The Federal Energy Regulatory Commission fined JPMorgan $410mm today and you can see why JPMorgan would be okay with that. The details are in this marvelously complicated FERC order and settlement agreement,¹ but the outlines of the story are simple. FERC built a terrible box, and the box had some buttons that were labeled “push here for money,” and JPMorgan pushed them and got money. You can understand the category mistake very easily:

• FERC thought the box was for generating electricity at market prices but with a robust backup system to ensure reliable supply, and
• JPMorgan thought the box was for dispensing money.

It’s a perfectly understandable mistake to make if you have spent your career building and operating boxes that dispense money, as JPMorgan global commodities head Blythe Masters has. What else could the box be for?

I suppose we should talk about how the box worked, because this is that sort of blog.

Read more on Dealbreaker.

One hopes “black edge” wasn’t on the list. Anyway today’s indictment against SAC, for wire fraud and securities fraud, is a hoot:

For example, on or about July 29, 2009, a recently hired SAC PM (the “New PM”) sent an instant message to [Steve Cohen] and relayed that, due to some “recent research,” the New PM planned to short Nokia when he started work 10 days later. The New PM apologized for being “cryptic” but noted that the head of SAC compliance “was giving me Rules 101 yesterday – so I won’t be saying much[.] [T]oo scary.”

Possibly the weirdest part here is that new hires got compliance lectures two weeks before they showed up at the firm? But maybe not; the DOJ takes a pretty dim view of SAC’s hiring process generally, and if you believe the DOJ that SAC’s main hiring criterion was “is good at insider trading” then you could imagine the need for a little pre-start-date warning about email etiquette:

Read more on Dealbreaker.

Time was, bankers ingratiated themselves to clients in an attempt to win their business by taking them out for steak dinners, offering them prime seats at sporting events, and showering them with coke and prostitutes. According to a report by Bloomberg today, though, dangling a chunk of meat in a hedge fund manager’s face no longer holds the appeal it once did. People are a lot more health conscious than in the past, they only have limited free time outside of work, and quite honestly? If they have to sit through another agonizing dinner in Midtown that involves the sort of secondhand embarrassment that can only come from you insisting on addressing the waitresses as “Sweet cheeks,” “Sugar tits,” and “My little piece of Kobe beef,” they might just cut their ear off. What’s a salesperson tasked with providing bonding experiences to do?

Gaining popularity, apparently, is inviting hedge fund managers and mutual fund traders to spend an hour or so working out together. The allure is in the fact that it’s a relatively quick commitment, it can be done in the morning, no one feels fat afterwards, and, of course, the enforced silence (other than motivational shouts and grunts).

Read more on Dealbreaker.

I guess this Bloomberg Businessweek cover story is very real and we have to talk about it. So, here you go, tell us in the comments how you feel about how Businessweek feels about your manhood. Be sure to reference the fact that the title of the story is “Hedge Funds Are for Suckers.” My own reaction seems best suited for a footnote.¹

The story seems weirdly timed to alienate hedge funds just as they’re being allowed to start buying advertising, though I guess that doesn’t matter because they were all going to spend 100% of their advertising budget on Dealbreaker and give Businessweek a miss anyway. And it tells a pretty familiar story: once, hedge funds were small smart places that produced steady uncorrelated returns with significant positive alpha. Now, every idiot who wants to tweet lies about hurricanes or be an asshole on online dating sites is a “hedge fund manager,” and a lot of them don’t manage very well:

Read more on Dealbreaker.

You can think of a margin loan as being like an option on the underlying security: if I lend you $50 (nonrecourse) against a $100 share of stock, and tomorrow the stock is worth $45, then you’ve lost $50 and I’ve lost $5, same as if I wrote you a $50 strike put option on the stock.¹ This isn’t quite right – margin calls, etc. – but what it lacks in precision it gains in tax efficiency:

James H. Simons, who became a billionaire when he turned his extraordinary mathematical ability from defense work to investing, has deployed an unusual strategy at Renaissance Technologies LLC to skirt hundreds of millions of dollars in taxes for himself and other investors, said people with knowledge of the matter.

The Internal Revenue Service is challenging the technique, which it called “particularly aggressive,” without identifying the hedge fund in the dispute. … Renaissance’s strategy involved buying an instrument called a “basket option contract,” from banks including Barclays, the people said.

That’s from today’s wonderful Bloomberg article about the IRS’s investigation. Here’s the IRS memo about the trade. Here’s the trade.² Actually wait: here’s the trade, twice. You can just read down the left side if you enjoy getting mad at evil tax-dodging hedge funds, or just read down the right side if you don’t want to believe that Jim Simons could ever get up to no good:

Read more on Dealbreaker.

This lawsuit is mostly about the (alleged!) unapologetic Antisemitism of Knight Capital managing director Brendan Joseph McCarthy, which former employee and plaintiff Robert Morris Milloul claims caused him and others to lose their jobs in the algorithmic trading unit of the firm; we don’t need to summarize the allegations but we did think it was important to highlight the motivational technique he was said to use around the office.

Read more on Dealbreaker.

Have you long wished for a place in Midtown where you could order a drink and have it served to you by someone who didn’t look like they fell out of the ugly tree and hit every branch on the way down? Someone you could actually see propositioning to take into the back room and giving her the worst two minutes of her life? Well today’s your lucky day! SkyBridge founder Anthony “The Mooch” Scaramucci has come up with his best investment idea yet, and if you can give us thirty seconds of your time, we’ll show you why the chance to get in at the ground floor of the “The Hunt and Fish Club” is an opportunity you don’t want to let pass you by.

Read more on Dealbreaker.

He actually made seven of them, to be exact, and while we can’t say for sure he regrets them all (some evidence suggests he might be the type of person who’d say dating a couple strippers simultaneously was “worth it”), it’s possible he regrets *some* and certainly regrets their cumulative impact. They include:

Read more on Dealbreaker.

You can hear the audio here (Bruce Wayne comes on the line at 35:50), and for those who like to follow along, a transcript:

Read more on Dealbreaker.

Henry Kravis patiently waiting for some Chipotle in midtown this afternoon. It appears that someone has had it with assistants who apparently need “half black, half pinto” tattooed to their wrist.

Read more on Dealbreaker.