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September 18, 2007
Hedge Funds Finding Alpha in the Courtroom
Not a big surprise that some hedge funds are becoming increasingly aggressive about putting observers into courtrooms, but still interesting:Litigators have often been called in to evaluate the investment impact of a patent conflict during the course of due diligence for an acquisition. Now hedge funds are moving earlier and faster. They are putting lawyers in the courtroom to report on the outcome of a trial as it is happening. "I hear these stories of Markman hearings; the minute the ruling comes down, 15 guys jump up and run out of the room," says Ron Laurie, of Inflexion Point Strategy, an IP investment bank. "These guys are texting the hedge fund, so they can short the stock." By the time the market-moving information hits financial news services like Bloomberg, the investors get to take their gains.Mind you, it isn't easy being a hedge fund mole in the courtroom:
...Despite their desire for a low profile, hedge fund moles aren't invisible. Like smokers forced onto the street by New York City's smoking ban, they have to step outside the courtroom to make their reports. Most U.S. courts don't allow cell phones or BlackBerrys.[via IPWW]
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I remember hearing about this a while ago, before May 2007 even. I've also heard such stories as HFs extending loans to litigants on the presumption that the case was a winner, and getting paid back (with interest) from the judgment. I didn't follow the particular case, but there does seem to be a noticeable uptick in this kind of thing.