Hedge-Fund Son Thought Hedge-Fund Dad's Trades Were Fishy
I think he brings up a dynamic that most people don&#x27;t fully understand about investor&#x2F;company relationships, atleast one I didn&#x27;t understand until I saw it happen many times over.<p>Once a company has a large investor, typically a hedge fund, its very common for the CEO&#x2F;CFO to have a good personal relationship with that investor.  I mean, this just makes sense, under the Warren Buffet theory of investing one of the big things you invest in is the management.<p>And from that it follows that management will often use this investor as a sounding board for ideas.  So if a company is going to raise money why not ask the money manager what they think about<p>- how the market will react to an equity vs debt raise,<p>- should they offer warrants as a sweetener?<p>- even things like how they believe the market will react to certain news.<p>And i mean why not? Do you think the companies that Warren Buffent invests in don&#x27;t call him for advice?<p>And once you allow for this, then as Matt says, things get grey.  I don&#x27;t know how all funds do it but the typical dance is the executive will call up and ask the fund manager if they will be willing to:<p>1) be locked up from trading<p>2) for a certain period, typically under 2 weeks.<p>and if the money manager says yes to both, then the executive is free to discuss pretty much anything and everything, including non public information because the hedge fund has agreed to be locked up for the period until the company makes this knowledge public.<p>Where this goes wrong is sometimes executives, or more often, sell side( tiny little investment banks) acting on behalf of the company will call the hedge fund and before asking if they want to be locked up, just blurt out the news.  it&#x27;s an awkward conversation that typically goes something like:<p>&quot;Hey Chris, just wanted to let you know ..... something that will crater the stock in the short term like raising money in a bad market....  This isn&#x27;t public information yet so you&#x27;ll be locked up for 2 weeks.&quot;<p>And just like that they&#x27;ve fucked you.  Now you either have to choose to be locked up knowing that your investment will drop or take the risk of selling and knowing that you&#x27;ll have to defend your actions to the SEC.<p>Now in the case Matt&#x27;s talking about they were trading on good news. The only suspicious thing is that Leon Cooperman&#x27;s fund has been around since about 1991.  it really seems weird that he would use short dated options to trade on insider information.<p>That&#x27;s almost the financial equivalent of going out and buying a gun, using it to commit murder on the same day, and then leaving it at the scene of the crime.  The SEC can trace back every option trade to the fund who made it, its not like they can hide and if you are buying a whole whack of out of the money short dated call options then you are either covering a large short position or you are essentially telling the market that you know something is up.