Nov

According to the article entitled “Damaged Goods ” in the November 2, 2005 edition of Fortune Magazine written by Marcia Vickers. there may be another brewing hedge fund scandal involving Israel A. Englander. a Wall Street hedge fund legend commonly referred to with the nickname of Izzy Englander. and his hedge fund Millennium Partners. According to the article, “FORTUNE has learned from people close to the case that Englander is in settlement talks with the SEC and New York attorney general Eliot Spitzer that could cost his firm upward of $100 million . These sources also say the settlement goes far beyond a lone trader behaving badly. This time the entire firm may be accused of securities fraud, and Englander himself could be charged with failure to supervise his brokers. ‘There was systematic, organized, pervasive wrongdoing on a huge scale at Millennium,’ claims one of the sources. Millennium spokesman Thomas Daly counters: ‘There was no fraud whatsoever.’

“The government’s accusations have to do with the way Millennium traded mutual fund shares between 2000 and 2003. At one point a huge swath of the fund was allegedly dedicated to late-trading and market-timing mutual funds. In all, the trading is said to have netted the firm hundreds of millions of dollars. Englander and his generals exhibited a kind of giddy enthusiasm, says an investigator, almost as if they were little kids who’d discovered a hidden stash of candy. They couldn’t get enough of the strategy.

“Millennium is not the first hedge fund to run into trouble in recent years. But the scandals that have generated so much attention of late—Bayou Management, Wood River Partners, Canary Capital—have been at much smaller firms. Millennium is a different breed: a Wal-Mart compared with those tiny 7-Elevens. It is, in fact, the biggest, most visible hedge fund to be embroiled in a scandal since the 1998 meltdown of Long-Term Capital Management. But LTCM’s troubles began with a strategy that backfired, not with accusations of securities fraud. (And by the way, Millennium invested with Wood River; Canary was a Millennium investor.)

“Since Millennium is such a big fish, a settlement could well be a major turning point in the battle to regulate hedge funds. ‘Hedge funds have to now accept much more institutional responsibility, says John Trammell, chief executive officer at Investor Select Advisors, which invests hundreds of millions with hedge funds. It’s like life: They’re finally growing up. And some kids you thought were good might turn out to be pretty bad.’”