It came back to roost for this mega shortie. Karma and irony that dealing with legal bookies and naked short (or substitutes/derivatives) finally screwed the shortie pooch during the worst market in perhaps 70 years. Lots of upset hedgie "managers," assistants and associates may now be available for the nickel a post positions. Hopefully, they join the former CEO's and managers of corporate America that raped shareholders and constantly breached fiduciary duties the past 15+ years.
Copper River Closes, Returns Funds To Investors
By CAROL S. REMOND
DECEMBER 8, 2008, 3:35 P.M. ET
A violent market downturn and the government's decision to impose wide-ranging restrictions on short selling in September were just too much for Copper River Management.
After losing more than half of its value in the last couple of months, the Larkspur, Calif., fund is liquidating and returning funds to its investors.
The fund had originally been considering its options, including shutting down some offices and continuing on as a smaller entity. But the enormity of its losses might have been too much from which to rebound.
Fund manager Marc Cohodes declined to comment.
Copper River, a $1 billion fund that primarily bet on the declining value of stock it deemed overpriced, held large short positions in some illiquid stocks when the Securities and Exchange Commission in mid-September dramatically tightened the rules governing short selling.
Short sellers typically borrow shares to sell them and profit when the price drops.
By doing away with an exemption that was the backbone of a trading strategy that allowed funds to short stocks in the options market, the SEC effectively restricted their ability to maintain these positions and provoked a large-scale short squeeze. The SEC later temporarily banned the short selling of financial institutions whose stocks had been severely depressed by the unfolding credit crisis.
As it became harder to take or maintain short positions, hedge funds were faced with wide ranging "buy-ins" and had to pay large premiums to cover their positions. Copper River lost about 50% of its value in September and was down another 5% in October.
Fairfax Financial Holdings Ltd., a Canadian insurance company that is suing several hedge funds in New Jersey State court, was one of the big beneficiaries of the SEC's anti-short crackdown, with its price jumping $100 a share to $326 in just a few trading days. Rocker Partners, Copper River's predecessor fund, was dismissed from the Fairfax suit in late September after successfully arguing that Fairfax hadn't proven the fund's alleged participation in a conspiracy to depress its stock.
The SEC's anti-short-selling edict was very bad news for most funds, especially those such as Copper River whose main investment strategy was short selling. But Copper River's plight was made even worse by the bankruptcy filing by Lehman Brothers Holdings Inc.
According to people familiar with the matter, Copper River was unable to cash out derivative contracts, most likely reverse swaps, in which Lehman was the counterparty before the Wall Street company filed for bankruptcy protection. This meant that, when Lehman filed for bankruptcy on Sept.15, Copper River's money became tied up in the proceedings.
As the magnitude of the crisis became more apparent, prime brokers began raising margin requirements, which compounded the impact of the short-selling ban and forced Copper River and other funds already strapped for cash to put up more collateral or liquidate trading positions.
Copper River made a name for itself as an aggressive short-selling fund that didn't shy away from controversy. Former manager David Rocker, who retired in 2006, was often very vocal against companies whose stock the fund deemed overvalued. Copper River remains embroiled in a legal battle with online retailer Overstock.com Inc., which alleged in a California state court suit that the fund conspired to denigrate the company. Overstock.com recently settled charges with Copper River's alleged co-conspirator, research firm Gradient Analytics.
Write to Carol S. Remond at carol.remond@dowjones.com |
