SEC and FBI bare teeth at hedge funds

[FRED]

SEC and FBI bare teeth at hedge funds
September 27, 2006 (Ambrose Evans-Pritchard – London Telegraph)

The US government is losing patience with hedge funds, signalling the end of glory days for an unregulated industry with $1,700bn to hand and the ability to operate with near total freedom across the globe.

The Securities and Exchange Commission (SEC) bared its fangs yesterday, launching a probe into Amaranth Advisors after it nearly collapsed this month when a lone trader lost $6bn betting on gas futures. The SEC said it would investigate whether Amaranth misled investors and would examine the role of banks in offering limitless credit.

Separately, the Federal Bureau of Investigations (FBI) said the hedge fund industry was spreading too fast beyond its natural niche as a rich-man's toy, luring small savers in to risky investments.

"It is an emerging threat because of the dollar value and the number of institutions actively taking a look at this," said Chip Burrus, the FBI's assistant director. "People that aren't expecting to have this type of a risky investment in their portfolio end up taking a bath," he said.

Mr Burrus said the FBI was determined to uphold the integrity of markets and protect citizens who "just get fleeced left and right".

AntiSpin: Stick a fork in it. The hedge fund bubble is done. The clue? Among others, which we learned from meetings this morning, is in this story, "The SEC said it would ... examine the role of banks in offering limitless credit." When the regulators come out, that usually means the party is officially over.

Not only the SEC and the FBI, but even the Fed is getting in on the act.

In softer tones, the US Federal Reserve also hinted at a crackdown, fretting that an ever greater share of the financial system was slipping beyond the oversight of regulators.

"We may have to revisit both the scope and the design of that framework," said Timothy Geithner, the New York Fed's chief. Last week he warned that "the probability of systemic crisis may rise to levels that are unacceptably high", unless the authorities step in to reshape the market.

"Scope and design of that framework." "Reshape the market." You gotta love that ass-covering SEC and Fed political speak. At least the FBI guys know how to speak English: "...protect citizens who "just get fleeced left and right." Maybe the FBI should take over a few market regulatory duties from the SEC. At least the FBI seems to have the will.

[Uncle Jack]

Re: SEC and FBI bare teeth at hedge funds

So what's this mean for the markets? An unwinding of all the leverage these guys use, thereby unwinding equity positions and whatever else they hold? That's what I would think. Slow at first, and then more rapidly as each door is knocked on by regulators. No?

[akrowne]

Re: SEC and FBI bare teeth at hedge funds

Ass-covering indeed. Any number of quotes from the Fed's own materials show they very well knew what banks were and have been up to, and were giving their tacit consent--a decade ago and beyond.

I mean, they bailed out LTCM, then did nothing. Nothing. It was positive reinforcement for hedge fund and banking industry cronyism and irresponsibility.

There's a reason the term "Greenspan Put" was coined.

Jack: The regulators may not even have to knock on many doors... hedge funds move like a herd. We've already seen this with the May and September selloffs this year.

[memyselfandi]

Re: SEC and FBI bare teeth at hedge funds

Well that's a brilliant statement there about the SEC. Maybe if the SEC hadn't been barred by Congress from regulating certain derivative markets,etc. (under which the hedge funds fall) and these incidents still occurred, your statement would be valid.

As the SEC doesn't have the legal authority to regulate them and many of the markets they "invest" in (such as the commodity futures realm in which the latest fiasco occurred), I find your statements odd at best.

It would be greatly inappropriate for the SEC to overstep the legal authority granted it by Congress. And, frankly, downright illegal.

[bart]

Re: SEC and FBI bare teeth at hedge funds

Well that's a brilliant statement there about the SEC. Maybe if the SEC hadn't been barred by Congress from regulating certain derivative markets,etc. (under which the hedge funds fall) and these incidents still occurred, your statement would be valid.

As the SEC doesn't have the legal authority to regulate them and many of the markets they "invest" in (such as the commodity futures realm in which the latest fiasco occurred), I find your statements odd at best.

It would be greatly inappropriate for the SEC to overstep the legal authority granted it by Congress. And, frankly, downright illegal.

I'm confused at best by what you're driving at.

Do you have any links to that 'Congress barring' situation and who was involved and when? You seem to be insinuating a lot, but the facts are a bit on the shy side.


Emphasis was also given to "The SEC said it would ... examine the role of banks in offering limitless credit." which is within their general power to the best of my knowledge.

And the CFTC is the one that regulates futures, the SEC has never been involved in futures. But even the CFTC only deals with regulated contracts, not off shore or ICE or whatever areas.