Tag Archives: Wall street

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

Hedge fund manager Neil Phillips has been arrested in Spain this week.

He is charged with masterminding a market manipulation scheme that reached from the UK to Asia. His strategy shows how hedge funds manipulate markets from currencies to stocks.


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From a new report in Bloomberg:

Phillips was charged with conspiring to manipulate the US dollar-South African rand exchange rate in late 2017. The indictment, which was returned in March but previously sealed, describes at least two co-conspirators, raising the possibility of charges against more people.

Neil Phillips

Phillips faces up to 20 years in prison if convicted. His scheme involved buying an option on the dollar-rand exchange rate, then manipulating the exchange rate to make his option pay off:


With the option set to expire, Phillips began making spot trades in an effort to push the exchange rate lower late on Christmas Day, while directing a Singapore-based employee of an unidentified bank to sell $725 million in exchange for more than 9 billion rand, according to prosecutors. That pushed the exchange rate below the barrier, triggering the $20 million option. Phillips collected more than $15.6 million from the deal and also allocated $4.34 million to an unidentified client.

Phillips’ moves show us how market manipulation works.

He took advantage of thin trading late Christmas Day. Markets are easier to manipulate when trading is light.

He also used trades in an underlying asset to benefit an options position. The same approach is likely common in stocks.

Phillips even went as far as involving a co-conspirator on the other side of the world in the hopes of hiding his illegal trades. But he was foolish enough to discuss the whole thing in chat messages on his Bloomberg terminal.

Bloomberg routinely gives chat records to the government in subpoenas. Phillips might not be facing prison had he used an encrypted app like Signal.

I find the Phillips case fascinating for how it trains us to spot hedge fund manipulation of markets.

If we suspect price manipulation, we should look for big trades at odd times. Major sell order right before the close on the last trading day of the year?

It might be worth a look.

Where do you see signs of market manipulation? Leave a comment at the bottom and let me know!

There will be no post on Monday for the holiday. Have a great Labor Day weekend everyone! 👋🥳

More on markets:

AMC Fails to Deliver Pass 700,000 in New Report

Why Hedge Funds May Pile into APE Shares

Is Melvin’s Gabe Plotkin Headed to Prison?

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Morgan Stanley Investigation Spreads to Multiple Countries

Morgan Stanley, already under federal investigation in the US, is now facing another probe. This time, it’s in Korea.

From a report that broke last night on Bloomberg:

Morgan Stanley’s stock short selling practices are being inspected by South Korea as part of a broader effort by the nation’s financial watchdog to clamp down on bets against equities, according to a person familiar with the matter.

Goldman was fined in 2018 for naked short selling in the Korean market. Regulators may be looking for similar infractions by Morgan.

This comes as Morgan forces another executive out under mysterious circumstances. Executive Director Charles Leisure was placed on leave last week.

From a report out over the weekend, also on Bloomberg:

Charles Leisure, an executive director who worked on the New York-based bank’s equity syndicate desk, was put on leave this week, people with direct knowledge of the matter said, asking not to be named because the information isn’t public. He was part of a team that handled block trades — deals that have been facing scrutiny from federal prosecutors in the Southern District of New York and the US Securities and Exchange Commission. 


Leisure worked for Pawan Passi. Both handled block trades, or buying and selling of large amounts of stock.

Big investors rely on banks like Morgan to quietly offload huge chunks of stock. Morgan may have tipped hedge funds to the sales beforehand, giving them a chance to front-run the trades.

Banks have an incentive to play footsie with hedge funds because of what’s called prime brokerage. A hedge fund’s prime broker handles the fund’s trades, a very lucrative relationship.

If a bank gives them information about market-moving trades, the bank could be more likely to win that business.

So far, nothing has been proven against Leisure, Passi or Morgan itself. Perhaps all its trades were aboveboard.

But consider the overall picture.

Multiple executives in the same area placed on leave. Investigations spreading from one country to the next.

Even other Wall Street banks are raising concerns about Morgan’s activity, a rare move.

Something tells me that where there’s smoke, there’s fire.

What do you think is going on at Morgan Stanley? Leave a comment at the bottom and let me know!

More on markets:

Wall Street Banks Turn on Each Other as Federal Probe Looms

Is Melvin’s Gabe Plotkin Headed to Prison?

Hedge Fund Giant Tiger Loses Over $18 Billion — Long Fund Down 64%

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AMC’s 9 Million Missing Shares

Trading in shares of AMC Entertainment Holdings Inc. just gets stranger and stranger.

A new report from the SEC shows fails to deliver dropped to 205,675 shares in the first half of July, the latest reporting period. This is down from a high of nearly 9.7 million just two weeks ago.


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So, were exchanges busy little bees cleaning up over 9 million shares worth of failed trades?

Maybe. Or maybe those shares went somewhere else…

The Depository Trust & Clearing Corporation (DTCC) settles most US securities transactions. It has an “obligation warehouse” where it puts failed trades.

Once those failed trades go to the obligation warehouse, they basically cease to exist.

We don’t know for sure if that’s what happened with these 9 million shares because the SEC and DTCC won’t tell us. But given the complexity of settling that many failed trades, I’m willing to bet the DTCC just wiped the slate clean.

So why does this matter?

Allowing huge numbers of trades to fail enables naked short selling. Naked short selling is selling short shares without borrowing them first.

It’s a powerful way to push down a stock’s price. After all, if you don’t have to find shares to borrow, you can short as many shares as you want!

No wonder Compliance Week calls it “one massive embezzlement scheme that for years has mostly gone ignored.”

Why would the DTCC do this? Perhaps because of how it’s funded.

The DTCC makes money by clearing trades and is owned by its users.

Hedge funds are some of its heaviest users.

No wonder the DTCC just sweeps trades under the rug instead of investigating what happened.

The SEC should investigate the pattern of massive fails to deliver in stocks like AMC. And the DTCC must ensure trades are actually completed.

Until then, we’ll continue to see these shenanigans in markets.

What do you think happened to these 9 million shares? Leave a comment at the bottom and let me know!

More on markets:

AMC Fails to Deliver Hit 9.7 Million

How DTCC Makes Fails to Deliver Disappear

Wall Street Banks Turn on Each Other as Federal Probe Looms

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Investors Pull $28 Billion from Hedge Funds

Note: This is not financial advice.

It’s not looking good for hedge funds. Investors pulled nearly $28 billion in the second quarter, disillusioned by poor performance.


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From a new Reuters report:

Amid high volatile [sic] across markets, investors redeemed $27.5 billion of hedge funds between April and June, bringing total withdraws in the first half of the year to $7.7 billion. No hedge fund category lured fresh money from investors in the second quarter.

Total assets ended the second quarter at $3.8 trillion, down roughly 5% from March, [data provider HFR] said, also battered by the funds performance. The fund weighted composite index is down 5.78% in the year, HFR said.

This has been a long time coming. Hedge funds have consistently underperformed the S&P 500.

From Axios:


Why, in the name of all that is holy, do people leave a dime in these things? You can get a Vanguard S&P 500 index fund for 0.04% a year.

I own a bunch of shares in that fund myself. It beats paying a hedge fund 2% of assets and 20% of gains for rotten performance!

One of the most astute investors in the market, the California Public Employees Retirement System (CalPERS), pulled every cent from hedge funds 8 years ago.

But the pension money of far too many hard working Americans is still in these putrid investments.

If the smartest guy at the table just got up and left, why is anyone sticking around?

Hedge funds have an aura about them. Geniuses in glass towers pulling the strings of markets.

But the emperor has no clothes. And to quote Gordon Gekko:

What do you think of hedge funds? Leave a comment at the bottom and let me know.

Have a great weekend everyone!

More on markets:

Wall Street Banks Turn on Each Other as Federal Probe Looms

AMC Fails to Deliver Hit 9.7 Million

Bill Ackman Loses $4.8 Billion

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Shorts Having Their Worst Month Since January 2021

Note: This is not financial advice.

Short sellers are having their worst month since January 2021. From a new Bloomberg report:

Somehow, the stock market’s worst first half in five decades has morphed into a slaughterhouse for short sellers.

More big lumps were felt Tuesday, when the S&P 500 rallied 2.8% and bearish traders suffered losses roughly double that.

About 98% of S&P 500 members advanced, the broadest rally since December 2018. The most-hated stocks jumped 5.5%, eventually delivering pain for bears who were forced to cover their positions to limit losses, going by a Goldman Sachs Group Inc. basket. With the most-shorted basket up 16% in July, the month is shaping up to be the worst for short sellers since the retail-driven squeeze in January 2021.


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Heavily shorted stocks have not run like this since meme stocks skyrocketed last January. Indeed, meme stocks are causing some of the biggest pain for shorts right now.

This tussle between the two sides of the investment world has continued this year, and fresh data from S3 Partners, LLC shows that between January and July 2022, AMC short sellers lost more than $1 billion in mark to market losses.

We’re in a bear market. This is not a great time to bet that stocks will go lower.

But hedge funds have piled in anyhow, betting against volatile stocks with cult followings. And again, they’ve taken major losses.

Perhaps some in the hedge fund world are beginning to learn their lesson. I had dinner with a bunch of hedge fund guys last month, and one said:

“Short selling is a great way to lose money.”

Now, short selling hedge funds may be forced to buy stock. They cannot fall too far behind their benchmarks.

Again from Bloomberg:

“Positioning had gotten very defensive as managers were anticipating additional downside. However, if the market rallies, then they are at risk of underperforming the broader market,” Freeman said. “Shorts are hurting their performance and they don’t have enough long exposure to keep up so they are forced to buy.”

Short sellers being forced to buy stocks to stem losses…this is the definition of a short squeeze.

I certainly don’t know if or when any stock will squeeze. But I do know I wouldn’t want to be on the other side of these trades.

What do you think is next for short sellers? Leave a comment at the bottom and let me know!

More on markets:

AMC Fails to Deliver Hit 9.7 Million

Wall Street Banks Turn on Each Other as Federal Probe Looms

New Law Could Put Big Short Sellers on the Endangered Species List

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AMC Fails to Deliver Hit 9.7 Million

In over a year reporting on this, I’ve never seen a number this big.

Fails to deliver in shares of AMC Entertainment Holdings Inc. hit nearly 9.7 million in June. The report, released today by the SEC, covers the second half of the month.


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The peak came on June 28, with 9,697,393 shares failing to clear. Fails to deliver settled at a still massive 1,907,897 at the end of the month.

So what are fails to deliver, anyway? A fail to deliver occurs when a trade is made but never completed.

Let’s say I agree to sell you 100 shares of AMC for $15.07 each. You want the shares and you’re happy with the price, so you agree.

Done deal right? Wrong.

I have to actually deliver the shares to you. When I fail to do that, that’s called a fail to deliver.

Fails to deliver often occur when traders engage in naked short selling. This generally illegal practice involves selling short shares without borrowing them first.

It’s a powerful way to push down a share’s price. If you can sell stock short without borrowing any, you can short any amount!

The market is flooded with sell orders and the share price dives. But the trades never get completed.

Instead, they show up on this report.

This is a truly incredible number of failed trades. Let’s zoom in on June 28th, the peak for fails to deliver.

Here’s how many fails to deliver some of the biggest stocks in the market had that day. This can give us an idea of what’s normal, even for far larger companies:

Alphabet Inc. (Google): 814

Apple Inc.: 28,223

Microsoft Corp.: 12,400

The biggest companies on earth have just a few trades not clearing. Meanwhile little old AMC has nearly 10 million.

Keep in mind, just because those fails to deliver dropped near the end of the month doesn’t mean the trades ever settled. The DTCC often puts trades that failed some time ago into an “obligation warehouse.”

After that, these failed trades disappear.

How can we have robust financial markets when the public doesn’t trust them? And how can the public trust markets when trades that affect share prices never actually happen?

It’s time for the SEC to investigate this issue vigorously.

Until then, we’ll just see more bogus trades pile up.

What do you think is causing these failed trades? Leave a comment at the bottom and let me know.

Have a great weekend everyone! 👋

More on markets:

Wall Street Banks Turn on Each Other as Federal Probe Looms

New Law Could Put Big Short Sellers on the Endangered Species List

Bill Ackman Loses $4.8 Billion

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Wall Street Banks Turn on Each Other as Federal Probe Looms

Morgan Stanley has been under federal investigation since February. Now, banks are turning on each other and unidentified sources are leaking information.

From a report that broke overnight in the Financial Times:

…according to reports, two of Morgan Stanley’s competitors, Credit Suisse and Goldman Sachs, have gone so far as to alert the US Attorney’s office and the Hong Kong regulator SFC, respectively, about “potential issues” around block trades executed by Morgan Stanley.


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The SEC and DOJ are investigating Morgan Stanley’s stock trading business.

Morgan frequently handles large “block trades” for institutional investors. There are allegations that it may have tipped off hedge funds to big sales that could move markets.

This would allow hedge funds to short the stock before the big block of shares is sold. Such a trade could offer quick, easy profits.

Why would Morgan do this? Because hedge funds are among the bank’s best clients.

Hedge funds have “prime brokerage” arrangements with big Wall Street banks like Morgan. Those trading accounts mean lots of juicy fees for the bank.

Let’s say you want to get or keep a lucrative customer. You might be tempted to give them valuable information, even if it’s illegal.

Nothing has been proven against Morgan yet. It’s possible that they were just conducting big trades in a straightforward and honest way.

But watching these big banks turn on each other gives me pause. I have rarely seen major banks reporting each other to regulators, as Goldman and Credit Suisse did with Morgan.

What’s more, Morgan has suspended some of its block trading staff. Why would they do that if they had done nothing wrong?

But it’s not just the big banks that are talking. Unidentified whistleblowers are also offering up information on possible wrongdoing at Morgan:

This noise goes well beyond the normal thrust-and-parry of a hyper-competitive business. Visceral grudges and grievances underlie these complaints; the Feds are on the case; unidentified people “close to the investigation” are briefing the media and naming names; and careers, livelihoods and reputations hang in the balance.

Perhaps it’s all a big misunderstanding. But my gut tells me where there’s smoke, there’s fire.

Do you think Morgan and other big banks help hedge funds front run trades? Leave a comment at the bottom and let me know.

More on markets:

AMC Fails to Deliver Pass 2.6 Million in New Report

New Law Could Put Big Short Sellers on the Endangered Species List

Bill Ackman Loses $4.8 Billion

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Hedge Fund Giant D1 Loses $7 Billion in 2022

Yet another massive crossover hedge fund is facing serious losses. New York-based D1 Capital Partners has lost approximately $7 billion this year.

From a Bloomberg report that broke yesterday:

…D1 has told investors who selected a 50-50 mix of public and private assets that the strategy lost 23% through May. The firm attributed most of the damage to public investments, which fell 44%. It marked down private assets only 8% — including 0.05% last month.

This 50-50 mix was the most common choice for D1 investors.

D1 still has about $17 billion in private equities and $7 billion in public stocks, implying losses of about $5.5 billion and $1.5 billion respectively. The firm’s total loss for 2022 alone appears to be about $7 billion.


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D1’s losses, large as they are, are probably severely understated.

It has marked down its private company stocks by only 8%. However, the Refinitiv Venture Capital Index is down 47% for the year.

If D1’s portfolio mirrors the broader markets, the real losses on this $17 billion pile of private company stocks could be billions more.

To make things even more interesting, D1 borrowed billions and poured it into illiquid private company shares. From Bloomberg:

Hedge funds were tallying gains on their hottest bet in years when Dan Sundheim reached an unusual deal with JPMorgan Chase & Co. to go even further.

With the bank’s help in August 2020, Sundheim’s D1 Capital Partners used its stakes in private companies as collateral for borrowing $2 billion that the firm could put toward yet more of those stakes, among other things. Last year that focus on private companies looked brilliant, as D1 updated its valuations and posted a whopping 70% gain in that part of its portfolio.

Now, the industry is bracing for a reckoning.

I invest in startups myself, but I would never borrow money to do so.

Borrowing money to invest in tech startups is completely reckless. These companies are volatile, speculative, and illiquid.

It’s telling that the best venture capital firms in the business, like Sequoia and Benchmark, don’t play these shell games to boost returns.

Losses for crossover hedge funds like D1 are so severe that some cannot even meet redemption requests from investors:

In the starkest sign yet of the strain on hedge funds, Tiger said last week that it couldn’t continue to fill redemptions the normal way because so much of its portfolio was invested in hard-to-sell stakes in private companies. As the firm saw losses and some redemptions in the first quarter, it exited 83 stocks. Now if investors want to pull money from Tiger’s hedge and long-only funds, a portion of the liquid assets will be sold, but private investments will be placed in a separate account to be cashed out later.

I expect a similar move at D1 soon.

This isn’t the first time D1 has gotten itself into trouble.

According to a report in The Wall Street Journal, it lost 30% of its public portfolio in January 2021. As meme stocks soared, D1 was badly burned by short positions.

The overall impression I have of D1 is of a reckless firm casting about in vain for a winning strategy. It rushed into venture capital with a risky and untested scheme, then lost a fortune betting against volatile meme stocks.

Were I an investor in the firm, I’d be asking for my money back. The question is: can you get it?

What do you think of D1’s losses? And who do you think is next?
Leave a comment at the bottom and let me know!

This is the last blog for this week. There will be no blog next week — I’m heading off for a vacation!

See you on Monday, June 20th. Have a great weekend! 👋

More on markets:

Hedge Fund Tiger Global Losing $136 Million a Day, Down 52%

$6B Hedge Fund Cut Off from Trading As Investigation Looms

Citadel Adds Millions to AMC Options Bet

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Jim Simons Buys AMC, Bets on Retail Trend

James Simons of Renaissance Technologies LLC is one of the greatest hedge fund managers in history. His fund’s annualized returns are an eye-popping 66% a year since 1988. Lately, he’s been loading up on shares in meme stock AMC Entertainment Holdings, Inc:

Renaissance Technologies, which held approximately 516,000 AMC shares by March this year, has more than tripled its stake in the firm. Cumulatively, RenTech now owns more than 1.8 million shares.

Despite the entrance of some hedge funds, about 80% of AMC’s stock is held by retail investors.

Simons seems acutely aware that individual traders are flooding the stock market and AMC shares in particular. Indeed, the number of retail brokerage accounts has exploded this year. From The Economist:

In 2019 around 59m Americans had accounts with one of seven of the largest brokers. This number has surged since to 95m, as 17m new accounts were opened in 2020 and 20m were set up this year.

Short squeeze or no, that’s a powerful source of demand that Simons and Renaissance can benefit from.

I don’t know whether the stock will go up, down, or in circles. But I do know that I wouldn’t want to bet against Jim Simons.

More on AMC and hedge funds:

HEDGE FUNDS HIT HARD BY MEME STOCK LOSSES, BADLY BEHIND S&P 500

NEW DATA SHOWS BIG DROP IN AMC FAILS TO DELIVER

HOW SHORT SELLERS COULD EVADE THE NEW NSCC RULES

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This Is Why Credit Suisse Keeps Getting Punched in the Face

Credit Suisse keeps getting smacked. Let’s review a few of their recent scandals:

  • $4.7 billion charge for losses in trades with Archegos Capital Management, the imploding hedge fund
  • $1.5 billion loss likely in dealings with collapsed supply chain finance company Greensill Capital, just three weeks prior
  • Bonus scandal: Former CEO Tidjane Thiam spied on employees and was forced out in February 2020

So they’ve been busy! Why is this one company stumbling from cliff to quagmire?

A major factor appears to be its bifurcated business, which focuses on both asset management and investment banking, but is too small to be a big player in either market. So, in order to win business from its bigger competitors, it has to offer better terms and do worse deals.

In reality, the asset-management unit, which brought in Greensill, and the investment bank, which handled Archegos, were too small to square off with Wall Street giants. The bank tried to make more money from fewer clients than rivals with larger balance sheets and ended up overlooking risks, the executives said.

There were clear warning signs on both Archegos and Greensill.

There were clear warning signs on both Archegos and Greensill. Archegos founder Bill Hwang had been sanctioned by the SEC for insider trading and banned from handling client money, which is the entire reason he started Archegos in the first place. It was a family office, managing just his own family’s money, due to that SEC ruling. Credit Suisse thought the risk was limited because he wasn’t managing client money, but failed to consider what would happen to its own funds!

Greensill too had come under scrutiny early enough to avert problems, but nothing was done:

In 2019, members of the credit-structuring team escalated its alerts about Greensill to the bank’s reputational-risk committee, the person familiar with the funds said. They had become concerned Greensill might be taking operational shortcuts.

Interestingly, the dynamic of Credit Suisse agreeing to anything in order to win business from larger competitors was played out by its client Greensill as well:

Mr. Greensill signed up some big, credit-rated companies. To wrest those customers from big banks, Greensill had to offer competitive terms that didn’t make it much money, according to people familiar with Greensill’s business.

Credit Suisse seems to lack any internal controls whatsoever, and I strongly recommend investors avoid

Credit Suisse seems to lack any internal controls whatsoever, and I strongly recommend investors avoid it. We can also gain a broader lesson from this fiasco. If you’re a smaller company trying to get into a market, don’t do disadvantageous deals just to get some market share. You expose yourself to too many problems that will blow you up before you ever get a chance to compete with the big boys.

For more on Archegos, check out these posts:

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Photo: “Punch to the Face” by Ninja M. is licensed under CC BY-NC-SA 2.0