Murray Huberfeld’s Hedge-Fund Firm Has History of Big Risks
The firm is known for an unusual investing style and superlative performance
The arrest of financier Murray Huberfeld focuses attention on a New York hedge-fund firm long known for an unusual investing style and superlative performance.
Mr. Huberfeld used to run the credit hedge fund at Platinum Partners and remains a part-owner of the firm, according to a criminal complaint filed by federal prosecutors.
Mr. Huberfeld was taken into custody Wednesday for his involvement in an alleged kickback scheme where the president of New York City’s correction officers’ union received $60,000 in exchange for a $20 million investment in Platinum. The union head, Norman Seabrook, expected to be paid more than $100,000 a year, the complaint alleged.
Mr. Seabrook, who also was arrested Wednesday for his alleged involvement in the scheme, denied taking money and his attorney said he would fight the charges. Mr. Huberfeld left the courthouse Wednesday without commenting.
Platinum’s two main funds, whose holdings include investments such as loans secured by life-insurance policies, haven’t reported a down year in their history, investor documents show. The fund formerly led by Mr. Huberfeld has reported only one down month in nine years, the documents show.
Mr. Huberfeld is acquainted through Jewish philanthropic circles with Jona Rechnitz, a Brooklyn real-estate investor who helped arrange the union’s investment in Platinum, The Wall Street Journal has reported. Mr. Rechnitz allegedly paid a kickback to Mr. Seabrook before accompanying him to a Torah dedication ceremony, the complaint said.
Mr. Rechnitz has pleaded guilty to conspiracy in the case and is cooperating with federal investigators.
Platinum’s leaders include several religious Jews and the firm’s founder, Mark Nordlicht, lives part-time in Israel, people familiar with the matter said. A secretary at the firm’s New York headquarters said he was out of the office Wednesday. Platinum, which has more than $1 billion under management, didn’t respond to requests for comment.
When the correction officers’ union made its initial investment in March 2014, Platinum the same day transferred $4.5 million from its bank account to pay others who had asked for money back, according to the complaint. Later that fall, Platinum was in an increasingly desperate position for the union’s money, and firm executives began writing each other emails about pressing Mr. Seabrook to increase the investment, the complaint alleged.
Platinum’s managing partner, who wasn’t named in the complaint, “stressed the importance of bringing in more COBA money because of $44 million in looming redemptions from [the Value Arbitrage Fund] at year end 2014,” according to the complaint.
The Value Arbitrage Fund, where prosecutors say the union’s money was invested, had hundreds of millions of dollars scattered among investments including oil platform operator Black Elk Energy, electric company Glacial Energy and Infinity Augmented Reality, which under a previous name specialized in insurance policies that allow investors to make money when a person dies sooner than expected, according to a 2014 valuation report reviewed by the Journal.
Black Elk was charged criminally in 2015 in connection with an off-coast explosion that left three workers dead, and filed for bankruptcy. Black Elk pleaded not guilty to the criminal charges, and litigation is ongoing. Glacial Energy also went bankrupt.
Platinum continued to pitch the union on further investments until May 2015, when prosecutors subpoenaed the union and the hedge fund for information on their relationship, the complaint said.
In December, Platinum blocked investors from immediately withdrawing some of their money, citing hard-to-sell assets, said people familiar with the firm.
After Hours Summary: Eat +7%, DTEA +4%. RH -17%, PSG -14%, TLRD -3% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: EAT +6.9%, DTEA +4.2%, ABM +3.4%
Companies trading higher in after hours in reaction to news: RADA +33.3% (deploys its radar systems along Israel's border with the Gaza strip), ACUR +19.4% (announces that topline results from cohort 2 of clinical study AP-LTX-400 confirmed that LTX-04P tablets successfully retarded the release of the active opioid ingredient when four, six and eight intact tablets were ingested), MSTX +13.9% (issued notice of allowance for its patent application entitled, 'Poloxamer Composition Free of Long Circulating Material and Methods for Production and Uses Thereof'), HMTV +7.1% (enters into agreement to repurchase 2.8 million shares of Hemisphere's Class A common stock at $10.50 per share for $29.4 million from Luxor Capital Group), WFT +2.3% (launches public offering of $1 bln aggregate principal amount of senior notes), MRTX +2.1% (Inside purchase)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: RH -16.9%, PSG -13.5%, TLRD -3.4%
Companies trading lower in after hours in reaction to news: INSM -18.4% (withdraws its MAA from the EMA for ARIKAYCE after May 2016 meeting w/ the CHMP), TMH -9.2% (After peers AMSG and EVHC rumored to be in merger talks), TESO -4.2% (announces public offering of 7 mln common shares), SCYX -2.2% (announces 'positive' results from its Phase 2 study of two dose regimens of oral SCY-078), AMSG -1.6% (reports of potential merger talks with Envision Healthcare Holdings (EVHC))
A Bearish George Soros Is Trading Again
Billionaire investor sees opportunities to profit from various economic and political issues afflicting the world
After a long hiatus, George Soros has returned to trading, lured by opportunities to profit from what he sees as coming economic troubles.
Worried about the outlook for the global economy and concerned that large market shifts may be at hand, the billionaire hedge-fund founder and philanthropist recently directed a series of big, bearish investments, according to people close to the matter.
Soros Fund Management LLC, which manages $30 billion for Mr. Soros and his family, sold stocks and bought gold and shares of gold miners, anticipating weakness in various markets. Investors often view gold as a haven during times of turmoil.
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The moves are a significant shift for Mr. Soros, who earned fame with a bet against the British pound in 1992, a trade that led to $1 billon of profits. In recent years, the 85-year-old billionaire has focused on public policy and philanthropy. He is also a large contributor to the super PAC backing presumptive Democratic nominee Hillary Clinton and has donated to other groups supporting Democrats.
Mr. Soros has always closely monitored his firm’s investments. In the past, some senior executives bristled at how he sometimes inserted himself into the firm’s operations, usually after the fund suffered losses, according to people familiar with the matter. But in recent years, he hasn’t done much investing of his own. That changed earlier this year when Mr. Soros began spending more time in the office directing trades. He has also been in more frequent contact with the executives, the people said.
In some ways, Mr. Soros is stepping into a void at his firm. Last year, Scott Bessent, who served as Soros’s top investor and has a background in macro investing, or anticipating macroeconomic moves around the globe, left the firm to start his own hedge fund. Soros has invested $2 billion with Mr. Bessent’s firm, Key Square Group.
Later in 2015, Mr. Soros tapped Ted Burdick as his chief investment officer. Mr. Burdick has a background in distressed debt, arbitrage and other types of trading, rather than macro investing, Mr. Soros’s lifelong specialty. That is why Mr. Soros felt comfortable stepping back in, the people said.
Mr. Soros’s recent hands-on approach reflects a gloomier outlook than many others on Wall Street. His worldview darkened over the past six months as economic and political issues in China, Europe and elsewhere have become more intractable, in his view. While the U.S. stock market has inched back toward record levels after troubles early this year and Chinese markets have stabilized, Mr. Soros remains skeptical of the Chinese economy, which is slowing.
The fallout from any unwinding of Chinese investments likely will have global implications, Mr. Soros said in an email.
“China continues to suffer from capital flight and has been depleting its foreign currency reserves while other Asian countries have been accumulating foreign currency,” Mr. Soros said. “China is facing internal conflict within its political leadership, and over the coming year this will complicate its ability to deal with financial issues.”
Mr. Soros worries that new troubles will arise in China partly because he said the nation doesn’t seem willing to embrace a transparent political system that he contends is necessary to enact lasting economic overhauls. Beijing has embarked on overhauls in the past year but has backtracked on some efforts amid turbulent markets.
Some investors are beginning to anticipate rising inflation amid recent wage gains in the U.S., but Mr. Soros said he is more concerned that continued weakness in China will exert deflationary pressure—a damaging spiral of falling wages and prices—on the U.S. and global economies.
Mr. Soros also argues that there remains a good chance the European Union will collapse under the weight of the migration crisis, continuing challenges in Greece and a potential exit by the United Kingdom from the EU.
“If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable,” he said. Still, Mr. Soros said recent strength in the British pound is a sign that a vote to exit the EU is less likely.
“I’m confident that as we get closer to the Brexit vote, the ‘remain’ camp is getting stronger,” Mr. Soros said. “Markets are not always right, but in this case I agree with them.”
Other big investors also have become concerned about markets. Last month, billionaire trader Stanley Druckenmiller warned that “the bull market is exhausting itself” and hedge-fund manager Leon Cooperman said “the bubble is in fixed income,” though he was sanguine on stocks.
Mr. Soros’s bearish investments have had mixed success. His firm bought over 19 million shares of Barrick Gold Corp. in the first quarter, according to securities filings, making it the firm’s largest stockholding at the end of the quarter. That position has gained more than $90 million since the end of the first quarter. Soros Fund Management also bought a million shares of miner Silver Wheaton Corp. in the first quarter, a position that has increased 28% so far in the second quarter.
Meanwhile, gold has climbed 19% this year.
But Mr. Soros also adopted bearish derivative positions that serve as wagers against U.S. stocks. It isn’t clear when those positions were placed and at what levels during the first quarter, but the S&P 500 index has climbed 3% since the beginning of the second period, suggesting Mr. Soros could be facing losses on some of those moves.
Overall, the Soros fund is up a bit this year, in line with most macro hedge funds, according to people close to the matter. The investments by the firm were previously disclosed in filings, but it wasn’t clear how involved Mr. Soros was in the decisions spurring the moves.
The last time Mr. Soros became closely involved in his firm’s trading: 2007, when he became worried about housing and placed bearish wagers over two years that netted more than $1 billion of gains.
Vallourec plans acquisitions, source says
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Vallourec Heat Exchanger Tubes will pursue acquisitions under its new owner, according to a source familiar with the situation.
The Boulogne-Billancourt, France-based business, acquired by American Industrial Acquisition Corporation (AIAC) on 29 April, has identified a list of global targets, but for now it’s focused on the initial post-closing integration, the source said.
The company has around EUR 100m (USD 113.6m) in annual revenue.
AIAC declined to comment and Vallourec did not respond to requests for comment. Société Générale advised on the transaction.
The source noted that there are synergies with several other companies owned by AIAC. Some of the companies in the portfolio are Vallourec customers, who purchase its titanium tubes for heat exchangers. AIAC's list of current portolio companies includes ACPI, AIP Aerospace, The Carlstar Group, Dynacast, Presstek and Goss, according to its website.
Vallourec is agnostic when it comes to potential geographic locations for targets, said the source. Targets can range from manufacturers of heat exchangers to raw titanium producers. The size of deals can be up to “a couple of hundred million euros,” the source added.
Proprietary Intelligence
Closing Market Summary: S&P 500 Posts Third Consecutive GainThe stock market endured a quiet midweek session, but the light participation did not stop the S&P 500 from rising 0.3% to register its third consecutive gain. The benchmark index extended its weekly advance to 1.0% with materials (+0.7%) and industrials (+0.7%) ending in the lead.
Market participants turned some lemons into lemonade today after the World Bank served up some lemons by lowering its 2016 global GDP growth forecast to 2.4% from 2.9% and slashing the U.S. growth outlook to 1.9% from 2.7%. The downgrade did not pressure stocks as investors interpreted the news as a sign that domestic and global monetary policy may remain highly accommodative for longer.
The S&P 500 marked its morning high within the first 30 minutes of action, but the index followed that move with a short-lived retreat to its flat line. Early weakness in sectors like consumer discretionary (+0.1%), financials (+0.2%), and technology (+0.4%) fostered that slip, but the S&P 500 proved resilient thanks to strength in heavily-weighted sectors like industrials (+0.7%) and health care (+0.5%). Furthermore, the technology sector overcame its early weakness thanks in part to Alphabet (GOOGL 742.93, +11.84). The stock climbed 1.6% after a few analysts made positive comments about the company.
To be fair, there were some weak spots among tech shares as the PHLX Semiconductor Index ended flat with Micron (MU 12.58, -0.42) falling 3.2% after announcing that its acquisition of Inotera, which was expected to complete in mid-July, will not be completed in the timeframe that was specified previously.
Elsewhere among cyclical sectors, the energy space (-0.2%) jumped out to an early lead, but could not hold its ground even though crude oil climbed 1.7% to $51.23/bbl, settling at a fresh 2016 high. The energy component posted a solid gain even though the latest weekly inventory report from the Department of Energy showed that gasoline inventories increased by 1.01 million barrels against expectations for a draw. As for crude inventories, they declined by 3.226 million barrels (consensus draw of 2.700 to 3.400 million barrels). Despite today's downtick, the energy sector is still up 4.0% for the week, which puts the group well ahead of the remaining nine sectors.
In other commodities, gold (+1.2% to $1262.20/ozt) and silver (+3.7% to $17.00/ozt) also rallied, benefiting from the fourth consecutive decline in the Dollar Index (93.61), which slipped 0.2% to levels from early May.
Treasuries climbed early on and maintained their gains into the close with the 10-yr yield slipping two basis points to 1.70%.
Today's participation was below average as fewer than 870 million shares changed hands at the NYSE floor.
Economic data was limited to the weekly MBA Mortgage Index and JOLTS:
- The weekly MBA Mortgage Index increased 9.3% to follow last week's 4.1% decline
- The Job Openings and Labor Turnover Survey for April pointed to an increase in openings to 5.788 million from last month's 5.757 million (revised from 5.670 million)
Tomorrow's data will feature weekly Initial Claims (consensus 265K) and April Wholesale Inventories (consensus 0.1%), which will be released at 8:30 ET and 10:00 ET, respectively.
- Russell 2000 +4.7% YTD
- S&P 500 +3.7% YTD
- Dow Jones Industrial Average +3.3% YTD
- Nasdaq Composite -0.7% YTD