Third Point Management fund manager Daniel Loeb told his investors last night the firm is the target of a formal investigation being conducted by the Securities & Exchange Commission. According to Loeb, the subject of the investigation is his communications with other hedge funds.The investigation appears to be an outgrowth of a conspiracy theory that a cadre of hedge funds engaged in nefarious campaigns of rumor-mongering and aggressive short-selling aimed at bringing down companies like Bear Stearns. The fact that the companies crying foul have lost billions and suffered from serious transparency problems is deemed irrelevant; bad management doesn't destroy companies, short sellers do, according to this line of thinking.
Loeb wrote that questions about the fund's communications were first raised during a routine audit last year, but added that its lawyers had said that such communications were legal under federal securities laws.
According to Fortune's Roddy Boyd, "Third Point, at least, had nothing to do with Bear's demise. The fund put on a large short bet on Bear Stearns in the summer of 2007 - when the stock was in the triple-digits - and even reduced its prime brokerage exposure to the firm. But after making a nice profit, Third Point covered its Bear trade later that year, before the collapse that saw shareholders get just $10 a share for a stock that a year earlier was fetching $170."
It's hard to know the exact nature of the investigation -- the only information we have comes from Loeb's letter to shareholders. Assuming his representation of the matter is reasonably accurate, this looks like more of the barking up the wrong tree that we've come to expect from the SEC, most recently demonstrated in the naked-short selling crackdown that has been universally blasted by observers.
The SEC has massive disclosure problems involving publicly-traded companies, and it completely fails to protect investors from companies like Bear Stearns and Novastar. The SEC should devote its resources to improving transparency and disclosure at public companies, not harassing market participants.
Reader Comments (Page 1 of 1)
8-21-2008 @ 6:44PM
lenofus said...
Yeah, your right, Zac, I mean, if a world reknown journalist like Roddy Boyd says there's nothing there.............
Maybe the SEC is just catching up with Dan over the Elgindy transcripts. The Elgindy network knew who and when the SEC was investigating. So, he shoulda known this was coming.