Elliott Management At Center Of French Insider Trading Case

Elliott Management At Center Of French Insider Trading Case
By World Economic Forum (Flickr: The Global Financial Context: Paul Singer) [CC BY-SA 2.0], via Wikimedia Commons

Elliott Management may be learning in a subtle way, “play with fire and you’re going to get burned.”

After repossessing an Argentine navel vessel, high profile activist hedge fund finds itself target of regulator ire

After toying with Argentina over a government debt issue that has kept the hedge fund world snickering, an issue previously reported in ValueWalk where Elliott actually obtained an order to seize the South American nation’s navy vessel in an effort to collect on defaulted government bonds, the French government may be smacking the famous hedge fund activist back in line.  France had filed a supporting Amicus Brief alongside Argentina in its fight against Elliot now before the US Supreme Court, an unusual move according to court observers.  Now French regulators have recommended an unusually large fine be levied against the outspoken activist investor.

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The UK investment division of Elliott Management, operated by Gordan Singer, the son of billionaire Paul Singer, founder of Elliott, finds itself in the crosshairs of French regulators.  France’s Autorité des Marchés Financiers (Financial Markets Authority) accuse Elliott of insider trading and market manipulation related to its involvement with an investment in a French race track operator, AMF.  The case is being strongly contested by Elliott, according to a report in the FT.

Elliott Management: Alleged utilizing privileged information

Elliott’s UK investing division is being accused of trading on privileged information in shares of APRR, the race operator, at a time when it was negotiating to sell holdings in APRR’s majority shareholder.  France’s Financial Markets Authority is seeking a €40m, roughly a $55 million fine.

Proposed fine is over 1000% more than the profit on the trade

At issue is Elliott’s investment in Eiffarie, which had a stake in APRR and was attempting to privatize the firm.  Elliott purchased 430,000 shares of APRR in during the time of the negotiations, generating a profit of €2.7m, which is just under $4 million.  The fine Elliot would face is over 1,000 percent more than the profits generated on the trade.   For perspective, fines are typically based on three to four times trading gains.  When the British bank HSBC was fined for laundering money for drug cartels and Iran, it was fined a small percentage of its profits.

French regulators charge that Elliott’s knowledge of the pending Eifarie / APRR deal “indisputably gave Elliott Management an advantage over others in the market,” and cited that the “Chinese wall” between APRR and Elliott had been abused, according to the report.

In its defense, Elliott argued that it did not have privileged information on the dates cited by the prosecution and claimed the Chinese wall had not been violated.

“Elliott continues to believe that these allegations are without merit, and are not supported by the evidence,” the fund said in a statement.  “Elliott’s trading in APRR did not at any time make use of any material non-public information, was for a legitimate business purpose that was part of a longstanding trading strategy, and did not artificially inflate the price of APRR shares.”

A verdict in the case is expected to be handed down by the regulator’s sanctions committee in several weeks.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com
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