The Morning Brief: Scandal and the Law Dog Visium and Platinum

June 24, 2016   Stephen Taub


This is clearly an embarrassing couple of weeks for hedge funds, as two scandals have rocked the industry, playing into the hands of critics and giving cynics a chance to confirm their narrative that the industry will go to any lengths — even illegal ones — to make big bucks. First, there’s the shuttering of Visium Asset Management after three former portfolio managers as well as a government official were charged with securities violations. One of them — Sanjay Valvani— was then found dead at his Brooklyn apartment earlier this week. On Thursday Valvani’s death was officially declared a suicide. Meanwhile, Murray Huberfeld, a co-founder of Platinum Partners was charged last week with committing wire fraud after allegedly paying a $60,000 bribe to Norman Seabrook, the longtime president of the Correction Officers’ Benevolent Association, New York City’s largest correction officers union and municipal jail union in the U.S., according to the U.S. Attorney for the Southern District of New York and the Federal Bureau of Investigation. On Wednesday, citing a person familiar with the situation, Reuters reported that the FBI and the U.S. Postal Inspection Service raided Platinum’s New York headquarter. "We are in receipt of a search warrant from law enforcement and are fully cooperating. We look forward to resolving this on a timely basis," Platinum told Reuters. Interestingly, Reuters says the raid was not related to the New York City corruption scandal. The New York Observer reported that two prominent Platinum investors have complained to the Securities and Exchange Commission that Huberfeld and Platinum have not paid them more than $600,000 in redemptions going back to 2014.

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Sachem Head continues to cut its stake in CDK Global. The New York activist sold about 1.8 million shares of the software company that serves the auto industry, and now owns 5.6 percent of the total outstanding. It unloaded about a million shares a week ago. CDK recently said it would reorganize the company into two main operating groups — CDK North America and CDK International — integrate product management, create a single North America sales organization and form a single global research and development organization, among other initiatives. It also announced "a number of leadership changes." Paul Singer’s Elliott Management Corp., which has been pushing for changes, is now urging it to do more.

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More bad news for William Ackman’s Pershing Square Capital Management. Shares of the New York activist’s big short, Herbalife, surged 4 percent or so on Thursday and are now just a few bucks shy of their 52-week high of around $66. Earlier in the week, Ackman reportedly launched a new video asserting that the multilevel marketer of nutrition and health products is a pyramid scheme.


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