Probe of hedge fund studies credit derivatives-WSJ
NEW YORK, Feb 7 (Reuters) - New York prosecutors probing hedge fund Gotham Partners Management Co. are examining whether it bought into credit derivative markets to make it appear that companies it was bearish on were in danger of default, the Wall Street Journal said in its online edition on Friday.
The credit-default swap market allows participants to buy and sell risk that a company will default. A rising price means
investors believe the company's credit position is worsening.
New York Attorney General Eliot Spitzer, who has already slammed Wall Street firms with fines for tainted research, is looking into whether Gotham acted improperly by buying credit default positions on companies including Federal Agricultural Mortgage Corp. (Farmer Mac) <AGM.N> and bond insurer MBIA Inc. <MBI.N> while short-selling their stock, the Journal reported, citing people familiar with the matter.
Representatives for Gotham, MBIA and Farmer Mac were not immediately available for comment.
Last Thursday, Pre-Paid Legal Services Inc. <PPD.N>, whose stock rose after Gotham published a glowing research report last year, said it was ordered to turn over documents to Spitzer as part of the probe.
Pre-Paid said it was also part of an informal inquiry of the matter launched by the Securities and Exchange Commission.
Gotham issued critical reports about MBIA and Farmer Mac on its Web site and their stocks fell. Each company approached regulators about the matter, alleging that Gotham might have acted with other hedge funds to push the stock down, sources at the companies told Reuters last week.
Spitzer is also looking into whether Gotham was "front-running," by taking out positions in stocks before it issued market-moving research reports on them, the Journal reported.
02/07/03 00:09 ET |
