Millennium seeks aid from regulatory insiders

BOSTON (Reuters) - Millennium Management has appointed former FBI Director Louis Freeh and former SEC Chairman Harvey Pitt to a newly formed board to advise the big hedge fund on regulatory matters.

The move comes as legislators in the United States and elsewhere consider tightening rules governing hedge funds and several funds remain under investigation for insider trading.

The $7.8 billion fund firm’s founder, Israel Englander, wrote clients on April 30 that Millennium formed an independent Regulatory and Compliance Advisory Council which will meet regularly to help management consider changes in laws and regulations that might affect the way it operates.

Freeh and Pitt plus four other prominent regulatory and capital markets experts joined the new group, according to the letter which was obtained by Reuters.

“Our expectation is that the council will help us see the forest, and not just the trees,” Englander told clients.

The letter also told investors that the fund had gained 3.97 percent in the first three months of the year.

A spokesman for the firm declined to comment.

For Millennium the move marks yet another investor-friendly step designed to peel away some of the secrecy that has shrouded how the firm has made money for two decades.

Last year, the fund returned 17.4 percent and since its inception in 1990, investors earned an average 15.7 percent every year.

Clients are already receiving copies of the firm’s audited financial statements and reports detailing its trading exposures while the normally press-shy Englander delivered the keynote address at a conference last year and is meeting more regularly with would-be investors.


The step is also part of a bigger trend where hedge fund managers are trying to recast their images at a time angry lawmakers are threatening new restrictions that could crimp the loosely regulated $1.6 trillion industry’s many freedoms.

Now that teachers, firefighters and plumbers have indirectly joined the super wealthy as hedge fund industry investors, legislators and lobbyists are becoming much more worried about the industry’s notorious secrecy and long lock-up periods where investors often have to wait months or even years to get their money out.

Hedge fund managers complain they are becoming scapegoats -- blamed for everything from last week’s sudden market collapse, to the crumbling euro and Greece’s financial ills.

Currently only a small number of hedge funds, including $5.5 billion Pershing Square Capital Management, have advisory boards like the one Millennium assembled. But lawyers said that it may become more popular in the future to give big institutional investors like pension funds a sense of comfort.

Millennium’s move to appoint the board also came as regulators and prosecutors are taking a much closer look at exactly how hedge funds make money. Not surprisingly, the closer scrutiny comes less than half a year after prominent hedge fund manager Raj Rajaratnam became the central figure in the industry’s biggest-ever insider trading case which led to charges against 21 people.


To assemble its board, New York-based Millennium looked for and found five men and one woman who have deep insight into the country’s top financial regulator, capital markets and corporate governance.

In addition to Freeh and Pitt, former SEC Commissioners Aulana Peters and Joseph Grundfest, now a Stanford Law School professor, are members.

Indeed Pitt, who runs consulting firm Kalorama Partners LLC in Washington, had led a campaign nearly eight years ago to scrutinize hedge funds more closely. He left the agency in 2002 and soon the push to put funds on a tighter leash lost steam.

Another member is Stanley Sporkin, who retired as a federal judge in 2000 and before that headed the SEC’s Division of Enforcement for a time and was the Central Intelligence Agency’s top lawyer.

Peter Clapman, who had been chief investment counsel at asset management firm TIAA-CREF, rounds out the group.

Englander said that he expects to add one or two members to the group but wanted the members to begin work now because the group “has gotten to critical mass.”

While Englander said his management team in New York is completely informed on all regulatory issues, he thought it would make sense to receive guidance from people who have years of experience but are not involved in the fund’s day to day operations.

The board members will be paid an unspecified amount for their services.

Reporting by Svea Herbst-Bayliss, editing by Bernard Orr and Matthew Lewis