Hedge Fund regulation part 2
For all the hand wringing in Canada about regulating hedge funds (the U.S.A. is going in the other direction) in the wake of the Portus mis-adventure (as raised here last week), you have to wonder why there hasn’t been more consistent attention brought to bear on the individuals who write and publish “investment letters” that promote certain stocks.
Just yesterday, for example, a Tier 2 TSX Venture-listed company named Ditem Exploration (DIT-TSXV) saw their shares rally about 100% on record volume. Why? It couldn’t have been the company’s press release announcing that they had arranged for some further surveying of their uranium properties. The price of the metal did move in a bullish fashion, up US$10/lb to US$85. But from all anyone can gather, a newsletter geared for the retail investor is rumoured to be planning to highlight the company’s shares and, volia, the stock doubled on wild volume; or at least that’s the best guess.
And while Jim Dines might be the best stock picker in the world, he serves as a good example of how powerful a newsletter can be; even the rumour that a newsletter is looking at a public company seems enough to move stocks. Whether or not his newsletter did or didn’t publish on DIT is only known to his subscribers, but the evidence of market-moving power is there in spades.
For all the benefits that further transparency might bring to the sale of hedge funds by unregistered would-be Canadian portfolio managers, you’ll spend a long time scouring the websites of stock-pickers like Mr. Dines in search of a section about “risk”, or “regulation”, “we are already long this stock before we recommended it to you” or “check with your own financial advisor”.
They do use the word “clairvoyant”, however.
But the front page of the website makes it clear that this fellow is offering “advice and information for traders and investors”. Don’t you have to be licenced to give individuals investment advice for a fee?
What’s the point of putting a compliance officer into the office of a $30 billion hedge fund if retail investors continue to get exposed to this kind of speculative stock advice? And if Brian Costello needed to be pursued, why tackle pension fund-backed hedge funds and not the printer’s devils at the newsletters?