Post by jcline on Dec 4, 2005 11:44:24 GMT -4
BLOOMBERG NEWS
Tucson, Arizona | Published: 12.04.2005
advertisementThe Securities and Exchange Commission is investigating the growing role of hedge funds in bankruptcy proceedings, concerned that money managers are overstating their bond holdings to get access to inside information.
SEC officials are trying to determine whether the funds exaggerate their stakes to gain membership on committees that oversee debt restructurings for bankrupt companies. The creditors' committees are privy to developments that may affect the value of a company's bonds, such as takeover offers, before they're disclosed to the public.
"We're very actively interested in this area," said Alistaire Bambach, 44, chief bankruptcy counsel in the SEC's enforcement division. "These official committees in bankruptcy cases get tremendous amounts of confidential information, and there's clearly a risk that they're not all trading cleanly and by the book."
The inquiry reflects the SEC's increasing awareness of the potential for fraud in trading of the bonds of crippled and bankrupt companies, and it underscores the agency's effort to intensify scrutiny of hedge funds, investment pools mostly for the wealthy that now manage a total of more than $1 trillion.
The SEC unveiled its first related enforcement case earlier this month. It accused Van Greenfield, manager of New York-based Blue River LLC, of securing a spot on WorldCom Inc.'s creditors' committee in 2002 by falsely claiming to own $400 million of the company's bonds. Greenfield paid $150,000 to settle the case without admitting or denying wrongdoing.
Funds specializing in so-called distressed debt have proliferated with the wave of bankruptcies that followed Enron Corp.'s collapse four years ago.
The face value of distressed debt mushroomed to $718 billion this year from $77 billion in 1998, according to data compiled by Edward Altman, a professor at New York University's Stern School of Business. Some of the biggest bankruptcies were filed during the period, by companies including Enron, WorldCom and Adelphia Communications Corp.
The increase in available distressed debt spurred a surge in investing by private money managers and hedge funds such as Cerberus Capital Management LP and Elliott Management Corp., both of New York, Chatham, New Jersey-based Appaloosa Management LP, and Morristown, New Jersey's W.R. Huff Asset Management Co.
www.azstarnet.com/business/105208
Tucson, Arizona | Published: 12.04.2005
advertisementThe Securities and Exchange Commission is investigating the growing role of hedge funds in bankruptcy proceedings, concerned that money managers are overstating their bond holdings to get access to inside information.
SEC officials are trying to determine whether the funds exaggerate their stakes to gain membership on committees that oversee debt restructurings for bankrupt companies. The creditors' committees are privy to developments that may affect the value of a company's bonds, such as takeover offers, before they're disclosed to the public.
"We're very actively interested in this area," said Alistaire Bambach, 44, chief bankruptcy counsel in the SEC's enforcement division. "These official committees in bankruptcy cases get tremendous amounts of confidential information, and there's clearly a risk that they're not all trading cleanly and by the book."
The inquiry reflects the SEC's increasing awareness of the potential for fraud in trading of the bonds of crippled and bankrupt companies, and it underscores the agency's effort to intensify scrutiny of hedge funds, investment pools mostly for the wealthy that now manage a total of more than $1 trillion.
The SEC unveiled its first related enforcement case earlier this month. It accused Van Greenfield, manager of New York-based Blue River LLC, of securing a spot on WorldCom Inc.'s creditors' committee in 2002 by falsely claiming to own $400 million of the company's bonds. Greenfield paid $150,000 to settle the case without admitting or denying wrongdoing.
Funds specializing in so-called distressed debt have proliferated with the wave of bankruptcies that followed Enron Corp.'s collapse four years ago.
The face value of distressed debt mushroomed to $718 billion this year from $77 billion in 1998, according to data compiled by Edward Altman, a professor at New York University's Stern School of Business. Some of the biggest bankruptcies were filed during the period, by companies including Enron, WorldCom and Adelphia Communications Corp.
The increase in available distressed debt spurred a surge in investing by private money managers and hedge funds such as Cerberus Capital Management LP and Elliott Management Corp., both of New York, Chatham, New Jersey-based Appaloosa Management LP, and Morristown, New Jersey's W.R. Huff Asset Management Co.
www.azstarnet.com/business/105208