Week in Review
April 9, 2007
Kansas Denies Ex-Waddell Chief $1.2M Tax Refund
A judge has ruled that Keith Tucker, the former chief executive officer of Waddell & Reed, was, indeed, a resident of Kansas City between 1999 and 2003, not Texas, and, Kansas, that he must pay $1.2 million in taxes, penalties and interest. Jackson County Circuit Court Judge John M. Torrence made the ruling, The Kansas City Star reports.
Kansas City charges residents a 1% earnings tax. "This is good for the city," said City Manager Warne Cauthen. "The decision is a complete victory for the Revenue Division," said City Attorney Galen Beaufort.
Meanwhile, Tucker still has an unresolved matter with the Internal Revenue Service, which claims that he and his wife improperly deducted $39.2 million from their income and owe the government $22 million in taxes and penalties.
San Diego Pension Fund Suing Amaranth Advisors
Amaranth Advisors, the largest hedge fund in history to collapse, is facing its first investor lawsuit, from the San Diego County Employees Retirement Association (SDCERA), Reuters reports.
The lawsuit claims that Amaranth's investing strategy violated its contract that stipulated its portfolio would be diversified and adhere to proper risk controls.
The lawsuit is no surprise to hedge fund experts who have long expected some legal action to be taken against the defunct hedge fund. Amaranth wrote a letter to investors in February proposing speedier redemptions of its remaining assets to investors who agreed not to sue.
Amaranth criticized the litigation, stating it would increase its legal costs and thereby reduce recovery for investors as it winds down its assets and returns cash to investors. The hedge fund stated it has hired top attorneys David Boies of Boies, Schiller & Flexner and Dan Webb of Winston & Strawn to defend against the litigation.
"Everybody except SDCERA seems to get the point that there is nothing to be gained from litigation," said Boies in a statement. "We are disappointed that SDCERA has chosen to undertake meritless litigation that will inevitably reduce its own recovery and potentially the recovery of other investors."
"Amaranth told us that a team of highly experienced professionals would carefully manage our pension funds," said SDCERA Chairman David Myers in a statement. "Instead, they turned our money over to [trader] Brian Hunter, who in my opinion was a rookie trader."
China's Forex Regulator Warns of Online Fraud
A number of illegal funds that purport to deliver high returns in foreign investments are soliciting assets from Chinese investors, China Daily reports. One such fund, the Switzerland Mutual Fund, promises a 300% return within 450 days and has raised $12.9 million since it launched late last year.
As a result, China's foreign exchange regulator, the State Administration of Foreign Exchange, is warning investors against the scams.
The funds operate like pyramid schemes, the regulator said, and once money stops flowing into the funds, the remaining investors will be badly hurt.
Alliance Ordered to Pay Former Salesman $3.1M
An NASD arbitration panel has ordered AllianceBernstein to pay a former top salesman $3.1 million, upholding his lawsuit against the firm for having been fired for his part in the firm's mutual fund timing scandal, The Wall Street Journal reports. Charles Schaffran, the salesman, said the company defamed him.
The reward includes $2.7 million for defamation and $400,000 in back pay, and is one of the largest NASD has ever granted.
Schaffran said he had raised questions about market timing by hedge fund clients to upper management, which sanctioned the activity. Schaffran also argued that he didn't engage in the "conflicts of interest" that Alliance had charged him with since his only clients were hedge funds, and not mutual fund shareholders.
"The arbitrators' verdict confirms that, contrary to Alliance's defamatory public pronouncements, I never had a conflict of interest and at all times acted in accordance with my obligations to Alliance investors," Schaffran said.
No More Pension Plan for Fidelity Investments
Fidelity Investments is going to close down its pension plan and enhance its 401(k) by raising company matches from 5% to 7%, the Associated Press reports. The company is also going to offer employees a health-savings credit they can use in retirement. Those who have existing pension benefits will be given the choice of rolling them into a profit-sharing plan or accepting them as annuities at retirement.
The company decided to offer the healthcare benefit after an internal survey showed that 71% were concerned about medical costs in retirement.
Today, only a third of Fortune 100 companies still have pensions, down from 50% in 2002 and 89% in 1985, according to Watson Wyatt Worldwide.
Hedge Funds Assets Rise 30% to $2T Worldwide
Although hedge funds didn't deliver stellar returns in 2006, many of them trailing major stock indexes, their assets rose 30% to $2 trillion worldwide, Bloomberg reports, citing a report from HedgeFund Intelligence. Last year, the average hedge fund returned 13%, compared to the S&P 500 Index's 16% return and the MSCI World Index's 21% gain.