Post by jannikki on Apr 16, 2007 22:06:55 GMT -4
STOCKGATE TODAY
An online newspaper reporting the issues of Securities Fraud
SEC Hedges on Accredited Investor Limits – April 16, 2007
David Patch
Last year the Securities and Exchange Commission lost in their efforts to force hedge funds to register with the agency. The Commission elected not to appeal the court decision but instead elected to take a different tact to reign in control of the near $2 Trillion industry.
Up for public comment is an SEC proposal which would raise the bar for accredited investors from the present $1 Million to $2.5 Million in order to backdoor the hedge fund industry growth by reducing the investor pool. The SEC is hedging on the general population expressing content that this in itself will protect our markets from possible abuses these over leveraged wealth pools have in the public market place.
If public sentiment were, in a parallel universe, equivalent to hedge fund performance the SEC would be one such hedge fund preparing to close doors and move on.
Based on the comment memos received to date, public opinion is thoroughly in disagreement with the SEC’s rationalization that raising the accredited investor wealth bar is a means of addressing concerns over the hedge fund industry. Several comment memos have addressed the issue of “accredited investor” vs. “sophisticated investor” when addressing the individual investor but none did it better than Financial Analyst Bruce Broussely.
Broussely states:
By having ANY minimum net worth requirement, you have in effect told millions of college-educated people with degrees in finance (including myself), engineers, CPAs and other professionals that they are not smart enough to invest, which is the height of elitism. The job of the SEC is ensure that the managers of the funds are running their business honestly and with full disclosure of their operations, and not to decide who is smart enough to select that investment.
Being an engineer myself, the concept of thinking outside the box has meant not re-inventing the wheel but instead looking at how the wheel is used elsewhere and applying the best of many applications into techniques that meet my specific needs. In this case, I want to steal Mr. Broussely’s thoughts and expand upon them further.
The job of the SEC is ensure that the managers of the funds are running their business honestly…
At the present time, we have a Commission staff that has publicly voiced concerns over an increase in what appears to be a pattern of insider trading regarding the hedge fund industry. In prepared testimony to the Senate Judiciary Committee last September, Securities and Exchange Commission enforcement director Linda Thomsen said insider trading by the hedge fund community is "an area of significant concern" to the SEC and to lawmakers.
Since that prepared statement some 6 months ago members of the financial press have reported almost weekly a suspected insider trading case leading into an M&A announcement and pointing at hedge funds as prime suspects in the trading.
Concern with the growing news and the move to raise the bar on accredited investor status, the SEC is failing to take the appropriate steps to ensure that the funds are running an honest business. Instead the SEC is looking to merely restrict the investing pool of individuals with access to the ill-gotten gains. After all, what risk is there in trading on inside information?
If insider trading is an investment strategy that raises the profits for the hedge funds, non-accredited investors restricted from such investment pools must be taking the loss as not all investors can come out on top. Simply creating a market that pulls investors in or draws them out prematurely is manipulation that directly costs the investing public and needs to be addressed.
Similarly, when restricted from the risks of a hedge fund the non-accredited investor is limited to investing in mutual funds as a more secure placement of their limited savings. But 2003 illustrated how safe the mutual fund market is to the average investor when hedge funds play in the same investment pool as the individual investor.
Starting in the fall of 2003 with the Massachusetts Attorney General v. Putnam Securities, Late Trading/Market Timing became the latest household lingo for pillaged household savings. By the time it was over tens of brokerage firms were embroiled in the scandal and over $1 billion in fines were levied across the industry.
Late Trading/Market Timing was a mechanism where Wall Street handed the keys to the trading desk to hedge funds after market close and allowed these funds to steal pennies here, nickels there from mutual fund‘s and the mutual fund investors. While the public companies of Wall Street took the biggest hits over the scandal only a few hedge funds were fined and forced to return the ill-gotten gains.
The investing pools of the non-accredited investors were being raided by accredited investors playing in hedge funds. The SEC’s response would be to change the bar as to where a person falls never addressing the root concern of the public. Raising the bar simply limited the illegal profits to a tighter knit group of individuals.
Finally, we have all watched as the market trades violently on news created by the public. Simply look to the recent months to where the Dow fell sharply in February dropping over 500 points to have fully recovered as of today with some significant mood swings in between. Each time the movements were created by the liquidity the hedge funds bring to the markets and created by the professional dissemination of information these fund managers drop on to the trading desks.
Last December, CNBC personality Jim Cramer exposed on a web based interview by TheStreet.com’s Wall Street Confidential that his personal experiences with hedge fund exposed him to situations where the fund managers purposely disseminated false and misleading information into the trading rooms in order to move markets and turn profits. Now this news is nothing new to those close to the street operations but it is the first time a public figure, and a former hedge fund manager, came out and stated it so publicly.
If our markets are being moved by lies disseminated to professionals by professionals and such lies move markets, how can the unsuspecting public be protected? How can mom and pop, off each day to work regular jobs, have their investments protected while they work if markets are being moved illegally and without reason?
The SEC’s proposal here is to limit the risks of the investing public by limiting who can invest in what is considered the most risky of investment vehicles. It is a hedge the SEC failed to understand.
As Mr. Broussely concluded, the SEC should completely do away with eth accredited investor threshold but do so because the threshold has little to do with investing sophistication. I agree but for a different reason. I say the SEC do away with the accredited investor threshold because it appears to be the only way the investing public will obtain their equal rights to the ill-gotten gains these investment vehicles have clear and unregulated access to.
That or….
Simply clean up the hedge fund industries access to fraud and protect the investing public to a level where the demand for access to these investment pools is no longer such a high demand. It is not a difficult concept to grasp. Unfortunately the SEC seems content to dedicate valuable time and resource creating meaningless laws like the one proposed for public comment. The general public is now left to wonder not if but when this ship Cox is steering will crash into the rocks with yet another major Wall Street scandal.
For more on this issue please visit the Host site at www.investigatethesec.com
Copyright 2007 (posted with permission)
An online newspaper reporting the issues of Securities Fraud
SEC Hedges on Accredited Investor Limits – April 16, 2007
David Patch
Last year the Securities and Exchange Commission lost in their efforts to force hedge funds to register with the agency. The Commission elected not to appeal the court decision but instead elected to take a different tact to reign in control of the near $2 Trillion industry.
Up for public comment is an SEC proposal which would raise the bar for accredited investors from the present $1 Million to $2.5 Million in order to backdoor the hedge fund industry growth by reducing the investor pool. The SEC is hedging on the general population expressing content that this in itself will protect our markets from possible abuses these over leveraged wealth pools have in the public market place.
If public sentiment were, in a parallel universe, equivalent to hedge fund performance the SEC would be one such hedge fund preparing to close doors and move on.
Based on the comment memos received to date, public opinion is thoroughly in disagreement with the SEC’s rationalization that raising the accredited investor wealth bar is a means of addressing concerns over the hedge fund industry. Several comment memos have addressed the issue of “accredited investor” vs. “sophisticated investor” when addressing the individual investor but none did it better than Financial Analyst Bruce Broussely.
Broussely states:
By having ANY minimum net worth requirement, you have in effect told millions of college-educated people with degrees in finance (including myself), engineers, CPAs and other professionals that they are not smart enough to invest, which is the height of elitism. The job of the SEC is ensure that the managers of the funds are running their business honestly and with full disclosure of their operations, and not to decide who is smart enough to select that investment.
Being an engineer myself, the concept of thinking outside the box has meant not re-inventing the wheel but instead looking at how the wheel is used elsewhere and applying the best of many applications into techniques that meet my specific needs. In this case, I want to steal Mr. Broussely’s thoughts and expand upon them further.
The job of the SEC is ensure that the managers of the funds are running their business honestly…
At the present time, we have a Commission staff that has publicly voiced concerns over an increase in what appears to be a pattern of insider trading regarding the hedge fund industry. In prepared testimony to the Senate Judiciary Committee last September, Securities and Exchange Commission enforcement director Linda Thomsen said insider trading by the hedge fund community is "an area of significant concern" to the SEC and to lawmakers.
Since that prepared statement some 6 months ago members of the financial press have reported almost weekly a suspected insider trading case leading into an M&A announcement and pointing at hedge funds as prime suspects in the trading.
Concern with the growing news and the move to raise the bar on accredited investor status, the SEC is failing to take the appropriate steps to ensure that the funds are running an honest business. Instead the SEC is looking to merely restrict the investing pool of individuals with access to the ill-gotten gains. After all, what risk is there in trading on inside information?
If insider trading is an investment strategy that raises the profits for the hedge funds, non-accredited investors restricted from such investment pools must be taking the loss as not all investors can come out on top. Simply creating a market that pulls investors in or draws them out prematurely is manipulation that directly costs the investing public and needs to be addressed.
Similarly, when restricted from the risks of a hedge fund the non-accredited investor is limited to investing in mutual funds as a more secure placement of their limited savings. But 2003 illustrated how safe the mutual fund market is to the average investor when hedge funds play in the same investment pool as the individual investor.
Starting in the fall of 2003 with the Massachusetts Attorney General v. Putnam Securities, Late Trading/Market Timing became the latest household lingo for pillaged household savings. By the time it was over tens of brokerage firms were embroiled in the scandal and over $1 billion in fines were levied across the industry.
Late Trading/Market Timing was a mechanism where Wall Street handed the keys to the trading desk to hedge funds after market close and allowed these funds to steal pennies here, nickels there from mutual fund‘s and the mutual fund investors. While the public companies of Wall Street took the biggest hits over the scandal only a few hedge funds were fined and forced to return the ill-gotten gains.
The investing pools of the non-accredited investors were being raided by accredited investors playing in hedge funds. The SEC’s response would be to change the bar as to where a person falls never addressing the root concern of the public. Raising the bar simply limited the illegal profits to a tighter knit group of individuals.
Finally, we have all watched as the market trades violently on news created by the public. Simply look to the recent months to where the Dow fell sharply in February dropping over 500 points to have fully recovered as of today with some significant mood swings in between. Each time the movements were created by the liquidity the hedge funds bring to the markets and created by the professional dissemination of information these fund managers drop on to the trading desks.
Last December, CNBC personality Jim Cramer exposed on a web based interview by TheStreet.com’s Wall Street Confidential that his personal experiences with hedge fund exposed him to situations where the fund managers purposely disseminated false and misleading information into the trading rooms in order to move markets and turn profits. Now this news is nothing new to those close to the street operations but it is the first time a public figure, and a former hedge fund manager, came out and stated it so publicly.
If our markets are being moved by lies disseminated to professionals by professionals and such lies move markets, how can the unsuspecting public be protected? How can mom and pop, off each day to work regular jobs, have their investments protected while they work if markets are being moved illegally and without reason?
The SEC’s proposal here is to limit the risks of the investing public by limiting who can invest in what is considered the most risky of investment vehicles. It is a hedge the SEC failed to understand.
As Mr. Broussely concluded, the SEC should completely do away with eth accredited investor threshold but do so because the threshold has little to do with investing sophistication. I agree but for a different reason. I say the SEC do away with the accredited investor threshold because it appears to be the only way the investing public will obtain their equal rights to the ill-gotten gains these investment vehicles have clear and unregulated access to.
That or….
Simply clean up the hedge fund industries access to fraud and protect the investing public to a level where the demand for access to these investment pools is no longer such a high demand. It is not a difficult concept to grasp. Unfortunately the SEC seems content to dedicate valuable time and resource creating meaningless laws like the one proposed for public comment. The general public is now left to wonder not if but when this ship Cox is steering will crash into the rocks with yet another major Wall Street scandal.
For more on this issue please visit the Host site at www.investigatethesec.com
Copyright 2007 (posted with permission)