{"id":6667,"date":"2007-10-12T00:00:00","date_gmt":"2007-10-12T00:00:00","guid":{"rendered":""},"modified":"-0001-11-30T00:00:00","modified_gmt":"-0001-11-30T04:00:00","slug":"cover-story","status":"publish","type":"post","link":"https:\/\/hedgeco.net\/news\/10\/2007\/cover-story.html","title":{"rendered":"BusinessWeek Cover Story"},"content":{"rendered":"<p>  BusinessWeek &#8211; Ralph R. Cioffi seemed as cool and confident as ever. The market for subprime mortgages was crumbling, but the 51-year-old manager of two Bear Stearns ( BSC ) hedge funds offered  nothing but reassurances to investors. &#8220;We&#8217;re going to make money on this,&#8221; he promised his wealthy patrons in February. &#8220;We don&#8217;t believe what the markets are saying.&#8221;<\/p>\n<p>  He should have known otherwise. The hedge funds were built so they were virtually guaranteed to implode if market conditions turned south, according to a <em>BusinessWeek<\/em> analysis of  confidential financial statements for both funds and interviews with forensic accounting experts, traders, and analysts.<\/p>\n<p>  The funds had another potentially fatal flaw: an unusual arrangement with Barclays (<a href=\"javascript:%20void%20showTicker('BCS')\">BCS<\/a> ) that gave the giant British bank the power to yank the  plug&#8211;a deal that ran counter to the interests of other investors, many of whom didn&#8217;t even know about it.<\/p>\n<p>  The documents also cast serious doubt on the funds&#8217; supposedly strong performance before their July bankruptcies. More than 60% of their net worth was tied up in exotic securities whose reported  value was estimated by Cioffi&#8217;s own team&#8211;something the funds&#8217; auditor, Deloitte &amp; Touche, warned investors of in its 2006 report, released in May, 2007. What emerges from the records is a  portrait of a cash-starved portfolio piled high with debt and managers all too eager to add to the heap.<\/p>\n<p>  The revelations shed new light on the murky dealings inside the booming $1.3 trillion hedge fund industry, which now accounts for up to a third of all daily trading on Wall Street. They seem to  underscore critics&#8217; biggest complaint: that many hedge funds use astonishing amounts of leverage, or borrowed money, in sometimes reckless ways.<\/p>\n<p>  The risks of &#8220;fair value&#8221; accounting, the practice that allows money managers to estimate the values of securities for which they can&#8217;t find true market prices, are thrown into sharper focus as  well. Coming soon, for better or worse: louder calls in Washington for more oversight of the largely unregulated hedge fund industry.<\/p>\n<p>  <a href=\"http:\/\/www.businessweek.com\/magazine\/content\/07_43\/b4055001.htm\"><strong>Read Complete Article<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>BusinessWeek &#8211; Ralph R. Cioffi seemed as cool and confident as ever. The market for subprime mortgages was crumbling, but the 51-year-old manager of two Bear Stearns ( BSC ) hedge funds offered nothing but reassurances to investors. &#8220;We&#8217;re going [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-6667","post","type-post","status-publish","format-standard","hentry","category-syndicated"],"_links":{"self":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/6667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=6667"}],"version-history":[{"count":0,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/6667\/revisions"}],"wp:attachment":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=6667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=6667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=6667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}