"SEC's Levitt: More Hedge Fund Losses Possible"
Tuesday September 29 3:30 PM EDT
SEC's Levitt: More Hedge Fund Losses Possible
By Joanne Morrison
WASHINGTON (Reuters) - Wall Street's top regulator warned Tuesday that there might be more hedge fund losses but
added that the losses at Long-Term Capital Management were extreme.
''There may be,'' Securities and Exchange Commission Chairman Arthur Levitt told reporters after testifying before the
House Commerce Committee's finance subcommittee. ''We've done our own analysis of an array of hedge firms out
there. We've spoken to a number and we have reason to believe that Long-Term Capital was very extreme and not
typical of typical hedge funds,'' Levitt said.
Levitt's comments came after the Federal Reserve Bank of New York, seeking to avoid huge market disruptions,
organized a bailout for Long-Term Capital, a hedge fund based in Greenwich, Conn. Several international investment
banks agreed to put up more than $3.5 billion in the bailout package.
Some lawmakers on the panel raised concerns about the lack of information U.S. regulators have about hedge funds --
private unregulated investment funds limited to less than 100 wealthy and sophisticated investors that have been able to
move global markets.
''In effect, such hedge funds act as the Howard Hughes of the financial services industry -- too rich to be seen in public,''
Rep. Edward Markey, a Massachusetts Democrat, said.
But Levitt assured the panel his agency was aware of the exposure that the firms it regulates had from doing business with
Long-Term Capital and began contacting them a month before the bailout.
''I think we were reasonably well aware of the firms' exposure under our jurisdiction,'' Levitt said, adding that regulators
must still study the situation.
Richard Lindsey, the agency's top markets regulator said had there been a default by the hedge fund, none of the U.S.
securities firms involved would have gone bankrupt.
''There would have been no securities firm that would have failed as a result of long-term capital. They all had more than
sufficient capital to withstand a failure,'' Lindsey said.
Still, Long-Term Capital's losses and its potential market impact were not likely a call for new derivatives regulations,
Levitt said. ''I don't think any government agency can know about all of the risks,'' he said.
Even so, regulators will conduct a thorough review of the matter and make recommendations, Levitt predicted. ''We are
not simply going to allow this to be a text book lesson. We are going to carefully consider the alternatives and have
specific recommendations when we know more about the facts and the circumstances,'' he said.
Treasury Secretary Robert Rubin last week announced that U.S. regulators, including the Treasury Department, SEC and
the Commodity Futures Trading Commission, will conduct a formal investigation into Long-Term Capital's troubles.
Levitt noted that regulators would have to be careful in any steps they make. ''This is not a simple problem. Hedge funds
have the ability to locate in different parts of the world,'' he said.
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Long-Term Capital Starts Asset Sales
Fear Of Wider Damage Fueled Long-Term Bailout
Long-Term Capital Pulls Up, Raises Liquidity Fears
(http://dailynews.yahoo.com/headlines/bs/story.html?s=v/nm/19980929/bs/longterm_7.html) |
