Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Dorfman: SEC on Vandetta Against Hedge Funds??

Writing in an April 3, 2006 article in The New York Sun entitled 'V' is for SEC in Eyes of Hedge Funds, noted financial columnist Dan Dorfman reports that some in the hedge fund industry are wondering whether the SEC is on some type of vendetta. The thought is that there seems to be a mindset at the SEC that anyone who shorts a stock is either un-American or crooked. This report follows news of three stock trading investigations and increased scrutiny of Rocker Partners, a leading hedge fund in short-selling stocks. The article also mentions lawsuits recently against Rocker Partners and SAC Capital Management LLC that allegely conspired with Gradient Analytics of Scottsdale, AZ to drive down the stock prices of and Biovail respectively. The whole article is well worth reviewing.

After the noted hedge fund misdeeds of the past year, Toomre Capital Markets LLC suspects that there is indeed greater scrutiny of all hedge funds from the SEC. However, we wonder whether the short-seller hedge fund complaints are being over-stated, especially after a quarter when the rise in the S&P 500 was one of the best in the last five plus years. In such an environment, it is difficult to consistently make money from short-selling. Also, with the intense pressure on positive performance in the hedge fund industry, gripping is highly likely and a great way to change the subject from a difficult performance environment for shorting stocks.