Wall Street Folly

Patrick Byrne must have Overstock.com’s bean counters working on overtime beating the bushes for anything that could reduce the company’s losses.  Seems like the company made a boo boo in calculating some of their freight costs over the last few years that resulted in their being overstated the tune of $3.5 million and inventory understated by the same amount as a result.  They’ll be restating earnings from 2002 to 2004 so that they’ll show lower losses over that period.

Overstock to restate financial filings – Reuters

Wall Street Folly – www.wallstreetfolly.com

As if GLG Partners didn’t have enough problems with its star trader (or should we now say, former star trader?) Philippe Jabre under assault by both UK and French regulators over alleged insider trading allegations.

Now trades by one of GLG’s other founders are coming under attack as well.  French regulators are apparenly looking into trading in two GLG funds, one managed by GLG co-founder Pierre Lagrange, to see if they also might have benefitted by inside information.

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Tags: FSA, GLG Partners, Philippe Jabre

Jim Cramer revealed yesterday that got a nice little present from the SEC last week — a subpoena in connection with the snowballing Overstock.com stock manipulation flap –  which he tossed on the floor while he was live on the air… 

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Hedge funds have been billed as the best performing asset class over 10 years.  But is that really the case?  Barclays Capital says "no" — hedge fund indices are being overstated by from 1-6%  a year depending on the index due to the way that that the statistics have been compiled….

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Kohlberg Kravis Roberts is the latest big player to announce a new hedge fund.  KKR Strategic Capital will focus on debt investments, according to KKR spokeswoman Roanne Kulakoff.  It’s expected to launch at the end of the second quarter and will have $1 billion in capital.

KKR Financial to launch debt focused hedge fund – Reuters

Wall Street Folly – www.wallstreetfolly.com

• Google service a threat to eBay? Online payments move company into retail domain
• Hedge funds need to sober up after the party
• Lehman appoints new head of corporate broking
• Salaries rebounding for first-year lawyers
• High-risk day trading makes a comeback

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Warren Buffett’s annual report and letter to shareholders will be released this Saturday morning for all to see.  Tradition has dictated that the much anticipated tome be released on Saturday in early March so that readers can enjoy it with their morning coffee.  However, this year’s Saturday release will likely be its last owing to a change in SEC rules that requires faster disclosure of annual reports….

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Apparently realizing that they need to tread a bit carefully when it comes to going after reporters, the SEC’s Chris Cox said that any future subpoenas issued to journalists will require that the SEC commissioners first examine the issues before taking "such an extraordinary step".  Apparently Cox and the other commissioners weren’t given any advance notice that two Dow Jones reporters would be served with SEC subpoenas in connection with the alleged stock manipulation flap involving Gradient Analytics and Overstock.com.

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We came across an excellent article focusing on legendary value / distressed investor Marty Whitman who runs the Third Avenue Value Fund.  Whitman spoke on Feb 16 at the NY Society of Security Analysts where he provided a list of ‘what’s wrong with value investing’, summarized in the piece.  In addition, the article talks about his philosophies on exiting positions, and on distressed investing. 

It’s a great read.

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GLG star trader, Philippe Jabre, under assault by regulators in both the UK and France, is unlikely to be returning to GLG regardless of the outcome of the investigations into his trading according to what the other two fund founders, Noam Gottesman and Pierre Lagrange, are telling investors. 

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Tags: FSA, GLG Partners, Philippe Jabre

• Wall Street’s Fixed-Income Profit Engine Shows Signs of Slowing
• SEC-Stone Cops
• Who’s who of business to board plane to India
• Insider Deal For Janus Dies As Stock Rises
• Hedge Fund’s Assets Hard to Find
• Should Directors Be Nervous?
• With CNBC Deal, Talk Is New German Export

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Yet another firm is preparing for the expected increase in corporate melt downs.  Piper Jaffray has made a move into the distressed restructuring business by hiring a team of 6, formerly with CIBC World Markets.  Joseph Radecki Jr. will head the team that will be NY based.  Prior to his stint with CIBC, Radecki worked at Drexel Burnham Lambert until it blew up in 1990, and subsequently with Jefferies & Co.

Banking on Distress – Wall Street Journal

Wall Street Folly – www.wallstreetfolly.com

In the ‘mighty big of him’ department:  Sandy Weill has sent a letter to Citigroup’s board of directors saying that once he retires in April that he’ll need use of the corporate jet only for the next 10 years (until he’s 82) instead of for the remainder of his life.  He was entitled life long use of a company plane, a car and driver, and secretary per his 2001 employment agreement….

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Morgan Stanley’s corporate jet racked up lots of milage last year ferrying around its CEO’s on personal jaunts according to the NY Times’ gander at the recently filed proxy.  The corporate jet personal use travel tab for both current CEO John Mack and former CEO Phil Purcell, came to over $1 million in 2005.  Purcell racked up over $608k in personal costs, while Mack’s tab came to more than $407k.  And that doesn’t include the cost of jet maintenance or other fixed costs.

However, the proxy also notes that Morgan Stanley’s "Board-approved policy" requires that the Chairman and CEO use the company jet when they fly….

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Tags: Morgan Stanley

• The Adviser Who Became the Activist [Bruce Wasserstein]
• India Rising
• Hedge funds in watchdogs’ sights – £500bn industry faces clampdown in UK and US

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Michael Gross, one of the co-founders of Apollo Management who helped to set up the firm with Leon Black back in 1990, is leaving to firm to set up his own shop.  Gross had been CEO of Apollo’s publicly traded Apollo Investment Corp.

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• Overstock’s Campaign of Menace
• SEC Probes Overstock’s Claim Of Stock-Market Manipulation
• Old Games, New Moves: Talking with Peter Schoenfeld, Founder, P. Schoenfeld Asset Management
• Pity the poor Dresdner bankers
• Red Light for Greenhill?
• Wall St research suffers since Spitzer deal

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• Highbridge fund cuts managers
• More than one foe [Gradient Analytics, Overstock.com's Patrick Byrne, SAC Capital]
• About my subpoena [Herb Greenberg]
• Mandell leaves Glenview hedge firm; Manager plans new hedge fund with private-equity bent

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The writing is on the wall.  According to a new report called the "2006 US Equity Research Industry Outlook" published by Integrity Research Associates, LLC, spending by institutional investors on sell side research is expected to drop from $5.4 billion to $3.9 billion, or 28%, by the year 2009.

And you have to know what that means.  With research spending projected to continue to drop, and many research jobs being outsourced to India anyway, if you’re a sell side research analyst you may ultimately be downsized out of a job.  So keep those resumes updated.  You might wanna start thinking about making that jump to the buy side, or maybe contemplate a new career…

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Time for something different: Kevin Roche, head of investment banking at Wachovia Corp, is quitting to pursue other interests.  Roche, 47, has been in the financial services industry for 26 years, with 18 of those years spent at Wachovia.  According to an interview with the Charlotte Observer, Roche, now at a point where he has no "financial concern", "wants to get involved in the community, continue to inspire and motivate others and perhaps teach."

"We’re in a fortunate place to be," said Roche, who has four children in college and high school. "Shame on us if we don’t work to try to do something."

Departing Wachovia exec seeks something new – Charlotte Observer

Wall Street Folly – www.wallstreetfolly.com

Saudi Prince Alwaleed bin Talal will soon have a public trading vehicle for his holdings, much like the billionaire to whom he is so often compared: Warren Buffett.  He plans on offering at least 30% of his Kingdom Holding Co. on the Saudi Stock Exchange in a deal that could raise over $6 billion…

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SAC Capital isn’t taking the Biovail stock manipulation charges lying down.   They came out swinging, calling the allegations "outrageous and defamatory and SAC will defend itself and its investment practices vigorously".  They also said that "Biovail’s true issue is the valuation that the public market place on their common stock. That disagreement should be resolved in the public markets, not in litigation."

SAC rebuts conspiracy claim – Telegraph.co.uk

Wall Street Folly – www.wallstreetfolly.com

Tags: Hedge funds, SAC Capital

It seems like everyone is raising new money for the next round of corporate implosions.  The latest vulture venture was announced by Texas Pacific Group, and is called TPG Credit Management LP.  It will be run out of Minneapolis by former Cargill Value Investment Fund distressed pro Rory O’Neill.  The fund intends to raise less than $1 billion.

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Just when it seemed like the tide might be turning, with Morgan Stanley actually able to hire a few bodies in the past couple of days, yet another senior exec has headed for the exit door.  The latest to defect is Alan Rubenstein, who was the head of the company’s European pensions group.  He’ll be moving to Lehman Brothers where he’ll start up a new pensions advisory group.

Morgan Stanley loses European pensions chief – Guardian.co.uk

Wall Street Folly – www.wallstreetfolly.com

Tags: Morgan Stanley

• Keeper of the BlackRock Way
• MergerTalk: Citigroup’s Biglari sees new breed of banker
• New hedge funds raise record $27.8bn in Europe
• HSBC does about-turn on role of investment executive
• Markets are peaking out, says expert — Turns cautious on Indian equities, bets on commodities [Jim Rogers]

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