year-old physician with a distinguished medical career who has told prosecutors that he shared material nonpublic information with Martoma—would likely be a sympathetic character before a jury. If found guilty, Martoma could end up spending his 40s in prison. The longer he takes to decide to cooperate, the less helpful it's likely to be in terms of reducing his own sentence," notes Bloomberg Businessweek. Columnist Charlie Gasparino has suggested that Martoma is holding out because SAC is paying his legal bills, but it seems like there's more to the story. Perhaps it boils down to old-fashioned fear of Cohen, a very powerful man, or perhaps a sense that he can't honestly give the government what it really wants: Proof that Cohen knew the information he was trading on was gained illegally. For more: Related articles: Read more about: insider trading, Mathew Martoma 3. Richard Bove's planned resignation stirs controversy
It takes a lot to muzzle Richard Bove, who is among the most widely quoted bank stock analysts. He's been forced into an uncharacteristic silence since October 25, when a scandal involving a rogue trade by someone at Rochdale Securities forced the bank to stop trading and cease issuing stock research. The search for a White Knight buyer has not proven fruitful. Meanwhile, the industry continues to move ahead, leaving Bove to gnash his teach in enforced silence. He's now letting it be known that he intends to leave Rochdale, but that may not be so simple. The fact is that Bove's presence at the firm has been used by Rochdale executives in their negotiations with potential buyers, according to Dow Jones. It's unclear if the firm intends to play hardball with Bove, but this is certainly an odd situation. Bove has proven to be the media magnet that Rochdale sought when it signed the analyst. Losing him now just might spell the end of the firm. As for Bove, it's unclear exactly what his plans are. He may have another employer lined up. One might guess is that it would be another small broker dealer looking for a media presence. The rumor mill holds that he's in talks with Cantor Fitzgerald. I can only hope they have strict controls in place that would prevent outsized trades from sinking the company. For more: Related articles: Read more about: Richard Bove, Stock Research 4. Why did a doctor turn to insider trading?
What makes a respected 80-year old doctor in charge of important clinical trials turn to a life of illegal insider trading? The knee-jerk answer would be money--and lots of it. But in the case of Dr. Sidney Gilman, the government's key witness in its case against Mathew Martoma, formerly of SAC Capital, that can't be the whole answer. An interesting New York Times profile notes that, "His conversion to Wall Street consultant was not readily apparent in his lifestyle in Michigan and was a well-kept secret from colleagues. Public records show no second home, and no indication of financial distress." He apparently enjoyed the lifestyle of a luminary and was a strong teacher. His ability to pontificate to a rapt audience of important financial folks might have played a role. Perhaps he craved the respect he got, the feeling of importance. For whatever combination of reasons, he ended up a tool of hedge fund managers via the Gerson Lehrman expert network. It may be tempting to see him as a victim, but he knew exactly what he was doing. He requested that Martoma use false topics to requests meetings, to avoid arousing suspicion. All in all, Gilman ruined his life for what in hindsight seems like a modest amount of money. There are others ways to corrupt a soul, however. Gilman's career in medicine has basically ended, but he's now in the trading business. In return for escaping charges, he will now have to prove his worth to the government as a witness against Martoma, whom he perhaps once considered friend. For more: Related articles: Read more about: insider trading 5. SEC approves JPMorgan's copper ETF
JPMorgan's plans to launch an ETF backed by a physical stockpile of copper have been controversial from the start. The bank was accused in 2010 of trying to corner the copper market, as its traders amassed a huge amount of copper -- up to 50-80 percent of the available inventory. The view then was that it had something to do with the expected launch a copper commodity physically backed ETF. The bank has won a significant victory in that the SEC has finally granted the bank permission to launch the ETF. The SEC said that the fund will disrupt not the flow of physical delivery of copper. Others, however, vehemently disagree. Corporate consumers have been opposed to the plan, arguing that they will be forced to should wild prices swings and spotty delivery. In addition, copper producers such as SouthWire Co, Encore Wire Corp, Luvata and AmRod have fought the planned ETF, according to Reuters. They argue that "the removal of up to 183,000 tonnes of copper, which would be used as collateral against shares in the funds, would have a 'devastating' effect on the market. While that is only a tiny part of a 20-million-tonne annual global market, fabricators worry that it accounts for the majority of the metal available in exchange-bonded warehouses. They argue there is not enough metal available outside the exchange networks for immediate delivery to prevent a squeeze in supply because it is tied up in long-term contracts." These issues are not new. Goldman Sachs and others have been roundly criticized for their Detroit-based metal warehousing operations. At various points, the bank has been ordered to increase the pace of physical delivery. In the end, the effect of this and other ETF launches--iShares also is planning a copper ETF backed by physical stockpile--remains unclear. But the effect could end up being profound but fairly stable. Look at the gold market for example. For more: Related articles: Read more about: LME, ETF Also NotedSPOTLIGHT ON... Popular Wall Street cocktails What drinks are in vogue right now on Wall Street? How about the Goldman Schnapps -- "the choice of Muppets everywhere. This concoction is so delicious it'll make you want to write an op-ed in the New York Times about it." There's also the The Ryebor -- "this whiskey cocktail is scandalously good and fixed just the way you like it! It's bound to pique your interest—or lower it, whichever you prefer." No scandals, hopefully. Article Company News:
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Tuesday, December 18, 2012
| 12.18.12 | Why Mathew Martoma will not turn on Steven Cohen
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