Thursday, July 16, 2009

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$18m hedge fund settlement raising concerns about Bahamian regs By VERNON CLEMENT JONES ~ Guardian Business Editor ~ vernon@nasguard.com: An $18m settlement between the SEC and the heads of a defunct hedge fund based in The Bahamas has led to calls for better regulation of the controversial sector. On Monday, the Securities and Exchange Commission in the United States along with the London-based hedge fund manager and chief investment officer for Headstart Advisers Ltd. announced an out-of-court settlement. The company has avoided falling on its sword, neither admitting nor denying allegations stemming from a hedge fund incorporated in this jurisdiction. Headstart Fund, a riskier version of a mutual fund, attracted SEC allegations that its executives defrauded U.S. mutual funds and investors through trading practices over a five year period, starting in September 1998. The hedge fund has now been wrapped up but will incur a $17 million penalty, that sum meant to resolve a complaint the SEC originally brought forward in April 2008. London-based Headstart Advisers will pay an additional $200,000, and the CIO Najy N. Nasser will pay $600,000. "The SEC's complaint alleged the hedge fund had 'engaged in fraudulent late trading and deceptive market timing' through quick in-and-out trading to exploit inefficiencies in how fund shares are priced — a practice that can harm long-term investors," reads an AP report filed Monday. "The SEC alleged the hedge fund secured about $198 million in illicit profits through the alleged scheme, at the expense of U.S. mutual funds and their shareholders. Nasser instructed U.S. broker-dealers to direct Headstart's trading scheme, the complaint alleged." The SEC's aggressive stance is one this country should adopt, said one investment advisor Tuesday. "The U.S. is moving to better regulate hedge funds while still allowing them to maintain their more risk-tolerant practices," he told Guardian Business, speaking on condition of anonymity. "We've got to start doing the same here, especially if we want to encourage more hedge funds to register here in our offshore." That is in fact one of the government's stated goals, with the PM sharing those ambitions at an industry conference in November 2007. "Today, I am advised that total assets in the hedge fund sector exceed $1.8 trillion dollars, with some estimates as high as $2.5 trillion," Hubert Ingraham told attendees of Hedge Fund World Nassau. "The offshore sector is the most important in terms of domicile, with almost 50 percent of these assets domiciled in the Caribbean. "The Bahamas is the seventh most popular destination worldwide in terms of assets domiciled, and we boast hedge funds managed here that are among the top 10 percent worldwide in terms of size despite lacking the physical presence of many of the top prime brokerage operations which we would like to attract, accommodate and welcome to our shores." Those fund managers are now facing increased pressure in the U.S., where they've been blamed for a significant part of the current economic crisis. The financial regulatory plan laid out by Barack Obama last month would require the advisers to hedge funds and other private funds to register with securities regulators for the first time, a move the industry has said it can accept. The SEC may even seek to take that one step further by registering hedge funds directly. That would come over the objections of industry professionals fearful direct oversight signals the introduction of leverage limits and liquidity requirements. Hedge funds operating in this country do so to a large extent without any direct regulatory oversight. It is unclear what if any changes will come as part of the regulatory consolidation now under way. Wednesday, July 1, 2009