A few years back, a not-so-little hedge fund called Visium Asset Management made what proved to be a rather large a mistake. It told trader
Jason Thorell that it thought he was getting paid exactly what he was worth, his own contrary opinions on the matter notwithstanding. This was not a smart thing to do to a man whose job was soliciting overly generous valuations from
overly solicitous prime brokers, and who might just decide that the best way to get paid was to
turn over 200 hours of conversations about the above practices with co-workers to the authorities. Because once the authorities start looking into a little mismarking among friends, they tend to think, “
While we’re here, let’s take a look around,” and then find that there
might have been a little bit of inside dirt circulating, which is music to the ears of the U.S. Attorney in your jurisdiction, which because you’re a hedge fund is Manhattan, whose U.S. Attorney just happens to be on a crusade to save his legacy by
proving that insider trading still exists, and thinks your firm
might be the perfect object lesson thereof. Next thing you know Visium Asset Management is
out of the business of managing hedge funds—but it is not out of business, full stop. Because after the aforementioned nightmare comes to an end, you get to spend two years negotiating with the SEC about
how much a defunct hedge fund should have to pay for all of the above. Only then can you finally, mercifully and actually go out of business…