When legendary bank robber Willie Sutton was asked why he robbed banks, his simple reply was: “That is where the money is.” These days, the Willie Suttons of our time are not targeting banks, but rather hedge fund managers because we all know that is where the money is.
So, it was not too surprising when the SEC and the U.S. Attorney Wednesday alleged that Bonnie Jean Hoxie — an administrative assistant to a high-level Disney executive — and her boyfriend Yonni Sebbag, brazenly concocted an insider trading scheme that targeted, no less, hedge funds. According to the SEC, the pair sent anonymous letters in March 2010 to more than 20 hedge funds in the U.S. and Europe, offering to provide critical earnings results of Disney’s second quarter this year in exchange for sizable sums of money. In one case they sought $15,000 and in another half the expected trading profits.
No hedge fund manager seemed stupid — or greedy — enough to take the bait. Rather, several of them contacted proper authorities, who in turn set up a sting operation. “Fortunately, multiple hedge funds reported the illicit scheme, and the SEC and criminal law enforcement authorities acted quickly to stop this brazen attempt to establish an ongoing insider trading business,” said Robert Khuzami, Director of the SEC’s Division of Enforcement, in a press release.
A number of disclosed e-mails, however, seemed to indicate the Disney duo thought they had found the right accomplices. In one e-mail, Sebbag allegedly wrote: “Tell me what you think about how we should proceed in the most discrett (sic) way in terms of the delivery of the docs and the payment? Also, I need to know more about how much you are offering?” “Also, i am looking to build a strong business relationship with you for future quarters and information,” another e-mail stated.
In yet another e-mail: “I don’t think we will get caught if we stay discrete and careful. You can count on my discretion as i am counting on yours...” Another states: "... $15k sounds great and $30k even better as i hope you will make a killing from Q2 earnings. I promise i will keep you informed of any unanticipated event, i keep my ears wide open here.”
Did the pair think hedge fund managers are stupid? Naïve? Trusting of strangers? No, no and no. The overriding message from the two defendants: Hedge fund managers are such a bunch of greedy rich people who would pay anyone — even someone they never met before in their lives — a sizable sum of money to make a buck. It never struck these dopes that if some stranger offered a hedge fund manager illegal information, the hedgie would be suspicious and immediately turn them in rather than say, “Great, we have a deal.”
Why didn’t the pair contact some mutual fund manager at Fidelity or T. Rowe Price? Because that is not where the money is. This thinking is not that different from what the ex-wife of hedge fund manager Steve Cohen of SAC Capital is doing. The pair have been divorced for 21 years. Then , Patricia wakes up one day and realizes her ex is a multi-billionaire, and, suffering from settler’s remorse, decides she wants to renegotiate her divorce deal, alleging Cohen “defrauded” her out of “a substantial, if not controlling, interest in SAC Capital.” Then, to increase her chances of a big heist, she makes shocking accusations about insider trading confessions from 25 years ago.
And, remember several years ago, a rag-tag group of thugs kidnapped billionaire hedge fund manager Eddie Lampert, before he talked his way to freedom within a few days? Again, this is where the money was.
However, in none of these cases did the perpetrators escape in their getaway vehicle. The Disney duo were arrested after no deal was done with a bona fide hedge fund manager. Cohen’s lawyers have blown off Patricia, and were not intimidated by her insider trading allegations. And Lampert’s kidnappers never received a dime in ransom and currently are in prison.
It’s not easy robbing the First Bank of Hedge Fund.
Stephen Taub , who has covered the hedge fund industry for 30 years, is a contributing editor to Institutional Investor and Absolute Return-Alpha magazines.
