Galleon shutters $3.7 billion hedge fund -- no government bailout required!
Filed under: Company News, Economy, Investing
Galleon Holdings, the $3.7 billion hedge fund run by accused insider-trader Raj Rajaratnam (pictured), who is now free on $100 million bail, is shutting down. The big reason is that many of its investors -- college endowments such as Colgate University and state pension funds including the Virginia Retirement System, according to Reuters -- are not comfortable keeping their money with a firm whose CEO has been indicted.
Don't you just love it when the free market works? I realize that Wall Street does not have an entirely free market, because when it gets in trouble, the U.S. steps in with $23.7 trillion -- a nice return on Wall Street's $5 billion investment in Washington over the last decade. But in this case, the free market looks to be rapidly hoovering up the little mess left in Galleon's wake.
How so? Bloomberg reports that Galleon has been approached by "unidentified parties interested in buying the firm and an undetermined amount of its assets." This is fantastic news, because Galleon's holdings -- about which I posted -- are largely in publicly traded securities, so there is a market for them. There's also a market for its people -- Reuters reports that they are being heavily recruited.
I am really pleased that there is no need for the government to bail out this hedge fund. But a big reason is that most of its holdings are in publicly traded stocks. If it was heavily invested in illiquid securities -- as are some big university endowments, such as Yale University's -- there would be more of a question about the need to bail out Galleon.
But I remain astonished at why the people who manage endowments and pension funds don't seem to screen where they invest their money. As I posted, Rajaratnam paid a big fine for alleged short selling violations several years ago, but that did not appear to have raised any red flags with Galleon investors.
Nevertheless, I think it's good news that the SEC is cracking down on insider trading; I hope that it indicts more insider traders if it can get the evidence. With 70 percent of market volume being done by flash traders -- who place their orders a split-second ahead of the ones that they intercept on the way to exchanges -- there is a long way to go before the average investor will begin to trust the financial markets.
But a journey of a thousand miles begins with a single step.
Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned.
Why is Oprah going to cable? Hint: It's nothing to get teary about
Kisses from Hershey: Candymaker may court Cadbury with $17 billion bid
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health reform bill?
Reader Comments (Page 1 of 1)
10-21-2009 @ 11:14AM
Ron said...
Let me guess who is buying Galleon. It probably is Raj Rajartnam's WIFE.
I don't trust any of these criminals period.
The entire market is run by shysters, schemers and 3 card monty dealers.
Reply
10-21-2009 @ 11:35AM
Alan said...
Why in the world would a person like Raj ever take a chance except for greed.
Not to mention that he couldn't help himself becasue this is the way he was raised.
He should have a cell next to Madoff!!!!!!!!
Reply
10-21-2009 @ 1:33PM
Kate said...
So how was Madoff raised? I doubt his parents raised him to lie, cheat and steal.
10-21-2009 @ 2:27PM
Mike McKibben said...
Alan, what you wrote was 100% correct. As for the voting on what you wrote, it goes against conventional thinking......why would someone vote "down" on what you wrote unless they have "Madoff" with some things themselves ; )
10-27-2009 @ 5:03PM
Tony said...
Hi everyone Employers and Employees this will be the next big, the next new way of getting jobs and possible interviews in this tight World job Market. Please send me your video job postings and Video resumes so I can post them for Job hunting purposes. I am just getting launched. PLEASE donate on Pay pal. I need the help to help others. I thank the ones that helped already. Next, tell me your area of the world you are in. I will put it in that playlist area of the world for potential employers or employees to connect. You all must tell permission to post your Youtube video in the more info area. Please all tell all social networks, news online, and all your networks of daily contacts. With all of us networking to help others in this tight Job market is the KEY thing to make a difference. If you help one time or each month, I will thank you on youtube just let me know who you are youtube name or company name and the area if you what that. Thanks again for the help I got so far to help others. https://www.paypal.com/us/cgi-bin/webscr?cmd=_flow&SESSION=yJ fyBS1HBE1-GBrtKB9Ex_QR6eZixPanYtMGzMceijHELIZikpu-LATIuLy&dispatc h=5885d80a13c0db1ffc45dc241d84e9538c532da79baccf7c26f850d77364335 0
Reply
10-21-2009 @ 12:10PM
giltydreamz said...
investors are "UNCOMFORTABLE" with a manager that has been indicted??? What a bunch of JERKoffs !!
they wanted to make money the easiest fastest way they could ! ANd now it turns out they were investing /w/ the thief of Calcutta??? They WANT to be VICTIMS !
Reply
10-21-2009 @ 12:08PM
Jake said...
SEC is a TOTAL FRAUD ... BERNIE MADOFF CRIME SYNDICATE exsposed in 1998 and SEC response was to hire MADOFF'S niece !!! SlimE Bag hedge fund managers are all over the Wall Street landscape.
Reply
10-21-2009 @ 2:23PM
Daniel said...
The assets are probably being purchased at garage sale bargain price by Goldman-Sachs (or some other financial interests supportive of the Obama administration).
At least no investors lost money with Galleon nor has Rajaratnam skipped town with assets.
Got to love America! Use the government to put competitors out of business!
Reply
10-21-2009 @ 1:02PM
Mike said...
In Peter's linked article on flash-trading he says, "Not having access to (pre-sale) information, all the other market players would lose money because of the flash trader who would drive down (XYZ's) stock below where it would be if it did not use that material, market-moving information." I still fail to see how this is true. Yes, the other players' stock prices (and hence the current value of their holdings) might go down very slightly for a short time. But, that doesn't mean the true value of those stocks has changed at all. The earnings potential of XYZ Co. is unaffected. All this crap is based on a farce driven by fund managers who buy and sell stocks on a daily basis based on predictions, assumptions, guesses, etc. that won't be proven for at least 3 months. In reality, the entire market is an illusion; the only real value is in the actual shares of solid performing companies. 99% of the profits made buying and selling stock are smoke created by the market itself. I hope all you geniuses sell off. I'll be waiting to buy.
Reply
10-21-2009 @ 12:57PM
peter said...
dr cohan, how do you get a 23 trillion bailout on a 5 billion investment. i know ur smart and i am dumb, so please give me a breakdown. this type of news is enough to have blood flooding our streets.
Reply
10-21-2009 @ 1:51PM
Mike said...
I believe Mr. Cohen's point was that Wall Street spent about $5B on lobbying and got a $23T bailout in return. Not a bad ROI. You think this is wrong? News about AIG should have had blood running in the streets but we just post a few comments on here about how pissed off we all are and just keep going. . .
10-21-2009 @ 1:28PM
Kate said...
The SEC is going after a small fish here.
What do you think the dark pools and ANYTHING at all that allows the big players to view ahead of the public, such as THE PENDING BUY AND SELL orders on any given issue,
represents? Frontrunning. It is not any different than insider trading. Both represent information given prior to being decimated to the public.
The big players always have had and always will have an edge. Why do you think the same firms keep making fortunes on trading when others can't have the same consistancy.
This guy may be guilty, but he's in a HUGE club on Wall Street, whether the Feds want to admit it or not. They'll never catch everyone, not enough manpower.
It's incredible that anyone would have discussed this on a telephone or email and not expect to be caught.
As Buffet says, never do anything you would be ashamed to have in the headlines.
Reply
10-21-2009 @ 1:33PM
kate said...
What does Calcutta have to do with anything?
You are racist and biased with that crack, as if there
weren't plenty of everyone from every nationality, every heritage, doing the same thing.
Come to think of it, Whitney was convicted in the 1930's of some stock scandal, and he was a blue blood.
Reply
10-21-2009 @ 1:44PM
dano said...
I thought they were going to tell us it was Soros or one of Bidens sons or even Joe Bidens brother.....Hedge funds bet that companies will fail. I wonder how much Soros and the Bidens made earlier this year when everything went into the tank, and the US companies they wanted to fail ...did?
Reply
10-21-2009 @ 1:49PM
MSF said...
"A journey of a thousand miles does begin with a single step." So true, as in my case, I had encountered since 2001, when I noticed rampant fraud in the attacking of every stock systematically in my portfolio, as threatened in September of 1999. I was examining the US Cobalt IPO, which was literally my idea, years earlier. Since then, the attack and public silencing, has been brutal. Being schooled in New York, visiting the stock excange, and beating Warren Buffettt in stock simulations in college. I had no idea the corruption was rampant inside the SEC, Law Enforcement, and high Political levels.
Reply
10-21-2009 @ 2:12PM
pthomp said...
Nevertheless, I think it's good news that the SEC is cracking down on insider trading; I hope that it indicts more insider traders if it can get the evidence.
But a journey of a thousand miles begins with a single step.
Yeah..... try getting the proof of all the washington politicians growing their wealth by trading under the table. If that were to happen, 80% of the crooks in office would go to prison !!!!!
Reply
10-21-2009 @ 2:43PM
miles said...
Yep, the racist comments are unnecessary; the guy from India is brown with broad features so he was scooped up pretty fast. Now, if the usual suspects were to get bopped on their butts faster maybe we could get somewhere. Bloomberg News and the Mayor of NYC; talk about a conflict of interest. How am I to believe anything that news outlet has to say? Some guys just literally get away with murder.
Reply
10-21-2009 @ 3:30PM
Rae said...
"...are largely in publicly traded securities, so there is a market for them. There's also a market for its people -- Reuters reports that they are being heavily recruited."
the above is a quote from the story above. THE PEOPLE THAT HELPED THIS GUY STEAL MONEY ARE BEING HEAVILY RECRUITED??
Reply
10-21-2009 @ 3:34PM
kluji said...
Who give a f&ck about this piece of crap, the hedge fund he owns or the people invested in his hedge fund. F@ck em all. Anyone still invested in a hedge fund, any hedge fund, now knowing what they know since the melt down a year ago, deserves to lose every single penny they have. The next shoe is about to drop. Look out below. All I ask is that all the cry babies stop cry babying when the next shoe drops. You invest in risky investments, you get burned. Suck it up and move on. Stop the whining. Tired of hearing it!
Reply
10-22-2009 @ 4:21PM
BOOWAH said...
One Question! Where in the hell did he get the 100 million to post bail? Pretty generous with himself, wasn't he? As far as insider trading, I only wish my broker would do it until I get back the money I lost from my 401k last year. Then I'd get out period...money under the matress and all. White collar crime has become acceptable in this country. Why do you think we have so many well compensated Congressmen & Senators? After the crash last year I figured we'ed have to build more prisons to hold all the crooked bankers, realtors, and brokers. But no! We actually rewarded them for white collar crime. Where do I get my white collar?
Reply