Another former hedge fund manager is headed to prison. Paul Greenwood, who along with Stephen Walsh was a principal of WG Trading Company and WG Trading Investors, was sentenced to ten years in prison for running a fraudulent commodities trading and investment advisory scheme with Walsh and misappropriating hundreds of millions of client dollars for their personal benefit, according to federal prosecutors. Greenwood, for example, was accused of using the money to purchase horses and “expensive collectible items,” including a large teddy bear collection, and for other personal expenditures.
Walsh pleaded guilty on April 25 and was sentenced to 20 years on October 29. Greenwood pleaded guilty under a cooperation agreement on July 28. From 1996 through February 2009 the pair solicited $7.6 billion from investors promising to invest it in a conservative strategy called “equity index arbitrage,” according to the government. Instead, they used hundreds of millions of dollars for their personal use and “to satisfy obligations on investments that were unrelated” to the promised trading strategy. They were also accused of executing promissory notes that misstated the financial condition of WG Trading and misled investors. Walsh was also ordered to forfeit more than $50.7 million and Greenwood to forfeit $83.5 million.
The pair used $2.6 million of client money to buy a stake in the New York Islanders professional hockey team in 1992, according to the government. They sold the team in 1996. In July 2009, Deborah Duffy, the former chief compliance officer of WG Trading Company, pleaded guilty to conspiracy, securities fraud, and money laundering for her role in the fraud. Her sentencing is scheduled for January 8, 2015.
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Sachem Head Capital Management said in a regulatory filing that on December 3, it exercised its right to settle physically-settled total return swaps, acquiring nearly 4.95 million shares of CDK Global, a provider of technology and marketing services to auto retailers that was spun off from payroll processing company Automatic Data Processing on October 1. The New York-based hedge fund firm said the purpose of the transactions was “to acquire voting securities” of the company.
Sachem Head owns more than 12.6 million shares of common stock, or 7.87 percent of the total outstanding, and additional economic exposure to about 3.15 million notional shares “under certain cash-settled total return swaps.” That brings its total economic exposure to 15.8 million shares, representing 9.84 percent of the total outstanding.
Sachem Head was founded by Scott Ferguson, the first analyst at William Ackman’s New York-based Pershing Square Capital Management. Ferguson eventually became a partner before leaving in 2012, after nine years with the activist firm. Sachem Head was up a little less than 1 percent in the third quarter and was up 11.4 percent for the first nine months of the year, according to an investor in the fund.
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Shares of Sears Holdings slumped more than 4 percent, to $32.96, after the ailing retailer reported yet another set of disappointing quarterly earnings results, including a wider loss. The stock, which dropped as low as $23 in October, is still down about 28 percent for the year.
ESL Partners’s Edward Lampert is the largest shareholder, with the stock accounting for about 45 percent of his U.S. equity assets, which shrunk to just $1.5 billion at the end of September. Fortunately for Lampert, AutoNation, his second largest holding — accounting for 29 percent of assets — is up about 20 percent this year. Lands’ End, which was spun off earlier in the year and is now ESL’s third largest position, is up 54 percent from its official spinoff date. ESL unloaded its stake in The Gap in the third quarter.
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Shares of Dollar General initially fell 1 percent or so on Thursday after the discount retailer reported third-quarter sales and earnings that came in below analyst expectations. However, they rebounded during the day and actually closed by 1.65 percent, at $67.79. The company also said in a press release that it remains committed to acquiring Family Dollar, adding that it will update its offer “in time for Family Dollar shareholders to review” information prior to Family Dollar’s shareholders meeting scheduled for December 23.
As we earlier noted, four of the nine largest shareholders are hedge fund firms — New York-based Soroban Capital Partners, Greenwich, Connecticut-based Lone Pine Capital, New York-based Jana Partners (which established a stake exceeding eight million shares in the third quarter) and New York-based Glenview Capital Management.
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Credit Suisse applauded the news that Trian Fund Management founding partner Edward Garden is joining the board of directors of The Bank of New York Mellon. “We are especially encouraged by the even rarer move of Mr. Garden joining the human resources and compensation committee,” it adds in a note sent to clients on Thursday. “Given the importance of expenses to value creation going forward we are not surprised to see Trian assuming a board seat. However, we do note that assuming a board seat is far from the norm for Trian.”
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Alan Howard’s BH Macro fund moved back into positive territory last month after gaining nearly 1 percent in November. It is now up a mere 0.10 percent for the first 11 months of the year. BH Macro invests substantially all of its assets in the Brevan Howard Master Fund, which has never suffered a losing year. That fund is managed by London-based Brevan Howard Asset Management.
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The Barnegat Fund, a $677 million fixed-income, relative-value hedge fund, gained 0.2 percent in November, putting it up 17.5 percent for the year. The fund aims to exploit interest-rate anomalies in large financial markets, trading government bonds, interest-rate swaps and futures contracts. It is managed by Hoboken, New Jersey-based Barnegat Fund Management.
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Madhu Satyanarayana, who specialized in distressed investing strategies at New York hedge fund firm J. Goldman & Co., died at the age of 33, according to a Bloomberg report. He died of an apparent heart attack at his home in Cresskill, New Jersey, according to the report.
