Dec. 3, 2008

Lehman Debtors Propose Procedures to Unlock Value in “In The Money” Derivative Contracts

Bankruptcy Court Judge James Peck will preside over a hearing in Manhattan today, December 3, in the consolidated bankruptcy cases of Lehman Brothers Holdings Inc. and certain of its subsidiaries (collectively, Debtors), concerning procedures proposed by the Debtors for the settlement or assumption and assignment of derivatives contracts that are, from the Debtors’ perspective, in-the-money (that is, contracts on which the Debtors are owed money) and that have not been terminated by the relevant counterparties.  We explain the operation of and law relevant to derivatives contracts in this context, and the mechanics of the proposed procedures.

Regulatory Uncertainty and Market Instability Put Short Selling Under Fire

An uncertain regulatory environment and unstable market conditions are seriously curtailing the ability of hedge fund managers to successfully pursue short selling strategies – a key risk-mitigation and alpha-generating tool – putting additional pressure on an industry already plagued by mounting losses and significant redemptions.  In this first installment in a two-part series, we provide a comprehensive overview of recent regulatory developments relating to short selling.

Be Prepared: How Hedge Fund Managers Can Get Ready to Testify Before Congress

With what we anticipate will be increasing frequency, hedge fund managers are finding themselves summoned to that most public of forums – the witness table at Congressional hearings – the most salient example being the recent hearings conducted by the House Committee on Oversight and Government Reform at which five prominent hedge fund managers testified under oath.  (Those hearings were covered in detail in the November 25, 2008 issue of the Hedge Fund Law Report.)  In this environment, the question is no longer how to stay off the stage, but what to do and say when you’re on it – and, even more important, how to prepare for it.  We detail specific strategies that hedge fund managers can use to prepare for Congressional testimony.

SEC Cuts Back on Anti-Cherry Picking Rules

On November 7, 2008, the SEC’s Division of Investment Management issued a no-action letter to The TCW Group Inc. indicating that the division will not recommend enforcement action if wholly-owned investment advisory subsidiaries of TCW distribute marketing materials to prospective and current clients where the materials highlight certain portfolio investments and contain other analytical information, so long as TCW complies with conditions designed to prevent subjectivity and misleading cherry-picking of results.  We explain how this no-action letter may expand the range of investment-specific information that hedge fund managers may communicate to investors.

New York Trial Court Permits Amaranth Lawsuit Against J.P. Morgan’s Prime Brokerage Unit To Proceed

On October 28, 2008, the Honorable Richard B. Lowe, III, of the New York State Supreme Court, ruled that collapsed hedge fund Amaranth LLC could proceed in its lawsuit against its prime broker, J.P. Morgan Chase & Co. and its subsidiaries.  We explain the decision in detail.