Probes Of Hedge Funds Expanded By US Senate Investigators

The office of US Senator Chares Grassley (R.-IA.) has announced extensive investigative contacts with one of the largest hedge funds in the world, SAC Capital Advisors LP (SAC). SAC is run by a man described as being the “star hedge-fund manager,” Steven A. Cohen.

Even as the rhetoric heats up, there have been no allegations of any crime by SAC or Cohen.

Instead, specific instances of at least twenty separate, “questionable” trades have been disclosed by Grassley’s office. Following the conviction earlier this month of Raj Rajaratnam, the world of hedge fund traders have been waiting to see if further investigations are coming.

The role of hedge fund managers, who often invest their own funds alongside investors, has become a lightning rod for critical congressional investigators, such as Grassley.

Spokespeople from Senator Grassley’s office have so far declined any other specifics about the SAC investigation: “(We) can’t offer any specifics of the information received from Finra on SAC, at the request of the investigative agencies involved.

The allegations of hedge fund managers trading on possible “insider information,” and Grassley’s official  reluctance to disclose any specifics, suggests Congressional inquiry may be paralleling Department of Justice investigations.

The system for policing hedge funds brings together a potpourri of power players, including the FBI as well as SEC officials, and independent watchdog groups. In addition to Grassley’s disclosure, the general allegations against SAC originated with the independent auditing organization known as “Finra.” The Financial Industry Regulatory Authority is an independent body, with no official authority to penalize or fine its members. But it has enormous sway over licensing and credentialing auditors and financial standards.

Hedge funds recognize their interests also intersect with political realities. SAC and similar investment funds contribute to a hedge fund lobbying group, the Managed Funds Association. One of the recipients of the association’s largesse has been Senator Grassley himself, who received $7,000 in donations during 2009-2010.

The SEC discloses possible criminal violations to the Department of Justice. There was no word on whether the Finra referral to SEC had, however, been acted upon. Finra has been compared to state bar associations, but acts in a much more national role than attorney bars. For example, Grassley had requested Finra to specifically investigate SAC.

Grassley, whose political perspective has been described as populist, has also earned a reputation for bluntness. In encouraging broader investigations of hedge funds, Grassley has said he believes the use of insider information for illegal profits has continued largely unabated since the recession. “(M)ore must be done to investigate and bring these criminals to justice,” Grassley said.