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.

Jim Cramer came onto MAD MONEY tonight saying he thinks that Total Systems Services Inc. (NYSE: TSS) is one that can be taken over next in a sector and $40 would be a fair price based on Alliance Data prices. Synovus Financial Corp. (NYSE: SNV) is the parent and Third Point is now being an activist investor. The earnings growth of 18% is reason enough to own this. Cramer did note that he is concerned that Automatic Data Processing Inc. (NYSE: ADP) might be acquired first.

Before you trust Cramer, there are some other instances to look at: Alliance Data Systems (NYSE: ADS) was just acquired, First Data Corp. (NYSE: FDC) is going private, and even Bisys Group Inc. (NYSE: BSG) got gobbled up. Keep in mind that some of the premiums in this sector have been small. ADS was nearly a 20% stock jump, but BSG was a horrible low-premium buyout. In making any "buyout projections" you really need to make sure that these stocks are ones you want to own on your own. Picking a company for a buyout just "for the speculation of a buyout" is a strategy that can be more than painful regardless of how nutty private equity deals get.

I love following the moves of activist investors by tracking their portfolios on StockPickr.com and reading their arguments and analysis in SEC 13D filings. One of my favorite activists to follow is Dan Loeb of Third Point. Loeb is known for his well-written, to-the-point letters to greedy managers which are seen and read by investors all over. According to StockPickr.com's portfolio page for Dan Loeb, Third Point has "posted an average annual return of 28.9 percent since Loeb founded the firm in 1995." Due to the entertainment (and potentially profitable ideas!) provided by Dan Loeb, I have found myself covering one of his letters since my return to writing, his letter to the management of Acorda. Another Third Point position I am closely following is Flow International (NASDAQ: FLOW).

Flow International is a UHP water pump company. What exactly are UHP water pumps? Basically, these are high pressure (40,000-87,000 psi) water pumps used to cut and clean various materials. Using a UHP water pump to cut is viewed as being more flexible than other cutting methods (e.g. lasers, saws) because it can cut more materials and it cuts without heat. In addition, there are benefits to using UHP water pumps in industrial cleaning, paint removal, and so on. For example, there are usually fewer environmental concerns in using water pumps compared to older, traditional methods such as sandblasting. Due to the benefits of UHP water pumps when compared to their traditional alternatives, the upside of the entire market seems very bright.

The growth in FLOW's underlying fundamentals has been fairly significant during recent years. First, the company had its first year of positive net income in 2006, earning roughly $6 million. 2006 also showed a roughly 100% increase in EBIT when compared to 2005 figures. While $6 million in net income seems rather insignificant for a company with a market cap of $445 million, what's important is the company's future. I believe the company has significant earnings potential over the next few years and the six analysts following the company seem to agree. For 2007, the average analyst estimate is 39 cents per share (on $226 million in sales). This would represent an increase in roughly 50% for EPS.

Third Point Capital, an excellent activist-value fund headed by Daniel Loeb, filed a very interesting 13D filing on Thursday, February 22. Third Point's ownership is now 2,290,000 shares, or 9.9% of outstanding shares. While the body of the filing held no "gems," Loeb attached a recent letter to Acorda Therapeutics (NASDAQ:ACOR)' CEO, Ron Cohen, as an exhibit.

As it is evident from a chart, Acorda has experienced a remarkable run over the last six months, rising from a low of nearly $2 per share to its current price of more than $24 per share. According to Loeb, this rise is the result of the Phase III results of Fampridine-SR for walking improvement in multiple sclerosis patients. However, while the company has done extraordinarily well at developing this (seemingly) successful MS drug, Loeb feels "a larger, more experienced company would be able to expedite Fampridine-SR through the FDA and into the hands of patients more quickly and efficiently." Therefore, Loeb feels the board of directors should hire an investment bank to pursue the sale of the company.

In addition to pursuing the company's sale, he feels the company's board should forego the recently announced plan "to partner Fampridine-SR only in Europe." Although the desire to retain all the profits made in the United States seems logical, this plan would be a "tremendous injustice" to multiple sclerosis patients in the United States and the company's public shareholders. Partnering only in Europe would hurt American MS patients because they would not receive a drug that would most certainly ease their pain and potentially save their life in the fastest way possible. It would hurt shareholders of the company because it would "drastically impair if not eliminate the level of interest from potential acquirers of ACOR," according to Loeb's letter.