On the Money From the December 3, 2011 print edition The FBI raided three large hedge funds in New York, Connecticut and Massachusetts on Nov. 22 as part of a three-year insider-trading investigation. Already, 14 defendants have pleaded guilty. “There’s a lot more patterns and serial insider trading than we previously thought had occurred,” said Scott Friestad, associate director in the Securities and Exchange Commission’s division of enforcement. Authorities say the criminal and civil investigations could surpass the impact on the financial industry of any previous such probes. There may be more arrests, as investigators examine the role of consultants and analysts who provide hedge funds and mutual funds with detailed information about the businesses and industries in which they specialize. To better understand what...
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On the Money From the October 1, 2011 print edition The ancient Greek Archimedes said, “Give me a lever that is long enough, give me a fulcrum that is strong enough and give me a place to stand and single-handed, I’ll move the world.” He was describing the physics of “leverage.” Recently, The Wall Street Journal reported that “leveraged debt, part of the credit bubble” was making a comeback. In finance, leverage is borrowed money. To the extent assets are controlled by borrowed money, that’s financial leverage. But furthermore, when the money that’s lent to a consumer also is borrowed, that creates debt upon debt – or leveraged debt. The credit bubble is made up of the multiple lenders that sit between the ultimate lender and...
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On the Money From the June 11, 2010 print edition In January, Marquet International Ltd. of Boston – a corporate investigations, due diligence and litigation consulting firm – released its annual Report on Embezzlement. The report, which talks about actions taken against U.S. companies – estimated to be in the nine-figure range – revealed that the average loss was more than $1 million and the median loss was $386,500. More than 60 percent of the incidents involved women. However, male perpetrators embezzled nearly twice as much as females. Nearly 25 percent of all losses occurred in financial institutions, and two-thirds of the incidents were committed by employees who held finance and accounting positions. Embezzlement schemes usually last about four years. Marquet examined 415 major embezzlement...
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On the Money From the April 2, 2010 print edition The R&B singer Billy Preston pined in 1974, “Nothin’ from nothin’ leaves nothin’. You gotta bring me somethin’ if you wanna be with me.” If a person wanted to bring Billy “something,” but had “nothing,” what could they do? Where do any of us turn when we crave “something from nothing”? The answer? Arbitrage. Arbitrage is defined to be the simultaneous purchase and sale of a security (or anything else for that matter) in order to profit from a difference in the price. This usually takes place on separate exchanges or marketplaces. For example, if the price of a stock on the New York Stock Exchange is $10 per share, but is $8 on the Frankfurt...
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