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The Morning Brief: Wiretaps in SAC Case; Greenlight Ends J.C. Penney Short Bet
A federal prosecutor Friday said at SAC Capital’s arraignment that the government has court-authorized wiretaps as part of its evidence against the firm. The government on Thursday charged SAC and affiliated firms with fraud, saying insider trading was rampant at the firm.
“The discovery will be voluminous, including a large number of electronic recordings, including electronic messages, instant messages, court-authorized wiretaps and consensual recordings,” Assistant U.S. Attorney Antonia Apps told U.S. District Judge Laura Taylor Swain today about the pretrial evidence-gathering process. “In short, a tremendous volume.” However, the government did not disclose whether SAC founder Steven Cohen was a target of the wiretaps. SAC reportedly had six attorneys at the court session, where the firm entered not guilty pleas on behalf of four firms.
Meanwhile, A.M. Best Co., which rates insurance companies, said it was keeping a close eye on developments at SAC Capital’s reinsurance unit in light of the hedge fund firm’s indictment. “We are assessing the situation and do not have comment to provide at this time,” A.M. Best spokeswoman Christine LaBelle told Reuters. Last year, A.M. Best assigned a financial strength rating of A- (Excellent) and issuer credit rating of “a-” to Hamilton, Bermuda-based SAC Re Ltd. SAC is one among a number of hedge funds that have created reinsurance units in part to create a permanent source of capital for the fund.
David Einhorn’s Greenlight Capital closed out its short bet against J.C. Penney. In addition, the hedge fund closed out its long position in Microsoft, according to its second quarter investor letter. Einhorn called his J.C Penney position his “most profitable short of 2012,” stressing he doubted the retailer’s new strategy would succeed. “We covered when the board fired the CEO before he could turn the company into a penny stock,” he quipped. Of course, it is a major long position for Pershing Square’s William Ackman.
As for Microsoft, the letter reportedly stated: “Windows 8 appears to be a flop, and a decade of mismanagement has put Microsoft at risk of becoming a shrinking company.” ValueAct Capital’s Jeffrey Ubben took a $2 billion stake in the software company earlier in the year. Einhorn thanked him, stating: “We were pleased when an activist gave the stock a boost, giving us the opportunity to exit with an annualized high single-digit return that slightly outpaced the market during our lengthy holding period.”
Easy come, easy go. Deepak Narula’s Metacapital Mortgage Opportunities Master Fund lost 10.4 percent in the second quarter, Reuters reports. The manager, whose fund surged 41 percent last year, said he was hurt by fears that interest rates would rise. The fund lost 2.85 percent in June after dropping 7.26 percent in May. Narula qualified for the Alpha Rich List’s second team after making $125 million last year.
KKR, one of 10 stocks singled out by Omega Advisors’ Leon Cooperman at Delivering Alpha, sank 1.34 percent Friday after reporting a 75 percent decline in earnings. At one point during the day the stock was down nearly 5 percent.