Recs: 1 Loeb, Under SEC Probe, Defends `Give-and-Take' With Other Funds
bloomberg.com
By Saijel Kishan
Aug. 20 (Bloomberg) -- Daniel Loeb, whose Third Point LLC is being investigated by regulators, said his ``give-and-take'' with other hedge-fund managers doesn't violate securities laws.
The U.S. Securities and Exchange Commission is probing New York-based Third Point, which manages $5.6 billion, for its communications with other hedge funds, Loeb said in a July 25 letter to clients. The investigation follows an SEC audit last year during which examiners noted the firm ``regularly communicated with hedge funds about investment and trading ideas,'' according to the letter.
``Such conversations permit us to test our hypotheses and refine our thinking and, as a result, we believe that participating in give-and-take with other managers is in the best interest of our investors,'' Loeb wrote in the letter, a copy of which was obtained by Bloomberg News. ``Our outside counsel has examined this matter thoroughly and assured us that our position is consistent with the securities laws.''
The SEC has subpoenaed hedge funds and banks in a widening effort to crack down on suspected illegal trading of firms including Bear Stearns Cos. and Lehman Brothers Holdings Inc. The probe focuses on traders who seek to profit by intentionally spreading false information about the companies.
``Is this a witch hunt triggered by the Bear Stearns situation, or is this the SEC tightening up on communications between unrelated hedge-fund entities?'' said Brad Balter, managing partner of Balter Capital Management LLC, referring to Third Point. Balter's Boston-based firm invests in hedge funds for its clients.
John Nester, a spokesman for the SEC in Washington, declined to comment. Elissa Doyle, a spokeswoman for Third Point, declined to comment. Alpha magazine reported the SEC investigation and Third Point returns yesterday.
Insider Trading
New York Stock Exchange's insider-trading referrals to the SEC reached 90 during the first half of the year, compared with 111 for all of 2006. Almost half of the 141 referrals in 2007 involved hedge-fund trading, according to NYSE data.
Loeb's flagship Third Point Partners fund returned 8 percent in the second quarter, bringing its gain for the year to 3.6 percent, according to the letter. The fund had placed winning wagers on rising energy stocks, while betting against financial companies.
``Unfortunately, in the first few weeks of the third quarter, we have witnessed a violent reversal in both financial service stocks and energy names,'' Loeb wrote, without providing details. The manager has returned an average of 27 percent a year since opening the firm in 1995.
Loeb, 46, is known for pushing companies to make changes that increase their stock prices. He pressured U.S. oil and natural-gas producer Pogo Producing Co. for more than a year to shed assets or sell itself before it agreed to be bought by Plains Exploration & Production Co. for $3.6 billion in July last year.
Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.
To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net
Last Updated: August 20, 2008 15:27 EDT
report abuse |
