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Non-Tech : Auric Goldfinger's Short List -- Ignore unavailable to you. Want to Upgrade?

To: Art M who wrote (11033)	1/30/2003 8:07:16 PM
From: StockDung	Respond to of 19428

Reuters UPDATE - Pre-Paid questioned as hedge fund probe widens Thursday January 30, 6:54 pm ET By Svea Herbst-Bayliss (New throughout, changes dateline previous ADA, Okla) BOSTON, Jan 30 (Reuters) - Pre-Paid Legal Services Inc. (NYSE:PPD - News), whose stock rose after a hedge fund published a glowing research report last year, on Thursday was ordered to turn over documents as regulators widen their probe into allegations that hedge funds may have manipulated stocks. Ada, Oklahoma-based Pre-Paid Legal, which sells legal services plans to consumers, said it has received a subpoena from the U.S. Attorney for the Southern District of New York. It also said it is now part of an informal inquiry launched by the Securities and Exchange Commission. New York Attorney General Eliot Spitzer is working alongside other regulators, including the SEC, to determine if some hedge funds broke securities laws by publishing research on the Internet. Pre-Paid Legal said it is cooperating with the requests. The probe, which appears to be picking up speed as more hedge funds are being questioned and more regulators get involved, is sending shivers through the loosely regulated, $600 billion hedge fund industry. Some industry observers say this could pave the way for the SEC to force all hedge funds to let auditors look at their books, and possibly crimp their trading styles. Pre-Paid Legal caught regulators attention because its stock jumped about 17 percent in the 2 weeks after hedge fund Gotham Partners Management posted a very positive report on the company on its own Web site on Nov. 20. Gotham Partners, which owned Pre-Paid Legal stock, also posted the report with news service TheStreet.com. With his very upbeat report, Gotham Partners co-founder David Berkowitz flew in the face of short-sellers who argued the stock price should go down not up. Berkowitz wrote that the shares, which had traded at $24.75 on Nov. 20, should be valued between $32 and $67 a share. They rose as high as $29.14 on Dec. 10 before falling off again. Pre-Paid Legal's chief operating officer, Randy Harp, sold 55,000 shares of the company's stock on Dec. 4, according to an SEC filing. Gotham Partners also started to sell the stock in December, because the fund faced a liquidity crisis and is shutting its flagship fund after rich investors began to ask for their money back. Gotham did not give an exact date of when it started selling its Pre-Paid shares. Pre-Paid Legal shares dropped over 25 percent on Jan. 6 when the company said its president quit and new membership had fallen. On Thursday, shares in Pre-Paid closed down 1.5 percent at $18.20 on the New York Stock Exchange. For Gotham, meanwhile, issuing reports on companies on its Web site was nothing new. It had issued critical reports about bond insurer MBIA Inc. (NYSE:MBI - News) and Federal Agricultural Mortgage Corp (NYSE:AGM - News) whose stocks then 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 said. It is highly unusual for hedge funds to be so focal about what they do and Gotham Partners' activity raised some eyebrows in the industry. Because hedge funds have more rights than mutual funds in how they invest money -- they can make money in falling markets by selling stocks short -- they are also prohibited from soliciting business on Web sites that are accessible to all. Gotham Partners' Web site was abruptly removed from the Internet in late December because the fund wasn't interested in maintaining its high profile anymore, co-founder William Ackman said.