HF Loan Market Activity Draws Notice

Hedge fund involvement in the corporate loan market is drawing the attention of the Securities and Exchange Commission, TheNew York Times reports. The SEC is reportedly looking into the 25% dive Movie Gallery’s stock took two days after a March conference call to its 200 plus lenders, many of whom were hedge funds. During the call, Movie Gallery announced fears of competition and loss of business to television technology, and revealed that they were in the hole more than $1 billion. This resulted in elevated trading activity by a number of lenders and an SEC investigation to see if any of those trading were tuned into the conference call. Alistaire Banach, assistant director for the SEC’s Northeast office, told the Times, “If hedge funds are privy to inside information and they invest in different securities all over the capital structure, this raises a lot of concerns.”  Some hedge funds have placed barriers between the public and private side. But some industry observers have doubts. As Ropes & Gray hedge fund attorney Herbert Bohnet told the Times, “You can’t put an ethical wall down the middle of someone’s brain.”