• Jeff Matthews

“GET a LOAD of THIS XXX!!!!”: The Least Publicized Article You Will Read Today

The least publicized article you will read today arrives courtesy of the SEC, which shut down an effort by a Disney communications insider to sell advance information on Disney earnings reports to hedge funds.

Here’s how the Wall Street Journal is reporting it:

Federal authorities alleged Wednesday that a Walt Disney Co. executive assistant and her boyfriend engaged in a ham-handed plot to sell Wall Street traders inside information, first offered in a chirpy missive sent to dozens of investment companies.

“Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 05/03/10,” the March 5 letter began. “I am willing to share this information for a fee that we can determine later.”

It is, of course, a heart-warming thing to know that not all SEC employees are so absorbed in surfing for porn on their office computers they can’t get their jobs done.

That activity, while not normally associated with Good Government, engaged at least 33 SEC employees over a 5-year period, including 17 “senior SEC employees, earnings between $99,000 and $222,000 a year,” according to last month’s report by the inspector general.

Our tax dollars at work, indeed.

But the key to breaking the Disney cash-for-information ring actually was the hedge funds that received the email in the first place:

The alleged plan went awry. Instead of taking the bait, “multiple hedge funds reported the illicit scheme,” the Securities and Exchange Commission said in a press release.

—The Wall Street Journal That is not how the investment world is supposed to work.

According to uninformed Congresspersons (is there any other kind?), incompetent CEOs, conspiracy-theory-spinning web sites and their equally loopy readers, the hedge funds of America are a latent evil within a corrupt system—the heart of darkness at the end of the long, sad journey into the country’s financial soul.

Yet it was the hedge funds that forwarded the Disney goods to the Feds in the first place.

(Okay, maybe they needed to use a subject line such as “GET a LOAD of THIS XXX!!!!” to get somebody’s attention…but still, the Feds did their job.)

And that’s why you won’t read much about the hedge funds’ role in this affair: it’s too close to the truth about hedge funds, which is that most of them have nothing to do with the kind of drama the Galleon case exposed.

Indeed, and not for nothing, most of the SEC has nothing to do with the kind of incompetence the Madoff case or the recent porn-reading nonsense exposed, either. In fact, for an eye-opening look at what the Feds have to go through to bring down an obvious scam, not to mention what a hard-working hedge fund goes through to bring obvious scams to the attention of the Feds, we suggest reading Richard Sauer’s “Selling America Short.”

Sauer’s informed (he was an SEC attorney before he joined a hedge fund) and detailed set of stories will make you sick, but they’ll also make you appreciate what a no-win position the Feds occupy in America’s—and the world’s—byzantine financial regulatory schema, not to mention how the bad behavior of Goldman Sachs took down a hedge fund on the cusp of making a bundle for its investors thanks to prescient bets on a financial crisis.

We’ll have a review of it once we finish our current Berkshire Hathaway series, but in the meantime, get a hold of it and start reading.

And the next time your Congressperson badmouths hedge funds, ask them what, exactly, a hedge fund is. That’ll shut ‘em up—if you’re lucky.

Jeff Matthews I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

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GENERAL

The content contained in this blog represents only the opinions of Mr. Matthews. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. The content herein is intended solely for the entertainment of the reader, and the author.

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