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Rating:WSJ Has the Scoop on Fund Pumping Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, December 6, 2012

WSJ Has the Scoop on Fund Pumping

News summary by MFWire's editors

Fund managers live and die on results. The Wall Street Journal has an article today with evidence showing some of them could be juicing those very results.

The story uses the case of Iridex Corp., a company that makes lasers to treat vision problems. On June 29 — the last day of the quarter — Iridex's stock exploded in value with five minutes left in the market day, jumping from $3.43 to $4.17 in a matter of minutes.

Scott Shuda, a managing director at BlueLine Partners — Iridex's largest investor with 29 percent of the company stock— told the Journal he saw that movement and knew someone was intentionally making the stock go up in value.

Here's how it works: money managers wait until they end of the quarter, than buy a lot of a stock. This boosts its value right as the reports on their fund are put out. Then, they sell their shares of the stock, bringing the value back down but not changing the report investors see about the fund.

Shuda told the Journal his firm didn't trade Iridex that day. Other firms with large holdings include hedge fund Paragon Associates with 8 percent, Kennedy Capital Management with 8 percent, and Milwaukee-based mutual fund shop Heartland Advisors, with 5.5 percent.

All of these shops denied being behind the sales, and the Journal found no SEC filings contradicting that. 

Edited by: Ben Geier


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