Hedge Fund Manager Wants His Crown Back

By
David Kinnear

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After a 22-year reign as manager over “one of the world’s biggest and most successful funds,” the handing back of outside investor capital and revamping as a “family fund” must have been a difficult move for the Stamford, Connecticut-based hedge fund mogul. But that was the cost of settling and moving past Department of Justice (DOJ) investigations and the company’s indictment—followed by the entry of guilty pleas—all related to insider trading charges. Now it appears that after just five months on the sidelines, the highly successful hedge-fund manager may be maneuvering to get back into the good graces of the Securities and Exchange Commission (SEC) and back in the game.

Wealthiest Clients—Highest Fees

The antecedent trading firm was comprised of a large group of hedge funds and was known for attracting some of the wealthiest investors to be found—and also for assessing the highest portfolio management fees in the business. Between its founding in 1992 and its bowing out of the public investor arena in March 2014—albeit under SEC pressure to do so—the firm accumulated over $14 billion in “assets under management” (AUM) and yielded returns that made it the most successful hedge fund on record: annual returns averaged 25% after fees.

Success Brings Scrutiny

The success of the company not only dazzled the financial world but also attracted the attention of regulators who began investigating the company in 2007. In the fall of 2010, the SEC conducted raids of the firm’s offices, which ultimately resulted in the 2013 indictments of several former employees.  Altogether, eight former employees were found guilty either by way of plea or trial, yet the hedge-fund manager himself avoided indictment. The firm was not so lucky, and in July 2013, the SEC filed a civil suit for “failure to properly supervise employees,” and the DOJ filed a criminal indictment alleging securities fraud and one count of wire fraud. Four months later, the firm decided to plead guilty to all counts and agreed to cease managing the funds of outsider investors—and to pay a $1.8 billion fine.

A Comeback Bid 

The agreement to manage only family investments—plus those of a few approved employees—meant that the AUM dropped from $14 billion down to around $9 billion. While still a respectable amount, apparently something was missing: the fund manager recently hired a top-notch lawyer to fend off the SEC’s intended lifetime bar from handling outside investor funds, and his company has parted ways with staff members who were “tainted” with the problems of the previous incarnation. It remains to be seen whether he can return to the good graces of regulators.

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