IS THIS LEGAL ? Arranged trades after hours with a friend at a hedge fund

Direct your question to Martha Stewart.

Edit: She made that little mistake but they punished her badly.

Quote from joelgoodsen:

I would like to make the extra money, but I do not want to anything that I could get in trouble for.
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Sounds like conspiracy to commit securities fraud

there's a couple of chapters on prearranged trading from the exchange act of 1934 that you might want to read...
 
Don't do it. You will almost certainly get caught. Only way to do something like that is to do it on the floor of an exchange, offering it up to the crowd first.

Traveler
 
Quote from Traveler:

... Only way to do something like that is to do it on the floor of an exchange, offering it up to the crowd first.

Traveler
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Well, just to add a contrary opinion, offering "to the crowd first" is not the only way to do things. Hedge funds tap dark pools for placing large orders, often outside of the current market price, because everyone knows that such large blocks would affect the market price. Considering all the news of calls for redemptions at hedge funds, I wouldn't be surprised if this "friend's" fund is having to dump massive amounts of shares in order to meet those redemptions. Maybe instead of selling all the shares to strangers in a dark pool, this friend is proposing to sell some to Mr. Risky Biz so he can take advantage of the fire-sell prices instead of some stranger. As long as they're unloading shares to others in a dark pool at the same price, the sell can be considered fair-valued.

The kickback is where things get fishy, but just about every brokerage under the sun takes "kickbacks" in the form of "order flow payments" and the SEC is OK with it. If the fund really is ok with it, maybe you can get a written statement from them... I doubt it, though.

Not as unlikely of a story as some are making it out to be. Definitely entertaining :) Really, a securities lawyer is probably a better person to ask than some online forum members. I can see you before a judge "But, but some guy on EliteTrader thought it was a good idea." LOL :p

But, if the SEC frequents these boards, maybe it's not such a bad place to be asking this question after all...
Any SEC guys have an opinion to offer up? :) :)
 
Quote from joelgoodsen:

I have a friend working at a hedge fund.

He has asked me to make a trade with him after hours wherein he sells some stocks to me for much less than market price.
He will be "losing" in effect more than 1 point per share and I will be able to sell it immediately for a 1 point profit.

He will be selling these stocks from his hedge fund account (he works for the hedge fund). I don't quite understand how this will work out for the hedge fund, but he says that they have some complicated formulas that will make it better for them if they actually lose money on occasion.
I know it will work for him since he has asked me to send him half of the profit. He only gets 20% of what profit he makes for the hedge fund trading their money. So if he loses $1000 to me then he only loses $200 in pay and I will reimburse him $500 so he will end up ahead and of course so will I.

The question is - "Is this Legal ?"

He insists that his hedge fund is OK with it, but I have my doubts- I just don't see how they can be better off losing $1000 - it is like losing $1000 and saying it is OK because it is a tax writeoff but in the end it is better to just keep the $1000 even if you pay taxes on it - right ?


So please advise- I would like to make the extra money, but I do not want to anything that I could get in trouble for.
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classic ET. Please let us know where us rich investors can invest we can always use the tax write off. :eek:
 
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