As if America’s hedge-fund elite didn’t have enough crises to worry about -- riots in Spain, the fiscal cliff, Lindsay Lohan’s hotel brawl -- the parade of underlings copping pleas to insider-trading crimes just keeps growing. Every week it seems another one flips, promising to turn state’s evidence.
Time is money, as they say. And it would take a true genius to make money out of the kind of time some of these people are facing. Still, you don’t get to work at a $14 billion hedge fund like SAC Capital Advisors without abundant self-confidence and inner drive. So if you are someone like Jon Horvath, now isn’t the time to give up on your dreams, just because you face the prospect of years in the slammer.
Horvath, 42, is the former SAC analyst who pleaded guilty last week to securities-fraud charges after admitting to participating in an insider-trading ring. Soon he will probably join former Galleon Group kingpin Raj Rajaratnam and dozens of other recently convicted hedge-fund masters and tipsters now populating America’s minimum-security prisons.
We can imagine what the fittest among them might be thinking: “Now that I’m truly on the inside, how can I use this opportunity to make as much money as I did on the outside?” Perhaps the greatest profits could go to those with the longest sentences. Call this the ultimate lockup agreement.
All it takes is some imagination. Suppose you are a skilled hedge-fund veteran who has just reported to prison. A little- appreciated fact is that there is no U.S. law preventing a convicted felon from managing a hedge fund, as long as that person isn’t required to be registered under the Investment Advisers Act. Or at least that is what the attorney who lost your case at trial once told you.
Fortunately, it is understood that there are two kinds of crooks in this business: those who get rich by cheating their clients, and those who make their clients richer by cheating everyone else. You are the latter kind. Your clients’ faith in you remains unshaken. You traded on inside information -- for them! You risked going to prison -- for them! You were doing God’s work -- for them!
They stood to make money even if you got caught. And sure enough, you did. Your clients’ interests always come first. (And unlike Goldman Sachs you really mean it.)...MORE